Posted by: N.S. Palmer | May 28, 2010

The Solution to Corporate Crime

By N.S. Palmer

One solution, from the 1933 film “Gabriel Over the White House.”

The catastrophic oil spill by BP (formerly known as British Petroleum, and before that as the Anglo-Iranian Oil Company) has drawn attention to the fact that corporations can get away with murder. Literally. Largely exempt from accountability or punishment, they cause incalculable damage to communities, ecosystems, economies, and human lives.

The libertarian “solution,” if you want to call it that, is to do nothing. To hear libertarians tell it, corporations are deterred from evil acts by two factors.

First, they are deterred by their fear that consumers will refuse to buy dangerous products or patronize firms that commit crimes. But corporations have found easy ways to get around that problem. The easiest way is to buy up or buy off the news media. If that doesn’t work, they can just change the name of their company or its products. Consumers might remember the old name, but they won’t know the new one. The “magic of the market” doesn’t work.

Second, libertarians claim that corporations are deterred from criminal acts by their fear that the people they harm will sue them. But the BP disaster shows conclusively that corporations have nothing to fear. Millions of gallons of oil have spilled into the Gulf of Mexico as a result of BP’s negligence. However, the company has taken steps (such as using chemical dispersants to break up the oil) that will make it extremely difficult to prove the extent of damages. Even more difficult will be proving that specific amounts of damage were done to specific people and communities as a result of BP’s actions. The company might have to pay out a little, but any damage payments will be dwarfed by the massive profits it continues to make from cutting corners on safety. The numbers are clear: crime does pay, as long as you’re corporate and connected.

So what to do?

As I see it, there are three ways to approach the problem of corporate crime — whether by oil companies like BP or financial bloodsuckers like Goldman Sachs.

First, there’s the libertarian solution: do nothing. Corporations and their owners love that one. It’s great for them. For most people, however, not so much. It means that government ignores its primary obligation to protect the people.

Second, use regulation to prevent corporations from engaging in foolishly risky or criminal activities, particularly when they think that any profits will accrue to them but any costs will be borne by others. That would have prevented not only the BP oil spill, but the Wall Street meltdown of 2008.

Third, don’t regulate, but impose Draconian punishments to induce corporate managers to act responsibly. Without advocating it, let me describe an effective solution. At a certain point in the near future, federal marshals surround the headquarters of BP or Goldman Sachs. They arrest the members of corporate top management who were most guilty of causing the oil spill or the economic crisis. They march them out into the street and, in front of TV cameras, execute them on the spot. We would only need to do that one time. After that, corporate managers and owners would know that if they caused sufficient harm, they might not live to enjoy the profits from their crimes.

My point is that we have only three choices. Two of them are unacceptable. That leaves one which, in spite of any shortcomings, is the best of the three.

Choice number one, the libertarian solution of doing nothing, isn’t an option. Choice number three, shooting corporate executives in the head, would be effective but would violate the rule of law and would sometimes be unjust.

That leaves solution number two: Regulate the daylights out of corporations to prevent them from acting irresponsibly and criminally. That’s what a sensible person can support.

Update: BP and Halliburton Knew They Risked Disaster

In case you missed it, The New York Times reports that internal memos show BP violated its own safety guidelines to use riskier but cheaper methods for the Deep Horizon drilling project:

As far back as 11 months ago, [BP] was concerned about the well casing and the blowout preventer. On June 22, for example, BP engineers expressed concerns that the metal casing the company wanted to use might collapse under high pressure.

BP went ahead and used the riskier methods anyway, having bought off and/or corrupted the U.S. Minerals Management Service regulators who were supposed to be monitoring them. In addition, former U.S. Vice President Dick Cheney‘s company Halliburton, which was also involved, knowingly used faulty cement to seal the well.

Maybe choice number three isn’t such a bad idea after all.


Copyright 2010 by N.S. Palmer. May be reproduced as long as byline, copyright notice, and URL (http://www.ashesblog.com) are included.

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Responses

  1. Unless, of course, regulating legislators are influenced by corporate lobbyists.

    Oh, wait, that never happens.

    • If you’re looking for perfect solutions, you won’t find them on earth.

      You’re right that we must take care to avoid “regulatory capture” by regulated industries. One way to do that is to depart from the Bush-Cheney practice of staffing regulatory agencies with people who are beholden to (or corrupted by) the regulated industries, as was the case with the MMS.

      Failing that, we’re back to the solution of shooting corporate management, which would be more effective but presents other problems. 🙂

      One of the columnists suggested that the Obama administration must conduct a complete “de-Bushification” of regulatory agencies. That sounds like a good idea. Too bad we can’t do it with the Supreme Court as well.

  2. THE EVOLUTION OF CAPITALISM

    Capitalism was founded upon basic principles: production, supply and demand, and capital accumulation. It is a social theory whereby prices are determined by profit and loss, as well as market interest and fluctuations.

    Although I understand the need for a free market enterprise, such a theory should not imply that we are willing to disregard our environment, or sacrifice the needs and comforts of our humanity in an attempt to realize higher profits (a.k.a., BP, Lehman Brothers, Goldman Sachs, etc).

    Capitalism may be wonderful, but like anything else, it is still a flawed system. It’s a work in progress. It needs to be tweaked here and there in order to perfect its balance and to soothe the inordinate swings that occur day-to-day in our financial markets. If left unchecked, however, such a system will prove to be our economic downfall.

    How so?

    Well, for one thing, there is only so much profit a business can make from a product before it is left to cut costs in both quality and workmanship. In order to continually sustain a profit, businesses have to create those same products with lower quality ingredients and cheaper labor: which means that they must pull up stakes and move to other countries like China, Taiwan, or Mexico in order to survive. What does this eventually mean for people like you and me? It means that the very financial theory that promoted our country to super power status has turned on us. It means that the American workforce is now expected to work harder, longer, cheaper, and faster if we are to compete with the global economy now breathing down our necks.

    Where do we go from here?

    George Orwell had it right, to some extent, when he wrote his book1984. Many years from now, money will become worthless and the global populace will be employed and subject to hundreds (if not thousands) of individualized corporations that managed to survive attrition through merger aquisitions. It will be a feudalistic society: every corporation out for blood and vying for global dominance and absolute power. Our children and grandchildren will be there too: housed, clothed and fed by these various corporate entities; all the while being sent out on occasion, like brainless automatons, to errands of war, in an effort to absorb the weakest corporations into the fold. After all the dust settles, and everything is said and done, the remaining corporations will finally merge into a one-world government.

    Science fiction, you say?

    (…I’m left wondering.)

    • Your main points are excellent and very perceptive. Offshoring, lower quality, and wage cuts are indeed some of the ways that corporations maintain their profits.

      Technology also plays a role, e.g., the computer technology that Goldman Sachs uses to make thousands of trades in milliseconds just ahead of others in the market (including its own customers).

      I’m less pessimistic than you are about the long term because I don’t believe the future is that predictable. Even a hundred years ago, no one would have predicted the situation we have now. There are too many wild cards. Certainly, our current situation is difficult, but anything can happen.

      Thanks for a great analysis and comment!


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