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America has been suffering from two serious leaks. The first was the financial disaster in which companies began to shed money and jobs as if they were a broken oil well. The second is an actual broken oil well. Interestingly, these leaks share a common cause.
Newsweek’s Isikoff and Hirsh wrote an excellent article on how BP works Washington. The gist of it will hardly shock people: BP has made use of lobbying money and political connections to avoid and mitigate lawsuits and regulation. The article alleges that BP’s corporate philosophy is that it is cheaper to operate equipment without proper maintenance and then deal with the results of failure. While it is good business to take the least expensive avenue, this approach has helped cause disasters that have killed people and done environmental damage.
On the face of it, this would not seem to be a cheaper way to operate. However, it can be-provided that the costs of this approach is limited or borne by others. There is, as has become widely known lately, a cap on the damages that BP would have to pay. While there has been talk about raising the cap, the legality of retroactively applying this is in question. Having such a cap in place allows companies to enjoy a limit on their costs, thus enabling them to take greater risks by transferring the cost beyond the cap to others.
In addition to the cap, BP (and other companies) enjoy considerable influence in Washington. While this lobbying costs millions of dollars, it is money well spent. This money seems to have bought BP considerable protection and influence. This has enabled BP to continue to follow its operating philosophy of doing things as cheaply as possible by avoiding or severely limiting its responsibilities when problems occur (such as the explosion at the Texas City refinery).
As such, the company can avoid the expense of proper maintenance and safety while shifting the majority of the risk (and the cost when such risks become reality) onto others. These include the people killed, the environment that is contaminated, the people put out of work, and the taxpayers.
This is, of course, eerily similar to the situation of the financial companies. They were able, via lobbying and influence, to reduce the regulations limiting their actions and to get much of the risk transferred to others. When the companies gambles failed and they were losing money, the government folks provided many of the companies with taxpayer dollars. While some companies were allowed to fail, many were considered “too big to fail” (or too well connected). Thus, the rest of us paid the cost of the very profitable risks taken by these companies.
While oil and financial companies would prefer to avoid disaster, we (through our elected officials) have provided them with encouragement to take dangerous risks. We do this by allowing caps on damages that do not serve to deter them from acting in dangerous ways. We also do this by allowing the true cost of disaster to be paid by others. Thus, the companies have excellent reason to take risks. If they win the gamble, they keep the winnings. If they lose, someone else pays.
What, then, should be done?
One challenge is to limit corporate influence. This would require serious changes in campaign funding, lobbying and other forms of influence buying. Since the people who would be making such changes are the very people who are at the corporate troughs, it seems unlikely that there will be major reforms-unless the citizens decide to really push the issue.
Another challenge is to change the laws so that operating in such risky ways is not a good bet. This can be done by raising the caps on damage settlements (but not excessively so-there are good reasons to have limits to liability) and ensuring that corporate leadership is held accountable for misdeeds. Also, putting an end to public bailouts would be worth considering. The overall idea is to craft laws that put the risks and costs primarily on the companies rather than others. This would encourage companies to be more responsible since their profits would be at risk.
It might be objected that such laws would be bad for business. After all, if companies were held accountable and could not shift the risk to others, they would be less able to make profits and increase their hiring.
This is a legitimate concern. The laws need to be crafted so that they do not impose undue burdens on companies or make business too risky for companies. However, it is clearly unfair for the corporations to be able to shift the costs to others while they keep the profits that such shifting enables. Profits that are gained by shifting the
Also, even with such restrictions companies would still be rather profitable. BP, for example, makes billions in profits. As such, it could afford to have better safety while still leaving a large profit margin in place. In fact, history shows that regulation that reduces disastrous risks tends to actually be good for companies. This has been shown in the banking industry and elsewhere. At the very least, better regulation could help companies avoid damaging public relations disasters which can be rather costly. Most importantly, effective changes to the current policies could help protect the rest of us from these risk takers.
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Right diagnosis, wrong prescription. The problem is not lack of regulation, but enforcement of current regulations.
WASHINGTON — The federal Minerals Management Service gave permission to BP and dozens of other oil companies to drill in the Gulf of Mexico without first getting required permits from another agency that assesses threats to endangered species — and despite strong warnings from that agency about the impact the drilling was likely to have on the gulf.
Those approvals, federal records show, include one for the well drilled by the Deepwater Horizon rig, which exploded on April 20, killing 11 workers and resulting in thousands of barrels of oil spilling into the gulf each day.
The Minerals Management Service, or M.M.S., also routinely overruled its staff biologists and engineers who raised concerns about the safety and the environmental impact of certain drilling proposals in the gulf and in Alaska, according to a half-dozen current and former agency scientists.
http://www.nytimes.com/2010/05/14/us/14agency.html?pagewanted=all
I believe we will cease to move forward as a species if we attempt to remove all risk from all endeavor.
I hesitate to take Isikoff’s idea here as the whole story. It’s easy, after the fact, to look at what was done wrong. But I won’t swallow the liberal hook and line about evil CEOs rubbing their hands together making every shady deal possible to minimize their expenses.
The oil industry, like the medical industry, is one of the most regulated businesses in America. And yet, also like the medical industry, it is one of the most reviled by liberals. Why? Because liberals are convinced that burning oil is bad and that we humans can and should exist on locally grown vegetables (an impossibility, unless you like global starvation.
Many don’t care that much about this oil spill. But they’ll use the story to it’s fullest measure in order topush their other agendas, which is a Green world.
All hail Gaia.
I’m fine with rational risk. After all, going for a run or driving to work involves the possibility of death. But, it is so low that it is well worth it. However, we should lower risk when possible and also ensure that the folks gambling bear the risk. Otherwise, we are just doing a form of socialism and welfare for the corporations: they screw up and we pay.
Not all CEOs are evil, presumably. However, it is rational (in a limited sense) to exploit every opportunity and try to create more. After all, if the highest goal is to make money, then it makes sense to violate other values in pursuing that goal.
Burning oil is bad in that it pollutes, provides revenue to non-friendly governments, and is going to run out. I would prefer to replace oil as much as possible with less polluting sources that we control.
I’m fine with a green world-but I think that we can also maintain a high standard of living and high technology. In fact, going green and helping other countries go green is in our interest. If we can help create viable middle classes in other countries by providing the tech needed to do this in a renewable way (otherwise there simply won’t be enough stuff to go around) then we would be better off:
Good point. I should have been clearer. As you point out, we do have laws in effect. However, they generally do not serve to actually regulate, since (as you point out) they can be bypassed. So, we could look at the existing laws as like the safety equipment on the well-it was there, it just didn’t work.
Oil rig was inspected 40 times in 40 months, by the feds. Obama’s administration gave it a safety award.
http://news.yahoo.com/s/ap/20100516/ap_on_bi_ge/us_gulf_oil_spill_inspections
I believe they followed the rules and did what needed to be done. But stuff happens.
This is very similar to the whole Toyota thing. Magnifying bad, ignoring years and years of good.
But when they are bad, they are very, very bad.
You speak as if they wanted this to happen. As if this didn’t hurt them.
There’s just a bunch of fingerpointing. In fact, the most reasonable people I’ve heard speak on the subject have been the oil people. I saw a Matt lauer interview with one of the BP oil execs. Lauer was just dripping with self righteousness and the oil guy calmly and reasonbly answered all his questions.
Than Lauer drove his oil powered car home that evening, cooked his dinner in his microwave made of plastic, shed his 30% polyester shirt and sport coat, sat down, got on his computer made from plastic and silicon, and lamented deeply over how bad his terrible little world is, just because of oil.
And Lauer still doesn’t know who’s to blame for the explosion. But, like other lib, anti-industrialist airheads–he thinks this is the world of Blade Runner. And ohhhh, doesn’t it make for good political rhetoric. Dems just eat it up.
I guess NASA wanted two shuttle explosions too…
I don’t see “evil” in this. I see an engineering problem. But that’s the difference between you and I. To the philosopher, everything is a question of good and evil. To me, it’s just about getting it right next time.
Agree–no evil. Oil spills are simply part of the price we have to pay if we continue to use fossil fuels.
It is stupid to burn oil, anyway, when we should be saving it to make plastics.
The corporate folks do not want oil spills, contaminated medicine or cars that cannot stop. Obviously, these hurt profits, create PR problems and are generally not good for the companies. However, they do want to maximize profits and hence will act in ways that put said profits (and the rest of us) at risk. To use an analogy, a person who has a heart attack because he is overweight, eats poorly and does not exercise did not want to have a heart attack. However, his poor choices brought it on. Likewise, the corporate folks did not want an oil spill, did not want defective cars, and did not want a financial collapse. However, their actions caused these occurrences.
A true accident would be morally neutral in terms of intent. After all, it would be no one’s fault and something that could not have been reasonably avoided. However, failing to keep up proper maintenance is not an accident. If my truck hits a hidden icy patch causing me to lose control and crash into someone, that is an accident. If I neglect to maintain my truck and my brakes fail resulting in a crash, then I am morally at fault.
While watching the latest news about the BP Oil spill, a frightening thought came to mind: what if we can’t stop the oil? I mean, what happens if after all the measures to cap the pipe fail, (i.e., “Top Hat”, “Small Hat” and “Top Kill”). What then? An accident this problematic is new territory for BP. The oil pipeline is nearly a mile down on the ocean floor, accessible only by robots. Add on top of that the extreme pressure at which the oil is flowing out of the pipeline and there you have it: the perfect storm.
Moreover, scientists also claim that they’ve found an enormous plume of oil floating just under the surface of the ocean measuring approximately 10 miles long, 3 miles wide and 300 feet thick. (I’m no math genius, but I bet one of you reading this could figure out just how many barrels of oil that is…)
There are new estimates that the amount of oil spewing into the Gulf of Mexico is anywhere from 50,000 to 100,000 barrels of oil a day: that’s a far cry from BP’s estimated 5,000 barrels a day. If BP’s estimates are correct, the total amount of oil now in the Gulf would be approximately 150,000 barrels (or 6,300,000 gallons). That’s barely enough to fill 286 swimming pools: sixteen feet, by thirty-two feet, by eight and a half feet deep. That wouldn’t cover an area the size of New York City, let alone an area the size of Delaware. Obviously, the spill is much larger than we are being led to believe. If the leak can’t be stopped, in a year’s time, we’ll have roughly 18,250,000 barrels of oil (or 766,500,000 gallons) in our oceans, killing our marine and animal wildlife. Such a calamity would be environmentally and economically disastrous. Pray that BP and our government work fast to end this catastrophe.