Huffington Post has a blog entry on Massey Coal that’s worth reading:
Justice — of sorts — was finally delivered as Donald Blankenship, the former Chairman and CEO of Massey Energy, was convicted (with a maximum fine of $250,000 and up to one year in prison) of conspiring to willfully violate mine safety standards at the Upper Branch Mine in West Virginia, where 29 workers died in April 2010. Here’s a blog I wrote about it a few months after the disaster.
Huffington makes the point that the Upper Big Branch mine explosion is much like the 2008 financial crisis because they both have the same root cause: elected officials who should have been creating a regulatory system that protects workers (or investors, or the public) instead created a system whose first priority is to protect the corporations it was meant to watch over.
Read the full Huff Post entry here.
It’s also the same as the BP Deepwater Horizon, whose regulator was the Minerals Management System, or MMS. The MMS was a bureau within the U.S. Department of the Interior (DOI):
MMS’s biggest problem was agency capture. In 2008, MMS was caught in a scandal in which the Department of Interior’s inspector general found that regulators had “inappropriate relationships with industry that could compromise their objectivity.” Those inappropriate relationships allegedly included sharing alcohol at industry functions, using drugs, and sexual relationships between regulators and industry professionals. [17] The inspector general also characterized MMS as dependent on industry’s greater expertise with the technology of deepwater and ultra-deepwater drilling, and thus reliant on industry’s judgment of appropriate safeguards to incorporate in regulations.[18] Essentially, the oil industry’s deep pockets gave it strong leverage over MMS decisions.
Yep. MMS was literally in bed with the company it was supposed to regulate. And as they said on the bridge of the Titanic, that’s just the tip of the iceberg.
Regulatory capture hurts us in several ways. First of all, it contributes to the downward spiral in trust people have for government: “If they aren’t going to regulate these bad guys, why should I believe in regulations?” That leads to less oversight, which leads to even worse regulator behavior. Secondly, it hurts “good” companies who actually follow the rules and act in good faith. Often the regulators go after the little guys because they don’t have the capital and legal resources to defend themselves. Regulatory capture also leads to a false sense of security followed (all too often) by disaster. People THINK someone is watching out for them, even though they aren’t. Eventually a disaster occurs, which probably could have been avoided if the regulators were doing their jobs. Then panic sets in and a new set of hastily devised regulations are quickly put in place, which helps fuel the next cycle.
Agreed. What we see in the regulatory sphere with administrative agencies is just the logical consequence (or, more properly, the excrudescence) of the corporatist idea that regulatory agencies exist to serve and protect regulated entities. In particular, when appearing before their regulators, these large companies play the role of delicate hothouse flowers that must be protected from citizens or (Heaven forbid!) citizens’ groups. Regulator and utility thus stand in a relationship closer to that of benevolent guardian and ward. It is another example of the “soft” corruption of American government at the state and local level. Hard corruption, giving an Abscam-like payoff in exchange for some official act or vote thrown to the payor, is of course unlawful. But in the soft variety, individual regulators are beholden to the politicians who appointed them to the job (and the nice salary that comes with that job, plus reasonable hours and maybe even some perks). Their careers after their term at the administrative agency is up depend on the good will of their own patrons, the politicians, and their records in deciding cases in favor of the utility. One need only look at how many regulators ascend to jobs with the utilities they used to regulate. The politicians, in turn, are beholden to the wealthy individuals and large corporations who spend as much money as they can attempting to influence the policy choices made by the regulator, the legislature, or both. The returns on this investment (i.e., campaign contributions) are beyond the wildest dreams of any business school professor. With more and more consumer-affecting activities subject to administrative regulation, as opposed to ordinary court jurisdiction, the result is that we have virtually ceased to function as a society living under the rule of law. The system has not collapsed yet, but it will eventually as the public’s lack of confidence in its operations and decision-making works as an irreversible solvent of its legitimacy.
[…] recent disasters with administrative agencies like the federal Mining and Mineral Service (BP Deepwater Horizon) merely reflect our corporatist state, in which regulatory agencies, and the legal regimes they […]