The Corporate Stranglehold: How BP Will Make out Like Bandits from Its Massive, Still Gushing Oil Disaster

Flickr Creative Commons / DVIDSHUB

Photo Credit: Flickr Creative Commons / DVIDSHUB

You've got to hand it to BP. After witnessing the Great Financial Crash of 2008, it seemed like it would be decades before any corporation could eclipse Wall Street's reckless rush to place its own short-term profits ahead of the public interest. But the epic drilling disaster off the Louisiana coast demonstrates that many of the problems that wrecked Wall Street are deeply embedded in other sectors of the American economy. Over the past 30 years, corporate titans have so thoroughly corrupted the notion of "free markets" that many of the world's riskiest businesses are not only insulated from regulatory supervision, they have been immunized from even minimum standards of market discipline.

Forget for a moment that the oil catastrophe is first and foremost an ecological massacre, and forget that burning fossil fuels creates an entirely distinct set of environmental nightmares. Instead, imagine that we live in an accountants' paradise in which everything can be described by the language of dollars and cents, assets and liabilities, profit and loss. In this world, both Wall Street and the oil industry are largely protected from the risks inherent in their everyday operations, pushing real costs onto others in order to boost their own balance sheets. On Wall Street, this phenomenon is called "too-big-to-fail." After the BP disaster, we might call the energy equivalent "too-big-to-drill."

Nobody working at Goldman Sachs, J.P. Morgan Chase or Citigroup seriously believes the U.S. government would ever allow their firm to fail, and the various bailouts of 2008 and 2009 proved them right. That scenario radically distorts the market, making massive and unnecessary risk-taking the rational choice for bigwig bankers. If their bets pay off, the bank books huge profits. If the bets backfire, the government will bail out the bank. Banks get to exclude very real costs from their quarterly earnings, artificially boosting their profits.

This distortion is so severe that economists call it "market failure." The market literally does not work. Instead of moving goods and services to people who want and need them, corporations simply extract profits from innocent bystanders. It is a form of theft, and the exact same scenario exists with the liability cap on offshore drilling.

We know that the economic fallout from the BP mess will move into the billions of dollars. Current estimates are around $14 billion, but it's easy to imagine that amount soaring much higher if BP fails to contain the oil gushing from the Gulf, or clean up what has already been released. But while BP is liable for the costs of cleaning up the mess, under current law, BP is only on the hook for $75 million in economic damages—losses the spill creates for other businesses. For a firm that books multi-billion profits every quarter, the economic consequences of the spill will be no more than a blip on the radar. This was not simply an accident. BP could have prevented this disaster, but instead chose to roll the dice in order to cut costs. The liability cap rewards the company for that negligence.

Let's be clear. This is an explicit, codified bailout for BP and every other company that engages in offshore drilling—a bailout every bit as disgusting as those recently bestowed upon Wall Street. The company is being shielded from the real costs of its business, and has been using artificially inflated profits to pay out princely fortunes to its top brass. Wall Street looted the housing market, converting real assets into bonuses. Now BP is looting the Gulf Coast.

There is a theory of law—a very conservative theory, at that—which actually says that BP should have to pay out much more than whatever the ultimate economic tab for the oil mess comes to. The government should amplify, rather than reduce, those costs in order to ensure that dealing out damage to innocent bystanders does not become a regular business practice. If the total cleanup tab is really $14 billion, that sum only amounts to BP's total 2009 profit. We can't have companies dealing out crazy economic and ecological damage on a regular basis, which is why Federal Judge Richard Posner, an appointee of Ronald Reagan, suggests imposing massive penalties on firms that do so.