Thursday, June 03, 2010

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.


  1. Andrew Park10:43 AM

    I just got back from Orlando with my family, and we drove. With all the options of gas stations you have at every exit, this type of boycott would be so easy to execute for the average person. I took every effort to go to a Non-BP gas station and the worst inconvenience it led to was me having to drive an extra 5 minutes to stop at a Shell Station 7 miles down.

    It's easy. Everyone can do it. They just need to be aware.

  2. There some cost, how much is debatable. My main point is that the cost is going to be too much to get enough people on board to make a difference. Also, I'm not really sure if we need to punish BP more than they are legally responsible for.

  3. Anonymous9:57 AM

    Thanks for posting on this topic, Harrison! While Josh and I were in DC, we were watching the news on the oil spill and they were discussing boycotting. The 'expert' they were interviewing made the point that boycotting in this situation is ineffective because it hurts the little guy (the gas station owners and employees, who are also our family members, friends, and neighbors) more than it impacts the bigger company. I thought that was a very interesting perspective I hadn't considered yet.


  4. Good point. It's very difficult to punish CEO's who not only have plenty of savings, but more human capital than we will ever have.

    As for who it would actually hurt, it's likely to not only be the little guys who work for BP, but the little guys effected by the spill. If a boycott was actually able to take money away from the oil company, it's likely it would hinder its ability to clean up.

  5. Anonymous6:24 AM

    This company made a big mistake in there operation of this oil well, but they are putting all efforts forward in correcting the issue. If we continue a Boycott mentality the US would pick up the bill of this problem not BP. We don't need any more debt in this country. Let BP fix the problem and keep the people working. Think of all the new jobs this problem created. They are also trying to pay for the lost income of the spill.

  6. I agree that bankrupting BP isn't the goal, clean up is. But don't think for a second the increased need for cleaning jobs will be net gain for America. If that were true, we should be hoping for natural disasters to clean up.


You are the reason why I do not write privately. I would love to hear your thoughts, whether you agree or not.