Mr. Obama has expressed an affinity for “teachable moments.” Well, the unfolding Deepwater Horizon disaster is about as significant a moment as possible. So, while the President is posing with his stern countenance and looking to “kick some ass,” let’s take a dispassionate look at the precipitating conditions in hopes of keeping this kind of thing from happening again.
Reviewing the Department of the Interior Inspector General’s report on the rampant, unchecked culture of corruption within the Minerals Management Service; or the few internet articles about all the rolling heads of managers and investigation of inspectors is both redundant and useless – except for one critical point: It demonstrates yet again, the irredeemably stupid idea of expecting government (the single most corrupt, inept, wasteful and destructive entity in history) to effectively regulate the safety and ethics of anyone.
When one considers the alternatives to government regulation; the cost savings; the assurance of accountability and the reduced chances of corruption and ridding ourselves of the endless blame-shifting; it starts to become clear why we keep doing things the way we do.
Quite simply, government regulation is one of the biggest and most secure scams ever perpetrated on the American people. It is profitable for corporations who, for the cost of some campaign contributions and a few lobbyists, get to cheat like they never could under honest scrutiny.
The government enjoys benefits too. They get unwarranted authority over vast swaths of the private sector; they justify the cost of vast bureaucracies; and they have the perfect mechanism with which to coerce bribes out of otherwise honest businessmen.
The only players in the mix that don’t benefit are the taxpayers; who must pay extortion to support the racketeers (Congress and “regulators”) who extort the corporations. Then taxpayers must also foot the bill for catastrophes that result from the negligence, corruption, ineptitude and criminality that are the logical result of such a system. If the disaster is really big, the big players may have to “resign,” only to accept a cushy high-paying job in the industry they were just “regulating.” The mid-level managers (who only got mid-level bribes) get off with a slap on the wrist, a transfer with raise to another “regulatory” agency. And a few of their low-level minions (who only got free meals and sporting event tickets for selling out the American people) take it up the ass with prison time and fines.
Afterward, hands are wrung, apologies made, regrets expressed; new players are hired, new toothless regulations are passed; the taxpayers and citizens are a bit more impoverished and suffering a more degraded ecosystem and business continues as usual.
Enter the process of private, for profit regulation.
Here is the plan by which government can get out of the regulation business and corporations can be held more accountable for their actions:
1. Every company must provide a verifiable fund (either through insurance or an escrow account) to cover the full cost of any harm they may cause through accidents, ineptitude, poor workmanship or dishonesty. This is a requirement for doing business. The amounts of coverage or escrow required are determined by the potential harm of their activities. Having met this obligation, the state or federal government will issue a permit to do business. (This requirement will only be required for businesses whose misconduct or accidents may cause widespread harm to employees, customers, the general public or the environment).
2. Though not legally required, every industry may meet this legal requirement though the creation of an association to pool resources and establish standards for the industry.
3. Membership has the following inducements and requirements:
a. Dues are applied to a collective insurance pool
b. Membership and accreditation by the association waives governmental requirement of escrow to cover costs of safety or ethical violations
c. Association provides independent accreditation inspectors to assure that all members are in compliance with strictest standards of safety and ethics
d. Loss of accreditation draws immediate court injunction to stop all business until compliance is met
e. Failure to regain accreditation in an appropriate time frame results in revocation of government issued permit. The permit will not be restored until compliance is verified.
4. The association, through accreditation and insurance prevents harm and cover costs incurred by individual businesses (after an appropriate deductible which must also be held in escrow).
5. The government will grant permits to conduct business based on one of two criteria:
a. The accreditation of the business by their industry’s association.
b. Or for those who wish not to join and association; the verification of an escrow account or valid insurance coverage that will cover the maximum potential damages should the operation fail to meet proper operational standards.
c. One advantage of joining the association is that member businesses attract more customers due to enhanced confidence in their practices (think BBB).
6. Since the costs associated with misconduct or accidents are born by all members of the association, the maximum degree of peer pressure will be exerted on members and the association’s inspectors to assure that no damages are ever paid; since premiums will fluctuate based on number and cost of claims; degree of overall risk; and available resources.
There are a number of benefits to this approach:
• First, it gets government out of the regulation business and allows it to perform its appropriate duty towards business – to act as an impartial mediator in the resolution of contractual disputes and oversee the compensation for damages.
• Second, it provides a profit incentive for all businesses to conduct their affairs in the safest, most ethical and diligent manner, because it holds individual companies accountable to an association which in turn represents a large number of companies; each of whom benefits from the integrity of its partners and is directly penalized by the failure of same.
• Third; and most important: By severing the link between government and private industry, it does two important things. It eliminates the potential for government corruption at least in terms of regulatory fraud. Second, it also eliminates the pretense that government regulation constitutes government responsibility for the consequences of regulatory failures (meaning that public funds are committed to clean-up).
So, If British Petroleum had been required by law to place funds in escrow equal to the total cost of clean-up; or had been required to join an oil-drilling quality assurance association prior to placing drill to soil, the Gulf of Mexico oil disaster would not have happened. Here’s why:
The association would have been totally responsible for any and all costs associated with failures on BP’s part. They would have set standards for all members. Those standards would be determined by experts in the field who know not only the best ways to do things, but all the shortcuts and slipshod tricks that may be attempted to save a buck. They would have provided expert inspectors to make sure that BP follows the highest standards. Also, the inspectors, the association, those who set the standards, and those who enforce them; would be financially and legally liable for any damage caused by the BP drilling operation.
The beauty of this arrangement is that it couples profit motive with safety and integrity. But the government regulatory approach (like with most bureaucracies) provides a mechanism for shifting blame and responsibility. The oil company, operating under government supervision is encouraged to do the bare minimum that regulators require, and worse; do whatever they can get away with that may save a few bucks – up to and including substituting bribery and revolving-door employment arrangements in exchange for using the best materials and designs or the safest procedures.
Interestingly, the same standards of accountability, procedures and inspections could have prevented the recent Upper Big Branch Mine disaster as well. In other words, this process could make unions even more obsolete than they are already by establishing a clear hierarchy of accountability and a forum for redress of employee grievances through the Association.
As we now have it, the system is ripe for corruption and defenseless against ineptitude. Corporations make huge campaign contributions (as an obvious bribe to politicians and political parties), then lobby congress to quash laws that will hurt them or to write laws that will help them.
Regulations are almost completely written by members of the industry to be regulated, but since Congressmen, who know nothing about the industry, are voting on them, the “industry advisors” can write the regulations to suit the desires of their individual company, thereby creating a regulation-imposed advantage for choice vendors.
Finally, the same corporations being “regulated” offer revolving-door jobs with the public sector so that choice individuals from the industry are later the “regulators” of that industry; and former “regulators” can be given choice jobs in the industry in exchange for “beneficial regulatory oversight” (code for helping the company cheat the regulations).
Considering the opportunities for corruption and the track record of government as a whole, it is impossible to argue that private regulation could be worse than what we now have; especially when we consider that government objectivity is wholly compromised by the current relationships.
If we want another Deepwater Horizon or Upper Big Branch Mine disaster, all we need do is accept the status quo gobbledygook from the statist oligarchs. If we want real accountability – the kind that is so assured, so swift, and so severe that it prevents most errors and stifles cheating – we must get government out of the regulation business entirely.
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