Tuesday, May 11, 2010

British Petroleum

Just some thoughts I had as I listened to the various radio stories on the big British Petroleum oil spill in the Gulf of Mexico.

There are a number of questions being asked in the media about this spill. Was it preventable? If so, whose fault was it? Does BP generally have a corporate culture that doesn't do preventative maintenance, a "fix it as it breaks" culture as one investigator in an earlier spill in Alaska put it? Is it the fault of bean counters at the top discouraging "unnecessary" maintenance? Is it the fault of lazy people closer to the problem? Is it BP's fault, or that of the subcontractor that operates the rig... or that of the manufacturer that made some crucial part? Or is it nobody's fault, they did everything they could, and it was really just an accident? Is deep water drilling just too risky? Should it even be allowed?

In my opinion, while the answers to all these questions are interesting, they are also irrelevant to anyone who is not in the business of offshore oil drilling. For no matter what the human contributions to the situation are, the solution is the same, in my opinion: make BP pay for ALL the damages caused by the incident, and for ALL cleanup efforts they are not directly engaged in, and if that bankrupts them, so be it.

If the spill is genuinely their fault, this is a no-brainer. Clearly, an organization responsible for a deep water oil rig takes on an enormous trust, and if they violated that trust by not doing everything they could to prevent such a spill, I think losing the business is getting off light, considering the magnitude of the disaster. A bankruptcy sale would result in the transfer of many such operations out of the hands of an organization that, in the event they're just not doing proper maintenance, clearly cannot be trusted at that level, and into the hands of other organizations that deserve a chance to prove themselves in exchange for some help reimbursing those affected by the incident.

Of course, if they can actually afford to pay out and continue doing business, and choose to continue offshore drilling in spite of the payout, clearly the value of the oil is greater than the risks involved.

If it's the fault of a contractor, BP is still the responsible party. If any part of the blame needs to be shifted off to the contractor, BP can do that themselves by suing the contractor, and getting some of the money from them that needs to be paid out to the various wronged parties. BP should not be able to wriggle out of its responsibilities by offering up the contractor as a scapegoat, able to go bankrupt with minimal damage to BP. For even if BP did EVERYTHING "right" from the perspective of the industry...

That only proves that there was one initial decision that turned out to be a very, very bad decision: the decision to drill at that location in the first place. I honestly don't care what the government has to say about it. Just because it's legal, it doesn't make it right, and people, even ginormous multinational corporations, should take responsibility for the consequences of their actions, even the unforeseen ones, even the unforeseeable ones... and if others are caught in those consequences and the responsible party attempts to dodge that responsibility--well, if that isn't a reason for having courts and governments, I don't know what is. We'd be genuinely better off without one, otherwise.

In the end, the bankruptcy of BP would send precisely the message to drillers and potential drillers that needs to be sent. For it is the companies involved in drilling and pumping who have the most direct interest in consulting scientists, engineers, and technicians, along with their accountants and lawyers, to figure out what the actual risks of drilling are relative to potential profits. Are the profits great enough to fund an insurance policy designed to handle just such a possibility while still being genuinely profitable? Was BP just a bad company, or are the risks simply too great, as revealed by this incident? The spill itself changes the information that goes into such considerations. And when justice is done, and done consistently, the consequences to the bottom line and the consequences to society become nearly synonymous... and the firms who will do the business become the most trustworthy assessors of risk.

Either way, the consequences to BP will be evaluated by BP, and by other companies according to the actual knowable facts. If companies don't believe they can get away with taking enormous risks (and this goes for drilling, the financial industry... everything, really), if they can't expect their pet politicians to shield them from the consequences, they WON'T take those risks. Mark my words: the Gulf oil spill and the recent financial crises are directly related to a common root cause.

Because the alternative is to let the politicians make the decision on this. They might consult scientists, engineers and technicians, but regardless of the answers they get from them, they will also be consulting pollsters and campaign strategists. The answer they will come up with will ultimately balance not risks to society (measured in financial risk to the firm in an environment where the courts can be expected to require reinbursement of wronged parties) against benefits to society (measured by how much more than production and risk management consumers are willing and able to pay for their product... demand), but rather which hurts their chances at the polls least: allowing drilling and therefore risking the ire of the environmental movement and the people affected, directly or indirectly; or banning it and losing the rather large financial contributions to their political campaigns oil companies provide.

Most likely (almost definitely, barring a deafening roar from the electorate), they'll try a third option: engage in some ineffective rhetoric, create a new bureaucracy or some new rules that fool people into thinking they are doing something about the problem but don't actually address the problem, and go home laughing.

Honestly, if that's all the government is good for, I'd rather live in a world where there's nobody to stop a more direct form of reprisal by the wronged parties.

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