Category: Economics

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When irony leads to hypocrisy.

The uncontrolled oil spill in the Gulf of Mexico has turned into what looks to be the US’s worst environmental disaster. 40 days into the spill the well is still spewing 19,000 barrels (79,000 gallons) of oil per day into the deep waters 50 miles off of southern Louisiana. If ever there was an environmental event that could be called “catastrophic,” this is it. Estimates are that the oil slick (which is far more extensive in the middle layers of the Gulf than at the surface) will reach the Florida panhandle within days, the western Florida coast within weeks, and if the prevalent currents take hold it, the Florida Keys, Florida Straits, Cuba and South Florida Atlantic Coast by mid July. Estimates of when the spill will be contained range from August to December. If it is the latter, the slick could well be in New England given the flow rate of the Gulf Current. If a hurricane hits (the Atlantic/Caribbean hurricane season started on June 1), then all bets are off. Whatever happens, the economic costs of the disaster are already mind-boggling and wide-spread, which at a time when the US was just starting to emerge from a deep recession is a catastrophe all of its own.

By now everyone who follows the news knows that British Petroleum is the lessee of drilling rights in that part of the Gulf and owner of the drilling platform that exploded and collapsed with the loss of 11 lives that led to the leak. BP’s inability to staunch the flow after nearly a dozen unsuccessful attempts has been matched by the the wait and see response of the US government, which initially relied on BP assurances that the leak was not as big as is now known and that a capping solution was possible within a few weeks. Now that oil has fouled the Louisiana, Mississippi and Alabama coast lines on its way to Florida, public anger against BP and the Obama has started to boil over. A few days ago the US public was treated to the spectacle of James Carville, the well-known Clinton political advisor, ranting on national television against the Obama administration for its slow response (Carville is a Louisiana native). His rant was remarkable only because he is a loyal Democrat, since a host of Tea Party spokespeople, Republican Party figures and the baying hounds at Fox News and talk back radio have all lambasted the president for his lackadaisical approach to the crisis. A recent opinion poll shows that a quarter of those polled blame BP for the accident, a quarter blame Obama, and the rest blame both.

That is pretty rich. During the W. Bush administration regulations on off-shore drilling were relaxed and wilderness areas opened to oil exploration. Common emergency cutoff safeguards were abandoned as the GOP-controlled Congress approved policies of oil industry self-regulation. Dick Cheney chaired the White House energy task force, which was staffed by oil industry heavyweights including the infamous Ken Lay of Enron fame. Their recommendations, many of which passed into law, were that “less is more is less” when it comes to oil: the less US regulation the more domestic production. The more domestic production the less dependence of foreign oil. The entire federal regulatory and oversight apparatus charged with oil industry supervision adopted this mantra, which was spearheaded by Bush appointees whose idea of environmental protection was to make industrial polluters plant trees in the neighborhoods in which they operated or designate areas under their control as wildlife refuges.

The Obama administration had nothing to do with this. Its main fault lies in that, in an effort to appear centrist and “pro-business” it has allowed BP to lead the repair operation even though BP initially lied about the extent of the leak or about the fact that there had been multiple warnings from its own engineers that the well was showing signs of blowing in the weeks before the explosion. The timing of the disaster was both unfortunate and fortuitous, as, following the “less is more is less” line of thought,  the Obama administration just approved new off-shore drilling rights off the lower US East Coast, a decision it may now have to review in view of the fact that, unlike the Gulf of Mexico coastline, the US Eastern Seaboard holds a majority of the population and important commercial and military ports as well as providing the jump-off point for Trans-Atlantic sea traffic. An uncontrolled oil spill in the Gulf of Mexico is a disaster; a similiar uncontrolled oil spill off the northern coast of Florida or the coasts of Georgia, North and South Carolina would be apocalyptic.

The situation has gotten so desperate that experts are now debating the merits of the so-called “nuclear option:” a plan to detonate a nuclear explosive 15000-18000 feet under the surface so as to melt the surrounding rock into a glass-like “plug” (the wellhead itself is just a mile (3,800 feet or 1600 meters) down). This is also called the “Russian option” because Russia has reportedly used this technique to cap runaway natural gas wells (the Russians have not said anything in public to confirm or deny these stories). Trouble is, no one knows if the nuclear option will work, or what its collateral effects will be. As one Canadian blogger reportedly wrote: “What s worse than an uncontrolled deep water oil spill? A radioactive deep water oil spill.”

So the situation is grave. But in the their effort to place the blame on Obama, the Republican Party  and its tea bagger/media loudmouth cohort have shown that they are craven hypocrites with no sense of  fair play. In their attempts to divert attention from oil industry greed and failures onto the Obama administration, they reveal themselves as complete weasels. Take, for example, Sarah Pains claim that Obama was moving slow on the crisis because he had taken money from BP. Well, the “took the money” part is true. The Obama/Biden campaign received US 70,000 dollars from BP, which also gave US$38,000 to the McCain/Palin campaign. But the oil industry as a whole gave the McCain/Palin campaign US$ 1.3 million and the Obama/Biden campaign US$900,000.  It is axiomatic in US politics that lobbying groups paper the wallets of both sides of the political spectrum, with big business and Wall Street favouring the GOP and unions, high tech and other public interest groups favouring the Democrats. Thus the claims that Obama is in BP’s pocket are refuted by a simple perusal of the public record (to be fair, Palin may not have the attention span or time to peruse the public record given that she reads “all” of the newspapers and is busy with her Fox TV Show and book tours).

Obama’s detractors are also stupid. After years of clamouring for “less government,” this motley crew of “conservative” champions of free enterprise now whine about a lack of government response to a disaster created by the very private industry that they helped free from government regulations in the first place. The Obama administration may have been slow off the mark in its response to the crisis, but that is precisely because it relied on private industry–in this case BP–to be upfront and honest about he scope of the disaster. Now that it is clear that BP was dishonest, and that this dishonesty is endemic in the oil industry when it comes to environmental safeguards, the government turns out to be the default option after all, but this time in a reactive rather than a proactive role such as what existed before Bush 43 laid waste to the federal regulations governing off-shore drilling.

Obama may rue the fact that his first two years have been consumed by problems that were not on his agenda when he came into the office. But for those salivating at the prospect of a GOP sweep in the 2010 midterm elections, the oil spill may prove to be even more problematic because no matter how they may try to spin it, it was the Republicans who set the stage for the disaster to happen. Whatever flaws his administration has, Obama gave private industry a chance to fix the problem, and it is only after BP’s repeated failures that it is now considering direct intervention in the capping efforts. So much for him being a commie, and if the Democrats have any sense of irony, then so much for a Republican landslide in November.

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They have to want it as much as you do.*

I spoke with an old Pentagon friend today (a person with whom I shared strategic planning duties in a specific area of concern, and who went on to far greater things than me), relating to him my early observations about Greece in crisis. I mentioned that the Greeks, who have a public sector that dwarfs the private sector, in which the public sector average wage is far above that of the private sector, have a huge sense of collective entitlement and natural rights. For example, university students (as public entitles) are currently demonstrating daily against proposed cuts in their free lunch and bus pass benefits, but not at the university. Instead, they disrupt downtown traffic. Tomorrow the seafarers, bus drivers and railway workers go on a 12 hour strike to protest wage freezes or labour market infringement  (the train and bus workers are public servants facing wage freezes and the seafarers are striking to protest non-EU ships being allowed berthing rights in Greek ports. Their combined walkout will paralyze the transportation network for 8 hours ). 

But media coverage of the issues is somewhat odd. Rather than look inward, the popular press is full of anti-German rants because the Germans will determine the conditions of the Greek debt bailout (which only delays the inevitable default), and the conditions imposed by the Germans (as majority holders of Greek debt) are considered to be the reasons why Greek workers will not get their entitled, perfunctory raises.  All the while  life goes on–the cafes and supermarkets are full, people crowd the trains, there are few demonstrations outside downtown. People do not appear to connect the impending default to their lifestyle.

Usually wages are tied to productivity, which means that if the public service is well paid it is also efficient (such as in Singapore). But in Greece it is not. From what I have observed and what my Greek interlocutors have told me, nothing gets done or it is waste of time to demand action. For example, on Saturday an illegal gypsy market spung up on the street outside our apartment building. It closed the street to vehicular traffic and vendors camped out on the apartment footsteps. The neighbours shut the front entrance doorway, which is usually propped open, out of fear of robbery. I asked my landlord if that was commonplace and she said that yes, although illegal the gyspy market had run for years because neighbours had zero success in complaining and bribes may have been paid for the authorities to look the other way (which indeed they did–I saw not a single cop during the entire afternoon the market was running).  In other words, Greek public service is as much a hindrance as a help to civil society, hence the proliferation of grey and black market activity. The curious thing is that this situation is tolerated by both of the dominant Greek parties, respectively left and right centre as they may be, because public sector employment and benefits is a common source of patronage and clientilism. Neither one wants to upset that apple cart (even if the latter is foreign debt-bought and effectively owned). 

Mind you, not that all Greek public services stink. When compared to the Auckland raillway system, for example, the Athenian Metro is stellar. There are few delays on the six inter city lines, complete integration with buses and suburban rail lines, and close integration with ferry and airport schedules. The only visible problem, from my non-expert viewpoint, is that there appears to be way too many people (or too little, depending on the station) doing nothing in pursuit of this goal. Then again, I tried the Henderson-Auckland (before and after Britomart) route for years, before and after it was privatised,  and the public-controlled Athens Metro system has it beat by a country mile.

Not that the Greek private sector is a beacon of innovation and entrepeneurship. To the contrary, it is mostly low skilled small holdings with no growth or technological ambition (think butchers, cosmetic vendors and locksmiths), and the political-economic elite (they are the same, crossing familial ties in many instances) in this rigid two party system have no interest in promoting the sort of capitalist ambition that would erode their joint lock on power. Cuba is similar in this regard, because in both cases oligarchic control supplants popular innovation as the motor of progress and majority consent is bought with public sector employment (not that I am drawing a direct line between the two regimes as a whole).

Which is to say, Greek economic backwardness is cultural, contrived and perpetuated by the Greek status quo. The elite see no need to change because deficit spending is a double edged sword, as many US banks found out to their dismay. Deficit-laden countries intimately locked into the European financial system such as Greece will not be allowed to collapse  becuase if they do the financial run is on given that Spain, Portugal and Ireland are all in the same predicament–too much debt, too little ability to pay within IMF/ECB guidlelines.  Hence, Greece may default, but it will not be allowed to financially collapse if for no other reasons than that the repercussions would be catastrophic on the European banking system itself.

Which is where my fomer Pentagon friend comes in. I noted to him that the problem with EU expansion is that the leading EU economies, France and Germany, viewed EU monetary expansion into Southern and Eastern Europe as a development project in which the lagging peripheral economies would be modernised by virtue of their connection with the European core (first via labour-intensive investment, then by value added industrial growth). The Euro giants emulated the US when it engaged Latin America in the 1960s and 1970s under the rubric of modernisation theory: just expose the backward masses to a little capitalist entrepenurialism and all will eventually be right.

Err…wrong.  As my friend noted, the locals have to want the change as much as we/you (external agents) do. And that is a cultural issue more than anything else. 

Developmentalist views such as that of the EU and US ignore the cultural component of investment climates. National preferences are different, cultural mores vary, and collective notions of rights and entitlements are not transferable across borders. The Germans and French may have thought that lending money to Greece to fund the Olympics would promote its modernisation, but like the Yanks in Latin America, they failed to understand that Greek culture–what it means to be Greek–supercedes any IMF/European Central Bank prescriptions. Hosting the Olympics was temporary; to be Greek is forever, and that is not reducible to a current deficit repayment schedule. To the contrary. It is reducible to notions of rights and entitlements crafted over milleniua and mytholoigised as such. That bottom line is not within an IMF  or European Central Bank purview.

Which is why my friend Ray’s point is well taken: an external actor can only help as much as the locals want to help themselves. There is no point in offering assistance and prescriptions if the locals do not see the need to change. Absent a local consensus on the need for change (which can be influenced by externally driven media manipulation but which ultimately has to resonate in the hearts  of the citiznery) better then  for external actors to cut bait than to engage in futile hope that the local conditions will change.

In fact, the opposite may be true: the less a country is propped up by external actors and the more it is forced to look inside itself for solutions, then the more it may eventually address the root causes of its backwardness, decline or stagnation (New Zealand could well be a case in point). In any event, only after internal failure is acknowledged that external assistance will make a difference in Greece or elsewhere, and that difference is not material but attitudinal.

 According to my buddy, that fact is as true for Greece as it is for Somalia, Irag and Afghanistan, and in the latter instances, the stakes are arguably much greater. I disagree with his summary assessment as it applies to Afghanistan (as I believe that there is more at stake than local self-realisation), but cannot help but recognise the truth in his words. At the end of the day in this age, no matter the degree of previous exploitation and subserviance, the root problem of backwardness lies within. Or to put it in my friend’s terms, “if the locals do not want to do it, it aint gonna happen.”

There is truth in that view and no amount of good intentioned external help will resolve the fundamental issue.

*Update: For a jaded by humorous view of Greek politics check this out.