Sheldon Richman doesn’t feel sorry for BP, either
As a follow-up to Lew Rockwell‘s Feel Sorry for BP? and my two sets of comments on it (Risk-shifting, BP and those nasty enviros, and Poor statists! If we close our eyes tightly enough, we can see clearly that Corporations are innocent VICTIMS, of governments that foist on them meaningless grants like limited liability & IP, and of malevolent, grasping citizens), I note and highly recommend Sheldon Richman’s May 14 commentaｒｙ, “Self-Regulation in the Corporate State: The BP Spill; Which system failed”, at TheFreemanOnline.org.
Here a portion of Sheldon’s commentary (emphasis added):
Yet, the New York Times reported, “Despite … repeated promises to reform, BP continues to lag other oil companies when it comes to safety, according to federal officials and industry analysts.” The Times said BP chief executive Tony Hayward “conceded that the company had problems when he took over three years ago. But he said he had instituted broad changes to improve safety….”
Why did BP have problems? The Times goes on: “Some analysts say the safety problems indicate that BP has not yet reined in the culture of risk that prevailed under Mr. Hayward’s predecessor, John Browne…. Mr. Browne set aggressive profit goals, and BP managers drastically cut costs to meet their quarterly targets. After the 2005 explosion in Texas City [killing 15 workers], investigators found that routine maintenance that might have averted the accident had been delayed because of pressure to reduce expenses.”
What we seem to have is a company that, in pursuit of short-term profits, was less than meticulous about safety (other people and their property, that is) while it and its industry effectively vetoed government safeguards that might have prevented the explosion that killed 11 workers and caused the damaging spill.
Some will defend BP in the name of the “free market” or minimize the event, protesting that the Obama administration’s remedial measures will “undermine our capitalist system.” Meanwhile, the “progressive” statists will declare that once again the free market has failed. The respective bases will be rallied.
Corporatist System
But BP’s defenders and statist critics both have it wrong. This is not the story of a well-meaning or negligent firm operating in the free market. Negligent or not, BP is a player in a corporatist system that for generations has featured a close relationship between government and major business firms. (It wouldn’t have surprised Adam Smith.) Prominent companies have always been influential at all levels of government — and no industry more so than oil, which has long been a top concern of the national policy elite, most particularly the foreign-policy establishment. When state governments failed in the 1920s to put a lid on unruly competition and low prices, the oil companies turned to Franklin Roosevelt and the federal government, winning the cartelizing Petroleum Code, significant parts of which were revived after the National Recovery Administration was declared unconstitutional. In the 1950s, when cheap imports depressed prices, the national government imposed quotas on Middle Eastern oil. (In 1960 OPEC, a “cartel to confront a cartel,” was founded.) Republican or Democratic, energy policy is not made without oil industry input.
In this context there’s less to the contrast between government regulation and corporate self-regulation than meets the eye. Self-regulation in a corporate state does not constitute the free market. When companies are sheltered in any substantial way from the competitive market’s disciplinary forces, incentives turn perverse. Moreover, “state capitalism” and the corporate form (pdf) – with its agency problem – can produce the temptation to cut costs imprudently in order to make the next quarterly report look attractive to shareholders.
“Putting profits before people” is a feature of state, or crony, capitalism not the free market.
I accepted the invitation of an empty comment thread to post a few comments, which I copy below:
Sheldon, great post.
I also posted a few thoughts in response to Lew Rockwell’s sympathy for BP and in reply to a response by Stephan Kinsella:
Risk-shifting, BP and those nasty enviros – TT’s Lost in Tokyo http://bit.ly/alFkim
Poor statists! If we close our eyes tightly enough, we can see clearly that Corporations are innocent VICTIMS, of governments that foist on them meaningless grants like limited liability & IP, and of malevolent, grasping citizens http://bit.ly/dc3RD9
I agree with what you wrote, but would note the following as well:
– government’s “ownership” of the seas & seabed leave a continuing tragedy of the commons in its wake, as resource users have no rights to manage, invest in sustainability, or exclude, sue or negotiate with other users whose interests or use conflicts. Thus, fishermen, shrimpers, oystermen and the like were not in a position to negotiate in advance with BP on precautions, and are poorly situated to seek damages.
– you touched on the ridiculous and counterproductive limitation of liability the the US government gifted to BP, but fail to directly note or criticize the much deeper and pervasive problems that stem from state governments’ grant of corporate status, particularly “limited liability”.
From limited liability and corporate status flow a steady transfer of risks from enterprises to the public as a whole: the corporate form enables the growth of large enterprises poorly managed by shareholders (who are dis-incentivized by “veil-piercing” judicial doctrines from trying to closely manage, and generally have little practical ability to oversee anyway), the growth of risk-taking by managers (who, like shareholders, can capture the upside of risky ventures but have little or no personal liability when injury is caused to innocent third parties), growing power and ability to influence judges, politicians and media – and so greatly eroding strict common-law protection of property rights from pollution, and resulting threats to health and safety that spur government action and thus the cycle of struggle for control over government, in which insiders always have the upper hand.
But beside these points, I note that simply explaining that what led to the spill and our general state of affairs was not “free market” capitalism isn’t particularly helpful in giving people direction on how to improve our situation.
Should we:
– insist on ending legislative grants of limited liability, both for ocean oil & gas drilling and for corporations generally? should we insist that drilling only be conducted by partnerships that have no limited liability (but can buy insurance)?
– are there tools of moral suasion that we ought to apply? should we be insisting on naming the names and demanding personal responsibility by managers involved?
Not merely your diagnosis, but your thoughts on practical courses of treatment would be helpful.
Sheldon, great post.
I also posted a few thoughts in response to Lew Rockwell’s sympathy for BP and in reply to a response by Stephan Kinsella:
Risk-shifting, BP and those nasty enviros – TT’s Lost in Tokyo http://bit.ly/alFkim
Poor statists! If we close our eyes tightly enough, we can see clearly that Corporations are innocent VICTIMS, of governments that foist on them meaningless grants like limited liability & IP, and of malevolent, grasping citizens http://bit.ly/dc3RD9
I agree with what you wrote, but would note the following as well:
– government’s “ownership” of the seas & seabed leave a continuing tragedy of the commons in its wake, as resource users have no rights to manage, invest in sustainability, or exclude, sue or negotiate with other users whose interests or use conflicts. Thus, fishermen, shrimpers, oystermen and the like were not in a position to negotiate in advance with BP on precautions, and are poorly situated to seek damages.
– you touched on the ridiculous and counterproductive limitation of liability the the US government gifted to BP, but fail to directly note or criticize the much deeper and pervasive problems that stem from state governments’ grant of corporate status, particularly “limited liability”.
From limited liability and corporate status flow a steady transfer of risks from enterprises to the public as a whole: the corporate form enables the growth of large enterprises poorly managed by shareholders (who are dis-incentivized by “veil-piercing” judicial doctrines from trying to closely manage, and generally have little practical ability to oversee anyway), the growth of risk-taking by managers (who, like shareholders, can capture the upside of risky ventures but have little or no personal liability when injury is caused to innocent third parties), growing power and ability to influence judges, politicians and media – and so greatly eroding strict common-law protection of property rights from pollution, and resulting threats to health and safety that spur government action and thus the cycle of struggle for control over government, in which insiders always have the upper hand.
But beside these points, I note that simply explaining that what led to the spill and our general state of affairs was not “free market” capitalism isn’t particularly helpful in giving people direction on how to improve our situation.
Should we:
– insist on ending legislative grants of limited liability, both for ocean oil & gas drilling and for corporations generally? should we insist that drilling only be conducted by partnerships that have no limited liability (but can buy insurance)?
– are there tools of moral suasion that we ought to apply? should we be insisting on naming the names and demanding personal responsibility by managers involved?
Not merely your diagnosis, but your thoughts on practical courses of treatment would be helpful.
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