Targeting The Big Spill

Look at the Op-Ed columns in print and online. Listen to the noise coming from talk-radio. Watch intently the garbage beamed into your television sets. Take all of the above in, then ask yourself, what are the important and newsworthy issues with regards to The Big Spill? Oh some journalists have asked B.P. engineers and others what happened, and other journalists have dug deep enough to find out which politicians have taken money from B.P. (all of them, apparently). We have heard from Haley Barbour that the spill is nothing and we need to drill more. We have heard from Sarah Palin that the spill is something, we need tougher regulations, and we need to drill more.

Opinions on the Spill’s meaning run the gamut on the left as well, from recriminations about the President’s response (he isn’t angry enough), to complaints that the President didn’t “fix” the regulatory agency when he took office, to demands that all drilling cease immediately. The opinion-makers, whoever they are, have turned themselves inside out trying to make political hay out of on of the truly devastating industrial disasters in the history of man. In a nation where backwards thinking has become modern art, The Big Spill has inspired a museum full of impressionist garbage. It is past time to say enough!

There are three causes of The Big Spill, and three causes only. These three causes need to be fixed, regardless of what energy strategy the United States adopts in the future.

  1. A failure of industrial strategic planning, caused by a rush to macro-profits, to adequately consider and plan for real-world engineering scenarios.
  2. An failure in industrial execution, caused by the rush to micro-profits within projects, to take the steps needed to manage away worst case scenarios.
  3. A cultural failure by the public, both as stakeholders and through our government, that has led to unrealistic business models in industries where failure is catastrophic.

Oil companies, mining firms, commuter airlines, and Wall Street investments banks have all fallen pray to item number one. A major source of market failure, poor strategic planning comes about when managers do not adequately account for the risks their company-wide operational plans entail. Veiwing fines from unsafe operations as a reasonable cost of doing business, mine managers place low priorities in funding and allotted time on mine safety. They absolutely care (in their minds and hearts probably) about the miners, but they don’t care with their budgets. Thus the Upper Big Branch mine explosion.

Commuter airlines fill a valuable role in our hub and spoke system, and their business model is the foundation for our nation’s exceptionally low fares. But that model puts enormous pressure on pilot wages, training time, and pilot per diem. These factors mean that regional air carriers are flown by pilots on the opposite edge from Sully Sullenberger. Thus the Colgan Air crash in Buffalo.

Capital management is all about managing the risk versus return relationship. The higher the risk, the higher the return an investor should seek for the investment. Portfolio managers weigh the risks in terms of probability of loss versus the return is all goes well. At some point on Wall Street, the bright lights stopped using their scales, secure in the knowledge that they couldn’t fail. Thus the financial meltdown of September 2008.

Then there are oil companies, and the construction contractors like Halliburton that do the dirty work. A certain amount of spillage (read: pollution) was always acceptable; especially because the media rarely reports the little spills. Katrina and Rita took out over 100 oil rigs, each with its own spill, and media coverage was so poor that Governors Jindal and Palin were both able to get away with the “mistake” that there had been no losses. President Bush signed a bill limiting liability for oil companies in the event of a spill to $75 million dollars. Friends, that is about a day’s worth of profit for a major oil company. Thus The Big Spill.

The failure in execution is typically the area that journalists still do a good job covering. All of the red flags that were raised prior to all of the previously mentioned events have been dutifully noted in the media. All are easy for the public to understand; a local manager, under pressure from the big boss, is willing to cut corners in order to come in at or beneath a budget that has been designed in the environment of strategic failure we have already covered.

The real question lies with the third point; the cultural failure. We have victimized ourselves with our politics. Conservative or liberal, many Americans have tried or currently own their own business; most others dream about it sometime in their lives. The idea of being your own boss is a powerful concept, and it isn’t apparent that anyone who takes the risk wants to have a bureaucrat tell them how to run the enterprise. We have, all of us, said (repeatedly), “Why doesn’t someone do something about that?” About that smog, or river pollution, or food-borne illness, or poverty, or fraud. We walk a tightrope of regulation in our democracy. The balancing act is what ultimately leads to poorly written regulations that are only half-followed.

Regulations that are paid lip service are more dangerous than the industries they are supposed to safeguard. They give managers in the industries an artificial feeling of security, and help to foster a culture otherwise known as, “Who cares, its just another damn reg.” The result is here now for all the world to see; an industry in chaos, a company in ruins, an ecosystem destroyed, millions of small American businesses gone for perhaps ever, and a democracy arranged in a circular firing squad.

This is how you get a champion of Tea Party conservatives like Sarah Palin to suddenly make a liberal call for regulation; she was aiming at President Obama and hit her own supporters instead. This is how you get liberal supporters of the President Obama shooting at…President Obama. The liberal blogosphere is alive with recriminatory blasts against the man who led the Democrats back into power. In the final, and to me at least, funniest result, you have conservatives criticizing the President for not bringing the government into this business fast enough. Isn’t government supposed to stay out of industry? The entire brief history of the President’s term has been dominated by conservatives going back on their own principles in their attempt to attack him. The Big Spill is the apogee of conservative attempts; having spent decades telling government to get out, they are, in this highlight of market failure, critical of the President for his supposed inability to fix their problems.

The real story of The Big Spill though, is not about campaign finance, influence-peddling, or even clean energy. The story and its moral are simple; markets can’t handle everything, and the government of we the people is the entity that must pick up the slack. But involvement can’t be in half-measures; if there are regulations, they must be enforced via penalties that make them real to the firm being regulated. If there are areas that go unregulated, then the government cannot be asked to shield firms from their own failures. This event should serve as a wakeup call, not to an industry or political party, but to our country. We need to set aside petty politics, and work for a productive resolution to the issue of democratic safeguards within privately held industry. Failure on this issue will be the ultimate cost of The Big Spill; and it is a cost none of us can afford to pay.

The Rational Middle is listening…

2 thoughts on “Targeting The Big Spill

  1. I am glad that I read this all the way to the end. Sitting back and watching this all unfold has been a travesty. I don’t happen to think that the government should have been involved in this other than to make sure that everything that could be done was being done. President Obama said it best when he stated that “BP knew more about this than he did”. Unfortunately, we found out later that BP doesn’t know JACK! What they do best is cover their A**. I find it VERY unfortunate that there was a “cap” put on how much they would have to pay in fines and I would hope that it will change. This would be a good time for President Obama to finally live up to his campaign promise to get the LOBBIESTS out of Washington DC. Yes that means ALL of them even the Unions, Insurance companies, Banks, financial firms (yes Goldman) etc. The government works for us not he who has the most GOLD!

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