E-cigs and Regulation: Getting to the Root of the Problem

The following is a comment I made regarding a recent FDA decision to begin or expand the regulation of e-cigs.  The article in question noted that federal regulations only required this form of review for tobacco products, of which e-cigs has no tobacco.  The question of regulation, however, is a much bigger one and stems from the limited liability corporate shareholders and management, over the millennia, have enjoined to themselves.  Put simply, limited liability is a moral hazard and, overall, it is a bit disingenuous to first argue and be awarded “immunity” from wrong doings, then ask that no one step in and question or test the safety of what one is trying to produce.  I oppose all government regulation, but as a free market advocate, the foundation of which is taking responsibility for ones own actions, I cannot support the privilege of corporate limited liability either.

With regards to the article posted at Library of Economics and Liberty (http://econlog.econlib.org/archives/2016/08/the_ugly_ugly_f.html)

In this case, it must be acknowledged, and it is certainly possible, that there are harmful health effects to users. Under the current structure of limited corporate liability, however, companies are encouraged to manufacture and distribute products without proper testing. Owners can risk very little capital relative to the potential legal liability of harming the users of their products. Under a regime of unlimited shareholder liability and management negligence, enforceable through a governmental or private adjudication system, it would behoove the providers of E-cigs to address any product safety concerns up front by doing plenty of research and determining any harmful side effects prior to distribution. Under this type of system, the need for the FDA, and all other “regulators” would be deemed superfluous. This, of course, would accrue an incredible savings of resources now re-directed from the private to the government sector, not to mention a vast improvement in quality and safety of the products available.

Hypothetically, what if e-cigs caused throat cancer?  What if the owners of a particular corporate e-cig brand invested $100,000 over a one year time frame to research, develop and bring to market, what becomes a very popular product, but then drew out all (millions) profits just prior to finding the end users of their product start dying?  Through limited liability, civil and criminal, all companies are encouraged to bring products to market as quickly as possible.  Say Company A wanted to do the right thing and undergo five years of testing prior to distribution, but Company B refused to, opting instead to do no or very limited testing in an effort to get to market as fast as possible?  Company A would never stand a chance.  It is true that Company B types might still exist, or attempt to exist, under a regime of unlimited liability, though their cost of capital might be prohibitively high.
Might products take longer to produce?  Might products become more expensive?  Potentially, yes, to both, but likely no.  Current regulatory requirements take years, sometimes decades, to traverse.  More importantly, only well-vetted ideas, the costs and benefits of which would accrue to the producers and consumers of those specific products, would go to market.  The cost savings would accrue to the non producers and non using taxpayers who must currently shoulder the burden of corporate limited liability.  And, what of the small proprietor?  Will they be put out of business?  If an entrepreneur has an idea like e-cigs under our current system the cost of government approval alone is often insurmountable.  Taking an idea to the mass market, in particular, also requires substantial investment of capital and no one, unable to secure the adequate amount of capital for any particular venture, could be developing such a product in the first place.  If anything, consumers would benefit from safer products and small businesses could compete on a more even playing field.
Should government regulations be slashed to nothing?  Yes, but only after eliminating completely the moral hazard, the liability transfer from the few to the many, under a system of corporate limited liability.

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