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The BP oil spill started so long ago it is hard to remember the details. It began with the explosion and death of 11 employees, followed by a fire and the sinking of the drilling platform. The pictures of the flaming platform and the billowing smoke diverted our attention from the oil spilling into the Gulf of Mexico. The early reports down played the spill.

We know the spill is much bigger than the early BP reports when we read about a dead battery in the blow out equipment and one failed containment effort after another. To top that off we had to listen to company CEO’s blame each other in Congressional testimony.

I list some of the failures of BP because I have not heard politicians question capitalism or whether it is best way to explore and drill for oil. Nor have I heard media commentary or anyone in Congress question leasing drilling rights to private companies.

Capitalists complain government is wasteful, inefficient and bureaucratic when private firms have the incentive to minimize costs to compete with other firms. Minimizing costs also means ignoring the environmental safety precautions that Congress and the public wants in the leases, and also working to reduce enforcement.

Oil leases are usually discussed as an example of capitalism, but the continental shelf is the public domain as much as the Washington Monument and Yellowstone Park. Capitalism requires private ownership with transactions exclusively between private parties, not the government. When the government contracts with firms in the construction industry to build roads or drill oil, the buyer side of the transaction is the government.

Leasing the drilling rights on the continental shelf is just one way to recover the oil if Congress and the country decide to take the risk of a spill.  Another way is to form a public corporation like Conrail, Amtrak, the Tennessee Valley Authority or the St. Lawrence Seaway.

When the Federal government promoted and paid for the St. Lawrence Seaway many years ago it siphoned off much of the bulk traffic from the New York Central and Pennsylvania railways. They ended up bankrupt and Congress decided to form Conrail out of the bankruptcy. Congress subsidized a public project that bankrupted private firms.

When the Federal government contracted with IBM to develop the B-52 computer guidance system in the 1950’s, the subsidy from Congress helped them develop the first main frame computers that accelerated the development of computer technologies. Congress subsidized a project that benefited a private company but it also accelerated the development of computer technology, which we all benefit from now.

There are many examples of government and business partnerships, which are neither capitalism nor socialism. Some work and some don’t, but that is why the labels of capitalism and socialism are only relevant to politics.

The oil industry wants to exploit the continental shelf because it is profitable so they call it by the politically correct term, capitalism, when it is not. The oil spill tells us the government does a poor job regulating and the oil industry does a poor job drilling. Maybe it is time to combine the regulations with the drilling and have the government do it all. That way we would know who to blame and be able to hold them accountable.  

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Comment Preferences

  •  The conventional wisdom is that national (2+ / 0-)
    Recommended by:
    Roger Fox, palantir

    oil companies - say, Mexico's or Venezuela's - are far, far worse on environmental matters than Western, private drillers.  And that's not even to mention the utterly horrific environmental record of the USSR and its satellites.  Or China and its satellites.

    •  And the BP blowout couldn't have come (1+ / 0-)
      Recommended by:

      at a politically worse time for off shore drilling. If BP and the oil companies wanted to expand offshore drilling..... Way to go BP.....


      by Roger Fox on Sat Mar 05, 2011 at 03:03:35 PM PST

      [ Parent ]

  •  Bad idea? (not to mention impractical) (0+ / 0-)

    First, a small semantic correction: The continental shelf ends at about 600' water depth. Gulf of Mexico shelf exploration is continuing (at a somewhat slower pace). The BP disaster occurred in the deep water of the continental slope.

    Problems with your idea:

    1) Hundreds of offshore platforms, with wells and pipelines are already present and operated by oilco's. Are you suggesting that the US government expropriate or buy this 100's of billions of dollars of infrastructure? How we would acquire the expertise to operate these? We would have to hire 1000's of 6 figure salary engineers, geologists, geophysicists, and technical managers. As it is now, one of the MMS' problems is that they pay significantly less for the same skills. Starting a major oil company from scratch has never been done. Or, would you suggest a national oil company compete with the oilco's thus defeating your intent? This is the successful model used in Brazil and Norway (although they have significant non-govt ownership as well, operate internationally, and allow competition in their home waters).

    2) Offshore oil exploration is inherently risky and extremely capital intensive (individual deepwater exploration wells are now costing upwards of $200 million with 25-40% chance of finding oil; major deep water developments are running well over $5 billion each). A monopoly is very inefficient and prone to failure in this environment.

    For example, see PEMEX: lack of risk tolerance, re-investment, technical expertise, and competition have prevented significant deepwater exploration in Mexican waters. Onshore and shelf production are plummeting there (>10% annually, exports worse). This is a significant development as more than a third of Mexicon government revenue, supporting social services, is from oil production.

    3) Seems like one government entity regulating another or itself is less likely to work than the present flawed system.

    4) The global safety cultures built by Exxon and Shell are the result of many years of effort incentivized by previous failures and accountabilities already in the system.

    5) If you read the Oil Spill Commission report you will see that the BP safety culture is abysmal, with a long record of failure, and that that led to multiple very bad decisions that I personally believe would not be made by a prudent operator.

    Bottom line: we need to improve regulations and vet the safety-cases of operators - this is happening now. The offshore industry supports over 9 million high-quality US jobs and brings in 10's of $billions of revenues to the US Treasury (lease bonuses, lease rentals, and royalties, and much more in taxes). We also need to ensure that BP is the example that provides strong incentive (apart from regulation) to make sure this tragic blunder is not repeated.

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