Big government returns

May 8, 2000
A raid on a private residence by federal agents to snatch a celebrity 6-year-old from relatives.

A raid on a private residence by federal agents to snatch a celebrity 6-year-old from relatives.

A federal order to split Microsoft Corp. into two companies.

How are these recent developments related? And how do they affect the oil and gas industry?

Add a few items to the list:

  • Publication by the Minerals Management Service of final rules calling for unnecessarily drastic, probably impracticable, and possibly illegal change to procedures for calculating the royalty on production from federal oil and gas leases.
  • Selection by the Environmental Protection Agency of the strictest possible options for reducing sulfur levels of gasoline and diesel fuel.
  • Consideration by EPA of revisions to its new source review program that would necessitate extensive environmental reviews for nearly all changes to processing plants.
  • Recommendation by EPA that Congress change the Clean Air Act to eliminate methyl tertiary butyl ether in gasoline and replace it with ethanol, although the costly, grain-based alcohol has little or no effect as a smog preventer.
  • A legally challenged initiative by EPA to toughen air-quality standards for ozone and small particles.

Big government is back. In fact, it's on a tear.

The pattern

The listed issues involving the oil and gas industry have been addressed before in this space. Other observers can argue about whether Elian Gonzales should return to Cuba with his father or remain in Miami with relatives. And it is not the purpose here to stake out a position on whether antitrust remedies are in order for Microsoft.

It is the purpose here to observe that 1) the government acted in both of those cases with the heaviest possible hand and that 2) the heavy-handedness fits a pattern familiar and harmful to the oil and gas industry.

A dawn raid on a private home by heavily armed federal agents should trouble free people. Yes, adults inside the house had failed to comply with an order to surrender the boy. And, yes, the agents had a warrant. But the warrant just entitled them to enter the premises to search for evidence. They took the boy. Their actions and orders from the Justice Department thus raise legal questions. And the show of force was shockingly disproportionate to the circumstance.

The proposed division of Microsoft and imposition of sanctions on management amount to a draconian prescription in an antitrust case. Officials liken their action to the break-up of AT&T. But the old telephone company was an officially protected monopoly that the official world decided to quit protecting.

Microsoft is a private, very successful, very innovative company. The case against it has to do with behavior found to hurt competitors, not consumers, who if anything benefit from standardization resulting from the alleged anticompetitive behavior.

It is interesting how many observers have compared the decision to apportion Microsoft equity by fiat with the seemingly unrelated commando raid in Miami. The common thread: Both episodes force questions about how government acted, not whether it should have.

In both cases, the government made extreme assertions of authority that it might not possess. And both cases should make the free people from whom that authority derives, if not alarmed, at least alert to further tests of official prerogative. Legality aside, the lurches make a laugh out of the apparently forgotten effort of Vice-Pres. Al Gore, to "reinvent government," once touted as a way to reduce the role of officialdom in the daily lives of the governed.

Claim to influence

The oil and gas industry should find the reemergence of big government especially troubling. Upstream and downstream, it runs into too many operational limits resulting from serial errors on the side of maximum regulation. So strong an official tendency in matters affecting operations too easily becomes an inappropriate and always destructive claim to influence in markets best left alone.

When the Organization of Petroleum Exporting Countries agreed late in March to raise production quotas, President Bill Clinton was quick to instruct US refiners to lower product prices. His remarks were, of course, political-year bluster destined to lead nowhere. But they bubbled out of a cauldron of activism in urgent need of a tight lid.