Let Me Be Blunt

Why would a corporation, in competition with other companies selling comparable products – where the purchase price matters – voluntarily implement expensive anti-pollution filters and greenhouse gas abatement processes and place itself at a competitive disadvantage? Since under American corporate governance mandates that, except for legal compliance, there is only one relevant stakeholder in a US corporation: the shareholders. Not the environment. Not the employees. Not Society. Not American priorities. If you, as a corporate officer or director, knowingly approve a massive reduction in profits to accommodate environmental concerns, without showing a reasonable link to profitability or share price increases, your shareholders just might file a shareholders’ derivative action against you for wasting their money and impairing the value of their asset (noting that share price is often a function of a price-earnings multiple).

Why would a financial institution impose greater duties on its servicing employees in dealing with clients, increasing potential corporate liability and risk, just because that is the right thing to do? Why would a company rise above and beyond industry average worker safety requirements, if that would increase costs and reduce profitability when competitors are not equally required to do so? How about building and safety codes? Maybe, if clients are willing to pay for that benefit, but most are assuming a level of fungibility and are price sensitive.

The only way such environmental, safety and financial enhancements will generally be adopted by the relevant companies is if there is no loss in corporate competitiveness as a result. If every competitor is required to take these measures, the public is benefited, and competitiveness is preserved. So, when you hear companies’ rail at governmental regulations – they like to call it “red tape” – it’s really about maintaining profits and avoiding compliance upgrades. And when you hear companies suggest that the industry as a whole can self-regulate, you can rest assured that they are going to try and create the least costly and barely defensible measures simply to avoid government regulation at a much more vigorous level.

Can red tape get so bureaucratically involved that it creates waste and unnecessarily delays? Yup, and that’s the regulatory process that needs to edited or eliminated. But where the regulations benefit virtually all of us or guarantee basics like clean air and water, implement safety or protect us from financial machinations that can destabilize the entire economy (think: subprime mortgages, too big to fail and the financial collapse of 2007/8), they need to be imposed.

Donald Trump equated safety and environmental regulations with being anti-business and anti-growth, even as the planet’s habitability was rapidly being eroded, people were drinking polluted water (think: Flint, MI) and workers were being hurt on the job in record numbers. Just looking at the environment, “Trump tried to weaken more than 100 environmental regulations, including key rules that limit pollution from cars and power plants. Biden can use executive orders to put regulations back in place and make them stronger. ‘There’s a big mess to clean up, says [Sara Baldwin, the electrification policy director at the nonprofit Energy Innovation]. ‘There’s a lot of rules and regulations that were undone, sidelined, or watered down that need to be reinstated and strengthened.’ One rule that Trump eliminated, for example, reduced emissions from methane leaks in oil and gas production, a critical source of pollution that can easily be curbed.” FastCompany.com, December 29th.

We also seem ready to spend multiples of the cost to prevent disasters versus the cost of repairing the damage. From flood, wildfires and hurricanes. We could have fixed aging levees before Hurricane Katrina blasted the decaying structures away, inflicting billions of dollars of serious damage to New Orleans. But we didn’t. We are at least $2 trillion away from a patchwork repair of basic infrastructure – $4 billion to do it right – but almost takes an incomprehensibly expensive disaster, usually one that kills people as well as devastates property, to get government officials to take notice. Just notice! It’s OK to offer a massive tax cut to corporations that are already wildly profitable, incur trillions of dollars of additional deficits, but our schools, healthcare system and infrastructure can continue on the edge of collapse.

Even when there is a problem, our reaction to prevent future repeats of the problem can take time.  For example, on September 28, 2008, because of an inattentive engineer (he was texting) who missed a stop signal, two Los Angeles Metrolink trains, facing each other on a single track, crashed headlong into each other, killing 25 individuals and injuring scores more. Pictured above. Automation was needed. Tim DePaepe, an investigator for the National Transportation Safety Board made this observation on the scene: “It definitely was a preventable accident.” The necessary preventative system didn’t begin to come online for years.

The necessity of such a system began taking shape in 1969 “when two passenger trains hit head-on near Darien, Conn., some 40 miles northeast of New York City. Five people died. An engineer had ignored an instruction to yield, investigators found.” Los Angeles Times, January 2nd. The issue was a “cost benefit analysis,” that suggested that preserving a few lives just wasn’t worth the investment. The callousness of the process was staggering.

“In the mid-1990s, a study by the railroad administration found that roughly seven deaths a year could be prevented by automated controls. [Grady Cothen, then a senior safety officer at the Federal Railroad Administration] and others argued that automation would not only be safer but also would save the industry money. Rail executives believed that neither the lives saved nor the business benefits could justify the massive cost.

“Several rail companies, led by Amtrak and BNSF, the country’s largest freight railroad [they operate 32,000 miles of track in the Western US and Canada], began pilot programs. But while major railroads were willing to experiment, ‘they didn’t have a commitment to implement,’ Cothen said. And under federal rules that require the benefits of new regulations to outweigh the cost, the rail administration determined it couldn’t order the railroads to act… ‘We had felt that the systems would get implemented only when there was a very serious accident in a major metropolitan area,’ Cothen said.

“By the late 1990s, the NTSB had grown frustrated with the lack of action. The agency was refining a list of its ‘10 Most Wanted’ safety improvements, and train control looked as if it might not make the cut because prospects seemed so dim, recalled Robert Lauby, a safety board official at the time, who later became the head of rail safety for the railroad administration… Lauby argued, successfully, for keeping train control on the list.

“By then, the freight railroads, having consolidated and shed unprofitable lines, had regained financial stability and were about to enter what has become one of the most profitable periods in railroad history. The prospect for safety improvements began to brighten. In the early 2000s, Amtrak, as part of rebuilding the Northeast Corridor, began working on a train control system. Safety advocates began pushing Congress to require freight railroads to do likewise.

“After Democrats regained a majority in 2006, the House passed a bill to mandate positive train control. Industry opposition kept the bill bottled up in the Senate… The rail industry has long had a reputation as one of Washington’s most formidable lobbies. The other side is comparatively weak: Most Americans don’t ride trains. Rail safety lacks the immediate connection that can power campaigns for highway or airplane improvements.

“On this issue, the freight railroads could count on support from commuter rail lines. A major new safety system could drive up passenger fares and potentially put some systems — already dependent on public subsidies — out of business, they argued… Mike Rush, now senior vice president of the Assn. of American Railroads, the industry’s advocacy arm in Washington, insists the freight railroads did not oppose an automated safety system, but rail executives bridled at government mandating a multibillion-dollar expenditure…

“[Finally, a system is finally online.] Using GPS signals, wayside radio towers and onboard computers, positive train control can track every train in the U.S. moving across nearly 60,000 miles of track. It’s designed to automatically stop a train if an engineer runs a signal, or slow it down if it’s moving too fast… The system cost some $14 billion, by industry estimates, and took nearly half a century…

“Though the arrival of train control this year won’t eliminate every accident, it will prevent ‘the largest and most horrific’ ones, [DePaepe] said. At the safety board, which advocated the system for decades, there’s a feeling of accomplishment, tinged by regret that it took so long.” LA Times. That increasingly seems to be the American way of doing thing. React slowly after a disaster, listen to biased lobbyists, and deprioritize vastly cheaper prevention. Why won’t we learn?!

I’m Peter Dekom, and virtually every major disaster we have faced could have either been prevented or the damages seriously mitigated with obvious preventative measures that are almost always cheaper than the post-disaster clean-up.