Too Big to Fail? The BP Bailout as Corporatism
Friday, June 11, 2010 at 11:14AMNowhere have I seen a clearer example of the perils of corporatism playing out than in the current handling of the BP oil spill. If only Obama understood the context of the decisions he's about to make, he might be able to use this as an opportunity to turn all this around, and put people and the planet before profits. (Will someone please tell him to read my book Life Inc?)
Like so many presidents before him, Obama is being given an opportunity to choose between corporatism and commerce, between banking and the environment, between investment capital and small business, between passive extraction of value and active creation of value. And, like almost all of them, he's going the wrong way.
Today, Obama will be discussing the leak - already the greatest environmental disaster in US history even if it were patched right now - with his counterpart in Great Britain, newly elected Prime Minister David Cameron. Why are the two talking? Because if the US actually were to force UK-based BP to pay for damage it's causing, the company would lose a lot of money - and so would its shareholders.
In the latest round of empty fist waving by Obama and apologetic posturing by BP, the President raised the issue that while BP has spent a few tens of millions on the cleanup effort and damages so far, the company's annual dividend to shareholders is about $10.5 billion. The company is acting as if all its resources are being diverted to address this spill, when - financially anyway - this is clearly not the case. So as a way of changing the widespread perception that it is underspending on the crisis, BP suggested it might "suspend" - meaning pay later, not never - its quarterly dividend. A gesture of goodwill.
What a brilliant move. By suggesting they might suspend their dividend, BP initiated widespread panic about what would happen if that dividend were compromised in any real way. All of a sudden, business newspapers and cable channels begin calculating just what this means for shareholders - those people and institutions who park their money in an oil company and expect returns. How many pension funds have invested in BP? And how many retirees in England have made the oil a company a central part of their retirement portfolios, and are depending on these dividends to maintain their quality of life?
So now, instead of an transnational oil company against the American gulf fishermen, beach workers, and ocean itself, it's the interests of presumably innocent British pensioners against American workers. We're supposed to limit BP's liability for wrecking our lives and our planet, because of the impact that appropriate penalties will have on those collecting dividends off the oil company's crimes against us. This means bailing out the company by using government funds to pay for its spill.
Sorry, but the too-big-to-fail argument just doesn't play. Investors: This is what you get when you decide to bet your retirement on an oil company in the 21st century. Why did you think the dividend was ten times what you'd get from a government bond? Because of the risk. This is the post-Valdez universe, after all. While many of the readers of this blog might be too young to remember that oil disaster, septuagenarian pensioners should be able to remember.
The pity-the-pensioners argument is really just another way of valuing passive extraction of wealth by those with capital over the active creation of wealth by those who work. There are plenty of old people in the gulf who, instead of depending on shares of stock are still working on boats or supporting their kids who are. But under a corporatist scheme, the people who actually create value are much less valued than those who passively extract it from them.
In a healthier, more justly designed economy, pensioners would be investing the excess wealth of their working years into local businesses, their kids' businesses, or other productive assets instead of the retail stock of long-distance, environmentally irresponsible multinationals. The fact that the latter strategy is failing one is no justification for working people to bail out the investment capital community time and time again.
Then, of course, there's all those union workers at BP - supposedly in danger of losing employment if we were actually to allow the company to falter. But by favoring the interests of a company operating on the scale of BP over the interests of small businesspeople trying to fish, beach, cook, or even make energy, we simply increase our dependence on corporations for employment. And continuing to favor the corporate scale over the human one just makes it that much harder to choose appropriately the next time. Bailing out Goldman Sachs makes it harder not to bail out BP, and so on.
Don't get me wrong: this is not a right-left problem. The Left's commitment to unions is just as debilitating as our Right's commitment to corporate welfare. For while unions are great for workers already mired in the corporatist scheme, they work against the interests of those attempting to work independently of that system. Union workers need the corporations they work for to succeed, so they end up in a death grip with management - everyone simply fighting over the ill-gotten spoils. Union workers work hard and deserve compensation - but in the big picture, they are more like the crew on a pirate ship fighting for their share of the raping and pillaging.
It's possible Obama just doesn't get this (which is why I want him to read my book - or at least have one of his people write a summary for him). He may have benefited so much from the system as it exists that he truly believes that the marriage of government and corporate interests is the best way to work society. He may have seen the short-term successes of corporate welfare, and believe that the maintenance of these outsized institutions really is the only way to provide individuals with the jobs and income they need to survive.
But it's a losing game and an economic system that is at once bad for people, bad for the planet, and bad for business. BP, and corporations of their ilk, are not truly profitable - not without government intervention, and not without excluding the human and planetary costs of their activities. If BP were actually to pay back the cost of repairing the damage to the environmental and business infrastructure of the Gulf Coast, they would cease to exist.
And if Obama has read a bit of history and economics and does get this? What does that mean? It means that his policy of defending other oil companies and oil-producing nations in our prolonged war in Afghanistan have cost him the political capital he needs to fight on our behalf against BP. England is our only vocal partner left in what has become America's longest war, ever. We can't afford to lose them as our friend and ally.
Of course, England isn't really fighting in Afghanistan because they want to support their great friend, America. They've got the very same oil interests that we do. They've also the same obedience to the corporations putting politicians in office, giving union workers their jobs, and paying pensioners their dividends.
The BP crisis recapitulates the entirety of corporatism in real time, transparently enough for anyone to see. It should be evidence enough for us to break from business as usual, right now. This is not just a disaster, but a golden opportunity as big as 9-11 to leverage new public awareness towards a positive, groundbreaking shift away from corporatism and back toward the creation of real value - away from corporations, and toward people.
This is Obama's chance to promote change we can believe in, the change we have been waiting for. If he doesn't, then we really ought to turn our backs on hope.
Reader Comments (23)
Great article, Douglas, and I very much agree with your analysis.
Not to sound self-flagellating, but I do feel that in many way this is OUR fault. Look at our lifestyles. Look at our urban planning. Look at our lack of political will. In such a context the existence of a BP is almost inevitable.
We can blame Obama for acting poorly after the fact, but we can't blame him for the spill. I hope whoever actually believed that a politician in 2010 America would solve our problems finally woke up.
Whatever my brain has that is equivalent to an ass just got kicked. Amazing article.
Nice article, Douglas. I especially like the points you make in paragraphs 7 and 8.
The "free market" has taken a most bizarre twist. Large corporations want to operate RISK-free in addition to operating unfettered with freedom from regulatory constraints.
The only risk that seems to be assumed in the free market is by two relatively powerless constituencies:
1. Small business owners who may well lose their homes, personal wealth, and perhaps even their well-being if their businesses fail; and
2. Employees of virtually all corporations, large and small, who work under the illusion of "job security" until they have no job, no income, no benefits whatsoever -- often with little to no advanced notice. "Such is the free market," goes the dismissive explanatory note from the corporate bosses with the no-lose Golden Parachutes.
The risk equation has been turned upside down. Stockholders protected, everyone else assuming risks they did not willingly take on.
See a related insightful commentary from the late Sumantra Ghoshal of the London Business School, at http://bit.ly/aLqH6H
It's difficult to argue that large corporations have a disproportionate amount of influence and may be less than "good"citizens. I also support the fact that small businesses are far more "profitable" in that they sustain their local community. Unfortunately ranting that corporations are inherently evil probably won't improve the situation.
Perhaps a regulatory environment that facilitated full disclosure, responsible behavior, and overseen by truly independent boards of directors would be a meaningful step that could be realized.
That was very well stated and should be required reading for all democrats. You want to lay odds on which side of this Obama comes down on? If his past performance tell us anything, we will be screwed.
I think it was Howard Zinn who said that no matter a President's political leanings, they always ardently defend the present capitalistic/corporatistic structured economy. This is par for the course, and Obama is unlimbering the 1 wood.
Excellent piece (found you via Naked Capitalism); you lost me at the "we" in the last paragraph though -- I never trusted Obama for all the reasons you have listed. Just as pensioners ought not have put their faith in BP it was the height of foolishness for so many people put their faith in Obama when he has always been as risky an investment as an international oil giant.
Thank you for pointing out the risk compensation of dividends (as well as non-governmental bonds). Too much of this distasteful bailout has been done to protect the bondholders who were already being compensated with higher yields.
Dear Douglas-- While an excellent and novel article, you miss one of the subplots. If the pension schemes of US states and municipalities continue to carry unrealistic and inappropriate rate of return assumptions, they will continue to come to the aid (and petition their captured legislators) of these corporate behemoths regardless of the legality of the practices. Truly the snake swallowing its own tail.
Great article!
I was struck by your point that this is another example of our economy valuing those who profits from wealth over those actually work for a living.
It reminded me of Thomas Geoghegan's essay from a few years ago. He said that the US is now like the old Soviet Union in that no matter how hard you work you'll never get ahead of those who don't work at all....
Well stated Douglas. I may have to read your book Life Inc. and find more of what you have to say in a bit more depth.
Concerning Obama, I think your view of his potential to do the right thing is misplaced. He rose through the political ranks of Chicago, one of the three most corrupt cities in the USA (alongside Trenton NJ and New Orleans LA). That he made no political enemies there is all the evidence one needs of his lack of humanitarian potential. His time in office has confirmed my view that his character is wanting when action beyond speechifying is warranted.
What we need are better politicians; absent that honest captialism will continue to be subsumed by crony corporatism on the taxpayers dime.
And we get now two decisions in order to help corporations, check out this article: http://shar.es/mkSDT
Halle-freakin-lujah. The ongoing tragedy is that there are still many elements than can be positively influenced if our "leadership" lived up to 1/3rd of its corporate marketing campaign.
"Of course, England isn’t really fighting in Afghanistan because they want to support their great friend, America. They’ve got the very same oil interests that we do."
How much oil do we actually get from Afghanistan anyway? I wasn't aware that we got any.
I agree wholeheartedly. GREAT ARTICLE! You have identified exactly what's going on here.
Clear. Deft. Germane. Sharing it.
I did read "Life Inc." after "Rich Dad, Poor Dad" - a beautiful contrast. Like future after past.
I moved on to "Spontaneous Evolution" by Bruce H. Lipton and Steve Bhaerman. My take-away: refreshing reasoning why Douglas Rushkoff is closer to workable soutions than Robert Kiyosaki.
Disclosure: a part of my father's pension is paid from a BP subsidiary.
Truly, I don't understand why Obama and the Democrats, whom I love, are not seizing this as a "teachable moment" to once and for all illustrate that the power of corporations in general--not just in the case of BP, but in general--needs to be reined in.
Why are they not connecting the dots between this and the Citizens United ruling? If not now--then when?
It's not joke: Obama needs to read Rushkoff's book.
Sorry. Not not: no. As my mother says, I'm too mad to see straight!
Tim - it's not that the Afghans have oil. The Afghans have Taliban and other groups who are hostile to America. And the reason they are, and the reason we want some political/military clout in the Middle East, has more to do with energy than keeping the world free. It's a complex situation, I admit, but our relationship with Saudi Arabia has a whole lot to do with why radical elements from Saudi Arabia want to attack us.
And thanks Duke - that's a little depressing, but a frame I don't usually try on. I tend to see Obama as well-meaning but maybe he is a bit more cynical. It's hard to know anything, ultimately.
I recently heard Garrison Keilor refer to Obama's "moderate Republican policies" as an explanation of why he is having a hard time rallying support[ers] - nobody gets excited about moderate policies.
I also heard Annie Leonard, producer of The Story of Stuff, refer to Obama's policies as "marginally better than terrible", and stating that this is unacceptable.
I find it ironic that some conservatives label him "socialist" or even "communist", given that many of his policies - like those of his predecessors - amount to corporate welfare (as you note).
I also found irony in an article in today's Palm Beach Post: http://www.palmbeachpost.com/news/state/florida-owns-15-million-bp-shares-cfo-sink-751950.html" rel="nofollow">Florida owns 15 million BP shares; CFO Sink says state should weigh selling.
I wrote about this recently on my website. It all started to go down hill when Corporations became protected under the Bill of Rights and the 14th amendment as “Natural Born Citizens” this gives them the right the petition the government and all other rights of an individual citizen.
It was not always like this, i go into much more detail in my article here:
http://www.upfordebate.us/story.php?title=corporate-america-the-real-enemy-of-the-state-1
I take an early look at the history of corporations in America and give a few different examples from the modern era. I thought you might want to take a look at this. Thanks for the good read.