What other industry is allowed to inspect itself? It completely ruins the point of an inspection. It's like being the judge and jury in your own trial. I'm amazed this is a thing in the first place.
Stockbroking, cinema, accountancy, law, life insurance, financial planning, nuclear power, real estate, medicine, advertising, media...[0][1]
Self-regulation (especially at the industry level rather than delegating to individual companies) doesn't seem completely broken. Actually it can work quite well. You keep some oversight, and reserve the right for the state regulator to step in if the SRO goes bad. The people who run the SRO have an interest in perpetuating their organization, so they if anything have an incentive to be stricter than the government would. If things do go wrong, the government demands direct oversight. That's what's happening here.
An industry regulating itself is different from an organisation regulating itself.
Self regulation of the industry is common as you say. It tends to involve one central body enforcing the standards on the members, and acting as a central point for agreement of the standards.
This is not the case with the Aviation regulation. The FAA is the regulator, and has delegated the testing to the people it is meant to be regulating.
Prominent examples of "Self Regulating Organizations": The New York Stock Exchange (NYSE), The Financial Planning Association (FPA), Chicago Board of Trade (CBOT), American Council of Life Insurers (ACLI), Financial Industry Regulatory Authority, Inc. (FINRA), Fixed Income Clearing Corporation (FICC), Options Clearing Corporation (OCC), American Institute of Certified Public Accounts (AICPA)
These examples are arguably qualitatively different from what's happening with Boeing's self-inspection.
I used to work at an organization that was governed by multiple of the SROs you list there. Here's how it worked: They set rules, we followed them, they monitored and audited us. There were also governmental organizations monitoring both them and us.
I think that the key distinction here is not actually public vs. private. It's more of a "sunlight is the best disinfectant" situation. The simple knowledge that you have some external agency that doesn't have moral hazard concerns to compromise its interests that is keeping an eye on you, and that you know is keeping an eye on you, does a lot to incentivize better behavior. Is it perfect? No, far from it. But, at least in the specific case of the financial industry, it's not clear to me that a 100% governmental regulatory system would actually fare any better. I think that the unstated major premise of such an idea is that the people in charge of the governmental regulators - elected officials - are uncompromisable ethical paragons. And if you believe that, I've got some hot penny stocks that I'd like to tell you about.
By organization he clearly meant single for-profit corporation. While the language was imprecise, he surely wasn’t referring to these types of entities.
NYSE is a for profit entity owned by Intercontinental Exchange. They also own Euronext. And they're regulated by the SEC, but carry out their own regulation efforts too. The parallel isn't that far off.
NYSE is a for profit entity owned by Intercontinental Exchange. They also own Euronext. And they're regulated by the Sec, but carry out their own regulation efforts too. The parallel isn't that far off.
NYSE sells preferential access that allows favored players to skim without risk. The industry regulations around “market makers” and pay-for-order-flow are incredibly crooked.
There’s also a clear tolerance of securities fraud as long as you subscribe to certain ideologies — eg, NYSE allowing Disney to trade when they’re clearly stealing/destroying shareholder assets to advance the ideology of a cabal of executives and fiduciaries.
So you think anyone can get their trades reverted on the stock exchange if they ask nicely? Oopsie, I clicked the wrong button, now please revert the trade that lost me some money. If some get such preferential treatment it's clear cut case of corruption, you don't need to catch them with the proverbial smoking gun to know it
What now? I'm sure you are going to say that they settled because they were innocent, right? And that they halted trades 'by mistake', not on a purpose
Self regulation would mean that the org should face much stiffer penalties for failing in its regulation related duties. The increased agency needs to also come with increased responsibility.
Something like notaries, guilds or unions that can speak the truth without retribution ...
No, we need independent regulation. We don't have the societal norms to pull off self regulation.
Because they have autonomy. By having the regulators embedded, they can continually tell them how to improve. The regulation isn't to punish, but to conform and exceed to the specifications.
We are only talking about organizations that are participating in self regulation.
Those that self-regulation have a greater duty to be truthful and in good faith, attempt to remain in compliance. If they cheat, not only should they lose the right to self regulate, but they should face stiffer penalties for breaking that trust.
And it's important to say that generally you want and industry to regulate itself. This prevents the regulation becoming a burden on the people, and maintains the threat that if the industry doesn't regulate itself then the government (the people) will regulate it. No industry wants oversight, so they do their best to stay in the lines.
Self-regulatory bodies are usually centralized and separate from any individual corporation. They also tend to answer directly to a government agency and cannot be disciplined by a corporation. While there can still be issues such as a strong revolving door and potential indirect pressure to be nice to the regulated entities, it’s not as terrible as what Boeing and other airplane manufacturers get to do (inspect themselves in lieu of regulatory inspections). That’s strange, because lives are literally on the line, more so than some other industries with more independent examinations.
Historically, the fact that lives of the public are clearly on the line was part of the argument for allowing partial delegation of safety oversight. The idea has been that any engineer/manager making these decisions will be regularly flying themselves/loved ones, so is going to be suitably cautious. This differed from the situation in coal mines for example, where the miners exposed to the risk were socially/culturally disjoint from engineers/managers.
Those 10 sorts of industries you cited aren't exactly models of self regulation. Well, they are, in the sense of how to abuse regulatory capture to maximize returns, but not in the sort of sense most people think of regulation which is limiting harm to consumers.
This. It's not a problem as long as the self-regulator is kept in line with periodic checks from a higher regulator.
It's similar to how income taxes work. You self-report all the figures, and then they are sampled and spot-checked and occasionally audited. The possibility of being caught by an audit, then prods people to generally submit truthful reports, because of the risk of penalties.
And then, if that incentive ceases to work, the self-report/self-regulate status gets revoked.
> The people who run the SRO have an interest in perpetuating their organization, so they if anything have an incentive to be stricter than the government would
Except if the "people who run the SRO" are in fact employees of the very company they're supposed to be regulating... ?
Then they surely have an even greater incentive to keep quiet in order to keep their jobs?
What's funny about this is that if you were to ask a group of brokers (IE: the ones with authority over the business - terminology is inconsistent between states...), they would probably tell you that the state has a great deal of oversight, but I'd agree with you - by and large no one is actually watching them. I was with a group of fellow brokers not long ago and it came as a clear surprise to them that the state would no longer be actually auditing them. The state wouldn't make it official policy, but it was a wink and a smile that they wouldn't. There were gasps around the room and it was really rather an insightful moment. While I am new in this role, it was obvious to me the state wasn't actually auditing anything - and frankly, why should they unless they've had a consumer complaint? But the fact that very experienced brokers were surprised by this was interesting.
> Self-regulation (especially at the industry level rather than delegating to individual companies) doesn't seem completely broken.
Maybe, maybe not. But I do know that I don't have much faith when companies "regulate" themselves. There's just too much conflict of interest there. A third party doing it is, on its face, more trustworthy.
SRO sounds like a middle-man in this process. And like all middle-man industries, they suck out money from both sides that they deal with.
We can easily publicly fund over-sight committees to oversee these industries instead of relying on SROs who take tax-payer money and are in the perfect financial and power position to do some really corrupt and immoral things.
Look at the National Association of Realtors, another SRO— On October 31, 2023, a federal civil jury found that the NAR had conspired to inflate commissions paid to home-buyers' real estate agents, and determined that NAR and its codefendants owed damages of almost US$1,800,000,000.
Zillow and NAR have anti-trust lawsuits coming their way too. Relying on SROs is just asking for corruption, imo.
>We can easily publicly fund over-sight committees to oversee these industries instead of relying on SROs who take tax-payer money and are in the perfect financial and power position to do some really corrupt and immoral things.
Easily, really? Why is the default position that industry players are corrupt and immoral, but the government overseers will act independently and altruistically and have no financial stake in the outcome? That doesn't jibe with my experience. People in government seem to do some of the most immoral acts out there.
Famously, in the UK, Railtrack outsourced basically its whole operation. Including inspections, often to the same firms doing the work. This culminated in the Potters Bar crash. I worked with someone who survived it. He was, by his own estimation "not quite right" afterwards.
People don't often make the connection, but at that point the government of the day started pressuring Railtrack to fix the rails. Railtrack's countergambit was to demand money from the government, saying they couldn't afford to do it. This did not have the effect they had hoped for and ended up with Tony Blair, a man who had made a name for himself by changing the Labour party constitution so they no longer were about nationalising industries, having to nationalise a section of the railway industry. And to this date, no-one, even a conservative government in power for the last 14 years, has suggested privatising it again.
Alternative explanation is that there is no money to be made by privatization, not because anybody cares if there would be another accident and a lot of people would die
As others have noted, this is fairly common, and I would argue the correct way to do it. The US government sucks at compliance regulation. I'm sure some countries are better at it, but Americans don't follow rules very well, so trying to police them is a losing affair.
What US regulators ARE good at is investigating and prosecuting. The current issue is that they are not doing what they are good at. In the NCAA if a staffer (say Connor Stallions) commits a major rule violation, the head of the program (Jim Harbaugh) serves a punishment for "failure to supervise". We need the Boeing CEO to spend sometime in a concrete cell for "failure to supervise". Maybe threaten to break them up a bit with the Antitrust division. The next CEO will do a better job of self-regulating.
The vast majority of industries are practically self-inspected, even when inspectors exist.
For example, take construction engineering; the government doesn't fully inspect every single submitted drawing, they may spot check here and there and make sure the paperwork is filled out, but the final duty rests with the engineer of record.
Same with building inspections, they're no where near detailed and long enough to catch everything, it's mainly a spot check to verify that it's not horribly incorrect.
> For example, take construction engineering; the government doesn't fully inspect every single submitted drawing, they may spot check here and there and make sure the paperwork is filled out, but the final duty rests with the engineer of record.
Nothing always ends up well every time, it's about making the balances and allocating resources where they best serve. This is the perpetual policy problem around things like OSHA and other regulatory bodies.
One question might be if the airlines should be able to inspect their own equipment, or be required to pay the government to do the inspections, instead.
Way more planes have fallen out of the sky due to bad airline maintenance/inspections than have crashed because of Boeing stupidity.
It would be virtually impossible to fully review every construction drawing for accuracy, there are just too many of them. Nothing would ever get built.
Most jurisdictions will do plan review, but it’s not a thorough check of the engineering.
I would assume structural drawing sets are checked a bit more closely than say, the interior architectural drawing set, but mistakes still happen.
Plus, whoever was the PE of record on the structural drawings for the hard rock parking ramp will never sign another set, they’re done as an engineer, possibly they’ll see prison if they were negligent. That won’t bring any peace to the victims families, but it’s something.
This is pretty common in aerospace, defense and, I imagine, alot of other government facing industries. For something like this the inspection procedure is likely approved by the government and verification it's being performed properly is done with lots of submitted and retained paperwork. So maybe less judge and jury and more private vs public attorney filing the same motion. Yes, they could have biases but they both are performing the same task, based on the same laws.
I will also add that just because something is inspected by the government does not insure quality. Usually failures in inspection are due to inexperienced and/or overworked inspectors, higher ups pushing to "get things through" or to reduce costs, or other banal reasons just as possible to occur whether it's Uncle Sam or Boeing writing the inspectors checks.
You got a laundry list of responses, the take away is that even with modern technology and abilities it is completely impractical to do the sort of inspecting that people seem to think is common place. Even for just one industry, but people seem to think every industry has regulators inspecting every factory. There just aren't enough people or money and if you did somehow do that the bureaucracy would collapse down onto itself in the same way imperial China repeatedly imploded.
Edit: the promise of the blockchain and self executing contracts was to overcome this bureaucracy problem.
This seems to excuse poor enforcement of regulations (or worse, lack of the government regulating to begin with) with the premise that it’s impossible to do right.
Yes, sure, it’s impossible to inspect and regulate every single thing all the time. But the US is doing a piss poor job where other nations at least have a decent baseline.
This is by design by the way, underfund agencies so that politicians keep getting money from their corporate buddies.
Even essentials such as food production is abysmally inspected in the US due to too few inspectors being available.
Most EU countries don’t have these issues and their “bureaucracy” hasn’t collapsed down onto itself.
Your comment is just another “this is an uniquely American issue and if we were to do it right the sky would come falling down” type argument that is trotted around everytime a fundamental issue, that has been solved elsewhere, is exposed.
Any industry in which you have companies actually writing the text of the regulations used to oversee them is a recipe for disaster.
Sadly it usually takes a tragedy to highlight these egregious systems that exist in our country. We also need to get lobbyists out of Washington so that the real impactful work can begin to separate the government agencies from the companies they're meant to regulate.
You can't have (representative) democracy without lobbying. It is not that you need to get the lobbyists out, you need to convince more lobbyists in. It is likely that the average Joe has not talked to their representatives even just once, let alone on the ongoing basis necessary to fulfill the demands of democracy.
Correct - but you CAN get corporate lobbyists and industry lobbyists out of Washington.
Simply mandate that lobbying must be done on behalf of natural citizens and ONLY natural citizens, and limit the lobbying to be done on behalf of citizens with only a $ net worth or under.
If a billionaire complains about not being able to buy a couple senators, well, too fucking bad. I'd GLADLY give up my ability to corrupt government officials if you gave me a billion dollars.
There are several good reasons for allowing it. One is that it's difficult for a public inspectorate/regulator to maintain the necessary levels of expertise to assess such complex systems (and increasingly so with technological progress). Furthermore, people working inside the industry have much better access to information about the risks than an outside inspector has.
A second reason is simply costs to the public. In 2019, the interim FAA director Dan Elwell testified to the US Senate after the 737 Max disasters that bringing all delegated oversight back into the FAA would require 10000 extra staff and USD 1.8B in costs. There are fairness/democratic arguments to having the costs borne by the industry (and thus indirectly by the privileged portion of the taxpayers who consume air traffic) rather than by all taxpayers.
A lot of industries self-inspect with regulatory oversight. For example, the SpaceX Starship mishap investigation that required 63 corrective actions from SpaceX before they were allowed to fly Starship again was done by SpaceX with FAA oversight. It seems that the oversight was effective; I highly doubt that SpaceX would have imposed 63 corrective actions on itself without effective oversight.
It's hard to see how it could be any different. SpaceX engineers are the only ones with enough knowledge of Starship to do an effective investigation.
> I highly doubt that SpaceX would have imposed 63 corrective actions on itself without effective oversight.
Eh, I don't know if I agree with that. Most of the actions were very straightforward "stuff we need to fix to make the rocket do what we want it to do and not do what we don't want it to do".
Like, one of the actions was "make the launch pad not explode when the engines turn on". That was the root cause of the engine failures that led to the flight termination. Was SpaceX really not going to do that anyway?
Besides formalizing the process and writing down a list of 63 bullet points and using the legalese of "corrective actions" for them, I think the result would have been basically the same without the FAA looking over their shoulder.
But the main reason for my belief is that the Falcon 9 launch success streak is currently better than any other rocket in history (by a large margin), at 241 launches and counting (and 180 launches since the last landing failure). To put this in context, other launchers with a similar or greater number of launches go 30-50 launches between failures. Unless SpaceX is just incredibly unbelievably lucky, they seem to understand how to do RCA to build reliable rockets.
Rocket launches have to be close to the ideal candidate for COE-driven improvement. Any actual problems are going to be problems that need solving in the short term, and if they aren't solved, there will probably be short term pain. The costs of each launch are high enough that they have to take low-probability/high-severity risks seriously.
Other industries have incentives to defer problems into future years, to externalize the costs, or to just plain hide or ignore them based on things like "accepted industry practice" or "within prescribed safety limits". Somebody needs to balance out the short-term incentives by decision makers to get promoted on the back of a press release about a splashy success, because that success may have a metric ton of failure disguised inside.
Makes sense, they likely would have performed all of those mitigations. But would they have listed 63 in a public document? That resulted in some pretty bad headlines.
Every industry self inspects. The city inspects its utilities. The construction companies inspect their own work. The only time an outside inspector is used is when the company is doing the work for a client, so the client uses an inspector..
If you screw up inspection repeatedly, then you get replaced. This article is about a weird govt flex.
Clinical diagnostics, for example. Any time you take a blood test and send it off somewhere (Quest, LabCorp, etc.) to get assayed, chances are it goes to a self-regulated and self-inspected lab. These labs hire FDA certified "lab managers" as consultants or employees who are then responsible for all QA/QC procedures and certifying that the lab is capable of doing what they claim. They can be held criminally liable and have quite a bit of authority (a bit like professional engineers) but it's still a cozy employer-employee relationship.
The FDA steps in when something goes really bad but I've never seen them do official spot checks without cause.
After Mattel shipped in a bunch of lead painted toys from China a law was passed requiring inspections for everyone except Mattel who were deemed large enough to inspect themselves, even though their negligence was the cause of the law.
Well, the theory is that what is being regulated by federal government is the inspection process of the company, rather than the inspections themselves.
Mostly the government doesn't want to get involved in checking if bolts are tightened, they want to make sure that the company has a process to check that the bolts are tightened and is following it. It would be extraordinarily expensive and inefficient for government inspectors to do all this work themselves.
The FAA / Aircraft Manufacturer relationship has been oft criticized in the past several decades as being a canonical example of 'regulatory capture.'¹ This incident is just more grist for the mill.
I live in an affluent community, but the last time I had electrical work done, the government inspector missed 5 serious problems that I found, 3 of which were obvious.
It's really hard for the government to hire and retain competent people to inspect something as easy as residential wiring, even in an affluent community with plenty of money being spent to operate the government.
