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Business Ethics MGT610

LESSON 34

Second, as a number of researchers have shown, people are irrational and inconsistent when

weighing choices based on probability estimates of future costs and payoffs. Research shows

that people inconsistently rank one payoff as being both better and worse than another. Finally,

markets often fail to have numerous buyers and sellers. Since most consumer markets are

monopolies or oligopolies, the sellers are able to extract abnormally high profits by ensuring

that demand always exceeds supply.

As a whole, then, market forces by themselves are not able to deal with consumer concerns for

safety, freedom from risk, and value. Instead, consumers must be protected by governmental

action and the voluntary initiatives of businesses. Of course, part of the responsibility for

consumer injuries does rest on consumers. People often use items that they have neither the

skill nor experience to handle.

Injuries also occur because of flaws in design, materials, or manufacturing, however. In these

cases, it is the manufacturer's duty to minimize injuries. Their expertise makes them most

knowledgeable about the safest materials and methods of making their products.

Where does the consumer's duty end and the manufacturer's duty begin? Three different

theories address this question: the contract, "due care," and the social costs views.

Who Should Pay? The Product Liability Debate

Every year, 34 million people are injured or killed as a result of product related accidents. Such

injuries are the major cause of death for people between the ages of 1 and 36, outnumbering

deaths from cancer or heart disease. The estimated cost of these injuries is $12 billion annually.

Tens of thousands of product injury lawsuits are filed each year. As the number of claims has

risen, so too have the number of companies forced to file bankruptcy because of massive suits.

Moreover, an increasing number of companies are claiming that they have pulled established

products off the market and halted research on promising products for fear of liability.

Manufacturers claim that they are victims of a system gone haywire. According to strict

liability laws, a manufacturer can be held liable for injuries even when he or she had no way of

preventing those injuries. Holding manufacturers responsible for injuries caused by products

known to be defective or potentially dangerous is one thing, but today manufacturers face

lawsuits--often bordering on the outrageous--for injuries they could not have prevented.

Consumer activists, on the other hand, claim that the threat of product liability suits forces

manufacturers to make product safety a priority and that those who suffer injuries caused by

products should be compensated for their injuries by the manufacturers of those products.

Product injuries represent a major cost of introducing products into a society. Since virtually

every new product carries some unknown risk, a possibility always exists that the product may

cause injuries or imposes other costs on users. This raises an important moral question: How

should these costs is distributed among the members of our society?

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Business Ethics MGT610

Should Consumers Bear More Responsibility?

Manufacturers contend that consumers should bear more responsibility for product injuries

because the costs of placing full liability onto companies far outweigh the benefits. Since the

1960s, there has been a steady increase of product liability cases. According to one study,

13,500 product liability suits were filed in federal court in 1986, compared to only 1,500 in

1974. Due to this barrage of litigation, the cost of doing business has risen dramatically.

Insurance premiums have skyrocketed, where insurance is available at all. Manufacturers' legal

costs have also soared: about 60% of the average corporation's litigation expenses today are

product liability cases. The rising cost of product liability insurance and lawsuits has led, in

turn, to great increases in consumer prices.

The economy also has suffered from the boom in product liability claims. When companies

facing massive lawsuits have been forced to scale down their operations, the result is a loss of

jobs. In a recent report by the Conference Board, 15% of corporations surveyed had laid off

workers because of product liability costs, while 8% had been forced to close plants altogether.

In addition, the threat of liability has affected American businesses' ability to compete

internationally. In other countries, there are severe limits on what manufacturers can be held

responsible for and there are fewer tendencies to sue. By not having to contend with a morass

of lawsuits, these companies can offer cheaper products, and put American manufacturers at a

competitive disadvantage.

It is also argued that the fear of being hit with a liability claim keeps many lifesaving drugs and

devices off the market, and stifles creativity and innovation. Even the most rigorous conformity

to safety regulations doesn't prevent liability. One report found that 39% of the companies

surveyed delayed introducing new products or had discontinued products because of product

liability suits. The pharmaceutical industry has been hit the hardest. Only one company in the

U.S. now manufactures vaccines, a product often targeted in lawsuits. Vaccines for AIDS will

certainly not reach the market without protection against lawsuits. Said one spokesperson from

the drug industry, "Decisions [are] already being made on [AIDS] research priorities for

liability reasons."

The costs to manufacturers and to society will only increase as technologies grow more

complex and their applications more varied. Testing products for safety under every possible

condition of use will not only impose great testing costs on manufacturers but will result in

enormous delays in the introduction of new products that could benefit society.

Manufacturers also maintain that it is morally unjust to hold someone liable for injuries that he

or she could not have prevented. Through extensive research and repeated testing, companies

do all that they possibly can, to ensure product safety. And, to prevent harm, warnings and

instructions are plastered over each piece of merchandise.

Finally, some manufacturers point out that in a free market system, businesses have the right to

make and sell whatever products they choose and consumers have the right to choose what they

buy. But rights carry with them responsibilities. When consumers choose to buy risky products

rather than safe ones (both of which businesses may offer in a free market) or when they

choose not to inform themselves about products, they must accept the consequences, including

the responsibility for any injuries resulting from those choices.

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Business Ethics MGT610

Should Manufacturers Bear More Responsibility?

Those who hold that manufacturers should bear more of the responsibility for product injuries

argue that the benefits of holding companies liable for these injuries outweigh the costs. In a

recent year, more than 200,000 infants were hospitalized for injuries resulting from the use of

toys, or nursery or recreational equipment. About 1,777,000 people required emergency

treatment because of injuries involving home furnishings; more than 1,200 of these injuries

were fatal. An additional 1,782,000 individuals required treatment for injuries involving home

construction materials; 1,300 of them died from the injuries. Society has an obligation to

minimize such tragedy and suffering. Without the threat of liability, manufacturers would have

little incentive to ensure product safety, and the number of product-related injuries would

escalate.

The costs of holding manufacturers responsible for product injuries are not as great as company

representatives would have us believe. For example, the so-called "explosion" in product

liability suits, "crippling American business," is a myth. A recent study by the RAND

Corporation found that although the number of product liability lawsuits had increased nearly

eight-fold during the last decade, more that half of these lawsuits involved only a handful of

companies, reflecting mass litigation against a few asbestos and pharmaceutical companies. A

report by the Government Accounting Office also concluded that, except for cases involving a

few drug or asbestos companies, product liability suits "do not appear to have been rapidly

accelerating or explosive." Furthermore, it cannot be claimed that product litigation makes

domestic companies any less competitive internationally. Foreign companies that sell in the

U.S. have to abide by the same product liability laws that American companies face. And when

American companies compete abroad, they have the same advantages that foreign companies

have.

Those who hold manufacturers liable for product-related injuries also claim that justice is on

their side. Since the defective product that caused the injury was produced by the manufacturer,

it is fair that the manufacturer bear the costs of that injury. Moreover, they argue, justice

requires that the party that is most able to pay for an injury be the party that bears most of the

financial burden. Manufacturers know in advance that there is always a risk of liability in

introducing new products, and can therefore build the cost of potential lawsuits into the price of

those products. Manufacturers also have the research expertise and laboratories, the

engineering and technical knowledge, and the budgets to assess the risks of product use and to

ensure that these products are safe. Consumers lack these. It is just to place greater burdens on

those who are better able to bear these burdens.

Consumer activists also challenge the corporate claim that consumers "freely" choose to buy

unsafe products. Consumers, they argue, are woefully uninformed about the products they buy

because they don't have access to information about the products. Others lack a comprehensive

understanding of the seriousness of the printed warning. Still others may be functionally

illiterate or too young to make informed choices. It is manufacturers, not consumers, who make

the "free" choices to compromise product safety and it is manufacturers who must therefore

accept the consequences.

As long as products are produced, product injuries will occur. Who should bear the costs of

those injuries? Our answer requires that we weigh the claims of consumers against those of

manufacturers--claims which appeal, in different ways, to our desire to minimize harm, our

ideal of justice, and our commitment to taking responsibility for the choices we make.