Ladies and gentlemen, this just in. The Vermillion Oil Rig 380 has just exploded 80 miles of the coast of Louisiana, with 12 people missing. This is yet another painful reminder of how expensive our energy is becoming. We will learn a lot more in coming days, but after the Deepwater Horizon, another accident is the last thing we need.
At In A Future Age, we are battening down the hatches in preparation for Hurricane Earl, headed our way in the next 36 hours. I hope everyone has a safe and happy Labor Day weekend.
Yesterday, as I described during my live coverage of the House Energy and Commerce Committee’s questioning of BP CEO Tony Hayward, Rep. Joe Barton, from oil industry haven Texas, apologized to BP for the “shakedown” that the company faced from the White House:
“I’m ashamed of what happened in the White House yesterday,” said Rep. Joe Barton (R-Tex.) during a hearing on Thursday morning with BP’s CEO Tony Hayward.” I think it is a tragedy in the first proportion that a private corporation can be subjected to what I would characterize as a shakedown — in this case a $20 billion shakedown — with the attorney general of the United States, who is legitimately conducting a criminal investigation and has every right to do so to protect the American people, participating in what amounts to a $20 billion slush fund that’s unprecedented in our nation’s history, which has no legal standing, which I think sets a terrible precedent for our nation’s future. I’m only speaking for myself. I’m not speaking for anyone else, but I apologize,” Barton added. “I do not want to live in a county where anytime a citizen or a corporation does something that is legitimately wrong, [it is] subject to some sort of political pressure that, again, in my words, amounts to a shakedown.”
Rep. Barton did not agree with the $20 Billion escrow account, which Tony Hayward agreed to with President Obama, and would ensure that money is available to pay “all legitimate claims.” Well, Rep. Barton apparently hoped that BP would be able to use their army of lawyers to fend off legal challenges, like two other notable companies: Exxon Mobil and Dow Chemical.
25 years after a plume of fatal toxic gas escaped from a Union Carbide plant in Bhopal, India, and killed thousands of sleeping Indians instantly, and tens of thousands later, eight former executives were finally found guilty and sentences to two years in prison and a fine of about $2100, only last week. In 1989, Union Carbide, which was later purchased by Dow, paid only a $470 Million settlement, which provided only $550 per victim. Additionally, Dow is not taking responsibility for cleaning up the site. In fact former Union Carbide officials still refuse to take responsibility for the leak, blaming it on sabotage.
In the other case, Exxon was required to pay only $500 million, from what was once a $5 Billion punitive award, after a nearly 20 year legal saga. BP can fight this battle much longer than any Louisiana fisherman. The $20 Billion escrow fund is an act of good faith on the part of BP. For Rep. Barton to insist that is it a “shakedown” is to say that the Dows and the Exxons of the world should be able to avoid accepting the consequences of their actions.
Apparently Barton, after being condemned by fellow Republicans, retracted his apology. However, many conservatives do support Barton, and object to the escrow account. It is a mystery how one could side with BP on this case, with clear evidence of their liability. Ultimately, a huge company like BP has more power than most modern States. Even in the United States, companies like BP can capture the regulators and ensure favorable legislation through their financial support. In that environment, how can conservatives claim that the power of mega-corporations should go unchecked? How on Earth could Barton side with BP, when we now know all the cost-cutting that led to the disaster on the Deepwater Horizon and in the Gulf of Mexico?
Today it is very fashionable in some circles to blame the federal government for all of our ills. In that line of thinking, free markets would thrive if we could only loosen the grip of federal and state interference. Freed from the grasp of interference, Adam Smith’s invisible hand would encourage the good and punish the bad actors, and create a utopian market based society. Unfortunately, in today’s globalized world, where mega-corporations exercise more power than most states, that view is also naïve.
Critics would say that the government should only do what they claim it is good at, law enforcement and highway paving, and leave all other activities to the free market. Unfortunately, these fundamentalist capitalists do not understand the true power of mega corporations today. It is not simply a question of whether a corporation is a person, as the Supreme Court reaffirmed in the Citizens United decision. It is a matter of super agency. A close look at the disaster in the Gulf of Mexico is very illuminating, although the recent bank crisis also offers a raft of evidence to spark concern about unchecked power.
A report today in the Sunday Times shows just how far regulatory capture penetrated the various federal agencies responsible for oversight of offshore oil drilling. Now, just to be clear, critics of the federal government claim that the federal government, if it would only abstain from providing education, regulating health insurance, and other tasks which they deem it to be inefficient, would as a result become outstanding guardians of offshore drilling. The outstanding reporting of the Times shows otherwise. It shows that British Petroleum, and the other oil companies, in a market that is not free, but rather amounts to an oligopoly, flexed their political and economic power to write the laws and staff the agencies which would regulate it:
‘“The pace of technology has definitely outrun the regulations,” Lt. Cmdr. Michael Odom of the Coast Guard, at a hearing last month… As a result, deepwater rigs operate under an ad hoc system of exceptions. The deeper the water, the further the exceptions stretch, not just from federal guidelines but also often from company policy.’
When BP set its sights on Mississippi Canyon Block 252, they asked for relaxations from numerous federal regulations, knowing they would receive approval. They received exemption from a federally mandated environmental review, and from the federal requirement for the blowout preventer valve to be tested at a mandated pressure. They used equipment that violated even company policy, because the rig was 45 days behind schedule, and BP was paying an expensive lease to TransOcean throughout the delays. Why did the Minerals Management Service go along with this egregious behavior? Interior Secretary Ken Salazar knows:
‘The Minerals Management Service, which regulates offshore drilling, went along with these requests partly because the agency has for years had a dual role of both fostering and policing the industry — collecting royalty payments from the drilling companies while also levying fines on them for violations of law. Its safety inspections usually consist of helicopter visits to offshore rigs to sift through company reports of self-administered tests. Even Ken Salazar, the interior secretary, who oversees the minerals agency, has said that oil companies have a history of “running the show” at the agency, a problem he has vowed to correct.’
Now that Salazar, and the residents of Louisiana and Florida can plainly see the regulatory capture at work and at fault, will they be able to correct it? Turning to the banking industry, with all of the influence that Citibank and Goldman Sachs wield, did you think that the impending banking regulation would truly go against their wishes, even after the collapse of the global economy? What about the tragic explosion at the Upper Big Branch mine in West Virginia? Sure, America has already largely forgotten that disaster, in which 29 miners died. Unfortunately, as Arianna Huffington points out, the Mine Safety and Health Administration was similarly captured by Massey Energy and Big Coal:
‘Former Massey COO Stanley Suboleski was appointed to be a commissioner of the Federal Mine Safety and Health Review Commission in 2003 and four years later he was nominated to run the Office of Fossil Energy in the Energy Department. Today, he’s back on Massey’s board. And Massey exec Richard Stickler was made the head of MSHA by President Bush in 2006. Talk about hiring the foxes to guard the hen house. Massey has also mastered the D.C. art of buying friends in high places. Back in 2000, Massey was responsible for a coal slurry spill in Kentucky that was three times larger than the Exxon Valdez spill. The company very successfully limited the damage — not to the environment, but to its bottom line. Once Elaine Chao, Kentucky Senator Mitch McConnell’s wife, became Secretary of Labor, which oversees the MSHA, she, according to Jack Spadaro, an MSHA engineer investigating the spill, put on the brakes. Two years later, Massey was assessed a slap-on-the-wrist $5,600 fine. The same year, Massey’s PAC donated $100,000 to the National Republican Senatorial Committee, which was chaired by McConnell. And Massey’s CEO Don Blankenship has personally donated millions to the campaigns of judges and politicians.’
To those denizens of the Tea Party and Libertarians who hunger for the diminishment of the federal government, be careful what you wish for. BP was concerned only with its bottom line, not that of the residents of Louisiana. Regulation is gamed today; in the utopia imagined by some critics, there would simply be no checks on mega-corporations like BP. Their bottom line would be the only bottom line. Citizens United was only the beginning.
On Tuesday night, the Ragin’ Cajun James Carville walked into his favorite New Orleans eatery and found BP CEO Tony Hayward and Coast Guard Admiral Thad Allen, the two men responsible for fixing the calamity in the Gulf, dining over presumably crude-free shrimp. Carville joined the two for a glass of Makers Mark; Tony mentioned that Carville had said some “harsh things.” He promised to make things right. “I’m really committed to this,” he told Carville.
That makes what happened yesterday all the more striking. With news that the oil spill could be soon approaching Atlantic beaches, Tony was flanked: Carville held the high ground in New Orleans, and the crude was approaching Virginia, just like the French fleet in 1781. BP CEO Tony Hayward had no choice but to surrender. The Guardian in London reported the historic news:
‘BP is to hive off its Gulf of Mexico oil spill operation to a separate in-house business to be run by an American in a bid to isolate the “toxic” side of the company and dilute some of the anti-British feeling aimed at chief executive Tony Hayward, the company said today. The surprise announcement was made during a teleconference with City and Wall Street analysts in which Hayward attempted to shrug off the personal criticism saying words “could not break his bones”.’
Apparently, Carville’s words could not break Tony’s bones, but they could send him packing for Mother England. Responsibility for the clean-up will now fall to Yank Bob Dudley, who was thrown out of Russia in 2008 in a shareholder battle.
Now that the British-CEO Tony Hayward has surrendered, the victorious American will be left to deal with the fleet of crude headed for Atlantic beaches near you.
Yesterday, as my wife and I were driving to a Memorial Day get-together, we noticed the heavy haze which uncharacteristically hung over Providence. Suddenly, Providence looked like Houston, Los Angeles, Hong Kong, and other cities with big air pollution problems. Apparently, the smoke was an import from Quebec, where 52 forest fires are consuming acres of forest. The NASA image above shows how far the smoke has spread. While the smoke is a temporary nuisance, this is a reminder that nothing is really local anymore. It is also a reminder of the disaster in the Gulf of Mexico, where the “top kill” attempt failed and oil continues to gush.
The epic failure of British Petroleum, TransOcean, and Halliburton to prepare for this kind of catastrophe resulted not only in a destroyed deep sea rig, but the pollution of the Gulf and the crucial wetlands of Louisiana. Rachel Maddow does a good job showing the impact so far. However, the oil continues to gush. The spreading oil is also a clear indication of another growing phenomenon, regulatory capture. To just look at the energy industry, oil companies write energy legislation. Oil company veterans staff the Mineral Management Service. British Petroleum’s former Chief Scientist is now the Department of Energy Undersecretary for Energy and Science. Critics of government say that the government has become too powerful; however, this oil spill is a clear indication of how far regulatory capture has spread, how much power corporations have in Washington, and how ineffective regulation can be when it is tailor made by the industry it is designed to regulate.
Can you imagine yourself in British Petroleum CEO Tony Hayward’s shoes? Well, they would be nice shoes, considering in 2009 he made $6 Million or so, a 40% increase from the previous year, while profits dropped 45% – but that’s another story. In my Communications, Persuasion, and Negotiation class, we are doing a simulation stakeholder dialogue exercise, and I represent British Petroleum; so you could say that I am trying to walk a day in Tony’s shoes.
This is a video of Tony interacting with the press on a Louisiana beach. Take a close look, you will see Tony avoiding the oily muck, and then yelling at a cameraman for filming him. This seems to be an ineffective communication strategy. How about some humility, how about acknowledging the concerns of Louisiana residents who are seeing their livelihoods buried in the oily muck?
BP’s Chairman, Carl-Henric Svanberg conveyed to the Financial Times his view of BP’s importance:
“The US is a big and important market for BP, and BP is also a big and important company for the US, with its contribution to drilling and oil and gas production. So the position goes both ways,” he said. Mr. Svanberg accepted BP’s reputation had been damaged by the accident but said that should not be long-lasting “if we do the right thing”.
OK, well what is the right thing? How about showing some concern for the workers that are being hired to clean up the mess? Apparently, fishermen that were hired by BP have fallen ill with severe headaches, dizziness, nausea and difficulty breathing. George Jackson, a 53-year-old fisherman, took a clean-up job after the closing of local fisheries left him unemployed. He was laying containment booms when his eyes started burning:
‘Like other cleanup workers, Jackson had attended a training class where he was told not to pick up oil-related waste. But he said he wasn’t provided with protective equipment and wore leather boots and regular clothes on his boat. “They [BP officials] told us if we ran into oil, it wasn’t supposed to bother us,” Jackson said. “As far as gloves, no, we haven’t been wearing any gloves.”’
Of course, the BP spokesman said he was unaware of any complaints. BP seemingly does not realize that public trust of business is at a low point after the Great Recession. Instead of being forced to show the underwater camera above the leak, why not willingly show it?
BP should be welcoming the press attention, and giving as much information as possible to stakeholders. Yelling at cameramen will only hurt you. With a crisis of this magnitude, and with the damage already done to BP’s reputation, an honest dialogue with the public is the one way to show that BP is accountable. Otherwise it just looks like they have something to hide.