The BP Disaster: Regulating (and Managing) Complexity

In my previous blog posting on the BP oil-rig disaster, I pointed to the disaster’s ethical complexity, measured in the sheer number of relevant ethically-interesting questions that we might be interested in.

But the issue of complexity arises in a much more straightforward way in the BP disaster, namely in the fact that the oil rig on which the disaster took place was itself a terrifically complex piece of technology.

See this nice piece by Harvard economist Kenneth Rogoff, The BP Oil Spill’s Lessons for Regulation.

The accelerating speed of innovation seems to be outstripping government regulators’ capacity to deal with risks, much less anticipate them.

The parallels between the oil spill and the recent financial crisis are all too painful: the promise of innovation, unfathomable complexity, and lack of transparency (scientists estimate that we know only a very small fraction of what goes on at the oceans’ depths.) Wealthy and politically powerful lobbies put enormous pressure on even the most robust governance structures….

Rogoff’s point is about regulation, but it could just as easily be about management, and/or the relationship between the two. And to Rogoff’s examples of complexity-driven disasters, you can add Enron and a couple of NASA shuttle explosions. Now, none of these cases can be explained entirely in terms of the difficulty of managing complex systems; each of those cases include at least some element of bad judgment and probably unethical behaviour. But in each of them one of the core problems was indeed complexity — either for those inside the relevant organizations or for those outside trying to understand what was going on inside. When systems (financial or mechanical) are mind-numbingly complex, it becomes all the easier for poor judgment to produce catastrophic results. It also makes for good places to hide unethical behaviour.

So, if we’re going to build fantastically complex systems, we also need to learn how to manage those systems in highly-reliable ways. In other words, we need management systems — effectively, social technologies — that are as sophisticated as the physical and economic technologies they are intended to govern. We already know a fair bit about error-reduction and the design of high reliability organizations. Aircraft carriers are a standard example of one type of seriously complex organization that, through careful design of management systems, has managed to achieve incredibly high levels of reliability — i.e., incredibly low levels of error, despite their complexity. Similar thinking, and similar design principles, could presumably be applied pretty directly to the design and management of oil rigs. Presumably, that’s already the case to at least some extent, though as BP has proven, more needs to be done. The bigger question is whether business firms are ready and able to apply those principles to the design of all of their complex systems — whether mechanical or financial — such that we can continue to reap their benefits, without suffering catastrophic losses.

(Thanks to Kimberly Krawiec for showing me Rogoff’s article.)

3 comments so far

  1. […] MacDonald in his June 5th blog entry discusses the play between rapidly developing technological complexity and regulatory science. […]

  2. nilknarf1940 on

    In 1960 some friends of mine were debating the college debate question for the year on nuclear proliferation. We all pretty much agreed that there was no way that the world could avoid a nuclear holocaust by the end of the century. Amazingly and thankfully we were wrong. There were numerous reasons for this including the recognition by the major powers that pushing the button might start a war that would wipe out the entire human race. But it may have also been the management of the complex systems and the fail safe measures that were put in place by the super powers.

    With many of our current challenges including the BP spill there do not appear to be those kinds of safeguards in place. Often business, in order to move more quickly rules by committee and collaboration. This is okay when the stakes aren’t too high. But as in the case of the world banking crisis and the BP situation, there do not seem to be clear measures of accountability. Look at what has happened with the early senate hearings on the spill (which were a travesty to start with). Everyone was pointing their finger at the other guy. And if the truth be known the executives at the hearings had little knowledge of what was going on at the lower levels of management and may not have even been engineers. It’s more difficult and cumbersome to rule from the top with safeguards down the chain of command, but you know who will have to fall on their sword if things go wrong. The military is making changes in the way the chain of command works, but responsibility is still assessed along the way. And not holding executives financially and legally accountable also does not encourage accountabilty. Most often even gigantic screw ups get their golden parachute.

  3. Tim Ragan on

    Chris — I’m an avid reader of your business ethics blog and I appreciate your take on the issues you raise.

    I think there are large parallels between what we saw behind the global banking crisis and the current BP environmental disaster. As the Rogoff article summarizes it is all about the risk management profile related to new innovations and our ability/willingness to regulate these effectively in the face of both market uncertainty and pushback/assurances from the businesses themselves.

    I’m focusing on this general theme in my Business Detox Project blog ( where my starting point is that by the way we have constructed the modern corporation it is inherently “toxic” to three critical stakeholders — the natural environment, employees, and its’ consumers.

    My belief is that it is well within our capability to address/re-engineer these specific toxic aspects so that businesses can continue to be highly profit-motivated (which drives their willingness to innovate) while being fundamentally better aligned with our evolving societal needs.

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