NCPA - National Center for Policy Analysis


June 9, 2010

When the Deepwater Horizon first started gushing oil, many considered the incident an example of private enterprise having no regard for the environment.  However, it is becoming clear that government was involved from the start, is in charge now and cannot do much about the problem, says Ian Murray, vice president for strategy at the Competitive Enterprise Institute. 

We need to move away from the crony corporatism that has characterized much of the nation's energy sector during the last century or so.  There are several reasons for this, says Murray. 

The existing government regulations have been counterproductive: 

  • They pushed energy companies offshore -- miles and miles offshore.
  • The difference is that we are allowed to explore and extract the offshore reserves, while it is extremely difficult to get permission to do the same on land.
  • As a result, most exploration takes place offshore, where the consequences of a spill are so much greater. 

Government and business corrupt each other: 

  • As they attempt ad-hoc fixes, it is clear that both BP and the federal government were unprepared for such an event.
  • As experience shows, when regulators and representatives from a regulated industry have day-to-day contact, they grow into a cozy relationship.
  • This sort of state corporatism, where legislators, regulators, and industry become almost symbiotic, is hugely damaging to the polity and the economy.  

Those involved in potentially devastating activities must bear the costs of their failures: 

  • After the Exxon Valdez spill, legislators and industry got together and agreed to a cap on damages in exchange for an increase in tax payments.
  • Generally, damage caps create what is known as "moral hazard," lessening the consequences -- and thus increasing the likelihood -- of a potentially damaging act.
  • There are good reasons for having shareholders limited in their liability, but there are few convincing reasons to shield corporations the same way.  

Finally, the Gulf has become a huge tragedy of the commons: 

  • There are many ways to invest the ocean with property rights.
  • Individuals could own oceanic resources such as reefs and even shares in fish stocks.
  • Not only would such property rights give owners a real incentive to ensure that these resources grow and develop, they give the owners an incentive to defend those rights.  

Source: Iain Murray, "Tapping the Well of Freedom," National Journal, June 7, 2010. 

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