Home > Uncategorized > Institutionalized moral hazard: Fun with Nuclear Power in Japan, or, prepare for a glowing twilight, with scattered fallout in the morning

Institutionalized moral hazard: Fun with Nuclear Power in Japan, or, prepare for a glowing twilight, with scattered fallout in the morning

Thanks for indulging the rambling title, dear readers. My thoughts wander even as try to gather them.

I thought I would share with you some of the observations I’ve been making – tweeting, largely – on the troubled nuclear reactors that TEPCO so thoughtfully lined up on the Fukushima coast to meet the massive tsunamis on March 11.

A environmental journalist who posted the Atomic Boy’s Upset Stomach YouTube video called it little more than government-industry propaganda that glosses over the colossal abrogation of responsibility that led to the Fukushima crisis.”  While I don’t think the video was government- or industry-sponsored, I share his further sentiment (emphasis added):

there’s a gaping omission right at the beginning. Nuclear Boy has a stomach ache. No kidding. Why? …. Could it be because the government of Japan let the Toyko Electric Power Company build a series of nuclear reactors next to a seismically active fault line?

Sticking with the bowel-malfunction metaphor, perhaps the video’s creators could have produced a few frames testifying to the reality that Nuclear Boy’s parents fed him some poison because they forgot to read the label carefully. Something along those lines.

Is that too much for Japanese kids to swallow (so to speak?) I don’t think so. Responsibility is something we all try to teach our children as early as possible. It’s important that Japanese leaders acknowledge the real reasons why they (and their children) are going to have to spend tens of billions of dollars to replace the Fukushima reactors years earlier than expected. Reactors that require an independent source of electricity to maintain coolant levels are, of course, a bad idea, and one that today’s generation of reactor designers have abandoned. But building them in an earthquake zone is tantamount to lunacy.

This prompted me to leave a comment with some of my thoughts (emphasis added):

 James, your criticisms are almost spot-on.

The risk-shifting start with ‘limited liability’ corporations that frees shareholders from responsibility, escalates with ‘public companies’ (regulations isolate managers from shareholders and create barriers to entry), and is ramped up even more for utilities, which are effectively granted monopolies and guaranteed returns on investment by government. Operators of nuclear plants are then given express liability caps for damages that radiation releases may cause others.

None of the utility managers/executives will have PERSONAL liability, of course.

Given all of these government policies that truncate responsibility, can there be any surprise that risk analysis and decision-making produces obviously flawed results — and ongoing efforts to cover up and hide blame?

Here are some recent tweets on this:

Nagao versus TEPCO:Case of now dead nuclear worker reveals how Japan protects corps that exist to fulfill state policy http://bit.ly/hModQE

Japan megabanks to extend TEPCO $25 billion lifeline,as Govt is sure to limit TEPCO’s liability for damages http://bit.ly/e9tBnw #eqjp #p2

These days,it’s ‘capitalists’ who r the biggest socialists:’Japanese Gov prepares to protect TEPCO frm liability’ http://bit.ly/hpx8Eb #jpeq

Moody’s on the obvious:”business risk of operating nuclear pwr plants in Japan is higher thn previously contemplated” http://bloom.bg/e8TIlm

Cato’s Jerry Taylor: Nuclear power is “solar power for conservatives”+needs “a policy of tough love” TT’s Lost in Tokyo http://bit.ly/h07XHj

Posted by: TokyoTom | March 25, 2011 9:12 AM

More in posts to come.

 

 

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  1. TokyoTom
    March 29th, 2011 at 07:32 | #1

    Stephan, it was just a comment on a blog, not a treatise by me. Feel free to go run over there and provide even more clarity it you wish.

    The second quote is based on my understanding of the science of human action. But maybe you’ve never noticed that people pay alot more attention to risk when they feel there’s a good chance that some of it may be pinned on them?

    Seems to me that is is PRECISELY to avoid risk that investors use laws to form limited-liability entities, one reason why firms incorporate subs, and why most US nuclear power plants have separate ownership vehicles.

    Stephan, do you really not understand that I have no problem with partners reaching different agreements among themselves as to who bears liability for what? Such agreements are not binding on third parties. My problem is with persons – especially persons initiating activities that pose risks to others – USING THE STATE to achieve what they could not by contract.

  2. nskinsella
    March 27th, 2011 at 21:03 | #2

    “I understand the distinction and think I’ve got it pretty clear already.”

    But are you sure? Opponents of limited liability routinely conflate limited liability with managerial liability issues.

    “However, you can betcha that if shareholders bore some downside risk – say if shares were not fully paid up, or if the firms were partnerships – you could be damned sure that shareholders would make sure that managers had some liability for their mistakes (such as a salary or bonus escrow/clawback).”

    I can betcha? I can be damned sure? Dunno seems a little armchair to me.

    BTW what if, absent modern corporate law, TEPCO had been organized as a limited liability partnership? Would the limited partners be “fully liable” so as to give them an incentive to make sure managers are “liable for their mistakes”? I.e., would you abrogate limited liability partnerships too?

  3. TokyoTom
    March 26th, 2011 at 18:13 | #3

    Stephan, I’m pleased you visit.

    Happy NOT to hear you say that you think TEPCO and its shareholders are the biggest victims!

    I understand the distinction and think I’ve got it pretty clear already. However, you can betcha that if shareholders bore some downside risk – say if shares were not fully paid up, or if the firms were partnerships – you could be damned sure that shareholders would make sure that managers had some liability for their mistakes (such as a salary or bonus escrow/clawback).

    The multiple layers of shielding from risk make it easier for practically everyone to avoid incurring costs relating to downside risks that others will bear, it difficult to determine responsibility and making poor decisions even more likely.

  4. nskinsella
    March 26th, 2011 at 12:39 | #4

    Of course, the lack of managerial liability here has nothing whatsoever to do with “limited liability” in corporate law–which insulates shareholders, not managers, from liability for torts of employees of the corporation.

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