The heavy costs of lighter regulation

When Margaret Thatcher became British prime minister in 1979, the country’s economy was in a sorry state, bogged down by sclerotic state-owned companies, excessive regulation and an inflexible labour system.

What followed was no less than an economic revolution. The financial services industry was deregulated, unleashing a huge expansion of London as an international banking centre. Companies like British Telecom, British Gas and the railways were privatized and modernized. Unions were emasculated. Britain prospered.

But the Thatcher economic revolution, which was continued virtually untouched under the Labour government of Tony Blair, had a dark side. In placing blind faith in the capitalist system to regulate itself, successive British governments forgot about their duty to govern and protect the public against obvious danger.

Fire engulfs Grenfell Tower, a residential tower block on June 14, 2017 in west London.
(Photo credit should read DANIEL LEAL-OLIVAS/AFP/Getty Images)

That’s the clear message that comes out of the Grenfell Tower tragedy, where at least 79 residents of a high-rise public-housing tower in London died in a horrific fire earlier this month that was the result of lax regulations and a blind, laissez-faire approach to basic building safety standards.

It’s a reminder to us all that unwavering pursuit of ideology, whether from the right or the left, should never be allowed to override the need for governments to exercise sound judgment and pursue the common good backed by strong laws that are strictly enforced.

Thatcher was a big admirer of U.S. style capitalism, particularly of the Reaganite variety, with its low taxes, labour-market flexibility and what she liked to call, “light regulation.” The mantra was: Let business do business, without all those pesky rules and regulations that bog things down.

As practised in the UK, light regulation did wonders for the profitability of banks and investment dealers, but it also contributed significantly to the 2008 financial collapse, costing governments on both sides of the Atlantic billions in bailout funds and sparking a deep recession.

As with most kinds of tragedies, there’s lots of blame to go around. For the Grenfell Tower inferno, the main culprit appears to be the cladding that was only recently installed on the outside of the 24-storey building to improve insulation and beautify its appearance.

Insulation was affixed to the original concrete exterior of the 1970s structure then covered by cladding the consisted of two thin sheets of aluminum around a core of polyethylene plastic. At high temperatures, the panels burn. A space left between the panels and the insulation for air circulation exacerbated the situation, creating a chimney effect that caused the building to become a towering inferno of deadly flames within minutes, trapping residents inside.

This same cladding is banned in similar uses on highrises in the U.S., Canada and most of Europe. Even after facades with the cladding caught on fire in Britain, France and the United Arab Emirates, British authorities resisted tightening up the rules, according to reports in the New York Times.

As The Times reported, a building regulator in Britain told a coroner in 2013 that requiring only non-combustible exteriors on residential high-rises “limits your choice of materials quite significantly.” In that case, why not wrap towers in cardboard or weathered barnwood?

Added to these problems in the UK were lax rules on automatic sprinklers, fire alarms and emergency stairways. Grenfell Tower had only a single internal staircase whereas in other countries, at least two would be required.

Then in 2005, a new British regulation ended the requirement that buildings be certified by government inspectors that fire codes had been met and instead moved to a system of self-policing. It was part of a trend by business-friendly governments everywhere to drop regulations. But it’s one thing to deregulate business hours or the cost of haircuts and quite another to allow companies to set safety standards that put people at risk.

(Interesting to note that Arconic, the U.S. maker of the Grenfell Tower cladding, this week withdrew the panels from sale internationally , saying it was in part “because of the inconsistency of building codes across the world.”)

We’ve seen some of the same worrisome trends in deregulation in Canada.

In 1999, the federal government deregulated the railways, replacing old safety rules with “safety management systems” that essentially allowed railways to regulate themselves.

That helped contribute to disaster in the case of the Montreal, Maine and Atlantic Railway and the 2013 Lac-Megantic explosion that killed 47 people. According to the head of the Transportation Safety Board, the tiny railway only had a safety management system “on paper.” And it was in the same spirit of mindless deregulation that Transport Canada allowed Montreal, Maine and Atlantic, operating a shoe-string operation on ancient tracks, to have a single engineer man a full train load of tank cars bursting with volatile crude oil. The engineer is facing criminal charges for failing to secure the cars before heading to a hotel for the night but no matter what the verdict, there were multiple faults involved in the disaster.

The idea that “the market” will root out bad actors in any industry and that regulations are just a hindrance to economic vitality is a dangerous concept. Companies, like individuals, will do what they can get with. If there were no costly traffic tickets or demerit points, some drivers would speed along residential streets at 100 kilometres an hour and routinely jump red lights. It’s no different for corporate behaviour, whether it’s banks making risky loans, companies selling flammable cladding or meatpackers taking shortcuts on hygiene.

Only strong laws backed up by robust enforcement and big penalties for offenders, including jail time if necessary, can truly protect society. When it came to the poor residents of Grenfell Tower, light regulation proved to be a death sentence.