Just posted this comment to the Economist, after reading the latest article on the BP disaster and the mounting costs. The article is here; here is my posted comment:
Watching this tragedy unfold day by day is as painful as watching a train wreck. As the time passes and we look for root causes we peel back layer after layer of the onion to discover:
— a corporation whose behaviour seems to put profit ahead of safety and prudence;
— a specific regulatory institution that seems highly compromised;
— an entrenched attitude throughout government that generally buys into the notions of “deregulation” and “industry self-regulation”;
— government policy that is driven by the political realities of short-term requirements (immediate economic growth, getting re-elected, etc.) over long term sustainable growth and societal welfare;
— a citizenry that is “outraged” by the incident and seeks some kind of retribution however doesn’t want to own up to their own culpability in the overall play that is being acted out;
— lots of “after the fact” mud-raking (no pun intended) by most of the central players to nominate a villain, assign blame, and promise “never again”.
Not surprisingly, I believe this is exactly the same list of statements you could make about the recent economic meltdown, the Exxon Valdez incident, the Union Carbide tradegy in Bhopal, and any number of other corporate disasters.
I write “not surprisingly” as I think this is exactly the way we have designed the modern corporation to operate. Placed in a regulatory environment of “we generally want to trust you — please try to do the right thing” the corporation has every incentive to seek to minimize costs in search of profits, and to constantly lobby to externalize as much of their actual cost and risk base as possible. The same corporation will use every legal tool at their disposal to limit their overall liability and seek to reduce any fines or costs that are imposed on them.
It is instructional to note that after 19 years of ongoing legal activities the fines imposed on Exxon after the Valdez incident have been reduced from $2.5B to around $500M. It cost Exxon about $188M in legal fees to achieve this outcome — which from a business perspective is money well spent.
After the economic meltdown, we went after the banks. Now, we’re going after BP. The thing I think we are missing is that the common feature across all these disasters is the role, power, and incentives of the modern corporation to operate the way it does. And hand in hand with this is an analysis of the regulatory environment necessary to balance our society’s desire for ongoing “growth” with the risk posture we are willing to take on in pursuit of that “growth”.