Capitalism, Socialism and Oil Rigs

So much to blog about lately, especially as it relates to the BP oil spill. One piece that caught my attention was a column in the Washington Post which used the oil spill to illustrate that the debate over capitalism vs. socialism is a false dichotomy. (see: Gulf Oil Spill Offers Lesson in Capitalism vs. Socialism)

For instance, Louisiana’s Republican Governor Bobby Jindal, normally an outspoken critic of government intervention, lately has been complaining he’s not getting enough support — “resources” in his terminology — from Washington. It seems in this case more government, not less is what’s needed.

At the same time, frustrations over BP’s inability to stop the flow of the oil led to a series of stories about the prospects of the government “firing” BP. However, talk of such a plan seems to have been largely silenced after Admiral Thad Allen observed “To push BP out of the way, it would raise a question: Replace them with what?” In other words, the government needs private industry too. In this case, without BP the prospects of stopping the flow of oil becomes even more bleak.

And so, we have a bizarre triangle. Local citizens need the government to save them from BP. The government needs BP to help them. Thus, BP is both the cause of the problem, and one hopes, part of the solution.  In other words, in the gulf we find that even a government-industry hybrid is incapable of either containing or stopping the spill. One lesson: suggestions that what the world needs is less government or less industry is to suggest that in the future we would be even less capable of responding to crises and disasters such as the spill. Of course the second lesson is largely an echo of the financial crisis. Regulation matters. And clearly different regulatory regimes are likely to result.

But in which direction should we go? Stepping back, what the BP oil spill seems to suggest is that the acid test for regulatory reform is not whether it strengthens government at the cost of industry or vice versa, but what is the effect on the entire hybrid and its configuration. Good legislation is not legislation that punishes business or rewards it, or strengthens government or weakens it. Good legislation requires reconfiguring the institutional arrangements in such a way that will strengthen the entire government-industry hybrid network. To merely trade off or shift between either government or industry as having the upper hand is to miss the point. Like the financial crisis, the BP oil spill suggests that what is needed is greater hybrid strength, resilience and coordination, not less. This is one more place where a sum zero game means we all lose, no matter which side wins.

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