BP: Too big to fail? [update 4]
IT’S ONE OF THE OLDEST rules in the common law book: Produce something unsavoury on your property, or unleash something extraordinarily unsavoury, and you bear sole responsibility for whatever damage it might do to your neighbours.
That’s the rule that might bury BP.
The calculation is simple. The cleanup bill for BP’s fiasco in the Gulf of Mexico fiasco looks to be around $100 billion. And after last week’s collapse in its share price, BP’s market capitalisation is still around $100 billion, just enough to pay the costs of all those whose livelihoods have suffered damage by their actions. And therein you see the big problem for the big oil company—and for the big British pension funds that have relied on BP’s returns to bankroll Britons’ retirement
It’s not good enough to argue that BP is too big to fail. Damage your neighbours’ property—or the fishing grounds and shrimp harvests in which your neighbours have property—and it’s your responsibility to pay for the cleanup, even if that buries you. (Note that it buries you, but not your assets, which still go on after your demise, just in other hands.)
And it’s not going to be good enough to argue that British pension funds are too big and too important to be able to fail. Risk must come with consequences, if law is to mean anything at all.
SO WHAT WENT WRONG and who was responsible? The mainstream answer was put up by Rachel Maddow last week, who demonstrates that brains are no good unless you use them. “Tonight on the show,” she says on her blog, "we're looking at why BP wasn't prepared to deal with the Deepwater Horizon disaster. Short answer: No one made the company get ready.”
It might be a short answer, but it’s sure as hell a wrong one. It isn’t a who that makes a company formulate plans to mitigate or avoid disasters, it’s a what.
Contrary to Rachel’s contradictory world-view, what does (or should) motivate companies like BP to mitigate or avoid disasters is one very basic thing, and that’s their own long-term self-interest.
I can almost hear Rachel’s “WTF?!” as I say that. But as BP’s imminent demise demonstrates, if you’re not set up to properly handle the many things that can go wrong in unleashing something as unsavoury (in the wrong places) as BP’s product, then your long-term future is a dismal one—as is the future of all those who were relying on your acumen and decision-making ability, like the beneficiaries of those pension funds for example.
Clearly, if your long-term survival and prosperity is important to you—and why wouldn’t it be?—then the more unsavoury the stuff with which you deal, or the more damaging the consequences of its uncontrolled release, then the more care you must take to insure against its unplanned release, and to deal with it if that happens.
On the basis of BP’s obvious unpreparedness, it looks like BP has betrayed its own self-interest, and after paying the bill for that failure they will be left only to provide the fertiliser for the better management of their assets by others. In that, there is a powerful ethical lesson for everyone involved in business.
“…the likes of Tiger Woods and Bernie Madoff and Elliot Spitzer, all of whom would conventionally be called “selfish” for what they did, should actually cause you to call into question your conventional view. None of these mean at all look like they’ve been rationally selfish—in fact they’ve all been decidedly unselfish in any rational sense--and that, in fact, is the leading cause of their downfall.”
The Unselfish Actions of Today’s “Selfish” Men - THE UNDERCURRENT
"’If you could control an oil spill with lawyers and regulation-writers, and by signing papers and obtaining court injunctions . . . then maybe the U.S. government could do something’ said Byron W. King, an energy analyst at Agora Financial. ‘But really, Uncle Sam has almost no institutional ability to control the oil spill. For that, you need people with technical authority, technical skill and firms with industrial capabilities.’"
And also, one might add, a keen sense of their own rational self-interest.
UPDATE 3: You think maybe a tantrum from the president might fix things? Um . . .
“’Since the oil rig exploded, the White House has tried to project a posture that is unflappable and in command.
“’But to those tasked with keeping the president apprised of the disaster, Obama’s clenched jaw is becoming an increasingly familiar sight. During one of those sessions in the Oval Office the first week after the spill, a president who rarely vents his frustration cut his aides short, according to one who was there.
“‘Plug the damn hole,’ Obama told them.’
“That’s the politician’s answer to every intractable problem: give orders, issue threats, and wait for obedience. But the creative human mind cannot take orders like that. Notice I didn’t say, ‘refuses to take orders.’ I said, ‘cannot take orders.’
“By that I mean, the task of plugging a leak 5,000 feet below the surface of the Gulf of Mexico is an engineering feat. BP’s acknowledged role in causing the leak does not alter the fact that careful study, creative thought, and the exacting deployment of technical and mechanical skills over long distances are all necessary in order to fix the leak. No amount of jaw clenching or bug-eyed threats from politicians can bring the solution one inch closer to reality. The human mind does not operate by force from outside. If engineering achievements could be conjured up by barking orders, the Soviet Union would be a thriving nation overflowing with engineering marvels, instead of a dead husk…”
“Plug the damn hole!” – THOMAS BOWDEN
“Now, as the economy implodes under the weight of government debt, taxes, and every manner of statist intervention, (including environmental regulations that resulted in deep water drilling! [HT: Gus Van Horn] and now, the shut down of oil rigs that work!) Obama and his supporters find themselves up against an intransigent and implacable force - reality.”
Which as King Canute should have taught them, is the one thing over which politicians really do have no power.
UPDATE 4: Noodle Food has another good link:
“The standard argument [made by Maddow and others is] that the problem behind the BP oil spill was a problem of capitalism. Instead, [this article by Wendy Milling] shows how it was an industrial accident significantly worsened by anti-capitalist government policies to become a disaster.”
Read Milling’s article, "No Thomas Frank, Capitalism Is Perfect.” Great title, great arguments. For example:
“Assaults on capitalism are rooted in a crybaby metaphysics, and they rely on obfuscations, equivocations, and an attitude of militant evasion. One trick is to make inappropriate demands of capitalism, then stomp and pout and denounce capitalism when those demands are not met.”
Stomp and pout? You’d think she’d been reading Martyn Bradbury.