The recent announcement, as reported in the NY Times, that Blitz USA is closing it’s gasoline can manufacturing plant presents a lesson in how the civil justice system compliments free market capitalism and keeps the public safe. Blitz claims that lawsuits arising from its gas can, manufactured and sold without flame arresters, have forced it to cease operations and close its plant. The US Chamber of Commerce, which allegedly supports free market capitalism, proclaims that this is an example of how lawsuits hurt business.
However, a little common sense and some basic economics leads to a much different conclusion. A decision about whether or not a product should be sold is made by a simple cost-benefit analysis: does the benefit gained from the sale of the product outweigh the cost? The benefits can be easily established by looking at the revenue derived from selling the product given the price of the product as set by the producer. The cost can likewise be determined by looking at the manufacturers costs for research and development, production, marketing etc., and the cost of the harm done by the product to consumers. The civil justice system, through lawsuits that evaluate the harm using the jury system, is essential in computing the cost of that harm. If the total cost of the product, including the harm it inflicts, outweighs the products benefits, then the market has determined that the product should not be sold.
A true free market system assumes and depends on informed consumers. Lawsuits help to inform the public about the usefulness and potential dangers of a product. Blitz USA’s choice not to provide flame arresters, ignoring safety and exposing the public to needless danger, ultimately proved a poor business decision. Rather than accept responsibiity for it’s own mismanagement, Blitz USA and the US Chamber of Commerce have continued to use the civil justice system as a convenient excuse.