“Release the Kraken!” That has to be the greatest line in the cheesiest movie ever made. Zeus (Liam Neeson in a tin foil suit) has had it up to here with mortal man and orders the release of the beast which bursts out of a foaming sea to trash the landscape and squash the people until Perseus (a demi-god and our hero) arrives to save the day by confronting the monster with the head of Medusa.
Wow! A marauding CG Kraken is hugely entertaining to a movie audience, however an unleashed real life Kraken is downright dangerous.
Last week I made the not so subtle point that corporations, like fictional beasts, are legally programmed to do one thing—act in the best interests of their owners. I argued that the privatization of public services would end badly because a corporation’s objective is based on self interest while the government’s objective is to serve the public interest. The only thing that keeps a corporation in check are the laws and regulations which bind it to the ocean floor (so to speak). These laws and regulations are designed to prevent a corporation from harming society, including its own employees, and the environment while it goes about the business of making money.
If the purpose of all these health, safety and environmental regs* is to protect us and the environment then why the hue and cry for more deregulation? Given the regulators’ spectacular lack of success shouldn’t we be clamouring for more regulation not less?
Not as far as the corporations are concerned. They say they are good corporate citizens with a vested interest protecting the public interest but they’d prefer to do it by themselves without any government oversight. They’re convinced that the market can do a better job—“bad” companies will go out of business while “good” companies will thrive and grow.
The problem with this argument is that allowing a corporation to voluntarily be “good” is like asking the fox to guard the hen house—it’s a conflict of interest. The corporate law that requires a corporation to act in the best interests of its shareholders means it must filter all decisions through a cost/benefit analysis in order to determine the “appropriate” balance between the public interest and maximizing profits.
How does this work in real life? Take the 1979 Chevrolet Malibu case**. On Christmas Day 1993, a mother and her 4 children were horribly burned when a drunk driver slammed into the back of their car and it burst into flames. It turned out that in 1972 GM redesigned the Malibu and moved the gas tank 9 inches closer to the rear bumper in order to save $6.19 per car. What is even more horrifying is the cost/benefit analysis pegged the expected number of fatalities at 500/year and factored in $200,000 in legal damages/fatality. GM decided that a profit of $6.19/car times 41 million cars was worth it.
The GM cost/benefit analysis was done in 1972. Are corporations better stewards of the public good today? Hardly. Consider the infamous “Three Little Pigs” cost/benefit analysis memo prepared by BP in 2002. The analysis was used to determine how much money BP should spend on worker accommodation at the aging Texas City refinery site. The analysis used cutesy fairy tale language: explosion frequency translated into “the big bad wolf will blow the house down”, consequences turned into “the piggy is gobbled” and maximum justifiable spend was what the piggy would spend to “save its bacon”. Callous and insensitive language which came to light after the 2005 explosion which killed 15 workers and injured 170 others.
Did the market punish BP so that its behaviour improved? No. Eight years later BP sailed straight into the Deepwater disaster in the Gulf of Mexico. Eleven workers were killed, hundreds of people lost their livelihoods, the environment was irreparably damaged—and BP’s profits for Q1 2011 dropped by 2% from an expected $5.7 billion to $5.4 billion.
OK maybe the problem isn’t too much regulation but too much duplicative regulation that creates inefficiency and unnecessary costs. Time marches on, regulations get stale, new ones are passed which overlap with or contradict old ones. Fair point, but the fact that regulations need to be overhauled does not mean they need to be scrapped entirely or their enforcement turned over to the very entities trying to escape oversight in the first place.
Right, so this is where the government needs to step up and protect the public interest. Or to put it in movie language: check on the Kraken and ensure that it is still tightly tethered to the ocean floor. Unfortunately that’s not happening.
Corporations have slowly but surely loosened the regulatory bonds over the last four decades. Their first level of attack is the electoral process.
Anyone who’s worked for an American company knows the joy of receiving an invitation to the CEO’s house to meet the congressman who happens to see eye to eye with the corporation on critical health, safety and environmental issues. Such invitations are not BYOB but rather BYOC (bring your own chequebook). It’s usually a career limiting move to pass on this opportunity. The result is obvious, politicians who benefit from the support of industry take care of industry.
The second level of attack is the multi-pronged “educational” approach waged by industry associations, industry funded think tanks and lobbyists who spend considerable time and money educating the government on complex industry issues. Government bureaucracies are generally understaffed and underqualified and as such need all the help they can get. Unfortunately industry’s perspective is not always balanced with that of NGOs or citizen advocacy groups who do not have the same level of resources and access to the politicians and bureaucrats.
This process creates a feedback loop—politicians respond to industry pressure and largesse, they repeal “offensive” regulations and/or cut staff, government inspections and certification processes slow down, industry complains and offers to take the whole mess off our hands.
Then comes the ultimate irony—the regulatory bonds snap, the Kraken chews up the landscape, destroys lives, makes class action lawyers rich and the public demands someone’s head on a plate (where is that wretched Zeus when you need him). The government dutifully responds by enacting regulations to assure the public that this horrible situation will never happen again. And it doesn’t, until the next time.
Wouldn’t it make more sense not to release the Kraken in the first place?
*The prohibitions against insider trading, market manipulation, corruption and fraud are another topic for another day.
**The Corporation, by Joel Bakan, pp 61-65.