Well Oil Beef Hooked

When people criticise labour markets as being skewed and requiring regulation, they tend to mean that the employer has far greater bargaining power than the employee. It seems obvious that the corporation has the upper hand over the individual, so we need unions and/or employment laws to protect the latter against the former. So it is interesting to read this recent(-ish) article from The Economist regarding the situation those all-powerful oil firms face in Alberta, Canada, and the problems they have in recruiting staff.

It seems that “drug abuse in the northern oil patch is more than four times the provincial average”, and that

about 40% of the workers test positive for cocaine or marijuana in job screening or post-accident tests. Companies worry about lower productivity (due to absenteeism or sloppy work) caused by drug abuse, and the safety risk. On drilling rigs and in oil-sands mines a small mistake can easily result in injury or death. Some experts believe Alberta’s rising job-site accident rate (up 17% in two years to 180,000 cases in 2006) is partly due to drug abuse.

Most of the biggest companies conduct drug tests before hiring, as well as after any accident. But many workers have learned to get around these with synthetic-urine kits from drug-paraphernalia shops. Many smaller contractors prefer to turn a blind eye for fear of losing workers in such a tight labour market. Lawrence Derry, an addiction expert at the University of Alberta, says that one contractor told him that “if I brought in drug testing, I’d lose half my crew—they’d go right over to my competitor.”

So there we go; reports of the oil companies’ evil omnipotence have been overstated, the employment market is not as simply one-sided as has been assumed, and we can all calm down a bit. Do we really need unions and protection for employees after all if they wield such power?

But doesn’t this example make the same basic point; that however much we may wish it, the market does not provide solutions to all our problems? Sometimes it will work perfectly, but at other times employees are at a disadvantage; sometimes, as in this case, it is the employer who is on the wrong end of an asymmetrical relationship.

It is probably fair to say that no employer in Alberta wants drugged up workers on its books; that some still put up with them is because they feel the market leaves them with no choice. This recalls some of the points that have been made regarding the recent smoking ban I mentioned a few posts ago; some opposed the ban on the grounds that because the market sanctioned smoking in pubs most people must have been happy with the situation. But isn’t it also very possible that most landlords, bar staff and customers would have preferred a smoke free environment, and that it didn’t happen without legislation because landlords were scared to lose custom, bar staff didn’t want to lose their jobs, and customers, subsequently faced with a choice of a number of smoke-filled venues, had to put up, shut up or stay at home.

Anthony at The Filter recently(-ish, again,) complained that the ban was down “people failing to get their preferences through the market, and therefore turning to government”; but isn’t that one way to describe market failure, and so a possible justification of a role for government? If the majority of people would prefer a smoke free environment – and whether related or not, my local is now busier than ever on a Friday night – and the market didn’t provide it, then has the recent legislation done us a real favour? And even if you feel that smoking per se isn’t a suitable area for government intervention, isn’t the principle of government intervention to alleviate a market failure sound?

Let’s face it, the market is a brilliant concept; anyone who has ever spent a chill December evening in Manchester’s St Anne’s Square with a steaming mug of gluhwein in one hand and a chargrilled bratwurst in the other cannot fail to appreciate that fact. Given half a chance I think I would prefer the market to decide on the provision of pretty much everything; but it should be the servant, not the master, it is there for our benefit, not to dictate to us. Where the market fails to provide it should never be enough on its own to allow us to just shrug our shoulders, say “well market forces have spoken”, and so justify the status quo and signal the end of the debate. Perhaps all things considered a “market failure” is a sign that we should do without; but more needs to be taken into account before we can arrive at that decision, and if necessary we shouldn’t be afraid look elsewhere – to the charitable sector, or, as a last resort, to government – to remedy the situation.

Addendum: Anthony makes some interesting points in the comments, and as a result I feel the need to clarify my position.

I am making two main points in this post; first a general one, that markets are imperfect, and so I don’t therefore feel you can justify the status quo in any given situation by simply assuming that market forces have already delivered what people want. The second point, more specific to the smoking ban, is that I can well imagine that more landlords, staff and customers would prefer a smoke free environment than wouldn’t, and so the recent smoking ban on health grounds has inadvertently addressed that situation.

How can the market have failed to respond in this instance? I would say that landlords would have been reluctant to go smoke-free unilaterally even if they had wanted to knowing that while other pubs did allow smoking they would lose the custom of their current clientele who are smokers and their friends; it would be a gamble to hope that enough new non-smoking customers would be attracted in to replace the shortfall, and I doubt in practice that would happen. With an outright ban, however, where all pubs must multilaterally go smoke-free, there is not the same concern. There is a worry that some smokers will stay at home, but I doubt they will in any numbers if at all, and in addition pubs are now more attractive places for those who would previously have steered clear because of the smokiness.

But that is just me speculating, and what I am not saying is that I would support a government intervention because Westminster bureaucrats know better than pub landlords, and should engineer a situation to increase the popularity and profitability of pubs. If the ban were simply a case of the government trying to second-guess consumer demand then I would rather leave such things to the market. A ban designed to protect the health of staff is I feel far more justifiable, but may as a consequence have delivered what more people would prefer. Time will tell if that is correct.

As Anthony says, “perfection is not for this world”, and I don’t think the state should tinker in every little thing where is could be perceived that the market is imperfect. But neither do I think that government intervention should be criticised on the grounds that market forces would simply have sorted things out if there were a genuine demand for it.