Over the past 6 weeks, since the Deep Water Horizon oil leak, many have been pointing fingers at those they deem responsible. BP? Transocean? Halliburton? They were the companies involved in this freak accident. But as the oil keeps gushing from the sea floor without any success of plugging the leak, many have been looking to President Obama and the federal government to take action and use the power of the federal government to stop the oil leak and prevent oil from reaching the shores of Gulf Coast states like Louisiana, Mississippi, and my beloved home state of Florida.
Some are even saying this is “Obama’s Katrina.” And that’s where I say, let’s hold our horses. Just as I do not believe George W. Bush and the federal government were to blame for a hurricane hitting the city of New Orleans and causing damage in other states like Mississippi, I also don’t think Obama or the federal government are to blame for an explosion on an oil rig miles out in the Gulf of Mexico, which has caused a leak 5,000 feet down on the sea floor.
First and foremost, the responsibility rests with the companies operating the rig. Yes, in this case, this conservative will first blame private companies over the federal government. Some will then say, well the government should have had more regulations in place. Really? Is that what we need? More government regulation?
Private companies have the incentive to regulate themselves and create industry standards. And they are motivated mostly by profit. Let’s change the subject for a moment to the airline industry. Airlines are also motivated by profit. They know that no matter how successful they are, one plane crash could put them out of business. Consider the airline industry’s record: There are relatively very few commercial plane accidents. They are so rare that when one happens, it’s usually in the news for months.
Ok, back to drilling for oil…with that same concept applied. Oil companies are motivated by profit. They know that one accident may not only put them out of business, but could also disrupt the entire oil industry from being allowed to drill further. In the past six weeks, BP has already dished out tens of millions of dollars, are losing hundreds of millions of dollars daily since the spill, and are being seriously damaged in the public relations battle. There’s a good chance the many lawsuits already piling up against them will force them to go completely out of business because of this one accident. Even if they do survive as a company, the regulations that will hit them and the entire oil drilling industry will be a severe punishment to their future profits.
With all this in mind, it is plain as daylight to see why the oil drilling industry has an almost perfect record when it comes to safety and almost nonexistent accidents. They have a profit incentive not to spill any oil. The last time something this big happened near the United States was with the Exxon Valdez oil spill in the 1980s. That’s more than 20 years ago. Private companies have a profit motive to regulate themselves. And despite this once in a generation accident, that incentive has proven to work pretty well.
So back to Obama and the federal government. Are they to blame? No.
Some will say, “This proves Obama is incompetent.” Perhaps this is true. But maybe those who were so quick to judge Bush will rethink this. Why do those in government always look so incompetent? It’s not because they are (ok, maybe some are). It’s mostly just the nature of how government works. It has no profit incentive. The only incentive elected officials have are to make things look good (whether they are or not) in the public relations battle so they aren’t damaged from the events that happen to occur on their watch, in order that they might still be electable in the future. But most people in government aren’t elected officials – most are appointed or hired bureaucrats. Their incentives are much less than elected officials – and much, much less than private companies.
The lesson learned here: let the free-market work. Don’t blame those in government for things they don’t (and shouldn’t) control. And don’t overreact by giving them more power to regulate the things they should be far, far away from.
The government’s role in this case is simply one of being the mediator of the litigations that will follow between the private parties who caused the damage and who were victims of the damage. If those parties involve individuals, communities, towns, or entire states, then we’ll see this all played out in the courtroom – and ultimately the private companies who bear the responsibility for this damage will pay and other private entities involved in this industry will take note and impose stricter safety standards on themselves. It would be good for business.
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