AMERICA:Regulatory capture – the domination of US regulatory agencies by industries – is at heart of banking and oil spill crises
THE PROPER role of government is a debate as old as America. It marks the most profound division between Republicans and Democrats, and perhaps the biggest difference between the US and Europe.
President Barack Obama relaunched that debate at a graduation ceremony on May 1st last: “Government is what ensures that mines adhere to safety standards and that oil spills are cleaned up by the companies that caused them,” he said.
“We know that too much government can stifle competition and deprive us of choice and burden us with debt. But we’ve also seen clearly the dangers of too little government – like when a lack of accountability on Wall Street nearly leads to the collapse of our entire economy.”
The BP oil spill – now officially the worst in US history – is the most recent in a string of disasters caused by the failure of regulatory authorities. Since last year’s bank bailouts, we’ve learned how Toyota executives wriggled out of a recall on faulty accelerators.
“We saw 29 miners killed in West Virginia in April, after Massey Energy ignored multiple citations for safety violations. Now the oil spill is being called “the Goldman Sachs of the sea”.
Richard Posner, an economist and lawyer at the University of Chicago, defined the notion of regulatory capture. “Regulation is not about the public interest at all, but is a process by which interest groups seek to promote their private interest,” Posner wrote.
“Over time, regulatory agencies come to be dominated by the industries regulated.”
Regulatory capture is at the heart of the banking and oil spill crises. Press reports have focused on the lurid details of employees at the Securities and Exchange Commission (SEC) and Minerals Management Service (MMS) watching pornography on office computers.
MMS employees accepted gifts, had sex with oil executives and did drugs while inspecting oil rigs.
The SEC allowed bankers to set their own leverage ratios and turned a blind eye to excessive mortgage lending. The MMS waived requirements for environmental impact studies and allowed oil companies to write their own inspection reports.
“What’s also been made clear from this disaster is that for years the oil and gas industry has leveraged such power that they have effectively been allowed to regulate themselves,” Obama lamented, reminding us George W Bush and Dick Cheney were oil men.
Now Obama is desperately hoping that BP’s “top kill” will shut down the leak. Then perhaps the White House can redeem itself with a brilliant clean-up.
But Obama’s press conference on Thursday was an alarming admission of impotence that confirmed Americans’ fears about government.
Just as the bankers were asked to disentangle the knot of derivatives trading, Obama admitted only BP – not the government – had the ability to stop the spill.
Obama said the oil company “wasn’t fully forthcoming” about the scale of the disaster and admitted his administration took too long to arrive at its own calculations.
He was dazzled by technology, by “claims that fail-safe procedures were in place, or that blowout preventers would function properly, or that valves would switch on and shut things off”.
Announcing a resumption of offshore drilling last March, Obama said “oil rigs today generally don’t cause spills. They are technologically very advanced.” Ouch!
As Margaret Carlson of Bloomberg News writes, Obama “remains so captive to the thought that we can all get along that he can’t go after the enormous corporate breakdown he inherited”. Lobbyists are an obstacle to regulation.
Wall Street deployed an army of them to shape the financial regulation Bill now nearing completion. BP has spent $625 million (€508 million) on lobbying in Washington in the last six years.
“As long as we continue to let oil companies like BP and Shell bully politicians, write our energy laws and bribe regulators, we will remain addicted to their dirty and dangerous fossil fuels,” says John Hocevar, oceans campaign director for Greenpeace US.
Greenpeace activists who painted “Arctic Next?” with crude oil on the side of a ship in Louisiana were threatened with felony charges. There’s been no talk of charging anyone from BP.
The interior secretary Ken Salazar promised this week “to keep our boot on [BP’s] neck until the job gets done”. The statement provoked an outcry from the right. Rand Paul, a Tea Party candidate for the Senate, said Salazar was “really un-American in his criticism of business”.
Likewise, Paul made excuses for the mining company Massey Energy. “We had a mining accident that was very tragic,” he said.
“Then we come in and it’s someone’s fault. Maybe sometimes accidents happen.”
The right-wing radio host Rush Limbaugh suggested the environmentalists of the Sierra Club should pay for the oil spill.
“Everybody’s focused on BP and Halliburton and Transocean. Let me connect the dots here for you. The Greeniacs have been driving our oil producers off the land from offshore to way offshore to way, way, way out there offshore.”
