Mega-crises lessons: BP oil spill, financial meltdown

On September 19 BP’s Deepwater Horizon well was officially declared sealed after having poured nearly 5 million barrels of oil into the Gulf of Mexico. Coincidentally, the following day the National Bureau of Economic Research announced that the recession that started in late 2007 had ended in June.  While these two crises are now ostensibly over, their effects are likely to be felt for years.

Beyond their scale, the economic crisis and the oil spill share a number of similarities, both in their underlying causes and the scale of the devastation they wrought. The financial system and oil industry are important parts of the global market, with critical linkages across other sectors. These two sectors also frequently operate with limited oversight and involve complex products or supply-chain mechanisms.  Consequently, the two crises’ effects cut across social, industrial and national boundaries.

A 2010 paper by researchers from Brooklyn College and CUNY, “Lessons from the Twin Mega-Crises:  The Financial Meltdown and the BP Oil Spill,” delineates some of the lessons that could inform future policy-making in avoiding the repeat of similar crises.

The key lessons learned:

• Both crises grew out of a combination of excessive risk-taking, conflicts of interest and deregulation.
• Companies must focus on more than just increasing shareholder wealth. This is more than just observing business ethics, and involves seeing a company as a global citizen with responsibilities as well as rights.
• Avenues where conflicts of interest could arise should be minimized to reduce executives’ incentives to engage in high-risk endeavors.

The crises also show that the period of self-regulation has run its course, the authors state. Regulations need to be strengthened such that the actions of economic agents could benefit and not destroy businesses and society.

Tags: ethics, financial crisis, fossil fuels, oceans, pollution