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10.5.97 01:41:25
North Cape
spill a case
study in the
free market
You can blame the North Cape oil spill on the free market. And you can thank the free market for punishing the guilty parties.
In a controlled economy, the North Cape's owner, Eklof Marine, would never have risked cutting its costs so dangerously deep.
But moving oil inexpensively is what the barge business is all about. Barges are the higher-profit alternative to tankers. The New England coastline is crawling with them.
So, whether we like it or not, in a free-market economy Eklof was:
 Free to haul 800,000 gallons of heating oil in an single-hull barge.
Free to leave port without a working anchor.
Free to sail into a winter storm without basic navigation or fire-safety equipment.
Free to decide on January 18, 1996, to try to take its product to market despite the risk.
The consequences of that decision hit the coast of Rhode Island the next day. Eklof's tug Scandia caught fire in high seas, lost power and ran aground off of Moonstone Beach.
It was the worst oil spill in the state's history -- caused almost entirely by corporate negligence.
Predictably, the state's politicians responded with a flurry of bills to tighten regulation of the barge business. When something goes wrong in the market, we write a law, or two or three, to make sure it never happens again.
The General Assembly was the first to act, passing a bill that ordered all barges entering the state's waters to be manned and to carry operable anchors. The law also required double-hulled barges by 2001.
The Coast Guard followed with new regulations ordering all oil and gasoline barges to carry radar, a search light and a VHF radio.
Then last March a special committee created by Congress asked the Coast Guard to order tugs towing petroleum barges to have two engines and operating anchors.
Oddly, the committee also felt it necessary to suggest that the Coast Guard instruct tugboat captains to immediately call them for help if their vessel runs into trouble at sea.
But, in a break with the Rhode Island law, the safety committee refused to push the industry to convert to double-hulled barges. Shipping industry critics said the double-hulled barges would cost too much, and a key sponsor of the Rhode Island law agreed to revise the Rhode Island law.
The compromise left many environmentalists unsatisfied. ``There is still a resistance,'' said one New York lawyer, ``to putting anything in enforceable form.''
While the politicians and the evironmentalists talked, the market was acting to correct the economic conditions that caused the spill.
Tomorrow afternoon in U. S. District Court in Providence, Eklof will offer to pay a record fine of $9.5 million to get the U.S. Attorney to drop criminal charges.
That works out to $7 million for the state and federal government, $1.5 million to the Nature Conservancy to buy undeveloped land near the spill site and another $1 million that Eklof agreed to spend to upgrade its fleet.
In addition to a number of basic safety improvements, Eklof promises either to upgrade to double-hulled barges in Rhode Island waters or to pay to put a crew member on single-hulled barges.
If Eklof fails to make these improvements, it will have to pay the government another $1 million in fines.
``We are delighted that those responsible will pay for their criminal actions,'' said the head of Rhode Island's Department of Environmental Management.
The settlement was also the free market at work. Eklof was free to operate in a negligent manner and the U.S. Attorney, Sheldon Whitehouse, was free to aggressively prosecute the company for its risk-taking.
Eklof's $9.5-million fine will do more to improve barge safety and the fine will do it faster than either Rhode Island's law or the Coast Guard's new regulations.
The plea bargain -- not the legislation -- has set a new safety standard for the industry.
``This will be talked about . . . around the world,'' says URI professor Dennis Nixon, a marine-law specialist. That's because the industry is self-insured, so when one company errs, the whole industry pays.
The free market gives, and the free market takes away. The system works pretty well so long as business doesn't succeed in putting a collar on the legal system with so-called tort ``reform.''
On balance, I'll take the sins of an unfettered legal system over the danger of losing the power to make business pay for its mistakes.
The North Cape oil spill proves that the courts can be a far better remedy than writing more rules and regulations and putting a Coast Guard vessel in every shipping lane.
Peter Phipps is an assistant managing editor of the Journal-Bulletin. You can reach him by phone, at 277-7443; or by E-mail, at pphipps@projo.com
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