Outsourcing Safety. . . to the Marshall Islands

Just when you thought the BP mess could not get more surreal, this comes up:

The Deepwater Horizon oil rig that exploded in the Gulf of Mexico was built in South Korea. It was operated by a Swiss company under contract to a British oil firm. Primary responsibility for safety and other inspections rested not with the U.S. government but with the Republic of the Marshall Islands — a tiny, impoverished nation in the Pacific Ocean. And the Marshall Islands, a maze of tiny atolls, many smaller than the ill-fated oil rig, outsourced many of its responsibilities to private companies.

Now, as the government tries to figure out what went wrong in the worst environmental catastrophe in U.S. history, this international patchwork of divided authority and sometimes conflicting priorities is emerging as a crucial underlying factor in the explosion of the rig.

Sounds a bit like asking a government to certify the safety of investments—and having it effectively delegate the job to Nationally Recognized Statistical Rating Organizations. Keeping authority in the US may have just made matters worse:

MMS depends largely on the self-reporting of oil and gas companies to determine how much they owe in royalties — a system the Interior Department’s former inspector general, Earl Devaney, described as “basically an honor system” in congressional testimony in 2007. . . . The MMS commonly negotiates settlements with petroleum companies over disputed royalties — but the process is often shrouded in secrecy. A 1996 inspector general report found that MMS officials kept no documents on nine out of 10 royalty settlements, to prevent disclosure under the Freedom of Information Act. In one case, the MMS could provide no records to explain why the agency reduced its estimate of a company’s royalty debt by $360 million. . . . [More errors] sparked outrage in Congress and yet another probe by Devaney, the inspector general. He later called the oversight a “jaw-dropping example of bureaucratic bungling” and said it could cost the government as much as $10 billion.

It has become fashionable of late to contrast enlightened, US-style “free market capitalism” with the “state capitalism” of petro-states like Russia. Anyone familiar with the work of David Cay Johnston or James K. Galbraith would suspect that analysis. Recent oil debacles complicate the distinction even further.

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