Obama Making BP Pay Is Good Government, and That's Why Republicans and the Corporate Media Are Freaking Out
Last week, the nation witnessed an act of good governance when the Obama administration put the full-court press on oil giant BP to set aside $20 billion in assets to compensate the thousands of Americans whose livelihoods -- and in some cases, lives -- are being devastated by the Deepwater Horizon catastrophe. It was an example of exactly what government is supposed to do; whatever it can, within the limits of the law, to protect its citizens’ interests.
Team Obama was shrewd to get a fund set up now, with the nation’s outrage focused on the calamity, rather than allow the company’s army of lawyers to drag a settlement through the courts for years. The agreement, entered into voluntarily by BP, ensures that the firm can’t escape legal judgments by paying out all of its current profits as shareholder dividends and then claiming insolvency.
The fund is about the equivalent of a year of BP’s profits -- the Associated Press called the sum “a drop in a very large bucket” for the company, and reported that BP could raise the cash “without batting an eye.” It will be administered by an independent third party -- the same administrator who handled billions of dollars worth of claims stemming from the attacks of 9/11. And President Obama secured it using little more than his bully pulpit and the pressure it allowed him to put on BP execs.
Reactions from the Right have been predictable and typically absurd. Rep. Joe Barton, R-Texas, famously apologized to BP for all the inconvenience the company had endured (he was later forced to apologize for his apology), Michele Bachmann, R-Minn., warned that the fund was a covert plan to “redistribute wealth,” and Kentucky Senate candidate Rand Paul called Obama’s tough talk about BP “un-American.”
But much of the “neutral” corporate media also embraced a similar, if less extreme narrative. David Sanger, a highly respected feature reporter for the supposedly liberal New York Times, called the move a “display of raw arm-twisting” in a front-page article that might have been drafted by the U.S. Chamber of Commerce. Sanger wrote that the fund had “reinvigorated a debate about the renewed reach of government power, or, alternatively, the power of government overreach,” which he characterized as “an argument that has come to define Mr. Obama’s first 18 months in office.”
The fact that applying pressure to a corporation whose risky cost-cutting resulted in what may prove to be the worst man-made disaster in history is seen as an act of government overreach says a lot about how deep down the rabbit hole of corporate propaganda we’ve gone since the Reagan/Thatcher “revolution.” Whereas at one time analysts warned of governments nationalizing firms or distorting the market with rigid price controls, we’ve now come to a point where a strongly worded letter or a few harsh words are enough to elicit mainstream hand-wringing on behalf of delicate multinational corporations like BP.
If that narrative goes unchallenged, we can forget about holding any companies accountable, in even modest ways, regardless of what havoc they wreak.
Why Putting the Squeeze on BP Was the Right Thing To Do
In 1989, soon after the Exxon Valdez ran aground, devastating the Alaskan coastline, a jury awarded those impacted by the spill $5 billion in punitive damages. But they didn’t see a dime for 20 years while Exxon appealed the ruling again and again. Finally, decades after the incident had disappeared from the front pages, the Supreme Court reduced the damages to just $500 million, a 10th of what the jury had originally deemed appropriate.
Reuters reported that the BP fund has outraged activists who have fought for decades to secure compensation from Union Carbide (now owned by Dow Chemical) for an explosion in its plant in Bhopal, India that caused the deaths of as many as 25,000 people in 1984. The Indian government pressed the company to compensate the victims for losses estimated at $3.3 billion. After years of legal skirmishing, Union Carbide settled for less than a sixth of that amount. (Warren Anderson, the former chairman of the firm, is considered an “absconder” by the Indian courts, but today lives free and clear in the United States.)
That story gets worse in the Gulf. In 1990, energy companies had gotten a taste of how high the costs of a major spill could be with the Valdez disaster. As Mathew Wald detailed in the New York Times, Big Oil cut a sweet deal with the federal government to limit its costs in future messes. The companies accepted a very modest tax of 8 cents per barrel of oil—which works out to a rate of around a 10th of 1 percent—to finance the Oil Spill Liability Trust Fund, $1.6 billion that would be set aside to deal with disastrous spills. In exchange, Congress agreed to limit the companies’ liability for damages (other than the direct costs of the cleanup) to only $75 million, a figure that was probably dwarfed in the hours following the Deepwater Horizon explosion.
With damages that may reach into the tens, if not hundreds, of billions -- the worst-case estimates continue to climb -- BP is on the hook only for the price of cleaning up the oil and the first $75 million in damages. After that, regardless of whether the firm tells reporters it will assume responsibility for “all legitimate claims” related to the disaster, we the American people will get stuck with the rest. Or, as Ben Nelson put it to reporters, “BP says it’ll pay for this mess. Baloney. They’re not going to want to pay any more than what the law says they have to.”
The firm has no economic incentive to do more for the Gulf Coast than what’s necessary to repair its tattered public image. In fact, its directors have a responsibility to preserve their investors’ value, and that means doing the minimum it can get away with.
So, as a result of years of relentless pressure from corporate America to limit companies’ liability for damages they cause, the options available to the administration for forcing BP to pay Americans’ claims were severely limited.
A Moderate Proposal
Mississippi Governor Haley Barbour, who’s argued that the spill isn’t all that bad, told Fox News that while BP “must pay every penny” in damages the escrow account is only “going to make them less able to pay us what they owe us”:
And that concerns me. I do worry that this idea of making them make a huge escrow fund is going to make it less likely that they’ll pay for everything. They need their capital to drill wells. They need their capital to produce income so that they can pay that income to our citizens in Alabama, Mississippi, Florida, Louisiana, and to pay for all the damages done.
To worry about BP’s balance sheet while his state’s coastline is being ravaged by toxic sludge is nothing short of perverse. But Barbour was also wrong to suggest that the fund would create hardship for the company. On the contrary, the Wall Street Journal’s Marketwatch reported that the fund’s creation “marks a positive move for the oil giant.” The New York Times noted that, “by settling much uncertainty about BP’s ultimate liabilities, [it] also gave the company a boost on Wall Street.” According to the Associated Press, analysts predict that BP’s shares will be trading at $55 by the end of 2011, up 75 percent from what they were going for last week, and almost as much as the $60 its shares cost before the disaster.
Marketwatch cited a memo from the bond research firm CreditSights saying, “We believe the outcome sends a message to the markets that the government does not intend to force BP into bankruptcy in some form or other, receivership, pre-pack, etc., through some vague legal viewpoint, unprecedented seizure of assets or suffocating set of fines and penalties." Translation: this was a very moderate move -- Obama could indeed have come down hard on BP, but didn’t. The AP added: “BP's willingness to set up a compensation fund seems to have converted Obama into more of an ally than an antagonist. [Last week] the president called the company ‘strong and viable,’ adding that it was ‘in all our interests that it remain so.’"
And, again, the Associated Press tells us that “BP holds enough oil in its reserves to single-handedly supply the United States for two years,” has “little debt for a company of its size,” and “makes more money than Apple and Google combined.”
So when the White House arm-twisted its executives into setting aside $20 billion for the Gulf oil spill, investors weren't worried it would bankrupt BP…
BP will suspend its dividend for the rest of 2010, freeing up $8 billion. The company also plans to raise $10 billion from selling some assets. Add cash lying around in bank accounts and in short-term investments and BP could raise $25 billion without breaking much of a sweat.
BP has four years to pay into the fund, according to the New York Times. That will allow the firm to “better manage cash flow, maintain its financial viability and not scare off investors.” As the economics blog Naked Capitalism observed, “So BP is allowed to live while the Gulf dies… The tragedy is that the people on the front lines of this battle don’t need money and resources in a month, or six months, or in ‘several’ years. They need the resources now.”
It Ain’t Socialism
Defending Joe Barton in the Daily Beast, Reihan Salam advanced the conservative narrative that pressuring BP to create the fund amounted to a “Chicago-style” extortion:
… it looks like what one would colloquially refer to as a “shakedown,” in which a stronger party, ignoring the conventions of a good-faith negotiation, all but forces a weaker party to bend to its will.
To avoid such thuggery, Salam wrote, “we’ve developed long, drawn-out legal processes: to create an orderly society, we at least try to contain and manage our desire for vengeance.”
At the heart of the “shakedown” narrative is a lot of unconfirmed speculation that Obama threatened the company with criminal prosecution if it didn’t fork over the money. There’s no indication that this actually happened, but it’s become an article of truth -- perhaps “truthiness” is a better word -- for many on the Right.
But even if there was talk of criminal charges during Obama’s meeting with BP execs, Joe Barton and his fellow travelers are trying to set a different, and much lower standard of justice for corporations than ordinary American citizens enjoy. Salam’s claim that our “orderly society” requires “drawn-out legal processes” is laughable on its face. Every single day in this country prosecutors decide whether and how to charge defendants and every day they cut deals with people to avoid criminal prosecution. As attorney Scott Leumieux noted, “The gaping flaw in this argument is the fact that the vast majority of cases, criminal and civil, in our legal system are resolved by plea bargains.”
The BP settlement is far more typical of how the American legal system actually operates than … [what] Salam imagines (or, more likely, pretends to imagine) must characterize most resolutions of legal claims. It's true that people who make agreements in legal cases have the formal right to a full trial -- but then, so did BP.
Since the Civil War era, conservatives have argued that corporations should be accorded the same rights as American citizens. This takes the notion to a perverse new level -- they’re now saying that corporations should have rights that far exceed those enjoyed by ordinary people.
Any way you slice it, the image of BP as innocent victim suffering under the weight of crushing government power is distorted to say the least.
Corporate America advances a constant drumbeat that large, well-funded multinational corporations are wilting flowers that might die on the vine as a result of even modest efforts to hold them accountable. But that’s simply an exercise in shifting the goal-posts. Had the Obama administration seized BP’s assets or threatened its ability to continue operating in the United States, then David Sanger’s imagined “debate about the renewed reach of government power, or, alternatively, the power of government overreach” might have some merit.
As it stands, getting BP to set aside a year’s profits to pay for some of the damage the firm has done in the Gulf of Mexico, using nothing more expansive than the power of persuasion, is simply good governance in action. People died, many others’ livelihoods have been ruined, and a foreign corporation that has no legal obligation to pay more than $75 million in damages will do so nonetheless.
Only someone deeply steeped in an almost religious reverence for some mythically pure “free market” could see it any other way.