In Part I, we discussed the “tragedy of the commons” paradigm. Financial excess in the housing market was a major factor leading us into the current financial crisis. Finance is not the only area of concern. Let’s turn our attention to BP.
BP, the Gulf of Mexico and the Eastern Seaboard
We are now approaching 80 days after the BP Deepwater Horizon oil rig spill. Up to 100,000 barrels of oil are still spilling into the Gulf of Mexico. The government now believes that by August 2010 there is an 80% chance that the spill will reach Miami coastal waters. Once the oil slick starts moving up the Atlantic coast, some experts believe it will damage the fishing industries as far away as the Chesapeake Bay and even the Grand Banks off Newfoundland. See BP’s Crude Politics and the Looming Environmental Mega-Disaster
A dynamic tension exists among private profit, America’s need for oil, especially domestic oil, the government’s need for lease and tax revenue from the industry, and environmental concerns. Despite campaigning against lax Bush Administration enforcement of oil drilling limits the Obama Administration ignored an environmental warning contained in a DC Court of Appeals decision. Citing financial necessity, the Administration was able to overturn the ruling:
Less than four months after President Barack Obama took office, his new administration received a forceful warning about the dangers of offshore oil drilling.
The alarm was rung by a federal appeals court in Washington, D.C., which found that the government was unprepared for a major spill at sea, relying on an “irrational” environmental analysis of the risks of offshore drilling.
The April 2009 ruling stunned both the administration and the oil industry, and threatened to delay or cancel dozens of offshore projects in Alaska and the Gulf of Mexico.
Despite its pro-environment pledges, the Obama administration urged the court to revisit the decision. Politically, it needed to push ahead with conventional oil production while it expanded support for renewable energy. Obama Decried, Then Used Some Bush Drilling Policies.
The Risk of a Pro-Drilling Policy
A pro-drilling policy with minimal governmental supervision set the stage for the Deepwater Horizon tragedy. Macondo History Before the Blowout provides a full analysis of the mistakes made at Deepwater Horizon. First, Congressional investigators documented that BP took numerous short cuts: a cement log was not run, a lockdown sleeve was not used, they failed to circulate a sufficient quantity of mud, instead of a more sturdy liner they used a weaker production casing, and 6 rather than the recommended 21 centralizers were used. While these shortcuts most likely contributed to the problem, the author focuses on human error. The BP drilling engineer in charge ignored four major well events, referred to as “kicks” in the industry. These are warning events. One can surmise the engineer was trying to complete an over budget drilling project, quickly. Drilling engineers are trained in mandatory safety courses to recognize “kicks” and take appropriate action. Perhaps in a desire to expedite the project, he chose or was pressured to disregard obvious safety warnings.
Blowouts are a strong possibility when drilling. They are not rare events. The author goes on to state “it is inexcusable that BP should have been so completely unprepared for the aftermath. BP should have had the containment built and tested ahead of time.” By contrast, the Shell Corporation had a system on standby.
In pursuing its private interest in increasing shareholder value, BP despoiled a very large “commons.” Avoiding an obvious extra expense, BP did not have a containment system on standby. If the worst happens, BP will have fouled fishing grounds as far north as Newfoundland, and part of the Gulf region will become uninhabitable. Of course, if BP goes bankrupt,taxpayers again will be asked to shoulder the clean up expense.
Private Interests, Public Policy and Protection of the Commons
The message and lesson of the Tragedy of the Commons is that there are dangerous activities requiring strict, intelligent and active regulation. Neo liberal economists believe that regulation should not hinder the free market. They assert that the free market will always self correct. But in a technologically advanced and interconnected world, the stakes are far higher. Unfettered capitalism can literally collapse the financial system as demonstrated by the recent financial crisis, or the eco system as demonstrated by the ongoing BP oil spill.
No one would question the right to limit private profit made through the sale of anthrax or nuclear materials. We know that some activities are so inherently dangerous that the state should intervene and carefully control usage. We are now learning that previously deemed “safe activities” can now have horrendous and unacceptable societal cost.
Nothing would please me more than for the financial industry to pursue whatever risky schemes they wish to engage in. Just be prepared to bear your own losses. Unfortunately, we learned that when it all explodes, we deem it a national crisis requiring domestic intervention to save the banks, insurance companies and industrial companies with finance arms (GE and GM). In a parallel analogy, we have learned that an oil spill could paralyze an entire region of the country and perhaps the entire eastern seaboard.
We cannot afford too many more tragedies in our commons. If we find ourselves privatizing profits and socializing losses, proactive and aggressive government regulation and intervention is going to be required. At issue now is the viability of society itself, and that outweighs private gain anytime.
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Related posts:
- The Tragedy of the Commons Part I: Modern Finance and BP
- Bridging the Gulf
- The Responsibility Index
- The Failure of the Technocrats
- Less Leadership Than Meets the Eye
Tags: BP, Deepwater Horizon, Financial Crisis, Garrett Hardin, GM. GE, Grand Banks, Macondo, Tragedy of the Commons
