Friday, June 04, 2010

Did Free Markets cause the BP Disaster?

Bob Cesca has a column on Huffington blaming free markets for allowing BP enough freedom for the Gulf Oil Disaster to occur. He then urges the government to act on Robert Reich's plan for the government to seize BP. Cesca and Reich are convinced that BP is not making every effort to stop the oil flow and that nothing short of full government control will fix this.

I will not argue that BP has been negligent - even their CEO has admitted this. The question is what the government's involvement should be?

Reich thinks that BP should be placed into receivership until the crisis is solved then cut free again. Cesca claims that he is for capitalism, just not libertarianism but fails to make specific recommendations. I think that his desired result would be to shut down BP (but not until they fix the oil leak).

So, that's a couple of votes for strong, direct government oversight of the oil business.

Rather that speculate how that works, let's look at some real world examples. Lots of countries have nationalized all or parts of their energy producers.

Let's start with China. I admit that I don't know much about Chinese oil industry but the Chinese coal industry makes the news fairly often. It is a disaster. Being a coal miner in China is one of the world's most hazardous jobs.

How about a couple of countries that do control their oil companies - Iran and Iraq under Saddam? Sitting on some of the world's biggest oil reserves and controlled by the government, they must have been models of safety and efficiency, right? Stop laughing. Iraq's oil industry was a model of corruption. Iran's is so poorly run that they cannot power their own country. For years they claimed that the only reason they were building nuclear reactors was so supplement their declining oil production.

Ok, all three examples are third-world countries. What about the USSR during its glory days? That's where things get really instructive. The reports that came out of Russia and the former satellite countries was that they were environmental disaster areas. Look at Chernobyl. It lacked most of the safety features that were standard in US reactors. Somehow, profit-minded US companies were able to build safe nuclear reactors and countries run by and for the people were not.

That's what happens when government and business get too close or government takes over business. Corruption settles in. Safety is forgotten. Politics become the order of the day.

We already saw that happen with the Gulf Disaster. This week we were told that the nuclear option was off the table. While a strong list of good reasons were given, the list included Obama's desire for total nuclear disarmament. What would Cesca or Reich say if they found out that BP passed on an option because it would make them look bad?

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