Reader Request: Should We Boycott BP?

In the past I've been less than optimistic about the individual's ability to directly influence big institutions, be it big government or big business. Instead I've suggested the market, as a collection of individuals, is better at giving you want. So when an old college friend Lindsay, emailed me* this question, I couldn't resist:

Why are people still shopping at bp gas stations? And would it make any difference at all if everyone went some where else?

A great question. Not only for this disaster, but for any time we see corporations misbehaving. There's been examples of boycotts leading to huge social change. America's most famous protest The Boston Tea Party was the culmination of a boycott on British tea by the colonists. The Montgomery Bus Boycott of the 1950's not only gave rise to the Civil Rights Movement's greatest leader, Martin Luther King, it also ended legal support for racial segregation on public transportation. However in both situations it was government, not business that was primarily responsible.

A less famous, but more similar example is the grape boycott of the 1960's led by the César Chávez in a fight over worker compensation. Here's a summary video I show in my own US History class on the boycott. In  the video a vineyard owner very clearly states he changed his labor negotiations exclusively because of the boycott. So, with strong worker and consumer support, boycotts can work as a way to punish companies into doing what you want. That support is hard to gain and maybe more important, keep up. Within a decade of Chávez's grape success, the union he created all but disappeared along with the labor negations. This is not because of weakness on the part of boycotter's, but because of the intense strength of the market. It was always going to push toward equilibrium, no matter how hard the workers pushed back. Luckily the market is doesn't just reward good business, it punishes bad ones as well. Here's what is happening to BP's stock:





BP's stock has lost nearly a quarter of its value since the spill, totaling around $44 billion. This is some knee jerk response. If you look closely the large drop didn't happen when the spill started, but instead when the initial attempts failed. My guess is that when ever the market stabilizes, the amount lost will be fairly close to the costs incurred by BP. The market will punish BP for their huge loss of product and their clean up cost. One concern of victims and taxpayers is that the oil company may not be forced to incur the full cost. The lesson from the Exxon Valdez spill wasn't how to prevent spills, but that we should not allow politicians on the payroll of oil companies to limit their risk. I'm unsure whether the current setup does that or not:

While BP is on the hook for the clean up costs, there is a $75 million cap on an oil company's liability for economic damages, or other damages claimed by individuals or government, under the Oil Spill Liability Trust Fund law. That law also established a government reserve funded through taxes on oil companies, as well as fines and penalties in the case of oil spills, to pay for cases like the current oil spill. There is currently $1.6 billion in the reserve, and this disaster could use up to $1 billion of its funds

This fund could be a quasi-efficient way to keep bankrupted companies from leaving the spill clean up to taxpayers. It could also be a way for these companies to get others to foot the bill. It's obvious that BP will suffer a lot because of this spill, whether they will suffer enough is unclear. Instead of boycotting the company, it may be a better use of your time and money to lobby politicians who hold the keys, preferably through a handwritten letter.

*If you ever have a question or suggestion please feel free to comment or contact me privately.