In free markets with a strong protection of individual rights by the government, competition weeds out bad products and bad companies.

Product Quality and Safety: Government Regulation or Free Competition?

by | Mar 24, 2015


A brief news article in the Financial Post (FP) recently caught my eye: “Food safety watchdog suspends Costco Canada’s fish import licence.” According to the Canadian Food Inspection Agency, Costco is not consistent in following food safety controls set by the regulator—a horror of horrors—and therefore Costco’s import license was suspended at the end of February. The FP article informs us that “Costco can’t import fish products into Canada until it takes corrective action and the agency is satisfied [emphasis mine] that the chain can effectively manage food safety risks.” Should we feel grateful and safe, because the Canadian government through its Food Inspection Agency is looking after us by restraining yet another greedy corporation from selling us “unsafe” fish?

No, we should not feel gratitude but outrage. The government has no business in inspecting the food anyone, whether Costco or a farmer at the market, sells us. The only role of the government is to protect our individual rights against the initiation of physical force and fraud. For example, should a company sell us tainted, spoiled, or defective goods, we can get a refund, because selling tainted goods violates our property rights. Or, if our health is harmed by consuming tainted or spoiled food or pharmaceuticals, we can get compensation, because our right to life was violated. Other than protecting our individual rights, the government should let markets be free to regulate themselves.

Many people would recoil at the thought of unregulated markets where people trade freely with each other. But those are the only kinds of markets that allow both businesses and the rest of us to flourish. The sales of tainted goods and defective products would skyrocket in free markets, these people would argue. But they are wrong. Quite the contrary, in free markets with a strong protection of individual rights by the government, competition weeds out bad products and bad companies.

In some industries, such as food and pharmaceuticals, product safety is critically important to consumers. But it is a mistake to think that government inspectors are the best way to keep those products safe. Yet, may people think that government inspection must be superior, because government bureaucrats, such as food safety inspectors, are not “tainted” by the profit motive. These bureaucrats have nothing at stake, the argument goes; they are just doing a job and carrying out regulations set by other “neutral” bureaucrats. Therefore, we should feel confident that they have our best interest at heart and they will do their utmost to keep us safe.

What is missing in this reasoning? The motivation to do the best job possible, as competently as possible. This is not to say there cannot be motivated and competent people working as government inspectors; however, if you have ever run your own business such as a restaurant or a day care, say, you have probably experienced government inspectors who may be zealous to the point of being unreasonable and yet not competent. They have secure jobs where compensation is not tied to merit; there is no particular motivation to do a good job.

However, businesses have all the motivation to keep their customers and thus their products safe. It is not in their interest to harm their customers—they want to be profitable in the long term. (Imagine the impact on Costco’s reputation if it sold tainted fish, and the cost of a recall and compensation, particularly if any customers also got sick from eating the fish). Therefore, many companies have internal quality control staff who have to be trained and competent, unless they want to lose their jobs. It’s in that staff’s interest to make sure that their employer does well so that they can do well.

Sometimes it may make sense to have external quality control and inspection for the sake of credibility, or simply to divide labor. But that quality control can be contracted out to private companies, which again are compelled by market competition and profit motive to do a good job.

Government should stick to its proper role, get out of regulating business, and let us decide if we want to buy fish at Costco or any products or services from other companies. We can count on the profit motive by companies—and the protection of individual rights by government—to keep products safe.

Full disclosure: I am a Costco fan, and I particularly like buying wild-caught fish there because it is always fresh and a good value.

Jaana Woiceshyn teaches business ethics and competitive strategy at the Haskayne School of Business, University of Calgary, Canada. She has lectured and conducted seminars on business ethics to undergraduate, MBA and Executive MBA students, and to various corporate audiences for over 20 years both in Canada and abroad. Before earning her Ph.D. from the Wharton School of Business, University of Pennsylvania, she helped turn around a small business in Finland and worked for a consulting firm in Canada. Jaana’s research on technological change and innovation, value creation by business, executive decision-making, and business ethics has been published in various academic and professional journals and books. “How to Be Profitable and Moral” is her first solo-authored book. Visit her website at




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