Gulf Oil Spill Another Indication of the Need for Regulatory Reform
British Petroleum’s disastrous oil spill in the gulf reflects a combination of problems from human laxity and mistakes by BP-hired workers and government agencies to systemic U.S. government problems related to regulatory agencies in general. In this regard, the oil spill is eerily reminiscent of the 1986 Chernobyl nuclear disaster in the Ukraine that raised concerns about the safety of the Soviet nuclear power industry. In both cases there were warnings that went unheeded because human safety and environmental concern were pushed aside for other concerns by those ultimately in charge.
All human activity has risks, and large-scale pioneering efforts in new fields contain higher risks than enterprises with a long history whose risks are well understood and safety well-engineered into designs and processes. The survival of the human race and the development of society depend upon such pioneering efforts. What is tragic is when major disasters could have been avoided because safety standards were ignored by corporate leaders or government bureaucrats and perhaps not even understood by less-than-capable workers on the disaster site.
These accidents are not something that can be understood or solved in terms of traditional socialist vs. capitalist debates. Both socialists and capitalists cause these problems through a combination of maximizing economic gains and ignorance of engineering and safety issues. Over time, particularly as a second generation of leaders are appointed to head major projects, the drive for increased economic maximization pushes safety envelopes.
History is replete with examples of poor oversight based on selfishness and technical ignorance of leaders. In general, neither government political appointees nor Wall Street investors have the technical expertise to understand the consequences of their political or financial decisions. Often well-designed and safe enterprises fall into the hands of managers and workers that do not understand them sufficiently. In the case of the BP oil spill, subcontractors working for BP may have been hired for the money without understanding the warning signs that something was wrong.
When it comes to the foibles of human institutions, this accident bears similarities to the reaction by the U.S. Defense Department and Halliburton officials to 18 electrocutions of soldiers like Ryan Maseth and David A. Cedergren in showers in Iraq, where short-cuts literally led to short circuits. In that case, the Defense Department hired Halliburton, who hired a local Iraqi subcontractor, who did the job at a low cost. At all organizational levels, safety of soldiers was less a priority than getting a contract and making money. The Catholic Church is an example of a religious institutional response to pedophilia of priests, where priority was also given to “take care of their own” rather than admitting responsibility to the victims of their institutional system.
Without proper laws and punishments in place people will push envelopes to the point that harm to others, or the environment, is socially unacceptable. Whether the harm to others is murder, robbery, rape, or despoilment of property, the proper role of government is to protect citizens from harm, either from outside forces or from other citizens.
The purpose of regulatory agencies is to enforce compliance with laws. Unfortunately, the way U.S. regulatory agencies are structured tends to make them referees that “throw the game” in favor of those they are supposed to regulate. When the heads of regulatory agencies are on the industry team, the actual regulators are encouraged not to regulate. In a previous blog, I mentioned the SEC employees spending their days viewing pornography. In the case of the Minerals Management Service, charged with regulating mineral enterprises like BP, it was discovered at least one inspector admitted to using crystal methamphetamine at work.
These problems are not limited to one agency, or to just the SEC, the FDA, and the Minerals Management Service (MMS) under the Department of the Interior. They are structural problems related to the dysfunctional nature of the current U.S. political system. Many of these problems relate to ways Congress has been reorganized to escape Constitutional checks and balances since the U.S. founding. Other problems relate to the failure of government to regulate new technologies according to basic principles of good governance.
The MMS is functionally a “player” and only nominally a “referee.” One just needs to read its mission statement:
Mission — The Minerals Management Service was MMS Funding formed by Secretarial Order in 1982 to facilitate the Nation’s mineral revenue collection efforts and the management of its Outer Continental Shelf offshore lands. The MMS manages energy and mineral resources, including alternative energy resources, on the Nation’s OCS in an environmentally sound and safe manner.
Notice that the primary purpose is to raise money for the government and “in a safe manner” is tacked on. In my book Life, Liberty, and the Pursuit of Happiness, Version 4.0, I laid out the reasons why government regulation has to be divorced from business the way it had to be divorced from religion. As a business, this agency does not have proper incentives to regulate off-shore drilling. In 2007, MMS dispensed $11.7 billion in mineral revenues to the states. It is incentivized to to exploit natural resources, not to protect them or insure safety. Those roles would be a huge conflict of interest.
Note also that this entire agency was not formed by Congress but by “Secretarial Order” from the Department of the Environment. Its formation was driven, not by the will of the people, but by the will of a bureaucracy. And, if one understands the nature of bureaucracies, their will is to expand and make life better for their employees–not the will of the people.
The budget for the Minerals Mangement Service for 2009 was 307 million, of which nearly half, $146 million, came from rental receipts and fees and the balance from the taxpayers. Who could expect that this agency would engage in activity that would undercut its own revenue? For all practical purposes the MMS is a government business and not a regulatory agency.
This agency, like most government agencies, suffers from the structural problems that create a revolving door between industry and agency leadership. These from political appointments and laws based on special interest industry lobbies influence legislators. Legislators are able to pass this special interest legislation that amounts to corporate welfare because current legislative processes do not adhere to the single subject legislation intended by the U.S. Founders.
How to Solve the Problem of Reform
One of the needed general solutions is to reform legislative processes related to combined special interest legislation as I discussed in my book in the chapter on reforming Congress. But a specific solution to reform of the MMR would be to abolish the present agency and put its specific missions under branches of the government more appropriate for carrying out those missions.
- Revenue collection would thus be more appropriately put under the IRS, an agency designed for revenue collection.
- Enforcement of safety should be put under the judicial branch of the government that is designed to enforce laws of justice that are created by the Congress.
- Creation of Laws by Congress should reflect the well-being of the citizens of the United States.
Presently the Minerals Management Service is an elitist network of industry and government collusion. It serves more the role of providing cushy jobs to friends and relatives of politicians and lobbyists than its stated functions that could better be handled without any such appointments whatsoever in appropriate branches of government that already exist and were created by the Founders of the U.S. Constitution. It is just another example of deviation from constitutional principles of good governance by worms that have crept into the U.S. system of government.
Congress should write laws designed to balance the interests of the citizens in acquiring and using natural resources with the interest of long-term environmental sustainability and justice for citizens. This means clear methods of assigning responsibility for disastrous accidents and compensation for those harmed by such accidents. Such laws should be driven by the electorate, not by special interest concerns. They should be enforced by courts, not by special friends. History has shown that we cannot expect people to be able to police themselves. Religions can help encourage people to police themselves, but governments are required to police people when they fail to do so. Because the Minerals Management Service has a fundamental conflict of interest, we could hope its members are religious and will police themselves, but a government cannot expect an agency so organized to help prevent offshore oil drilling accidents.
Another excellent analysis. To paraphrase Gordon, the corruption largely consists of the fact that the regulators are being coopted by (or are even the very same as) the regulatees. Andf of course, this has been happening in other sectors as well – SEC, FDA, etc.
Should college students be trusted to grade themselves? Should the patient prescribe the cure for his own illness?
Separating the functions – for example revenue collection and regulation – into separate and independent agencies is the way to go. I believe that this is in fact what Interior Secretary Salazar is proposing to do.
A problem that is even more fundamental than our corrupt and dysfunctional political bureaucracy, is our enslavement to oil, and to economic growth in perpetuity. Neither of these two can go on for ever.
The Gulf disaster almost seems like the beginning of armageddon. I don’t truly believe in doomsday scenarios (e.g. 2012). We’ll probably muddle through this one too, as we have muddled through everything else. But this is one more nail in our coffin. One would hope that this crisis, in addition to leading to regulatory reform, would also be a wake-up call to move away from oil DRASTICALLY (as Chernobyl and TMI were the death-knell for nuclear energy – which, by the way, I favor), and also to re-examine the notion that the environment exists to feed industrial-economic growth in perpetuity.
Excellent points you have made here with this article. I read it all several times just to ensure I’d been reading you correctly. I love your own stance and I shall be sure to come back here.