http://rabble.ca/blogs/bloggers/behind-numbers/2016/05/oil-profits-pipelines-and-human-cost-regulatory-capture
[links in on-line article]
Oil profits, pipelines and the human cost of regulatory capture
By Bruce Campbell
May 24, 2016
The Canadian public overwhelming believes that government's first
priority is to protect their health, safety and the environment. They do
not trust corporations to regulate themselves, believing that they will
privilege profits over safety. (See the CCPA report "Canada's Regulatory
Obstacle Course" for polling data.) Only after a major disaster does the
public lose confidence in government's ability to protect them. And only
then do flaws in regulatory regimes come to light.
Despite the rarity of such events, the regulatory failures behind major
disasters have common features that interact with and reinforce each
other. It's because of these commonalities that we can link the U.S.
financial crisis, the 2010 Deepwater Horizon and 1982 Ocean Ranger
oilrig disasters, nuclear meltdown in Fukushima, the 1992 Westray Mine
explosion, and of course the devastating 2013 derailment in
Lac-Mégantic. In each case we find vague regulations, a lack of
inspections (to verify compliance with safety measures), the inability
to enforce the rules or penalize those caught breaking them, corporate
unwillingness to follow up on violations of company rules, and evidence
of regulatory capture.
This last element is fundamental, but too frequently ignored. Regulatory
capture exists where regulation is routinely designed to benefit the
private interest of the regulated industry at the expense of the public
interest. A regulator can be deemed captured when industry is routinely
able to shape the regulations governing its operations, block or delay
new regulations, and remove or dilute existing regulations that may
adversely -- and usually inadvertently -- affect costs. Yet strangely,
the concept is largely invisible in the lexicon of policy-makers. When I
mentioned regulatory capture last week before the Senate transport
committee, one senator thought I was talking about the Stockholm Syndrome.
There is substantial evidence (about which I've written elsewhere) that
regulatory capture was a contributing factor in the Lac-Mégantic rail
disaster. There are also signs it has infected other sectors.
Drug safety expert and CCPA research associate Joel Lexchin identified
the mid-1990s as a turning point for pharmaceutical regulation in Canada
-- the moment public safety was subsumed under Big Pharma's bottom-line
interests. Under government orders to cut costs, Health Canada began
charging user fees to drug companies for reviewing new drug
applications. As a result, the regulator became dependent on the
companies it was regulating for a big portion of the money needed to run
the drug regulatory system.
More recently, a CBC investigation exposed how tax accountants,
including KPMG executives, were wining and dining Canada Revenue Agency
officials at the same time that they were being investigated for a tax
avoidance scheme in the Isle of Man. Independent researcher Ellen Gould
has uncovered similar evidence of collusion between the U.S. Coalition
of Services Industries (CSI) and government negotiators from a number of
countries involved in Trade in International Services Agreement (TISA)
negotiations, to which Canada is a party. In fact, most trade agreements
are written by and for the corporations whose activities they will
eventually regulate, with no or very little input from other affected
groups.
Under the last government, the Canadian public got used to stories of
regulatory capture in the energy sector, though it was rarely explicitly
named as such. Former BC Hydro chairman Mark Eliesen withdrew from the
Kinder Morgan pipeline hearings, claiming the National Energy Board was
captured by the oil and gas industry, and sacrificing the public
interest for private infrastructure needs. In his investigative series
for the National Observer, journalist Mike de Souza found separate
instances of the NEB agreeing to either remove potentially incriminating
paragraphs or neutralize the language in audits of Enbridge and
TransCanada pipeline spills. (The NEB approved the doubling of the
Kinder Morgan pipeline on May 19, declaring it "in Canada's public
interest.")
Regulatory capture thrives in an environment where government is
ideologically committed to free-market deregulation. Previous Liberal
governments have advanced the project stealthily, using nuanced terms
like "smart regulation." The Harper government put deregulation on the
front burner, launching a "Red Tape Reduction Commission" mandated to
reduce the costs of regulation to business. The commission's eventual
report was the basis of the government's 2012 Cabinet Directive on
Regulatory Management (CDRM), which established marching orders for
deregulation across government.
Sean Speer, a former adviser to prime minister Harper, described the
government's approach as regulatory budgeting. The idea was that
regulatory bodies should price their "regulatory expenditures" in the
same way they would fiscal expenditures. The government allocated
budgetary limits on regulatory expenditures; if a regulator exceeded
them the costs of new regulation would need to be offset through the
"savings" produced by cuts to existing regulations. According to Speer,
Harper personally championed this deregulation initiative during its
conception and development.
The new approach was operationalized through a "one-for-one" rule that
required departments and agencies to offset every new regulation by
removing an older rule somewhere else. A metric was devised to measure
the cost to business of regulation and produce scorecards to quantify
progress in reducing costs. To ensure that bureaucrats did not stonewall
the government's plan, an external watchdog committee was struck
composed of business representatives and deregulation advocates.
The 2015 federal budget reported that regulatory budgeting via the
"one-for-one" rule was responsible for "saving Canadian businesses over
$22 million in administrative burden, as well as 290,000 hours in time
spent dealing with red tape." The Harper government tabled legislation
formalizing the policy in January 2014 and the Red Tape Reduction Act
came into force in April 2015. Canada became the first country anywhere
to entrench this deregulatory technique in law, with strikingly little
parliamentary opposition.
The extent to which regulatory capture, and the government's 2012
cabinet directive, contributed to the failures leading up to
Lac-Mégantic is, as so much about that disaster, still unknown. The
recent $460-million settlement of the class action and wrongful death
lawsuits against 25 defendants, including the federal government,
shielded Ottawa from the threat of further legal liability. It also shut
down major avenues of inquiry into what happened and why, eliminating
the means to compel witnesses to testify and force new information to light.
The people of Lac–Mégantic have called repeatedly for an independent
inquiry, as prompted by numerous other Canadian disasters. On top of
those listed above, there were the 1986 Hinton collision between a CN
and Via Rail train, the tainted blood scandal of the early 1980s and the
E. coli outbreak in Walkerton, Ontario of May 2000, which received
either judicial inquiries or a royal commission. Why shouldn't
Lac-Mégantic get the same treatment? When you combine the large loss of
life, destruction of property, and environmental damage, this was an
accident without parallel in Canadian history.
The fact that companies have always been powerful players in the
regulatory process does not, by itself, constitute capture. However,
capture is more likely when the regulatory body is too weak to act as a
countervailing force to the industry. As such, there are measures
governments can take to resist.
For example, agencies need to be well funded, with professional
expertise capable of assessing the validity of industry regulatory
proposals, and they should be able to make their own decisions based on
best evidence consistent with their public interest mandate. Canada's
regulators need to be able to seek out independent information sources
rather than having to rely on information provided by the industry.
Beyond funding, we need stronger measures to address the flow of
industry personnel to regulatory bodies. These might include a more
effective conflict-of-interest system, internal training and career
development programs, and robust whistleblower protection to ensure that
employees who come forward with safety concerns will not be threatened.
The company information and power advantage could also be
counterbalanced with greater transparency, information disclosure, and a
more open regulatory consultation process involving citizens groups,
municipalities and independent experts.
Finally, policy-makers need to assert the indispensible role of
regulation in protecting public health, safety, and the environment. As
mentioned at the outset, it is a message the Canadian public would
warmly welcome. For too long, regulation has been disparaged, labelled a
cost to business, red tape, an obstacle to competitiveness and growth, a
"silent job killer." It's time to restore the reputation of regulatory
practitioners and their essential role as guardians of the public good.
Bruce Campbell is a visiting fellow at the University of Ottawa Faculty
of Law, on leave from the Canadian Centre for Policy Alternatives, and
the 2015 recipient of the Law Foundation of Ontario's Community
Leadership In Justice Fellowship.
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