Monday, May 03, 2010

P&L: Public Loss From Private Profit

May 3, 2010, 7:30a.m.

[If you're looking for the 12 prior blog entries about the ICCSD superintendent search see, "The Beat Goes On, But Music's Out of Tune," May 1, 2010, and 11 items linked from "Superintendent Murley's Calm Seas, Smooth Sailing," April 29, 2010.]

Capitalism Pours More Than Oil on Troubled Waters
(brought to you by*)

And see the more recent, related, "Big Oil + Big Corruption = Big Mess," May 10, 2010.

A series of national disasters, legislative and otherwise, but all with ties to Washington, have caused me to realize that there's more than oil creating America's troubled waters.

On March 31 of this year the President went to Andrews Air Force Base to announce:
[A]s we transition to cleaner energy sources, we’ve still got to make some tough decisions about opening new offshore areas for oil and gas development in ways that protect communities and protect coastlines. . . .

[T]he bottom line is this: Given our energy needs, in order to sustain economic growth and produce jobs, and keep our businesses competitive, we are going to need to harness traditional sources of fuel even as we ramp up production of new sources of renewable, homegrown energy.

So today we’re announcing the expansion of offshore oil and gas exploration, but in ways that balance the need to harness domestic energy resources and the need to protect America’s natural resources. Under the leadership of Secretary Salazar, we’ll employ new technologies that reduce the impact of oil exploration. We’ll protect areas that are vital to tourism, the environment, and our national security. And we’ll be guided not by political ideology, but by scientific evidence.
"Remarks by The President on Energy Security at Andrews Air Force Base," March 21, 2010.

So, oil industry executives, Republican "drill-baby-drill" cheerleaders, oil-funded Democrats -- oh, and you, Mr. President -- how's that scientific protection of tourism and the environment working out for you? Because it's not working worth a damn for the rest of us. We haven't seen much of BP's $5.6 billion in first quarter profits (an annual rate over $22 billion) trickling down to us so far, any more than we did from those of our dollars you gave to Wall Street. And it looks like this "we" to which you refer, you and BP, are on the verge of wiping out a significant portion of the economy of at least three southern states.

The disaster was predictable -- even if no one predicted it would come as soon as a month after the President's repetition of BP's reassuring words regarding its commitment to "reduce the impact of oil exploration" and protection of "areas that are vital to tourism [and] the environment . . .."

Why predictable? Consider the record:
The 2005 explosion at a refinery in Texas City, Tex., killed 15 workers and injured hundreds more. The Occupational Safety and Health Administration fined BP a record $87 million for neglecting to correct safety violations.

Only a year later, a leaky BP oil pipeline in Alaska forced the shutdown of one of the nation’s biggest oil fields. BP was fined $20 million in criminal penalties after prosecutors said the company had neglected corroding pipelines. . . .

Last year, when the federal Minerals Management Service proposed a rule that would have required companies to have their safety and environmental management programs audited once every three years, BP and other companies objected. The agency is also investigating charges by a whistle-blower that the company discarded important records from its Atlantis Gulf platform.
Clifford Krauss, "Oil Spill’s Blow to BP’s Image May Eclipse Costs," New York Times, April 30, 2010.

It's just another example of the consequences of the partnership and interlocking ties between corporate capitalism and Congress, known as a "corporatist" form of government (or that, in another time and place, were known as Italian fascism). Because, even if you happen to be a fan of fascism (which I am not), in its American incarnation the allocation of power and control is grossly out of balance in terms of the disproportionate influence of the capitalists on what ultimately emerges as "government policy." And while the Republicans are thought by some to be the party of big business, that is only because the Democrats were initially somewhat slow and clumsy in figuring out that "business is our friend." After all, the "self-regulation" of offshore drilling began under President Clinton and his pro-business Democratic Leadership Council -- including the regulation of those causes of disasters that are not "acts of God," or failures of technology, but rather the failures of top management.

"We are not supportive of the extensive, prescriptive regulations as proposed in this rule," wrote Richard Morrison, BP's vice president for Gulf of Mexico production. "We believe industry's current safety and environmental statistics demonstrate that the voluntary programs implemented since the adoption of [voluntary standards] have been and continue to be very successful." . . .

But when it proposed the rules, MMS said most accidents and spills can be traced to human error or organizational failures and said companies need to ensure safe and environmentally sound operating practices (Greenwire, June 16, 2009).

MMS regulations historically have focused on proper equipment operation, but the agency said at the time that equipment failure is rarely the primary cause of incidents.

An MMS review last year found 41 deaths and 302 injuries out of 1,443 oil-rig accidents from 2001 to 2007. The agency's analysis found a lack of communication between the operator and contractors, a lack of written procedures, a failure to enforce existing procedures and other problems.

"The MMS believes that if OCS [outer continental shelf] oil and gas operations are better planned and organized, then the likelihood of injury to workers and the risk of environmental pollution will be further reduced," the proposed rule said.

The voluntary approach was adopted in 1994 during the Clinton administration.
Mike Soraghan, "BP, Other Oil Companies Opposed Effort to Stiffen Environmental, Safety Rules for Offshore Drilling," Greenwire/New York Times, April 27, 2010.

. Regulators make strange bedfellows You do recall the Minerals Management Service don't you? "Government officials in charge of collecting billions of dollars worth of royalties from oil and gas companies accepted gifts, steered contracts to favored clients and engaged in drug use and illicit sex with employees of the energy firms, federal investigators reported yesterday." Derek Kravitz and Mary Pat Flaherty, "Report Says Oil Agency Ran Amok; Interior Dept. Inquiry Finds Sex, Corruption," Washington Post, September 11, 2008. Noelle Straub, "GAO Audit: MMS Withheld Offshore Drilling Data, Hindered Risk Analyses in Alaska," New York Times/Greenwire, April 7, 2010 -- roughly three weeks before the current disaster.

. Moreover, "The [Department of the Interior] inspector general said that these relationships have cost taxpayers $4.4 million in lapsed collection fees, but due to the sloppy administration at MMS, the real cost may go undiscovered. In a separate report, the Government Accountability Office (GAO) found that MMS is plagued by inefficiency in collecting royalties, and that there is no way to backtrack and figure out how much has actually been lost. Currently, oil companies submit their own data and MMS simply takes them at their word, rather than independently confirming that the numbers are correct — what the inspector general has referred to in a letter to Secretary Dirk Kempthorne as a “Band-Aid approach to holding together one of the federal government's largest revenue producing operations.” A separate GAO report found that the United States is not collecting fair market price for royalties on public resources — which may be seriously limiting the amount of money taken in by MMS, and hence, the taxpayers." "Broken Government," Center for Public Integrity.

Apparently no one knows precisely how much oil is now flowing into the Gulf of Mexico. Originally estimated at 1000 barrels a day, then 5000, some are now saying 25,000.

So how much total oil are we talking about? Two of BP's underwater fields in the Gulf are estimated to hold over 3 billion barrels of oil equivalent -- each. Clifford Krauss, "BP Finds Giant Oil Field Deep in Gulf of Mexico," New York Times, September 3, 2009.

How can we put this daily flow into an understandable perspective? Try this: Have you ever held a can of oil while it slowly drained into your car? Let's split the 5000-to-25,000 barrels a day into a conservative 10,000 barrels a day, OK? A barrel contains 42 gallons. A gallon contains four quarts of oil. So 10,000 barrels is 1,680,000 quarts of oil. There are 86,400 seconds in 24 hours of 60 minutes each. Let's say it takes 10 seconds to drain a quart of oil; that would mean one person, working continuously, with no breaks, 24 hours a day, could drain 8,640 quarts a day. At that rate, it would take 195 people on a large boat, filled with quarts of oil, working round the clock, each emptying a quart of oil into the Gulf every 10 seconds, to equal the 1,680,000 quarts of oil BP is dumping into the Gulf every day.

So the 11 lives lost on the offshore drilling rig explosion and fire very likely could have been avoided if government had not given in to the notion of "self-regulation." The impact on the coastal economy and environment and wild life could have been prevented. The economic cost of the clean up would have been saved. And hopefully someone will follow up by reviewing the accounting after this all is over to see if the President's reassurance that BP is going to pay for it all -- including the taxpayers' share of the massive government expenses on BP's behalf -- ever happens.


Meanwhile, an almost idential story played out in a West Virginia coal mine less than a month earlier.

[T]he explosion of the Upper Big Branch mine two weeks ago, a disaster that killed 29 miners, rattled West Virginia and, once again, raised questions about Massey’s safety practices . . . with federal investigators saying they suspect that a buildup of methane and coal dust led to the explosion . . ..

Four years ago, in another southern West Virginia coal mine owned by a Massey subsidiary, a preventable fire broke out two miles below the surface. A faulty conveyor belt that should have been better maintained ignited some coal spillage that should not have been allowed to accumulate, federal investigators found in a report compiled after the incident.

One of the miners hurriedly tried to connect a fire hose to a nearby water valve, but this was futile; the threads of the coupling and the outlet were not compatible. The miner then tried to open the valve — just to get water on the fire — but the line was dry. And things only got worse.

The miner belonged to a crew working in Massey’s Aracoma Alma mine. In a memorandum issued three months before this fire and widely disseminated in 2006, Mr. Blankenship, the company’s chief executive, ordered subordinates to run coal and ignore everything else.
Dan Barry, Ian Urbina and Clifford Krauss, "2 Mines Show How Safety Practices Vary Widely," New York Times, April 23, 2010.

Here is a company that had been written up literally dozens of times for safety violations, and did little if anything to remedy its miners' working conditions. The regulatory agency had the power to shut down such mines, but refused to do so.

A systemic problem

Chris Mathews has a feature he calls "Tell me something I don't know," on his MSNBC program "Hardball." My guess is that if you're a regular reader of this blog you already know what I'm about to tell you. But it bears repeating from time to time anyway.

We've recently seen the consequences -- in human life and the environment -- from the disproportionate allocation to corporations of the business-government partnership of power. These examples happened to involve corporations in the oil and coal industries. But the problems they illustrate are systemic.

Consider unsafe workplace deaths and injuries alone:
In recent weeks and months there have been a series of workplace tragedies that have heightened concerns—the coal mine disaster at the Massey Energy Upper Big Branch mine in West Virginia that killed 29 miners, an explosion a few days earlier at the Tesoro Refinery in Washington State that killed six workers, and the explosion at the Kleen Energy Plant in Connecticut in February that also claimed the lives of six workers.

In 2008, 5,214 workers were killed on the job—an average of 14 workers every day—and an estimated 50,000 died from occupational diseases. More than 4.6 million work-related injuries were reported . . ..

Federal OSHA can inspect workplaces on average once every 137 years; the state OSHA plans once every 63 years. The current level of federal and state OSHA inspectors provides one inspector for every 60,723 workers. OSHA penalties are too low to deter violations. The average penalty for a serious violation of the law in FY 2009 was $965 for federal OSHA . . ..
Death on the Job: The Toll of Neglect, April 2010.

But the adverse impact of our corporatist form of government on our citizens is not limited to their preventable injuries and death.

Healthcare It's the reason that "universal, single-payer health care," the care provided most of the world's people lucky enough to live in progressive, industrialized countries, and provided at significantly less cost than here, could not even make it onto any table in Washington. It's the reason that the "public option" was quickly shoved off the table, fell to the floor, was swept up and thrown in the trash. It's the reason the pharmaceutical companies got a secret closed door meeting at the White House -- and promises they could continue to gouge America's ill. It's the reason "health care" was quickly redefined as "health insurance" -- essentially a subsidy for the health insurance industry. And it's the reason why the lessons Atul Gawande taught us were ignored: how it is that some cities in America have higher quality medicine than others -- at half the cost. Atul Gawande, "Annals of Medicine: The Cost Conundrum; What a Texas town can teach us about health care," The New Yorker, June 1, 2009.

Financial regulation There are two obvious first steps, whatever else we may do, to bring common sense to Wall Street. One is what we did during the 1930s, and then repealed during the Clinton Administration: the Glass-Steagall Act (Banking Act of 1933). Glass-Steagall Act, Wikipedia ("The Banking Act of 1933 . . . introduced banking reforms, some of which were designed to control speculation. . . . Provisions that prohibit a bank holding company from owning other financial companies were repealed on November 12, 1999, by the Gramm–Leach–Bliley Act."). The other is to break up the biggest, multi-trillion-dollar banks into banks with assets of $100 billion or less. This is not an antitrust issue; there may or may not be antitrust problems associated with the biggest banks (many economists say there are not). This is simply the smartest response to the "too big to fail, taxpayer bailout problem." You don't try to "regulate" to prevent the most obvious risks -- especially when that "regulation" will quickly come under the control of the regulated anyway -- you simply eliminate any possibility of the "too big" problem by making them smaller.

Sadly, like universal, single-payer health care, neither is even on the table, as Congress pretends to fashion regulations of derivatives and other creative casino games, regulations that will be creatively worked around by Wall Street's "masters of the universe" just as quickly as music-loving computer geeks create new ways to share copyrighted music illegally.

National Broadband Plan The FCC, commendably, wants more Americans to have access to broadband Internet connections at faster rates and lower prices. We need to be more competitive with other countries in the world. But once again, it looks like the cable television and telephone company influence in Congress may prevent the one thing that has enabled other countries to provide more of their citizens a faster service at significantly cheaper rates than American companies make available. It's called "open access" and "net neutrality" -- in other words, "competition" -- something heralded in a corporatist state only up to the point where it threatens to move in next door.

Nutrition Two generals who were former chairs of the Joint Chiefs of Staff are now telling us that Americans' obesity has reached not only epidemic proportions, it has become a threat to our national security. John M. Shalikashvili and Hugh Shelton, "The Latest National Security Threat: Obesity," Washington Post, April 30, 2010 ("Are we becoming a nation too fat to defend ourselves? It seems incredible, but these are the facts: As of 2005, at least 9 million young adults -- 27 percent of all Americans ages 17 to 24 -- were too overweight to serve in the military, according to the Army's analysis of national data. And since then, these high numbers have remained largely unchanged.").

Once again, any remedies must confront the money to be made, and the political ties it creates, from selling sugar-sweetened sodas in schools' vending machines, "sweet-grease-salty-grease" in fast food dispensaries, and pushing tobacco and alcohol addiction on our teenagers.

The Remedies

Why do we call the money corporations give to government officials a "bribe" when it's done in other countries, and a "campaign contribution" when it's done here?

The costs of running for office are a personal expense -- as are the upfront costs of establishing any other kind of business (which a seat in Congress certainly is). If you want to run you have to pay to do it. You have to pay for your food, clothing, housing and transportation while you're running. And you have to pay as many campaign advisers, workers, and media consultants as you think you can afford. Money is fungible. If you will pay for all of my food during the campaign there will be more of my personal income I can spend on the campaign. If you will pay some of my campaign costs I may be able to send my kid to a more expensive college. The super-wealthy do end up paying for a larger percentage of their personal campaign costs. It's certainly a personal expense for them. And it's also a personal expense for those candidates who beg for bribes from the corporate representatives who seek their votes.

How much money are we talking about? Try $5.3 billion -- for federal elections alone in 2008. "U.S. Election Will Cost $5.3 Billion, Center for Responsive Politics Predicts," Open Secrets Blog, October 22, 2008 ("The 2008 election for president and Congress is not only one of the most closely watched U.S. elections in years; it's also the most expensive in history. The nonpartisan Center for Responsive Politics estimates that more than $5.3 billion will go toward financing the federal contests upcoming on Nov. 4."). And that figure, of course, excludes the additional costs of lobbyists, said to run as much as a million dollars a day for Wall Street alone in its current efforts to block any meaningful reforms.

And what do the contributors get in return? Can you multiply $80-a-barrel oil times a 3-billion-barrel field?

Fourteen years ago I did the math -- not just for oil, but for a variety of industries. It turns out that bribing members of Congress pays even greater returns than Wall Street cons. The payback runs something between 1000-to-one and 2000-to-one. Give a million, you'll end up a billion dollars richer in return. Nicholas Johnson, "Campaigns: You Pay $4 or $4000," Des Moines Register, July 21, 1996, p. C2.

The payback can take a variety of forms: a tax break, price supports, defense contract, bank bailouts, tariff protection, subsidies, pet project earmarks -- or, as we've recently seen, permission to drill in formerly forbidden multi-billion-dollar offshore oil reserves, notwithstanding the economic and other risks to others and the relatively slight impact on our insatiable and wasteful demands for environmentally destructive energy.

As pointed out in the headline on that column, public financing of campaigns might cost every American $4. But with the 1000-to-one return the contributors are now getting that might be one of the best bargains we've ever been offered.

Because it is we who end up paying for the campaigns now. How? We pay as both taxpayers and as consumers. It's the excess taxes we pay to fund the weapons manufacturers' profits from weapons we do not need, and other transfers of taxpayers' money to corporations. And it's in the increased prices we pay those who have made the contributions, in the cost of everything from automobiles, to pharmaceuticals, to airline fares, to gasoline, to food -- in total, probably well over the $4000 I predicted.

What we've learned this past month is that we pay in other ways as well: those who provide our seafood who have lost their way of life as well as their source of income, those who enjoy the Gulf beaches who have lost their favorite vacation spot, those who've lost their homes, all of us who have lost the wetlands and wildlife they sustain -- and let us not forget the 11 BP employees and 29 Massey Coal employees whose loss was that of life itself.

Capitalism may have its virtues, but when it dictates public policy as well, the price it exacts from all of us is enormous.

* Why do I put this blog ID at the top of the entry, when you know full well what blog you're reading? Because there are a number of Internet sites that, for whatever reason, simply take the blog entries of others and reproduce them as their own without crediting the source. I don't mind the flattering attention, but would appreciate acknowledgment as the source -- even if I have to embed it myself.
-- Nicholas Johnson
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1 comment:

Nick said...

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