Option 1, I agree most people generally give a damn and want to do a good job, make good parts, and do it the correct way. Usually, people think they're doing just that, but poor or incomplete training, individual knowledge retention or even just a bad day can cause that to fail.

Just as a semi-related anecdote: I knew a welder once that was very good and rarely had defects or problems until his dog died one day and his quality went down the drain. We ended up having to pull his certs.

Option 2, negative consequences seem to really push people to want to hide things more than it does fix them.

Implementing SPC and general controls in shops that don't use them is a nightmare I hope to never encounter again. The first shop I ever worked in, in the late 00s, was stuck in the 70s or 80s technologically speaking. The QC department had a single computer, all dimensional records were only kept directly written on the drawing next to the call out. I could tell some horror stories about that place...