Mises Daily Articles
Seizing BP Assets: Compounding One Disaster with Another
The April 20 explosion and subsequent round-the-clock oil spill from a BP-operated deepwater drilling rig in the Gulf of Mexico 40 miles off the Louisiana coast has generated justifiable anger across the nation. It's also generated calls for strict sanctions against BP, the most drastic of which is confiscation of all company assets.
Its mission mirrors its name: persuade the Obama administration to seize assets of the British-based oil company and use the proceeds for compensating victims and family members for loss of life, health, and property.
Were it only that simple. Surely, heartbreaking accounts of the ecology of the Gulf of Mexico coastal region damaged by oil toxicity and oxygen depletion make such impulses understandable. At least 100 million gallons of crude oil have spewed from the broken well and onto beachfront and other properties. Yet such a move in the long run would set a precedent whose effect would be to chase away private-sector oil drilling from that region. And given the experiences of nationalized oil industries elsewhere, it is not likely to prevent further spills. Market logic, unfortunately, rarely appeals to the impatient.
Apparently, it doesn't appeal to the Obama administration. President Barack Obama, under enormous public pressure to "do something," has already embarked on a course of de facto nationalization. In a private June 16 White House meeting, Obama coaxed BP chief executive Tony Hayward into "donating" $20 billion to a new escrow account earmarked for payment of damage claims — the president called it "a good start." Obama has also ordered a six-month moratorium on granting of deepwater drilling permits (at least 500 feet below sea level) and drilling on 33 exploratory wells in the Gulf of Mexico; US District Judge Martin Feldman a week later invalidated the move as heavy-handed, but the administration vows to appeal. President Obama also has leaned on the Interior Department and other federal agencies to aggressively increase oversight of all Gulf drilling operations.
Then there is the matter of court action. Attorney General Eric Holder announced that the Justice Department is reviewing whether criminal and civil laws were broken. "We will make certain that those responsible clean up the mess they have made and restore or replace the natural resources lost or injured in this tragedy," said Holder. This is separate from inevitable lawsuits by the states of Louisiana, Mississippi, Alabama and Florida (BP already has given them a combined $305 million), plus dozens of private suits already filed. If the company faces criminal charges, its legal bills alone — independent of stratospheric settlements or jury awards — could run into the tens of billions of dollars. Yes, BP is a highly profitable company. But this is exactly why President Obama and his people are going after the company with such ferocity in the first place. Why bother putting the squeeze on a money loser?
Despite all this, a large number of activists want the administration to go much further. They are calling upon the federal government to confiscate all BP assets and place them in a "temporary" trust fund. That's where Seize BP comes in.
A project of a communist organization, Act Now to Stop War and End Racism — better known as ANSWER — Seize BP is circulating an online petition that reads as follows:
The government of the United States must seize BP and freeze its assets, and place those funds in trust to begin providing immediate relief to the working people throughout the Gulf states whose jobs, communities, homes and businesses are being harmed or destroyed by the criminally negligent actions of the CEO, Board of Directors and senior management of BP.
ANSWER justifies its petition in a statement appearing on PSLweb.org ("the Party for Socialism and Liberation"), couched in predictably shrill prose:
We must act now to defend jobs, communities, wildlife and the environment from the combined forces of BP, other Big Oil giants and the federal government that have acted as partners in the reckless and frantic search of corporate super-profits by permitting ultrahazardous deep-water, offshore oil drilling. BP reaped $5.6 billion in pure profits in the first three months of this year alone.…
The U.S. government functions as a servant for the Big Oil capitalists, both at home and abroad. Our jobs, our loved ones, our communities and everyone's environment are sacrificed in the government's effort to serve BP and other Big Oil giants. Hundreds of thousands are killed and wounded for Big Oil. The people of Iraq and Iran, and elsewhere, have been subject to cruel invasions and occupations by the U.S. military and CIA so that BP and others can plunder their natural resources.
Supporters of confiscation argue that the Oil Pollution Act of 1990, which created a federal trust fund to make available up to $1 billion per incident, doesn't adequately address the issue. Abolishing profit apparently will. "This is part of a deeper crisis of extracting resources for profit that we feel, and ANSWER coalition feels, is not the way to extract resources for human use," said Mike Chrisemer, an ANSWER supporter and member of Florida State University's Center for Participant Education. "We feel that the nonprofit way is the best solution to that. Leaving it up to companies that are just trying to make money off it — that doesn't always equate for what's best for the community."
Leaders of Seize BP aren't impressed by Tony Hayward's recent assurances that his company is committed to making good on all claims. "Our demand is very straightforward and very simple: Seize assets of BP sufficient to compensate the people they harm," states Seize BP chief organizer Carl Messineo.
Sources only slightly more reputable than ANSWER/Seize BP are also pushing this envelope. One prominent belongs to Robert Reich, secretary of labor during the first Clinton administration and now a professor of public policy at the University of California at Berkeley. Writing in the May 31 edition of the Huffington Post, Reich argued that because we face a national emergency, the federal government must temporarily seize BP assets. Without such action, full corporate accountability is impossible. The piece is worth quoting from at length:
It's time for the federal government to put BP under temporary receivership, which gives government authority to take over BP's operations in the Gulf of Mexico until the gusher is stopped. This is the only way the public will know what's going on, be confident enough resources are being put to stopping the gusher, ensure BP's strategy is correct, know the government has enough clout to force BP to use a different one if necessary, and be sure the president is ultimately in charge.
If the government can take over giant global insurer AIG and the auto giant General Motors and replace their CEOs in order to keep them financially solvent, it should be able to put BP's North American operations into temporary receivership in order to stop one of the worst environmental disasters in U.S. history.
The Obama administration keeps saying BP is in charge because BP has the equipment and expertise necessary to do what's necessary. But under temporary receivership, BP would continue to have the equipment and expertise. The only difference: the firm would be unambiguously working in the public's interest. As it is now, BP continues to be responsible primarily to its shareholders, not to the American public. As a result, the public continues to worry that a private for-profit corporation is responsible for stopping a public tragedy.
Such statements underscore a growing desire for a clampdown not simply on BP, but on the entire oil industry. Rolling Stone editor, Jann Wenner, writing in that magazine's most recent issue ("The Inadequacy of Hope," July 8–22), opines, "The time has come to put a complete stop to all high-risk offshore drilling and to take away, once and for all, the oil industry's huge tax subsidies."
In light of Reich's favorable view of the federal takeover of AIG and GM, it's fair to say that he (and Wenner) wouldn't be too troubled by a takeover of all major US industry. For such people, the pursuit of profit is all but inimical to the public interest. But the prospect of seizure should be alarming notwithstanding — and for several reasons.
BP is a foreign-owned company and thus by international law is immune to seizure. "Seize BP" activists say a legal precedent exists for receivership because the assets pose a domestic threat. But this principle only applies when there is a real possibility that assets will be transferred out of the country. "Most of BP's assets in the U.S. are not mobile," states Cornell law professor Jeffrey Rachlinski. "They're not exactly a shell corporation. It's not going to be difficult to enforce judgment against them and any judgment is likely to be extensive."
A government takeover would be a foreign-policy blunder of immense proportions. Great Britain has been a trusted ally for more than a century. Seizing one of their largest corporations, and at a time when their own economy is reeling, would sour our partnership quickly. It also would set a dangerous precedent for US relations with other nations. Under a similar pretext, for example, we could seize assets of Japanese-owned Toyota to compensate American victims of that carmaker's malfunctioning accelerator pedals. And we could take over Chinese toy factories to compensate American children and their families injured by design defects, excessive lead paint, and tiny magnets in their merchandise. Putting the shoe on the other foot, foreign governments could expropriate US corporate assets to make whole potential damage claims. Fidel Castro would be proud of such retaliation.
Nationalization doesn't assure safety. A good example is the regime of Venezuela, the world's fifth-largest oil exporter. In 2007 its state-run oil and natural gas company, Petroleos de Venezuela (PDVSA), grabbed a 60-percent stake in four projects that process crude oil extracted from the South American country's Orinoco River basin into synthetic oil. The affected companies were ExxonMobil, Chevron, ConocoPhillips, BP, Total SA (France), and Statoil ASA (Norway). "This is the true nationalization of our natural resources," boasted President Hugo Chavez. "The privatization of oil is over. This is the last space that was left for us to recuperate. Petroleum now belongs to all Venezuelans." Not everyone in the Castroite strongman's country has been celebrating. Just this May PDVSA had a major accident of its own. One of its offshore gas exploration platforms, Aban Pearl, sunk into the sea. The accident didn't generate headlines mainly because all 95 workers aboard were rescued. And it might have been avoided altogether had Chavez not fired half of PDVSA's managers and senior engineers following a 2002 strike. That hasn't been the only calamity. In 2005 an explosion killed five workers at PDVSA's Paraguana Refining Complex. What makes us think that a government takeover of BP will immunize our own country from such disasters?
If BP hasn't yet been able to cap its own well, it's highly unlikely that federal bureaucrats and contractors will do any better. BP has every interest in fixing the problem. Its reputation, indeed existence, is on the line. Already, the spill has cost the company an estimated $2.65 billion in cleanup costs. If BP had the expertise to build the well and drilling technology, then by definition BP has the expertise to plug the rupture.
BP, a publicly traded firm formed through a 1998 merger of British Petroleum and Amoco, has been hammered by the market in which it operates. The company's inability to prevent or control a calamity, in other words, is a good predictor of its potential lack of profitability. That's why investors have been pulling out. BP's stock price, hovering around $60 a share in the days before the April 20 explosion, closed this Monday (June 28) at $27.05, a drop of over 50 percent. All three bond rating firms — Fitch, Moody's, and Standard & Poor's — have downgraded long-term BP debt. The prospect of a financial meltdown and a subsequent takeover by another company is enough incentive for BP to get the problem under control.
"Seize BP" is about building socialism, not providing financial compensation. Since the BP fiasco is the ugly face of capitalism, receivership must be only the first step. That the campaign is controlled by ANSWER is highly significant. Founded only days after the 9/11 terrorist attacks, ANSWER during the last decade organized major antiwar rallies marked by intense opposition to US interests rather than US policy (the latter, a hallmark of patriotic dissent). In beliefs and leadership, the New York City–based group is virtually indistinguishable from the International Action Center (IAC), a front for a Stalinist entity known as the Workers World Party; former US Attorney General Ramsey Clark is closely involved with all three groups. These and allied organizations tightly coordinate operations; many share the same Manhattan address and phone number. "Seize BP" front man Carl Messineo fits right in. He's a cofounder of the Partnership for Civil Justice Legal Defense & Education Fund, a project of the IAC. He also was a member of the legal defense team for the antiwar group Voices in the Wilderness, which eventually was fined $20,000 by the Treasury Department for smuggling supplies to Iraq in violation of UN sanctions against the then-Saddam Hussein regime.
Imposing receivership upon BP, a company with nearly $250 billion in revenues in 2009, will not provide accountability for the Gulf Coast oil spill.
Nobody should ignore the necessity of promoting safety or of compensating aggrieved parties for personal and property damage, to say nothing of the families of the 11 workers who died in the April 20 explosion.
A society that values individual rights should not give liable parties a free pass. But a hostile federal takeover of BP would send a message to every other firm in the oil industry that their assets aren't safe from plunder.