Pendulum swing long overdue

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The disastrous explosion at BP’s Deepwater Horizon off-shore oil rig last month serves as a reminder that private enterprise can never be permitted to function free from effective regulatory scrutiny. The more hazardous the activity, the closer that scrutiny should be.

Eleven oil rig workers died in the April 10 Deepwater Horizon blowout. Since then, 200,000 gallons of oil a day, according to BP, or as much as 3 to 4 million gallons daily, according to an independent estimate, have gushed into the Gulf of Mexico, threatening beaches, wetlands, sea life and birds. About 45,000 square miles of fisheries have been declared off limits in a region that yields 3/4 of this country’s shrimp, 2/3 of its oysters and 30% of its crabs.

The long oil plume, which has entered the Gulf “loop current,” could round the Florida Keys and start up the East Coast, imperiling fishing and tourism there.

It’s been an alarming wake-up call to the dangers of off-shore drilling, the technology of which had been touted by the petroleum industry for its safety and reliability. The industry’s safety claims have been reminiscent of the smug assurances routinely issued by the nuclear power industry prior to Three Mile Island reactor meltdown on May 28, 1979.

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While it’s too soon to know for sure, there are early indications that BP exerted pressure on Transocean, its contractor, to expedite drilling in order to save money, causing Transocean to proceed with work despite evidence of serious malfunctions in the rig’s backup safety systems.

BP is the same company whose Texas City, Texas refinery explosion killed 15 workers in March 2005, and which was subsequently cited by OSHA for 862 alleged violations between June 2007 and February 2010, most of them classified as “egregious” and “willful.”

BP has not been alone in its apparent reckless behavior. Its record is matched by those of other energy giants, such as Massey Energy Company, the nation’s fourth-largest coal mining enterprise. A mine explosion at a Massey mine in West Virginia on April 5 claimed the lives of 29 miners. The mine had been cited for more than 1,100 safety violations during the prior three years.

Nor does it help that the fox has been guarding the chicken coop. There has been a longstanding cozy relationship between the U.S. Interior Department’s Bureau of Land Management, the regulatory agency responsible for granting off-shore drilling and other mineral rights to the oil and coal industries. Current Secretary of the Interior, Ken Salazar, former Colorado attorney general and U.S. Senator, has also been a strong energy-industry advocate throughout his career.

Of course, most business activities carry elements of risk, sometimes extreme risk, which is precisely why regulation is necessary — to protect the public interest. Effective regulation, however, is often undermined by public complacency, political pressures, business’ natural inclination to short change safety to cut costs, and the incestuous relationship which tends to develop between regulators and the regulated.

The “invisible hand” of free-market capitalism – Adam Smith’s famous phrase for describing the self-regulating nature of the law of supply and demand – is the most efficient economic system ever invented for creating wealth. But anti-government zealots, who carp about bureaucratic intrusion into the private realm, would do well to remember that on-the-books profits are often generated by foisting off-the-book expenses onto the general public.

Such expenses can include worker injuries, environmental spoliation, public health hazards, economic chaos, and financial losses due to fraud and unfair trade practices. Individuals, or society as a whole, typically end up bearing part or all of these burdens. Hence the need for rules and enforcement to minimize the external costs generated by business.

Although BP will be held accountable for the financial losses from the Deepwater Horizon accident, lives have been lost, occupations ruined and the environment compromised. Even if all related costs can be tallied and BP picks up the tab, money can’t necessarily fix all the harm done.

From the Middle Ages through the 1700s, government regulation of the commercial world was taken for granted. For instance, maximum prices were set on many staples. Merchants were subject to punishment for failing to use true weights and measures in the marketplace. Apprenticeships were required for entry into certain trades.

In the 1800s, however, especially in the United States, businessmen were given virtually free rein under the principle of “laissez faire,” the philosophy that government has no place interfering in the economy.

Not until the early 1900s, under several progressive state governors and the presidencies of Theodore Roosevelt and Woodrow Wilson, were concerted attempts made to limit business monopolies, restrict discriminatory railroad rates, compensate injured workers, preserve natural resources, make rental housing safe, and prevent the sale of contaminated food and drugs.

Regulation of other aspects of economic life, including the stock markets, banking and labor conditions grew substantially during the New Deal in the 1930s, World War II and the post-war period.

But in the 1980s, under the influence of President Ronald Reagan and conservative Republicans, regulation of business acquired a bad reputation, and controls were significantly eased in fields such as passenger air travel, radio and television broadcasting and banking.

Indeed, the pendulum has swung so far back in the direction of governmental abstention that the public is now paying the price.

A recalibration of the balance between private enterprise’s need to remain flexible and profitable and the public’s right to be protected from reasonably avoidable risks to health, safety and stability is overdue.

It’s time to recognize that the business of America is not always the same as America’s business.

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