Of Oil, Arrogance, and Enlightened Self-Interest

The current catastrophe in the Gulf of Mexico is looking like a classic tragedy. It appears that BP and those who constructed the off-shore rig failed to meet acceptable standards in construction, warning and safety systems. In part this may have been a product of BP’s weighing of the costs and benefits, as suggested by an earlier memo ham-handedly thinking through the hedonic calculus via an analogy to the Three Little Pigs (See Rick Outzen’s piece in the Daily Beast).

The Minerals Management Service

Thankfully, regulators and inspectors at the Minerals Management Service were serving their duty as watchdogs watching porn on government computers, when they weren’t accepting gifts from the oil industry, dreaming of the revolving door, or hoping that the earlier evenings’ crystal meth wouldn’t cloud their judgment.

Meanwhile, it is good to know that the President—who seems remarkably disengaged from this situation—was able to find time to attend a fundraiser yesterday in California for Barbara Boxer.  Lisa Jackson, EPA Administrator, had the good sense to cancel a Manhattan fundraiser for Senate Democrats. One assumes the optics were bad. Luckily, this can be “hope and changed” with a symbolic presidential visit to Louisiana on Friday.

In any event, the effort to stop the tragic leak  via “top kill” is scheduled for today. Should one be optimistic? Apparently not. As the New York Times reports: “BP officials said the method of containing spills had never been tried so far underwater, and that it could take up to a few days to determine whether it had succeeded. They cautioned there was no guarantee that the gambit would work.”

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Crises (and yes, this has now become a crisis) are never self-interpreting. But I have a few quick thoughts.

Real world events always lead me to think that Stigler’s economic theory of regulation was too optimistic a portrayal of the underlying dynamics.  Elected officials seem to exhibit the depth and sophistication of Michael Scott (the character from the Office portrayed by Steve Carell) while regulators seem to exhibit the competence once would expect from the Three Stooges (if placed in the movie Brazil).  Corporations, while acting in their self-interest, rarely seem to act with enlightened self-interest.

I find it stunning and unacceptable that the oil industry can engage in deep sea extraction without having (1) a competent and exhaustive contingency plan; and (2) the equipment necessary to execute the plan ready for deployment. To begin consideration of how to deal with what appears to me to be a quite plausible event at this stage in the process is the height of arrogance.

Jason has made some postings about the precautionary principle that seem worthy of another read.  But here I want to focus on enlightened self-interest for a moment. Corporations work under what scholars commonly refer to as a regulatory warrant (i.e., what they are permitted to do under existing laws) and a social warrant (i.e., what they are permitted to do by the communities within which they are embedded). The social warrant can be very fragile, and thus self-interested firms must often go beyond what is required by regulations to nurture their reputations. Corporations must understand that, in many industries, they are “hostages of each other,” to use the title of an impressive book by Joseph Rees on nuclear industry self-regulation post Three Mile Island). Industry reputation is a collective good and a fragile good that can be easily destroyed by events like this. One would think that self-interested actors would recognize this and work collectively to develop coherent strategies for addressing these kinds of situations before they occur.

Tragically, if we can’t rely on the enlightened self-interest of corporations, the prudent and mature behavior of elected officials, and the competence of regulators, the crisis extends well beyond the events in the Gulf of Mexico.

5 thoughts on “Of Oil, Arrogance, and Enlightened Self-Interest

  1. I wonder why Obama isn’t getting hammered for the government’s response the same way Bush did for Katrina. This seems far worse since the industry is heavily regulated, whereas Nature (at least at this point in history!) isn’t. Hmmmmm, is that because the media has been in the tank for the administration since the very beginning and this doesn’t fit the right narrative for the 8 year plan?

  2. Improper gifts, porn, and crystal meth–wow. As jaded as I already am about government regulators, this still shocks me.

  3. Companies do act in enlightened self interest. Unfortunately it’s the enlightened self interest of the decision making employees, who *can move on*. So they rarely break the law – that can lead to personal criminal charges – but external risk is not properly factored.

  4. Isn’t all of this risk tempered by the $75M statutory limit? Absent government protections they would have had to be properly insured, with all the compliance that would entail. The acoustic trigger may have been cheaper than the policy premium increases not having one would imply. The argument can be extended to corporate shields in general, too.

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