I’ve been reading about the oil spill voraciously, but haven’t posted about it. What is there to say? It’s an incredibly difficult problem that was caused by cascading failures and perhaps bad judgement on the part of BP. I say perhaps, because it also involved very bad judgement on the part of the United States government, which granted licenses to oil companies to drill deep water wells even though the oil companies were not prepared to deal with blowouts that occur at depth.
A couple of pieces really hit home for me this week. The first is Ezra Klein’s noting that those “bound to happen eventually” crises do occur:
The last few years have been an ongoing seminar on the reality of serious risk. Very bad things that look likely to happen eventually do happen. The financial crisis, the Massey coal-mine disaster, the Greek debt crisis, the BP oil spill. The last few years have also been an ongoing seminar in the many ways that we ignore risks that we don’t like to think about, and the role that our evasions play in making the eventual catastrophes worse than they needed to be.
His point is that global warming is perhaps the biggest crisis of this kind that we’re not addressing, but I think his larger point is well taken.
The second is Elisabeth Rosenthal’s New York Times article that takes on our faith that we will always develop the technology we need to fix the problems that we create. Increasingly, that faith looks misplaced.
In this specific case, what stuns me is the amount of discretion BP had in terms of how they drilled and capped the well. There were many points at which they could have made more conservative (and expensive) choices that would have reduced the risk of the blowout, but BP, at its own discretion chose the cheaper, faster approach. As the Wall Street Journal article points out, BP was paying $1 million a day to keep the drilling platform over the well. The incentive to cut corners is strong when millions of dollars are at stake, and the odds of a blowout destroying the rig, killing workers, and spilling millions of gallons of crude oil into the ocean seems remote. It sure seems like all of the precautions BP skipped should be mandated by law.
May 30, 2010 at 9:54 am
You don’t link to the people whose quotes you highlight? You quote Klein, and in the previous post, Gruber, neither with links. Forgive me if I’m wrong, but an Internet without hrefs is sort of useless.
Also, someone was apparently searching on the Klein quote you used, probably trying to find the source, and ended up at my blog, so thanks for the traffic!
May 30, 2010 at 11:06 am
Just an oversight. It’s fixed now.
May 30, 2010 at 8:21 pm
This is probably the best summation I’ve read of both the failure of the oil industry and the government.
May 31, 2010 at 10:46 pm
I took a Technological Failure class through NC State a few semesters back, mostly as a curiosity, and it’s stunning how many events, some God-awful tragic (Bhopal, India), some more on the scale of “inconvenient” are a cascade and combined effect of hubris and small failures setting the stage for a much larger event.
Percentage-wise, these events are each astronomically rare, but only if the circumstances and decisions around their occurrence were perfect. What the course illustrated is, they frequently are not. Each little bad event or decision can magnify the next. In one event I studied, deferred ship engine maintenance, crew hubris in the Bering Sea and December weather in the Aleutian chain created the largest Alaska oil spill since Exxon Valdez.
The belief I’m clarifying for myself is government regulation is intended as a failsafe on commercial optimism. There are procedures that minimize failure and a recovery process for what failures happen. They aren’t guarantees. Seat belts, airbags and crumple zones aren’t either, but accidents are sure as hell more survivable with them.
It’d fantastic if we could do without the time and expense of regulation, except for what happens when it’s not there. Since no one can say where problems will come up, you regulate an industry.
I’m still stunned by the magic the financial industry felt safe conjuring and the plain wishful thinking that strict self-interest against catastrophic lawsuits (setting-aside industry and political lobbying to cap or discourage lawsuit damages) in other areas of the economy is a stand-in for independent and, sometimes adversarial, verification.
June 1, 2010 at 2:16 pm
I’ve often felt that government regulation often creates a ceiling and not a floor.
In other words, the more the government tries to regulate safety, the less an industry will innovate when it comes to safety. They’ll just use the excuse that all government regulations were followed.
I’m definitely not saying that eliminating government regulations is a solution, but I do think we need to look at the regulatory environment we have created and ask ourselves have we created a situation in which companies seek to “race to the bottom” to cut costs while meeting the minimum required government regulations?
What is a good solution? I’m not sure. I do know that if you want to increase safety in an industry you need to do more than just wave the big stick of government regulations. The bigger the stick, the less a company will want to step outside the box of regulations you create.
June 1, 2010 at 3:12 pm
Do you have any examples of industries that have done a good job of self-regulation? I’m at a loss to think of any. Certainly there are some individual companies that are outliers, but I can’t think of a single industry that has implemented industry-wide standards that really do a good job of protecting their workers, or the environment, or the integrity of the financial markets.
June 1, 2010 at 3:14 pm
I think the risk of government regulation is that it can stifle innovation. For example, let’s say that the government mandates that all cars must have air bags. If I invent a safety measure that is twice as effective as air bags and costs half as much, but cannot be used with air bags, it will be very difficult to see that invention adopted, because not only will I have to sell it to car makers but I’ll also have to change the regulatory environment. That is a real problem.
June 2, 2010 at 3:12 pm
Rafe, your second followup is the exact point I was trying to make.
I agree that self-regulation doesn’t work when dealing with big corporations and I would never suggest it would. I imagine small businesses that operate in small communities are fairly self regulating, but outside of that regulation is definitely needed.
June 2, 2010 at 3:42 pm
I actually think that regulations that relate to small businesses can be more pernicious. States and municipalities have all sorts of dumb regulations and licensing requirements passed mainly to benefit incumbents.