Grounding Oil Spill Politics

BP flounders, the Obama administration hastily reverses its deep-water oil drilling policy and bans what it previously wanted to expand and another regulator proves itself worse than useless. Better – or at least more realistic – decisions should be made about a valuable common resource like offshore oil. For that, we need a different institutional setup.

Elinor Ostrom, who shared the Nobel Prize in economics last year, pioneered public choice research as to what makes for well governed commons—click for a review by Alex Tabarrok of George Mason University.  Professor Ostrom’s concept of bottom-up “thick rationality,” Mario Rizzo wrote in ThinkMarkets, “recognizes the importance of local knowledge and diverse approaches in the management of resources.”

Those insights are relevant for the Gulf of Mexico debacle.

Centralized control by bureaucrats and politicians has been disastrous. Minerals Management Service, the federal bureaucracy with authority over oil drilling contracts, is by all evidence corrupt and/or incompetent. Washington politicians put on publicity shows to demonstrate their concern, but had not even bothered to reform MMS despite the fact that the problems that were known years ago.

Many of Professor Ostrom’s studies are of indigenous, self-organized institutions in developing countries, but there are broadly applicable lessons—in particular, the need for multiple centers for managing large common-pool resources, starting at the local level.

What would that mean in the current situation? Affected states, regions and groups should have much greater say, for instance, in the deep-water drilling ban imposed by the Obama administration in response to the spill. This ban, now contested in court, shows scant concern for local economies.

But states should have had greater say as well in the pre-spill decision, now reversed, to open to drilling 167 million acres of ocean along the East Coast—a decision apparently made by the White House on purely political grounds, with little concern for the environmental effects. Whether deciding to increase drilling or ban it, the centralized political calculus did not factor in the real effects on the region.

People in Louisiana and Florida are not well served by choices made as part of political posturing or haggling in Washington. Shouldn’t the local population have the right to decide themselves whether or not to allow deep-water drilling off their shores? One possibility is local referendums. Certainly, referendums have their own drawbacks, but at least those who will bear the economic and environmental consequences would have a chance to weigh the pros and cons.

It may be objected that referendums at state level are inappropriate, in part because more than one state is affected. Residents of Florida may oppose drilling off the Louisiana coast, given the threat to Florida’s tourism industry. That does complicate the decision making but is not a good reason for concentrating the process at the federal level. Truth is, we won’t really know what the different populations want until they get a chance to indicate their preferences.

Growth in Federal government power against the states is of course a long-standing trend. Power is increasingly concentrated at the top. But it is people at the bottom who directly experience the oil slick from the imploded BP rig as well as the lost jobs due to the Administration’s new ban on drilling—they know the reality and should have the right to chose.

“If we do not find the means to develop and enhance the capabilities to govern and manage common-pool situations effectively,” Professor Ostrom said in a 2003 interview, “the absence of such institutions in the twenty-first century will lead to fundamental social and economic problems.”

What’s failed in the Gulf of Mexico is not just BP but the centralized federal system. Alternative institutions are what’s needed.

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About Chidem Kurdas 58 Articles

Chidem Kurdas is a financial journalist, analyst and writer.

Throughout her career she has held numerous positions, including: Research Analyst at Thomson Reuters, New York Bureau Chief at HedgeWorld, News Editor at Infovest21, Senior Associate Editor at Medical Economics Publications at The Thomson Corporation. She is currently Editor at Opalesque Futures Intelligence.

She holds a PhD in Economics from New School University.

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