Safety regulators in the transport industry: captured agents for change

Employment Relations Record, July, 2004 by Colin Innes, Genevieve Watson

This paper reviewed the findings from significant accident cases within the transport industry and found the emergence of evolving trends within the effectiveness of safety regulatory bodies. This paper takes an inter-industry and interdisciplinary approach to investigate the history of regulation outcomes in the transport industry through aviation and rail case studies. The paper finds there are a number of deficiencies in the way the regulators execute their duties. These shortcomings in operations may persist over extended periods of time despite inquiries and recommendations. The seminal work of Stigler's 'capture theory' (1971) and Jensen & Meckling's 'agency theory' (1976) are applied to the findings to investigate whether regulation does ensure safety, under what conditions and if not why not.

INTRODUCTION

In the approach to the Sydney Olympics 2000, on the 2nd December 1999, NSW experienced the most serious train accident since 1990 at Glenbook, with seven passengers killed and more than fifty passengers taken to hospital with injuries (McInerney, 2001). The Glenbrook rail accident was the most serious rail accident in New South Wales since 6 May 1990 when an inter urban train collided with a special steam train on the Cowan embankment near the Hawkesbury River north of Sydney in which six persons were killed and 100 passengers injured. What was not immediately evident at the time was that the rail industry had experienced a series of at least six other accidents where trains had derailed and rail workers were seriously injured or killed. The New South Wales (NSW) State Government commissioned an inquiry as a matter of urgency, with public concerns about the safety of the rail system and public interest in the inquiry at a peak (SMH, 2000). The final report into the Glenbrook rail accident provided a thorough analysis of a rail system that exhibited systemic organisational and operational failures in their approach to safety.

With such intense scrutiny, and the need to ensure the safety of the public when traveling by train, the Report's recommendations should have heralded the beginning of a new era of rail safety within NSW. The Sydney rail system (and its personnel) performed exceptionally well throughout the Olympic Games. Many thought that the problems had been addressed. However any thoughts that safety in this industry had been rectified were shattered with the events of the Waterfall train accident on 31st January, 2003. In this accident a passenger train traveling from Sydney to Port Kembla overturned at high speed, then colliding with stanchions and a rock cutting just south of Waterfall, NSW. The driver and six of the forty-seven passengers were killed and the four-car train extensively damaged.

The intent of this paper is to focus on the nature of various failures within transport safety regulatory bodies as distinct from re-analysing the actual events of the accidents. In view of very limited research within the safety regulatory area as to the theoretical nature of regulatory failures, this paper will review economic theories of regulation, in particular the theories of Jensen and Meckling (1976) and Stigler (1971) in an attempt to provide a theoretical framework for understanding safety regulatory bodies and their emergence within the transport industry, utilising both rail and aviation case studies. Reference will be made to regulatory crises within both rail and aviation industries, as well as the processes by which these failings were addressed.

Theories of Regulation

Within economics, there are two ways in which regulation of a market can be considered: normative theory, which describe how regulation ought to operate in order to achieve the best social outcome; and positivist theory, which focuses on how regulation works in practice, including its imperfections (Newbery, 2000).

Normative theorists contend that regulation of a market or industry will be undertaken through processes and decisions aimed at optimising the outcome in a just or ethical manner, and in the public interest. Public interest theories of regulation, such as proposed by Jensen and Meckling (1976), suggest that the principal government interventions in the economy, including common carrier regulation, were responses to public demands to rectify inefficiencies and inequities. Posner (1974) reviews and critiques several variations on the public interest theory of regulation. Behind the original theory is the assumption that there was an inherent deficiency in the unregulated market and that the regulation imposed would operate effectively and without cost. Posner notes that any notion of 'government as a costless and dependably effective instrument for altering market behaviour' has long been dispelled (p336). He also notes the past research had shown that regulation is not positively correlated with the presence or absence of diseconomies or with monopolistic market structures, as expected under the public interest theory and which would, if present, justify intervention through regulation.