Don't Nationalize BP

Big Government is no cure for the failure of Big Oil

Life is complicated. But not for the statist leftarati watching the BP oil disaster. For them, it offers yet another opportunity to reaffirm a binary lesson in an old morality play: "government good; private corporations bad."

Soon after the Gulf gusher started spewing its toxic muck, an activist group named "Seize BP" sprang into action, holding rallies all across the country in outfits depicting injured pelicans demanding—you guessed it!—seizure of BP's assets. Nor is this call limited to a fringe group. Chris "Hardball" Matthews recently hectored: "Why doesn't the president go in there, nationalize the industry and get the job done?" Salon magazine's Joe Conason, likewise, advocates taking a leaf from Norway's page and nationalizing the whole industry to constrain a "dangerous economic sector." Former labor secretary-turned-Berkley-professor Robert Reich insists that if the government can take over AIG and General Motors, then why not BP's North America branch? And Rosie O' Donnell has opined... oh nevermind, who cares!

The harsh truth is that neither the government nor the company can make the victims of the spill whole again. But the absolute worst thing one could do to them is consign them to the tender mercies of a government-controlled BP.

Reich, who has made the most cogent case for nationalization, argues that the company's first responsibility is to its investors, not the victims of the spill. Hence it faces a fundamental conflict of interest in which it has every incentive to delay and diminish compensation. (Theoretically, BP's stockholders could sue the company if it made what they regarded as an overly generous settlement to avoid the political heat.) And, in the Reichian parable, the only solution to this market failure is massive government intervention.

If only. The reality is that such intervention rarely—if ever—has a happy ending, regardless of where and when it's applied.

Consider the Bhopal gas tragedy in India, the worst industrial accident in history that marked its 25th anniversary last year. For arguments similar to the ones that Reich & Co. are deploying, the Indian government took it upon itself to deal with Union Carbide—the company responsible for releasing methyl isocyanate into a densely populated town, killing up to 20,000 and injuring about half a million. The government went so far as to bar the victims from filing private lawsuits on grounds that it was better positioned than them to extract a muscular settlement from the company.

What did it get? A measly $470 million—partly because it vastly understated fatalities in order to minimize its own negligence. Bhopal victims on average got $580 each, and that too after begging and bribing officials who continue to sit on about half of the money.

If you think that this happens only in India where the government is dysfunctional and corrupt, consider the tobacco settlement in America where state attorneys general decided to sue tobacco companies after a series of private lawsuits filed by smokers proved unsuccessful. The treatment costs of smokers imposed a strain on Medicaid budgets, they claimed, that the companies ought to pay back. Never mind that study after study has shown that smokers die young and cost states less than nonsmokers.

Tobacco companies agreed to cough up more than a quarter-trillion dollars under the 1998 Master Settlement Agreement. But what was supposed to pay for anti-smoking campaigns and defray smoking-related health care costs has turned into a giant slush fund for whatever states desire. According to a 2007 General Accounting Office study, states use about 30 percent of the money for intended health purposes. The rest goes toward plugging budgetary holes, infrastructure spending, servicing debt, you name it. And what did the smokers, arguably the only genuinely injured party, get? The same old crappy Medicaid benefits and vastly higher cigarette prices!

Indeed, the big danger if Uncle Sam takes over BP is that politics—not injury—will dictate who gets what. In the case of the auto bailout, to take Reich's own example, car dealers fiercely petitioned their congressmen to escape the ax, even if this meant more red ink for their parent company. If BP is nationalized, it is inevitable that politically connected lobbies—farmers, unionized industries, greens—will end up getting a larger share of the spoils than the genuinely aggrieved individuals who don't have friends in high places.

But the biggest danger of a government takeover is this: If BP offers victims an unsatisfactory settlement, they can sue. Not so if the government is running the company and determining compensation. The doctrine of sovereign immunity will likely shield it from lawsuits—and, if not, I would bet my annual supply of Perrier, it will pass a law doing so, as happened in India.

So are there any good options for BP's victims? Unfortunately, no.

Economic damages for the victims of Exxon Valdez on average worked out to less than $29,000 per head—and that's before they paid off their lawyers—not nearly enough to restore their destroyed livelihoods. As to the punitive damages, it took them two more decades to finally get a fifth of what they were originally awarded, thanks to extended litigation by the company's well-heeled lawyers. About 20 percent of the claimants were already dead by then.

But worse from the standpoint of BP's victims, the Supreme Court in the Exxon case ruled that punitive damages in industrial catastrophes cannot exceed economic damages. The court invited Congress to revise that provision, which it has failed to do. Doing so now in order to retroactively raise BP's liability will mean running afoul of the Constitution, not to mention the rule of law. In short, oil spill victims will now pay not just for BP's negligence—but the government's as well.

Their best bet, notes Jonathan Adler, professor of law at Case Western Reserve University, might actually be through the $20 billion escrow fund that the Obama administration has persuaded the company to create—notwithstanding Texas Republican Rep. Joe Barton's little apology to BP. BP's liabilities are likely to far exceed that amount, which is why it is going along with it in the first place. A properly constituted fund in which the government acts as a referee—and not as a negotiating party as would be the case under nationalization—might be better than the alternatives for both sides. BP could quickly process claims by offering victims pre-packaged deals. If they don't like what BP puts on the table, they could walk away and sue.

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  • ||

    Ask a disabled vet how quick and fair the government is on paying claims.

  • ||

    Wow, I never really thought about it that way before. Makes sense.

    www.real-anonymity.se.tc

  • Fiscal Meth||

    Anon-bot sounds like Jimmy from South Park following Cartman's instructions on how to sound like a good listener and get laid.

  • fyodor||

    Sure, there's always "conflicts of interest" pulling businesses in different directions.

    The fallacy of the Left is to think none exists in government. Ha!

  • ||

    They've GOT The Right People, WHAT CAN GO WRONG. you racist!

  • Barry Loberfeld||

    Spot on, wylie.

  • Maxine Waters||

    This liberal would be all about socialize -- uh, uh, would be about basically taking over and the government running all of your companies.

  • Liberal Ignoramus||

    Yes! Maxine is right. We need to nationally socialize these companies. Call it, I don't know, National Socialism or something. I think that might catch on.

  • I, Kahn O'Clast||

    The only way a government seizure of BP would make sense is so that the assets could then be auctioned/sold off so as to recoup the highest possible amount to pay for the clean up. The current risk is that the US side of BP hides under bankruptcy protection and fails to make good on claims for damages.

    I am not endorsing a government take over of BP, I'm just saying that this would be better than the idea of the government actually owning and operating BP.

  • Piggly Weigely||

    "the idea of the government actually owning and operating BP"

    That's what they'd do.

  • ||

    Shit, people want the government to deal with the oil spill? The government can't even fucking pave roads.

    J sub D's comment is gold.

  • ||

    The "Nationalize BP" folks are in for a big disappointment. The government will NOT do this, since the administration then becomes directly responsible for everything that does (or doesn't happen) in regards to the cleanup. As tempting as that big pot of money, and the accompanying power grab, are the potential fallout is just too great.

    Wonder how the nationalizers are going to rationalize the failure of the Obama administration to cater to their whims?

  • ||

    Easy. Blame it on Bush.

    Damn, I'm good at this governance shiat.

  • Fiscal Meth||

    They'll wait till everything's all plugged, safe and almost cleaned-up before they start talking (in coded terms) about nationalizing BP. But they will try.

  • ||

    What is unreasonable about Americans taking ownership of its own natural resources? The only problem is that any US government that did so would either give BP back asap or keep it and use the profits for more war. The People deserve to profit from their own resources! Maybe if Americans see what it's like to own our own oil deposits then Americans will be less likely to support our government's stealing of other nations' natural resources...just maybe!

  • UnionBuiltOhioRoads||

    shut the fuck up, you leftist paultard

  • ||

    Chris "Hardball" Matthews recently hectored: "Why doesn't the president go in there, nationalize the industry and get the job done?"

    Why not, indeed?

    I have the utmost confidence in his ability; he helps what's-er-name in the garden, right? Holes in the ground is holes in the ground.

  • Your Idiot Brother-in-Law said||

    pants on the ground/holes in the ground

    tomato/to-mah-to

  • ||

    pants on the ground

    Fertile Soil: You're doing it wrong.

  • Tman||

    Correct me if I'm wrong here, but isn't BP a huge part of the UK's pension investments? So if we socialized nationalized um, er I mean "take over and basically running your company", does that mean now we're on the hook for UK pensions TOO?

    Wonderful.

  • ||

    The UK has nukes, you know.

  • Dr. Strangelove||

    Big deal. We have a doomsday machine.

  • Almanian||

    All your companies are belong to us

  • Nainamla||

    Somebody set up us the bill!

  • Your Idiot Brother-in-Law said||

    On a lighter note, I'm pretty sure if our oceans die, then we all die :-)

  • ||

    0
  • ||

    I always wondered what that "0" meant, in a comment.

    Apparently it is your comment score, as awarded by the squirrels.

    Fuck y'all, squirrels.

  • Dan||

    If this happened I would predict a repeat of the 70's. Maybe though current commander in chief would end up becoming Carters twin.

  • Retrac||

    His EVIL twin!

  • Sean W. Malone||

    Fortunately I don't see much likelihood of this happening, but of all the quotes in the article, it's Matthews' that I despise the most, I think...

    Asking why the president doesn't just swoop in, steal everything and then "get the job done", when said job is something that the president hasn't even a single day of experience doing is just insane.

    Obama isn't an engineer, he has no experience with oil, with deep sea diving, or disaster clean up, and worst of all, he's never run a single thing in his life that has had to be measurably successful.

    He has absolutely no qualifications to "get the job done", and the fact that Matthews somehow thinks that being president turns rich lawyers into fucking sorcerers is just insanity.

    I really wish people like that weren't on the air.a

  • EasyPeasy||

    Its easy to run an oil company.

    1. Stick a big straw in the ground.
    2. ???
    3. Profit!

  • ||

    Are we assuming that BP and the United States government aren't already one in the same?

  • josey||

    That was my first thought. There exists a particular relationship between players of BP's class, the government, and the people: the first could not exist without the power of the second, and the second could not exist without the ignorance of the third.

  • Coke Zero||

    BP wants this done with. They want to get back to making money (and Hayward wants his life back). They need to repair their reputation, which is done by cleaning this mess up and quietly going back to drilling. They'll do what it takes to clean this mess up quickly.

    The federal government, however, whose oil-cleaning-up experience is limited at best, likely wants to drag this out as long as possible. It's an emergency, and items of emergency, the gub'mint gets more powers! Plus, they don't have to worry about their reputation.

    So no. If you actually want to get this hole plugged and the oil cleaned up, don't nationalize BP.

  • ||

    The correct word is 'steal'.

  • LarryA||

    Chris "Hardball" Matthews recently hectored: "Why doesn't the president go in there, nationalize the industry and get the job done?" Salon magazine's Joe Conason, likewise, advocates taking a leaf from Norway's page and nationalizing the whole industry to constrain a "dangerous economic sector."

    Anyone remember Chernobyl?

  • Fiscal Meth||

    Good article Shikha.

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  • Peter Jensen||

    First time I reed anyone intended to nationalize BP.
    I this reason?
    I think not.

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    Ask a disabled vet how quick and fair the government is on paying claims.tools sale

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