Too Complex to Govern

The Gulf Spill raises the question: Are some activities are too complex to govern effectively? The technology needed to drill a mile below the surface of the sea is, by itself, not complex. It may be complicated but because it is built by humans it can never be wholly unpredictable. Yet it is from the coordination of the participants needed to manage complicated technology that complexity emerges. And that complexity may be ungovernable.  

The Gulf oil spill is another example of the social risks of unregulated markets. From the Enron and WorldCom frauds in the beginning of the decade to the Madoff Ponzi scheme and the derivatives disaster of the end of the decade, the first decade of a new century has been a harbinger of the essential ungovernability of an increasingly complex global economy.

Evidence is now surfacing that there was poor coordination between the many companies performing a wide range of services on and around the Deepwater Horizon rig that blew up on April 20. Each of these companies was pursuing its own interests with incentives to cut corners to reduce costs. The well was late, BP was running over budget, and did not follow its own procedures. There were disagreements between BP, Transocean and Halliburton—nobody seemed to know who was in charge. Transocean would make more money by delaying moving the rig but BP would profit by closing the well as quickly as possible. The companies that ran the undersea robots or ran piping would gain from delay.

Despite the Exxon Valdez disaster in 1989, the oil industry has made little effort to improve safety conditions or prevent well blow outs in deepwater drilling. As the New York Times commented: “Engineers trying to control the blowout are using the same tactics they used in 1979 when the Ixtoc I well blew up in the Bay of Campeche off the coast of Mexico.” At the same time BP, like most other companies drilling in deep water requested, and were granted by the Minerals Management Service of the US Department of the Interior, many exemptions from established techniques and procedures, all of which reduced the cost of the well but increased its risk.

Americans expect both too little and too much of government. On the one hand they want a smaller government, on the other they want a much more effective government. They want less government until they want their government to protect them and their interests.

President Obama is now being blamed for the oil spill—a caller to a radio program even stated that the spill would not have happened if we had not elected a black man to the White House! Obama may have appeared too cool in the first days after the accident happened but he is powerless to stop the spill. The government may be powerful in some ways but it neither has the knowledge or the technology to cap the spill. Only BP and other oil industry specialists can fix the problem they caused. This is not a failure of government; it is simply an incapacity created by the complexity of private industry.

We’ve seen the same recently in the new financial services regulations being negotiated in Congress. Only the perpetrators of the crime against society have enough comprehension of what caused the harm to fix the problem. And they are not interested in fixing the problem if that reduces their profits.

Unsurprisingly, Americans have lost trust in both their public and private institutions.

Organizations are ways to coordinate the activities of many individuals to achieve some larger purpose. And markets are ways to coordinate the activities of organizations pursing their interests. There is no denying that the federal government is large and poorly organized, with distorted incentives that encourage employee convenience and rule following. The delay in approving berms to protect Louisiana’s shoreline is a consequence.  But no organization would be able to ‘manage’ the complex interactions that have evolved within the economy to mitigate the social and environmental harm that the pursuit of profit can cause. Not even organizations with the singular purpose of profit are wholly efficient when they are as large as BP with revenues of $239 billion (equivalent to a small country) and over 80,000 employees in 30 countries. BP had procedures for deepwater wells that were deliberately by-passed in the field.

Americans believe that their presidents have god-like powers to save them from themselves. As Gene Healy’s recent book on the US presidency concludes: “Over and over again we begin by looking to the president as the solution to all our problems, and we end up believing he’s the source of all our problems.” He wasn’t and he isn’t. Like his predecessors Obama is hobbled by the complexity of the political-economic system within which he has to operate. No president can make the radical changes necessary to optimize the system’s social benefits and mitigate all its harms. We have to accept the social harms that capitalism generates or change the system ourselves from within through the daily choices that we make.

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