Not too soon to learn from the big spill

Opinion: October 11, 2010 at 12:00a.m.

By Harold L. SIRKIN

McClatchy-Tribune

Almost unnoticed, the oil well that caused so much anguish to so many people for so many months was declared permanently sealed on Sept. 19, some five months after the drama began.

We still don’t know exactly what happened, how much oil poured into the Gulf of Mexico, or the extent of the damage to the region’s wildlife, environment and economy.

But it’s not too soon to start learning from the big spill.

First, we should learn that smart regulation and vigorous enforcement are necessary. In a free-market economy, one of the proper roles of government is to mitigate risk to the public. In our modern high-speed, high-tech society, laissez faire doesn’t mean anything goes. It means the market drives the economy, but government sets certain rules to protect the common good and makes sure the rules are observed.

We’re not talking about government attempting to create a risk-free society; there will always be risks. Without entrepreneurs and investors risking their funds, there is no economic growth. Without scientists pushing beyond what is known, there is no discovery.

Government’s job should be to police the market in ways that reduce the likelihood that one party — deliberately or by accident — will cause others great harm. To do this, government needs to focus on big risk, not chasing fleas while the elephants run rampant.

Blowout risk

All along there was the risk of a catastrophic blowout in the Gulf. The oil exploration and drilling industry lives with it daily. There should have been a plan — and a backup plan.

Big risks require safeguards to protect the public’s interests. Big risks also require regulatory and response systems that are up to the task and hands-on regulators who are active, responsible, well funded and know how to do their jobs without getting in the way of progress.

In this case the system failed. It needs to be fixed.

Second, we should learn that America needs to break its oil habit.

Virtually every post-war president since Richard M. Nixon, during whose watch the 1973 OPEC oil embargo took place, has warned that the United States needs to wean itself from oil. Nixon’s policy was even called “Project Independence.”

Past presidents were especially concerned about foreign oil, our purchase of which helps finance adversaries of the United States.

Offshore drilling in the Gulf and elsewhere is part of America’s strategy to reduce U.S. dependence on foreign oil — and will remain so for the foreseeable future. Had we gotten serious during the 1970s and 1980s about our long-term energy needs, we would be further ahead today. But we can’t redo the past.

Moving from a largely fossil fuel-based economy to an economy with a broader mix of energy — including more nuclear, wind, solar, biomass and hydroelectric power — will require huge investments across many players. Because of the up and down nature of pricing and the high up-front costs, government will have to subsidize — and may have to finance — many of the needed investments.

China and India are doing just that. China, for example, increased its total investment in renewable energy — mostly wind and solar power — from a meager $163 million in 2002 to nearly $11.5 billion in 2009. The total is expected to hit $42 billion by 2015. India’s renewable energy investments, including hydropower, are expected to reach $26.7 billion by 2015.

‘Experience curve’

The sooner we get started, the cheaper these alternatives will become. The “experience curve” has proven time and time again that costs will fall as people and companies learn to do things better.

Third, we should learn from the big spill that actions have consequences. Bad decisions can cause a company to lose a lot — goodwill, reputation, money — in some cases everything.

It’s human nature to underestimate the chances of “low probability” disasters. We do this all the time. But the big spill should remind us all: If you break it, you own the consequences.

The United States has had some 40 years to learn our energy lessons and we have little to show for it. Isn’t the definition of insanity doing the same things over and over again and expecting different results?

Harold L. Sirkin is a senior partner of the Boston Consulting Group (www.bcg.com), Chicago, and author of “GLOBALITY: Competing with Everyone from Everywhere for Ever.” Distributed by McClatchy-Tribune.