The $20bil put aside by BP to pay for the effects of the Gulf oil spill contrasts with the lack of accountability of big firms that cause environmental harm in developing countries.

In a widely publicised move in June, the United States' President Barrack Obama succeeded in getting the oil company BP to set aside US$20 billion into a fund to meet claims for compensating losses arising from the Gulf of Mexico oil spill.

It is extraordinary that a giant company has been pressurised by a government to agree to pay so much.  The funds will be used to meet claims for economic losses of local people in the Gulf Coast states whose incomes have been lost due to the spill (for example the tourist business has collapsed) and to pay the cost for the environmental clean up.

Another US$100 million fund will be set up to pay workers laid off due to suspension of offshore drilling.  BP will also suspend paying dividends so that there is enough cash for the new funds.

A US Congress committee also grilled the CEO of BP Tony Hayward for seven hours. 

Obama's move and BP's agreement to compensate were clearly the result of the growing anger of Americans at both BP and the government, which had lax or absent implementation of safety regulations.

Americans are angry that it has taken so many months to fix the problem. Meanwhile 11 oil workers died in the rig explosion, a lot of marine life will perish and many thousands of local people will have their livelihoods damaged.

It may indeed be the United States'  worst ever environmental disaster.  But there have been much worst ecological catastrophes in developing countries, caused by giant companies, many of them American. 

Many more lives were lost and livelihoods damaged, and the environmental cost has been higher.  But little if any compensation has been paid by these companies.  And the governments of the countries in which the companies are headquartered have turned a blind eye.

Bhopal, India

The most outstanding case is that of Bhopal in which the emission of poisonous gas from US-owned company Union Carbide in that Indian town in 1984 affected half a million people, killed 2,300 people immediately, with another 15,000 to 30,000 dying subsequently and many thousands of others maimed seriously.  Even now the land and water in the vicinity continue to be contaminated with toxic chemicals that affect human health.

The factory was then owned by the US company Union Carbide, which in 2001 was taken over by Dow Chemical.   The Bhopal factory was sold to a local firm in 1992.

Union Carbide never accepted responsibility for the disaster, and neither has Dow.  An arrest warrant for Union Carbide's then chairman Warren Anderson was issued in India but he has not been brought to trial. 

Union Carbide paid US$470 million in a deal in 1989 with the Indian government, but this is a small amount, given the enormous numbers of people who died, were injured and continue to suffer.

On 7 June this year, an Indian court found 7 former executives of the Indian subsidiary of the company guilty of negligence and they were given sentences of two years' jail, which is being appealed against.  According to reports from India, the Bhopal residents and their supporters are dismayed by such a light sentence, and that they are still waiting for proper compensation.

However, the court case and perhaps Obama’s actions on BP have spurred new actions in India.

The Indian government on 24 June announced enhanced compensation to the victims, an environmental  clean-up plan, and to make new efforts to extradite Anderson to face court action in India.

The government is also exploring the possibility of new legal action to reconsider the $470 million fixed earlier in an out-of-court settlement between the government and Union Carbide, and later approved by the Supreme Court. A curative petition may be filed in the Supreme Court to seek higher consideration. 

Ecuador Oil Dumping in Forest

A second case is that of the Ecuador, whose Amazon region was contaminated by oil and oil waste in amounts far larger than the Gulf Oil spill so far.  The oil and waste was discharged by Texaco (bought over by Chevron in 2001) when it operated an oil concession in 1964-1990.

The New York Times in May 2009 reported indigenous people resident in the area saying that toxic chemicals had leaked into their soils, groundwater and streams, and that their children had died from the poisoning.  It cited a report of an expert (contested by the company) who estimated that 1,400 people had died of cancer because of oil contamination.           

The indigenous groups have taken a court case against Chevron for US$27 billon in damages.  They accuse Chevron of dumping more than 345 million gallons of crude oil into the rainforest.  Chevron is also said to have dumped 18.5 billion gallons of toxic waste in pits in the forests.

Experts sympathetic to the local people claim that the disaster has devastated their lands, income and health to a degree far larger than the BP spill in the Gulf.

US Congressman  James P. McGovern, the vice-chairman of the House Rules Committee, visited Ecuador in 2009 and is reported to have written to Obama that “the degradation and contamination left behind by [Chevron] in a poor part of the world made me angry and ashamed… I also saw the infrastructure Texaco/Chevron created that allowed the wholesale dumping of formation water and other highly toxic materials directly into the Amazon and its waters."

Niger Delta Oil Contamination

A third case is that of the Niger Delta in Nigeria, in which oil is extracted by Shell, Exxon and other giant companies.

An article in The Observer entitled “Nigeria's agony dwarfs the Gulf oil spill:  The US and Europe ignore it”, describes how oil spilt from pipelines and other sources has contaminated swamps, rivers, forests and farmlands in the region.

“In fact, more oil is spilled from the delta's network of terminals, pipes, pumping stations and oil platforms every year than has been lost in the Gulf of Mexico,” wrote John Vidal.

A report by environment groups calculated in 2006 that up to 1.5m tons of oil – 50 times the pollution unleashed in the Exxon Valdez tanker disaster in Alaska – has been spilled in the delta over the past half century. Last year Amnesty calculated that the equivalent of at least 9m barrels of oil was spilled and accused the oil companies of a human rights outrage.

On 1 May a ruptured ExxonMobil pipeline spilled more than a million gallons into the delta over seven days and thick balls of tar are being washed up along the coast. Local people blame the oil pollution for the fall in life expectancy in the rural communities to a littlle above 40 years.

According to the writer Ben Ikari, "This kind of spill happens all the time in the delta. The oil companies just ignore it. When I see the efforts that are being made in the US I feel a great sense of sadness at the double standards.”

"We see frantic efforts being made to stop the spill in the US," said Nnimo Bassey, Nigerian head of Friends of the Earth International. "But in Nigeria, oil companies largely ignore their spills, cover them up and destroy people's livelihood and environments. The Gulf spill can be seen as a metaphor for what is happening daily in the oilfields of Nigeria and other parts of Africa.

Compensation Must Be Accountable

These cases show a big contrast between what the US administration is doing to hold a multinational company financially accountable, and how similar companies that cause ecological catastrophes in developing countries are able to get away either freely or with grossly inadequate pay-outs.

What the US administration and Congress are doing to get BP to compensate for the environmental and economic damage it is causing is commendable and should be supported.

Developing countries should learn a lesson from the US and take similar action in line with the “polluter pays” principle.

And just as importantly, the governments of the home countries of the multinationals should also act to make their companies accountable for their actions when they operate in other countries, and to compensate adequately when they cause environmental damage.

There should be an international understanding or agreement among the governments to the effect that they will support one another to obtain redress from companies to compensate for the environmental damage fact they cause.

Martin Khor is the Executive Director of the South Centre. 

He can be contacted at: This e-mail address is being protected from spambots. You need JavaScript enabled to view it

With developed countries announcing severe cuts in government spending and new taxes, there is concern a new global recession may be in the making.

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A debate is raging among economists and policy-makers whether the recent sharp shift in economic policy from “fiscal stimulus” to “fiscal austerity” will help the global recovery or cause a new recession

It is more than an academic debate. Depending on what the answer is, there could be a continuation of the recovery or a slip into a “double-dip recession” or even a depression.

The rush to austerity started in Europe, when the near debt default in Greece quickly created fears of contagion of sovereign debt crises to Portugal, Italy and Spain.

These countries quickly announced severe cuts in government spending and new taxes. Other countries that are thought to be safe from crisis followed, including France and Britain.

This was a big about-turn from the policy consensus that the threat of a depression must be fought by the Keynesian policies of increased government spending, through higher budget deficits and low interest rates.

It is widely acknowledged that the re-discovery and implementation of Keynesian policies in the past few years saved the world from a prolonged recession or even a Great Depression.

But the Greek crisis has struck fear into governments, that if their budget deficits are too large, they may not be able to borrow enough at a reasonable rate of interest, and may be forced to default.

Actually, most governments have the options of borrowing from their own central banks (or to “print money”) and also devaluing their currency (so as to expand their exports by making them cheaper).

But countries in the Eurozone such as Greece don’t have this option as they cannot lend to themselves and don’t have their own currency to devalue. Thus, Greece had to rely on the market to lend to it. When the market demanded interest that was too high, Greece had to be bailed out by loans from Europe and the IMF.

Britain joined in the austerity drive. The new Tory-Liberal government cut spending by £83bil and raised taxes by £29bil. As Britain is not in the Eurozone, it has more options to continue with fiscal stimulus, but the government chose instead an austerity budget.

Well-known economists and media commentators like Robert Skidelsky, Martin Wolf and Will Hutton have been critical. Skidelsky, the biographer of John Maynard Keynes, criticised the “conversion to austerity” for being caused by the need to restore “confidence in the markets”.

“If markets have come to the view that deficits are harmful, they must be appeased, even if they are wrong,” he wrote about the change in policy.

He pointed out that in a parallel situation in 1931, a British government committee recommended a drastic cut in government spending in order to balance the budget, and this was supported by almost all politicians and the business sector.

Keynes was one of the very few who opposed it. He commented that deficits are “nature’s remedy for preventing business losses from being ... so great as to bring production altogether to a standstill”.

The austerity policies adopted in 1931 contributed to a long recession, and Skidelsky noted that there was never a complete recovery until the war.

Commenting on the present situation, Skidelsky wrote: “We are about to embark on a momentous experiment to discover which of the two stories about the economy is true. If, in fact, fiscal consolidation proves to be the royal road to recovery and fast growth then we might as well bury Keynes once and for all.”

“If, however, the financial markets and their political fuglemen turn out to be as ‘super-asinine’ as Keynes thought they were, then the challenge that financial power poses to good government has to be squarely faced.”

There was a public uproar when The Guardian reported on leaked Treasury documents showing the austerity budget could cause 1.3 million job losses by 2015-16, of which 600,000 would be from the public sector and 700,000 from firms losing government contracts.

The government responded that two million new private sector jobs would be created which would more than offset the 600,000 lost in the public sector. But this prediction has been met with scepticism.

Germany, whose finances and economy are in strong shape, has been criticised by the United States and those who advocate expansionary policies for insisting that Greece and other countries take on austere policies to qualify for bail-out loans, and for itself cutting its deficit.

Its finance minister Wolfgang Schauble replied to the criticisms by saying that Germany was attempting an exit strategy from the present large fiscal stimulus with laying the foundations for future growth.

But the investment guru George Soros strongly attacked Germany for insisting on pro-cyclical policies and on strict fiscal discipline for weaker Eurozone countries. He said this was in conflict with the lessons of the 1930s’ Depression and was liable to push Europe into prolonged stagnation or worse.

In the United States, although the federal administration is in favour of further fiscal stimulus, it is facing opposition from the Republicans and some Democrats in Congress, and a Bill to assist state governments and the unemployed has been stalled.

Most of the states are in deep deficit and since they face problems getting loans, they are now cutting their spending. This will affect jobs and demand, and more than offset the expansion in federal spending.

The economist Paul Krugman has written scathing columns attacking the new emerging consensus in policy circles favouring immediate fiscal austerity. He argues that there is no evidence for the belief that fiscal contraction is actually expansionary because it improves confidence.

For example, Ireland has implemented savage spending cuts, and its reward is a Depression-level slump, and financial markets continue to treat it as a serious default risk.

The Financial Times, in its editorial on July 3, warned that the balance of risk had shifted towards renewed recession. Noting that the world economy is heading for a period of tightening fiscal policy, it reports on estimates that the big advanced economies will tighten their government budgets by 1.9% of their output this year, and that the United States will cut its deficit by 2.7% of national output next year.

If the Keynesian economists and media commentators are right, the contraction in public spending will have an adverse effect on the private sector and there will be overall economic slowdown or a new period of recession.

The developing countries will be affected through the trade channel as their exports slow down due to the cuts in spending and the rise in unemployment. These countries are also following the debate on fiscal stimulus versus austerity budget, as they also face the same policy dilemmas.

 Martin Khor