Regulatory capture and the question of governmentPosted: 06/06/2010
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.