Most countries try to reinforce Occupational Health and Safety (OSH) by implementing laws, which regulate the measures the companies have to take. So does India. Especially, the Factories Act, 1948, the Mines Act, the Ports Act and the Construction Act refer to safety of employees working in the respective sectors. For other employees, for example such as those employed in shops or establishments, various state legislations are enacted, which provide for almost similar matters as under the Factories Act.
In order to guarantee a sufficient level of OSH throughout the whole country, these Acts lay down very specific minimum requirements regarding health and safety. This way, differences between the single states in the administration of the Act can be minimised. Another intention of these detailed provisions is to facilitate the work of the inspectors who have to examine the conditions of work in the factories, which is said to require too much of expert knowledge of the inspectors.
In this report I wish to examine the problems these regulations cause. It would show possible alternatives to the regulation of OSH by the government. There are reasons for companies to provide safe and healthy workplaces to their employees without compulsion, and there are also examples of good practice.
Problems of Occupational Safety and Health Regulations
Despite comprehensive legislation, the number of accidents in India is very high. Takala estimates 36,740 fatal accidents in the year 1994, Smith goes up to 150,000 killed workers in 1993, whereas the official figure given by the Ministry of Labour is 1624. The difference between the figures results from the lack of reliability of reported numbers. The ILO report is based on the figures for Malaysia, Smith takes UK-figures and multiplies them with a (conservative) factor. However, they give strong evidence of the inefficiency of data collection in this realm.
This has either caused due to lack of enforcement; in this case any law would be useless. The number of Health and Factory Inspectors in India is far too small. For example, for the NCT of Delhi, there are only three Factory Inspectors. They were in charge of 6496 factories covered by the Factories Act at the end of 1999. That is not even one Inspector per 2000 factories, whereas a reasonable ratio would be one per 250, i.e. 24 Inspectors in all. Due to this scarcity of staff, regular visits to companies are virtually impossible, and inspectors react only when complaints are lodged or accidents are reported. Moreover, these few Inspectors are badly equipped. E.g. the sole X-ray machine of the Office of the Labour Commissioner had been defective since 1999, therefore X-ray examinations of workers could not be carried out.
The other reason for lack of enforcement could be the unsuitability of the centrally drafted regulations to the local situation in the factories. Legislations are either unrelated to the danger or do not take into account distinctive work situations. Obviously, workplaces differ from each other. Legislation, which neglects these differences, imposes very high costs on some workplaces, while others still remain unsafe, despite complying with the requirements. For example, the Factories Act requires minimum space for each worker to prevent overcrowding— 14.2 cubic metres for factories built after the commencement of this Act and 9.9 cubic metres for older ones. The actual checking of this requirement is carried out by the Health Inspector based on the building plan of the facility. The total available space is divided by the number of workers, so that violations for single workplaces cannot be found out.
Furthermore, the levied penalties are insignificant. Inspectors are in conflict between being too easy on firms and bankrupting them. Especially in poor areas, where unemployment plays an important role, the Inspector would not only consider the health of the employers, but also the security of their workplaces. The expected costs of non-compliance with legislation (the product of fine and probability of being convicted) therefore would be small compared to the expenses of improving the working conditions.
And lastly, it takes time to formulate legislation in response to constantly changing technologies. Laws would only be made, when safety problems have already occurred. Then they always would be some years behind the actual hazards.
In any case, only eight percent of the Indian workforce is employed in the organised sector; therefore the law necessarily will not reach the bigger part of it.
Why should companies provide sufficient safety and health measures without regulations by the state?
Regardless of the fact that many employers might feel a moral responsibility for their employees, there are economic reasons for them to prevent accidents and occupational diseases in their factories. I would like to focus on these economic reasons, for moral feelings are not measurable. A profit-maximising entrepreneur as an employer has to take expenses for OSH as an investment. He has to pay for possible revenue (the avoidance of costs) in the future. The consideration of the employer is simple: if the costs of accidents and illnesses exceed the expenses on OSH, it would be profitable to invest in further measures.
The costs of accidents or diseases
It is obvious that hazardous and unhealthy workplaces result in costs for the employer. The treatment of the injured or sick worker has to be paid for. If the worker is not able to resume work after his recovery, a substitute has to be trained and it will take some time before the new worker reaches the productivity levels of the old one. Indemnification for injured workers or those who have died and their families can cause considerable expenses; and the burden would be especially high for small and medium scale firms. In most cases the damage to workers is accompanied by damages to instalments which have to be repaired.
All these expenses can be easily assigned to the incident that causes them. Therefore they are direct costs. But what about the indirect costs? Workers who cannot work amount to a loss of production for the company. Other employees could be substitutes for them, but then the substitute would have to work overtime, which would be more expensive. If however, the substitution were to take place within the routine of a workday, it means that there has to have been an inefficiency before, for the aim of normal production should be a capacity utilisation close to 100%. This spare capacity causes overhead costs and contradicts the assumption of profit maximisation. Furthermore, equipment involved in an accident would have a shorter lifespan and would have to be replaced earlier.
Most companies could profit by publicising the production conditions in their factories/workplaces. Customers in developed countries often set a high value to the conditions under which products are fabricated. Moreover, a plant is not a closed system. Workers are part of the public, and with their incomes they are, more or less directly, customers of the company. Other companies provide facilities to carry out repair work, and transport finished goods outside the plant area. Companies, which do not maintain well co-ordinated safety measures, would therefore not only endanger their own employees but also others that co-ordinate their activities with the company. For these reasons hazardous workplaces would amount to a loss of image and finally, of sales.
All these costs are indirect and usually not registered as emerging from particular incidents, but they are the main part of costs arising due to unsafe working conditions. Estimates of the proportion between direct and indirect costs of accidents range from 1:1 to 1:20, depending on the considered sector and the methodology of recording. That means that the indirect costs are at least as high as the direct ones and, though more difficult to measure, it would be a criminal mistake to neglect them.
The costs of OSH
Estimates of costs of OSH measures tend to overestimate the actual costs. Examinations of the used methodologies of cost projection show that they are frequently overstated. Only the direct costs obvious to prevention of accidents and diseases are taken into account. This way usually consists of installing additional devices to separate the workers from the hazards. This not only impedes the flow of work but is also uneconomic. In most cases slight changes in the construction of installations would be more effective, cheaper, and they would involve the worker and his knowledge in the process of finding a better solution.
Furthermore, the installation of new machines (which is automatically done in the normal process of replacement) would not only enhance safety but also frequently increase the productivity.
Approaches to regulate OSH on free markets
Economic incentives vs regulations
Most countries try to improve OSH by regulatory measures through labour laws. But aren’t there more effective ways to reach this aim? For instance, economic incentives in this realm have several advantages over regulations.
First, in countries like India, where enforcement of existing labour laws is lax, firms tend to ignore regulations on OSH. Signals from markets cannot be ignored. Second, regulations prescribe a minimum level of OSH measures. Once this level is reached, there is no reason for further improvement. Economic incentives do not stop at a certain level. Third, the adaptation of laws to new risks takes time. Economic incentives apply to new hazards as they applied to the old ones. And fourth, economic incentives measure the outcome of OSH, not the means. Regulations prescribe certain means, which are intended to be effective.
Standards on OSH
Standards decided are consensus agreements between delegations representing all the economic stakeholders concerned - suppliers, users, employees and, often, governments. They agree on specifications and criteria to be applied consistently in the classification of materials, the manufacture of products and the provision of services.
Standards are one way to set a certain level without fixing minimum requirements. Almost every country has its own standards body: India has a Bureau of Indian Standards (BIS), in the United States there is the American National Standards Institute (ANSI). They publish standards in order to respond to customer demands, who want a certification from their suppliers for certain aspects like product quality or environmental protection. The best known standards are ISO 9000 for quality management, and ISO 14000 for environmental protection, both by the International Standardisation Organization (ISO), Geneva. These can be used for voluntary certification of implemented management systems in order to distinguish one company among its competitors, or, if most of the competitors already are certified, not to fall behind in the rat race.
OSH is another realm where standards could be applied. The widespread adoption of standards for OSH means that the workplace conditions in companies, which satisfy these standards, would be more attractive for workers and employees and the company would get a greater variety to choose the best from.
The above mentioned ISO 9000 and ISO 14000 comprise aspects of OSH only on the margin. ISO 9001 obliges the employers to communicate to the organisation the importance of meeting statutory and regulatory requirements, and environmental issues only go along with the safety of plants and machinery. A particular ISO standard on OSH does not exist and is not being planned, for differences in local values, culture, and requirements do not allow one sole standard suitable for all.
Therefore some countries have developed standards on Occupational Health and Safety Management Systems (OHSMS) according to their needs. A management system does not mean a specified set of restrictions or rules, which have to be followed. What is important is continual improvement of the working conditions. Improvements are not to be made isolated from other measures. With an OHSMS, OSH interests are considered to be equal to production, sales, or other fields of operation.
Currently the most discussed approach has been developed by a group of 13 European certification companies and the British Standardisation Institute (BSI). The Occupational Health and Safety Assessment Series (OHSAS) 18000 correspond to the structure of ISO 14000 and thus can be implemented without conflicts where this is already being used. India has published IS 15001: 2000 Indian Standard on Occupational Health and Safety Management Systems— Specification and Guidance for Use, which is based on OHSAS 18000 and adapted to the Indian needs.
IS 15001, similar to the other standards, names four phases of the improvement process: planning, implementation and operation, measurement and evaluation (checking and corrective action in OHSAS 18001), and management review.
Essential is the risk assessment process, which is described comprehensively in Annex C of IS 15001. It comprises of six steps: Classifying work activities, identifying hazards, determining risks, deciding if risk is tolerable, preparing risk control action plan, and reviewing adequacy of action plan.
Small companies are not required to go through the entire procedure of risk assessment that is described in IS 15001. They should carefully select which risks they would like to assess in detail. Information overkill on trivial risks that cannot be properly processed would lead to losses of important facts.
The ends are to resolve problems between OSH and other objectives, and the integration of OSH into the overall business management process. Improvements should not be of the type to be made once and never questioned again, but should be constantly revised and evaluated.
Maurya Sheraton & Towers
The ITC Hotel Maurya Sheraton & Towers, Delhi, has started implementing an OHSMS in 1995. For this purpose, it used guidelines for an OHSMS developed by the ITC group itself. Subsequently, Maurya Sheraton underwent the 5-Star Health and Safety Management System Audit instituted by the British Safety Council and conducted by their accredited auditors during the years 1995, 1996, and 1997. Each year a five star rating was achieved, and the hotel was awarded a Sword of Honour for each of those three successive years, thereby acknowledging it to be amongst the safest companies across the world. Besides a very good result of this certification, the loss prevention report for the last six years has showed a clear downward trend in the number of incidents and lost man-hours.
Improvements have included the training of every employee in safety matters, and the planning and arrangement of all facilities with regard to safety enhancement. Every employee can make a proposal of improvements, and everyone is responsible for safety in his realm.
Compliance with OHSMS standards does not by itself confer immunity from legal obligations. Therefore standards can only work if the legislation pays regard to the efforts of companies to certify their OHSMS. New Zealand's legislation on OSH, the Health and Safety in Employment Act (HSE), 1993, has committed the employers to prevent harm to the workers by taking appropriate measures. It is up to the employer how to achieve this. But how to measure whether the taken efforts were sufficient?
One means to make sure that the measures as sufficient is to maintain an implemented Occupational Health and Safety Management System. The used OHSMS can be measured with OSH standards. Therefore, New Zealand's standards body, Standards New Zealand, developed and published NZS 4801 (Int): 1999 Occupational health and safety management system— Specification with guidance for use. Again, this standard was developed to be compatible to ISO 9000 and ISO 14000.
Companies, which certify their efforts of implementing an OHSMS, can avail of discounts on their insurance fees at the Accident Compensation Corporation (ACC). For these discounts the workplace has to be audited by an independent certification company, which decides whether the workplace qualifies for them. These discounts vary from ten to twenty percent, depending on the extent of conformation with the specified requirements of the ACC. After two years, the company has to reapply for continuing discounts. Indeed, the ACC has been the sole provider of accident insurance in New Zealand since July 1, 2000, but that doesn't mean that a free insurance market would fail to provide such discounts. Advice shows that in the years before free insurance market, fatalities had gone down between 25 and 50 percent.
The Occupational Health and Safety Service (OSHS) of New Zealand enforces the Act by carrying out proactive workplace visits, 17,969 in 2000. These visits resulted in 8,814 investigations. 127 prosecutions were finally initiated.
Though the number of complaints requiring OSHS investigation have increased during the last years (obviously the awareness for OSH matters has been enhanced), the number of prosecutions has been reduced due to a significant increase in compliance with the HSE Act, with many more companies managing their hazards better than in the past.
New Zealand has started a promising approach to give more flexibility to companies regarding their OSH measures. Nevertheless, inspectors of the OSHS have to judge whether the efforts taken are sufficient. Once again, only the means, not the results are being considered.
A solution for better performance of OSH could be the strict liability of the employer for accidents at work, attended by the commitment for insurance. This presupposes that the legislation on OSH has to be limited to these two aspects.
Insuring companies by giving discounts or raising the premium can affect the cost, depending on the hazardousness of the work place, to the company. This would bring about the identification of workplace hazards and of solutions on how to remove them. Instead of spending money on useless safety measures, the employers could decide for themselves how to improve the safety (and with it the attractiveness) of their workplaces.
Employers would endeavour to get these discounts, while insurance companies, which differentiate between them could attract good risks. Furthermore, insurance companies could provide information on the hidden costs of accidents.
- Accident Compensation Corporation (ACC): Workplace Safety Management Practices. http://www.acc.org.nz/employers/workplace-safety.html 2001
- Bureau of Indian Standards (BIS): Occupational Health and safety Management systems - Specification and Guidance for use, IS 15001:2000. New Delhi 2000
- Charm, Joel B: Models already abound, in: Should there be an occupational health and safety management system standard? American Society for Quality, QEHS Zine http://www.asq-eed.org/qehs/april2000/procon.htm 2001
- Dorman, Peter: The Economics of Safety, Health, and Well-Being at Work: An Overview. International Labour Organisation http://www.ilo.org/public/english/protection/safework/papers/ecoanal/eco..., Geneva 2000
- Insurance Council of New Zealand: CTU Evidence To Select Committee Misleading Media release on http://www.scoop.co.nz/stories/PO0002/S00055.htm, February 16, 2000
- International Standardisation Organisation (ISO)
- Labour Laws
- Landau, Kurt: Ergonomie im Dienstleistungsbetrieb, Berlin 1985
- Occupational Safety and Health Service (OSH): What we've achieved: The OSH Annual Report 2000.http://www.osh.dol.govt.nz/touch/more/annrep00.html 2000
- Office of the Labour Commissioner, Planning and Statistical Cell, Government of National Capital Territory of Delhi: Labour Statistics 1999- 2000
- Polachet, Solomon W.; Siebert, Stanley: Compensating wage differentials and heterogeneous human capital, in: The Economics of Earnings. Cambridge University Press 1993
- Smith, Stirling: Occupational Safety and Health in India: an attempt to estimate the real number of work related deaths. http://www.lsi.org.uk/indiaosh.shtml, November 1999
- Takala, Jukka: Global estimates of fatal occupational accidents. International Labour Organization http://18.104.22.168:8050/public/english/protection/safework/accidis/gl..., Geneva 1998
- The Factories Act, 1948 Universal Law Publishing Co. Pvt. Ltd., Delhi