Saturday, May 29, 2010

How it works

Progressives like me tend to favor a dose of government as part of a mix of free market incentives and regulatory oversight to cure or prevent recurring socioeconomic challenges.  The enviro-tragedy unfolding rapidly in the Gulf has been blamed on Bush, Republicans, Obama, BP, cabinet secretaries and senior officials, the oil industry, the Elders of Zion, the Ayatollah, you name it!  But failure to regulate hasn't been a cry heard round the country.

Republicans hate regulation like Tea PartyPeople hate taxes and communism (and blacks and gays and, well, you understand...).  They hate and reject anything that stands in the way of unbridled capitalist ambition, and there are enough Red State Senators around to thwart the evildoer busybody liberals in Congress who want to change that.  Even David Brooks of the NYT, whom I usually admire as the voice of reasoned and moderate Republicanism, revealed the depths of his conservative soul in his column a few days ago----not even a mention of how better government regulation might have prevented the oil well catastrophe.  All about the complexity of technological systems and human beings' innate inability to respond effectively to early warning signs of an impending disaster, etc etc oh jeez.... !

Brooks is right about one thing:  people (and corporations) are inherently poor at assessing risk and taking proper action to prevent or let tripwire systems prevent the least likely scenarios.  In the case of the oil well disaster in the Gulf, perhaps investigation will show that this specific rupture and how it came about was judged to be a remote possibility.  But, in the assessment of business and financial risk, one wonders whether the externalities of the scale of environmental destruction we see unfolding were properly risk assessed by BP, which is accountable to financial stakeholders, not the general public, for its performance.

Am no oil man, but a remote platform drilling deep into the earth's surface at tremendous water pressures with  millions of dollars of high tech high performance drilling equipment floating out there----hmm, what do you think are the odds that a government regulator(s) choppered out there from time to time to check up on progress and safety precautions, disaster drills, etc.  I bet the odds are 0%.

On a cautionary note about regulation gone amok, got a lesson on 'how it works' in the pharma biz from P last night---he a former CEO of a major global pharma company.  In the real world, as part of a complex series of regs of how drugs can be marketed and promoted to the dozens of major channels of sales, government regulators can essentially hold a gun to the head of senior management if and when company errors and omissions are discovered, resulting in mega million+ fines paid in lieu of court action.  In that world, if you contest the decision of regulators and opt to go to court, your company (in the meanwhile) loses the 40+% share of its revenues that are earned through sales to government agencies such as Medicare.  Pay up...or go belly up. Isn't that fairly close to the dictionary definition of extortion?  Think so....

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