I comment on a blog I regularly read (http://thecatsmeow.freeblogit.com/) got me thinking about the issue of “who should pay?”. Many regulatory changes involve shifting a cost. For example: work place injury compensation involves shifting cost of injuries from worker to employer. Another example: pollution controls shift the costs from the local community (costs such as asthma treatment) to the factory (in the form of expensive pollution prevention measures). And another: banning farmer land clearing shifts the cost to the community of biodiversity loss, to the individual farmer land-owner through reduced productivity.

Whenever issues like this come up the fundamental question is “Who should pay?”. This apparently simple question needs to be examined closely because it’s often miscontrued. The “who” and the “should” parts are often not subjected to clear thought.

First of all, dealing with “who”. People often talk about government paying or industry paying, but in reality these two entities never pay. They pass on their costs. In the case of governments this cost is passed on to taxpayers. In some cases the cost may be passed to the community as a whole through reduced services, i.e. the government pays the cost by cutting down services (e.g. health care or education) and diverting the saved money. However, regardless of this taxpayers are still footing the bill so they are the ones who pay (but it is worth keeping in mind that particular parts of the community, often the most needy, may suffer).

In the case of industry the cost is generally passed to consumers through increased product prices. There may be some cost to owners from reduced profits, but usually the whole or the large majority of the cost is factored in to pricing.  Of course there is the issue of business viability. If the increased cost causes a company to be non-viable then the owners do suffer. However, two points need to be kept in mind: Firstly, consumers will not go elsewhere if all companies increase prices. So if workplace laws mandate the businesses compensate for injury then sensible financing will mean that all businesses increase prices in order to put aside money to cope with employee injuries. Secondly, if consumers simply do not want to pay the added cost then perhaps the business shouldn’t be viable. If consumers don’t pay for workplace injuries involved in their product then this is, in effect, a subsidy of the product.

So, there are in reality three groups who can be the “who”: taxpayers, consumers of the relevant pruduct, and affected individuals.

Next looking at the “should”. This is often taken to be a moral issue. Usually people talk about what is “fair”. However, although we should avoid injustice where possible, considering what is fair usually leads to an impasse. Often the cost is no-one’s fault. Take the case of environmental regulations on farmers. When the farm was first set up, perhaps a hundred years ago or more, the owner didn’t know about biodiversity. Nor did taxpayers, or the consumers of the farm’s products. Everyone will say, perhaps rightly, that it’s not fair for them to pay, but there is a cost that needs to be paid. Somebody has to do it.

Considering what is fair only gets us so far. After that we can only consider what works best. Usually this means asking who pays the least if they pay. In the case ofworkplace injury, employers can, relitively cheaply, institute OH&S to keep injuries down. So the cost to the consumer is less than an individual would have to pay for treatment or taxpayers for compensation. In the case of environmental regulations it may be the government who is best placed to do the research on the most sustainable farming method, or it may be the farmer who can implement new methods most cheaply.

To best consider the “should” we have to assign costs fairly, but often no assignment is particularly just, and at that point the fairest assignment is to charge the group that will end up paying the least or who can best afford to pay.

In a nutshell, statements such as “it’s not fair to expect the company to pay” and “it’s not right that government should pay” show a lack of clear thinking. The question of “who should pay” does not refer to entities but to different groups of people and is not usually about morality but practicality. It might be more clear to ask: “Which group of people is best placed to pay?”