So, let's look at policy, because that is as always the real meat of any catastrophic event. The BP oil spill highlights several major deficiencies in corporate policy, environmental policy, and incentives that are inconsistent with both free market theory and common sense. Therefore, let's make a (by no means exhaustive) list of several policies that contribute not only oil spill safety, but to the response and cleanup, and in a broader sense, to the failures of corporations in general.
1: Limited Liability - beyond the obvious insanity of a 75 million dollar damage cap (and lol at anyone who thinks it will get waived), we must look at who any corporation is accountable - the shareholders, who effectively "own" the company. Because shareholders, or "owners" (principal) do not control, or exercise their control over the people running the corporation (agent), and they have no incentive to because of LL, there is thus no incentive to check abusive practices by a given corporation.
The solution is simple: abolish LL, make shareholders accountable for the practices of the company they partially "own". Now, one might protest based on the fact that some shareholders may be punished for having a small stake in the company, or having invested in a company through a mutual fund or other investment vehicle. Firstly, any action would be redirected towards the fund itself, and secondly, any action directed against individual shareholders would be based on:
1: The amount of money invested in the company
2: The amount of knowledge the person had of the company's practices
3: The effort spent on attempting to foster change in these business practices.
2: Economic Calculation in the Corporate Commonwealth - Big companies, like big political entities, are subject to inefficiencies in allocating resources and distributing information, and thus may produce results that may appear irrational. There are several reasons for this, such as LL producing agency problems, and "the irrational constraints imposed from above that result in red ink at lower levels" (Carson, 2007). An example of this are the hard deadlines that BP management imposed on Deep Horizon while it was being drilled - the size and complexity of the system resulted in a failure to recognize the safety risks of their "cost-cutting" and "time-saving" measures, and thus in the pursuit of minor profits, they were blind to the long-term costs that a rig explosion would incur.
Unfortunately, the solution to this (make companies smaller) is outside the scope of this argument, because it would entail two real options - either break up corporations by force, or assume that simply not allowing corporations to externalize the costs of their large size (through subsidies, tax breaks, and other interventions) and "let the market take care of it."
3: Subsidies - Subsidies effectively externalize the costs of oil production (and thus, oil consumption) onto taxpayers, and more specifically, externalize the costs of oil and other fossil fuels from people who use a lot of fossil fuel (industry) to people who use relatively little (consumers). Furthermore, such subsidies mask the true cost of oil production by suppressing gasoline prices, and draw resources away from R&D for alternate forms of energy production. Granted, renewables and ethanol get 28b in subsidies...but fossil fuels get 70b. But wait, that doesn't consider this "hidden" subsidy for fossil fuels, so yeah.
Of course, this more than applies to things like the auto industry (not only getting direct subsidies, but indirect ones through protectionism that shields them from competition, urban development that incentivizes people to drive), banking (low interest rates subsidizing irresponsible lending, and of course a 700 billion externalization of the costs of this onto American taxpayers), food (subsidies, subsidies and more subsidies), and so on.
4: Regulatory capture
...which is really a fancy economist word for "corruption". Essentially, by creating close connections with regulatory agencies, making political entities dependent on industry support, and by ensuring that regulatory policy is written to favor you, and hurt your competition, you essentially create a two-tiered legal system of "you and people in your position" and "everyone else". Thus, you can do what you want without worrying about being punished for violating other people's property rights, because the people enforcing said rights are getting paid not to enforce them against you!
5: Campaign Finance
Probably the quickest and easiest fix in a democratic system. Make all elections publicly financed - corporations and other entities can agitate, make PACs on behalf of someone, etc, etc, but they can't give direct contributions to a candidate.
Everyone who pays the filing fee gets the following amount of money depending on election level, based on a tier system. The first tier is for everyone, the second tier is reserved for everyone who garners 10% of the vote in a previous election.
Tier 1
Representative = 5m each
Senator = 10m each
President = 20m each
Tier 2
Representative = 20m each
Senator = 40m each
President = 100m each
By making the political process less subject to outside influence, the hope is that market interventions designed to reward this behavior will become less frequent.
1: Limited Liability - beyond the obvious insanity of a 75 million dollar damage cap (and lol at anyone who thinks it will get waived), we must look at who any corporation is accountable - the shareholders, who effectively "own" the company. Because shareholders, or "owners" (principal) do not control, or exercise their control over the people running the corporation (agent), and they have no incentive to because of LL, there is thus no incentive to check abusive practices by a given corporation.
The solution is simple: abolish LL, make shareholders accountable for the practices of the company they partially "own". Now, one might protest based on the fact that some shareholders may be punished for having a small stake in the company, or having invested in a company through a mutual fund or other investment vehicle. Firstly, any action would be redirected towards the fund itself, and secondly, any action directed against individual shareholders would be based on:
1: The amount of money invested in the company
2: The amount of knowledge the person had of the company's practices
3: The effort spent on attempting to foster change in these business practices.
2: Economic Calculation in the Corporate Commonwealth - Big companies, like big political entities, are subject to inefficiencies in allocating resources and distributing information, and thus may produce results that may appear irrational. There are several reasons for this, such as LL producing agency problems, and "the irrational constraints imposed from above that result in red ink at lower levels" (Carson, 2007). An example of this are the hard deadlines that BP management imposed on Deep Horizon while it was being drilled - the size and complexity of the system resulted in a failure to recognize the safety risks of their "cost-cutting" and "time-saving" measures, and thus in the pursuit of minor profits, they were blind to the long-term costs that a rig explosion would incur.
Unfortunately, the solution to this (make companies smaller) is outside the scope of this argument, because it would entail two real options - either break up corporations by force, or assume that simply not allowing corporations to externalize the costs of their large size (through subsidies, tax breaks, and other interventions) and "let the market take care of it."
3: Subsidies - Subsidies effectively externalize the costs of oil production (and thus, oil consumption) onto taxpayers, and more specifically, externalize the costs of oil and other fossil fuels from people who use a lot of fossil fuel (industry) to people who use relatively little (consumers). Furthermore, such subsidies mask the true cost of oil production by suppressing gasoline prices, and draw resources away from R&D for alternate forms of energy production. Granted, renewables and ethanol get 28b in subsidies...but fossil fuels get 70b. But wait, that doesn't consider this "hidden" subsidy for fossil fuels, so yeah.
Of course, this more than applies to things like the auto industry (not only getting direct subsidies, but indirect ones through protectionism that shields them from competition, urban development that incentivizes people to drive), banking (low interest rates subsidizing irresponsible lending, and of course a 700 billion externalization of the costs of this onto American taxpayers), food (subsidies, subsidies and more subsidies), and so on.
4: Regulatory capture
...which is really a fancy economist word for "corruption". Essentially, by creating close connections with regulatory agencies, making political entities dependent on industry support, and by ensuring that regulatory policy is written to favor you, and hurt your competition, you essentially create a two-tiered legal system of "you and people in your position" and "everyone else". Thus, you can do what you want without worrying about being punished for violating other people's property rights, because the people enforcing said rights are getting paid not to enforce them against you!
5: Campaign Finance
Probably the quickest and easiest fix in a democratic system. Make all elections publicly financed - corporations and other entities can agitate, make PACs on behalf of someone, etc, etc, but they can't give direct contributions to a candidate.
Everyone who pays the filing fee gets the following amount of money depending on election level, based on a tier system. The first tier is for everyone, the second tier is reserved for everyone who garners 10% of the vote in a previous election.
Tier 1
Representative = 5m each
Senator = 10m each
President = 20m each
Tier 2
Representative = 20m each
Senator = 40m each
President = 100m each
By making the political process less subject to outside influence, the hope is that market interventions designed to reward this behavior will become less frequent.
