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Private Utilities

By reshippie in Op-Ed
Thu Jan 18, 2001 at 02:46:06 PM EST
Tags: Culture (all tags)

While reading an article on IndyMedia about the IMF's policy of giving loans to countries, but requiring them to privatize most of their utilities, I got to thinking.

Why should utilities be private?

I know in the US, and most first world countries, Capitalism is the way to go. Competing businesses have the most incentive to create good things, right?

It just bugs me that people are able, and encouraged, to make money off of providing people with some basic utilities, like water and power. In many apartments, heat and water are included because they are necessary for survival. Why do we let people make money off of allowing others to simply survive.

I propose that utilities: water, gas, and electricity, should be run by Non-Profit organizations. They would charge enough to support themselves, but be encouraged to keep prices low. Having several in a state/area would still provide competition and incentive to please customers, so that they would stay alive.

Perhaps this could be better done by government owned utilities, but I guess I just don't trust the government to make sure that my lights go on or my water runs.

What do others think? Is this a good idea? Is it feasible?


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Private Utilities
o Should Maximize Profits 25%
o Shouldn't Make Profits 37%
o Shouldn't Exist 37%

Votes: 62
Results | Other Polls

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Private Utilities | 50 comments (48 topical, 2 editorial, 0 hidden)
Interesting thought... (4.16 / 6) (#1)
by RareHeintz on Thu Jan 18, 2001 at 11:27:06 AM EST

...but it really hinges on providing a proper incentive for your notional non-profit organization to provide quality and low prices. If not profit, then what?

I'd love to hear people's thoughts on that question.

- B
http://www.bradheintz.com/ - updated kind of daily

Incentive (3.50 / 2) (#3)
by retinaburn on Thu Jan 18, 2001 at 11:36:15 AM EST

What if you allowed corporations to run non-profit utilities and in return they could say.. advertise to their utility customers, or get bigger tax breaks from the government. Perhaps they could even use what ever land the non-profit owns as usable non-taxable land for their profit business.
The cross promotion possibilites are endless...Buy Windows2001, get free Hydro for a month :)

I think that we are a young species that often fucks with things we don't know how to unfuck. -- Tycho

[ Parent ]
re: your thoughts (3.75 / 4) (#11)
by RareHeintz on Thu Jan 18, 2001 at 11:46:32 AM EST

Wow... Provide an expensive service for free, and pay for it with advertising? Someone should try that on the web... That could be the business model of the future! ;-)

More seriously, how would you structure that arrangement to avoid local monopolies cutting every corner in sight - reducing quality and safety - and keep prices low? Do you take away their right to advertise or use their property for profitable purposes when quality gets low? How do you measure quality? Where do you set the threshold? Do you set gov't-mandated price caps to keep prices low? When do you let them go up? Do you tie them to inflation or oil prices?

Would any sane for-profit corporation get involved in such a complex and heavily-regulated business?

I'm not jumping on you, and I don't think your idea is necessarily bad, but it comes with some serious questions.

- B
http://www.bradheintz.com/ - updated kind of daily
[ Parent ]

A whole can of worms (3.00 / 1) (#17)
by retinaburn on Thu Jan 18, 2001 at 12:27:43 PM EST

Wow... Provide an expensive service for free, and pay for it with advertising? Someone should try that on the web... That could be the business model of the future! ;-)

Yeah ...it will be so successful every company will do it, again and again and again....why we will never need bricks and mortar buildings again.

To keep the company from cutting costs you could give tax breaks to the profit-part depending how much money the spend on the non-profit part (I realise this would never work but its a shot in the dark). People could also vote each year on their payment slip whether or not the felt the utility did a good job. If they do poorly say over 5 years then the government takes away the non-profit and gives it to another company.

The staffing and land and everything could stay the same, a company could simply adopt it like an orphan.

And no this won't happen, im sure my economic background is severly lacking in sense (cents ;) but thought I would give it a shot ;)

I think that we are a young species that often fucks with things we don't know how to unfuck. -- Tycho

[ Parent ]
Competition (3.50 / 2) (#5)
by reshippie on Thu Jan 18, 2001 at 11:39:32 AM EST

If say, there were 2 competing companies, they would have incentive to keep prices down, so as to not go out of business.

They also wouldn't be encouraged to have high prices, because, well, what would they do with the money? Non-Profit organizations, by law, are not allowed to keep any more money than they need. So once employees are paid and maintinence is done, whatever's leftover has to be given away.

Those who don't know me, probably shouldn't trust me. Those who do DEFINITELY shouldn't trust me. :-)
[ Parent ]

Yes, but... (4.00 / 2) (#12)
by RareHeintz on Thu Jan 18, 2001 at 11:48:19 AM EST

...this sort of competetive scheme (>1 company providing power locally) has had limited success in, say, California, where companies have repeatedly skimped on infrastructure to stay competetive in the short term.

- B
http://www.bradheintz.com/ - updated kind of daily
[ Parent ]

Canada (3.00 / 1) (#28)
by retinaburn on Thu Jan 18, 2001 at 03:25:50 PM EST

We have had our power deregulated, our phones, and all of it has skyrocketed in price, not to mention the hassles of having /slammers/ phone you up and take "No, im fine with the company im with" as "Sure im happy to bend for you, while your at would you mind change my service to your company without telling me."

I think that we are a young species that often fucks with things we don't know how to unfuck. -- Tycho

[ Parent ]
not quite (4.00 / 1) (#30)
by delmoi on Thu Jan 18, 2001 at 03:41:52 PM EST

Non-profits can keep money that they don't need, they just can't call it 'profit'. They can, however, do whatever they want with it, they could save it, or spend it on something and redo their budgets.
"'argumentation' is not a word, idiot." -- thelizman
[ Parent ]
There Ain't No Such Thing As A Free Lunch (3.00 / 10) (#2)
by marlowe on Thu Jan 18, 2001 at 11:29:59 AM EST

It's a cliche, but it needs repeating, because people keep forgetting. These utilities have to come from somewhere, and have to be paid for somehow. I'd prefer whatever way provides the most accountability. Competition sounds good to me.

-- The Americans are the Jews of the 21st century. Only we won't go as quietly to the gas chambers. --
There ain't no such thing as a free market either (5.00 / 1) (#36)
by ajf on Thu Jan 18, 2001 at 07:28:55 PM EST

These utilities have to come from somewhere, and have to be paid for somehow. I'd prefer whatever way provides the most accountability. Competition sounds good to me.

I'd like to agree with you, but both here in Victoria and in California, opening electricity supply to competition has resulted in power shortages, increasing prices, businesses with massive debts, concerns about increasing supply capacity for the future, and generally a poor long term outlook for everyone involved.

When somebody says this proves that utility deregulation doesn't work, the inevitable reply is that it wasn't done right. Does anyone know of a place where privatisation and/or introduction of competition has actually worked?

"I have no idea if it is true or not, but given what you read on the Web, it seems to be a valid concern." -jjayson
[ Parent ]
They can be (3.00 / 3) (#4)
by DesiredUsername on Thu Jan 18, 2001 at 11:38:59 AM EST

If a non-profit electric company came along AND it charged less for the same services it would win in the marketplace. If it didn't charge less OR didn't provide the same services it would lose in the marketplace. Privitization != ownership by robber barons. Privitization == public_choose_between(robber_barons, someone_else)

Play 囲碁
Barriers to entry (4.00 / 2) (#8)
by reshippie on Thu Jan 18, 2001 at 11:42:20 AM EST

In the current market, you have to attract investors in order to start up your own utility. I don't know off the top of my head, but I figure it isn't cheap to provide power to a few million people. Who's going to invest in a company that's not going to turn a profit.

Granted, Non-Profits exist, but not on this type of level.

Those who don't know me, probably shouldn't trust me. Those who do DEFINITELY shouldn't trust me. :-)
[ Parent ]

It all stems back to corruption (3.00 / 5) (#6)
by Nodecam on Thu Jan 18, 2001 at 11:40:27 AM EST

If you give a company a monopoly market position, it makes it difficult to control. If the government of said countries is corrupt in the least, this is simply another way to take advantage of the populous.

OTOH, I live in Saskatchewan, Canada, and our utilities are government owned/operated. Sometimes it's good, sometimes it's bad, but at least if things get really out of hand, we have recourse when the next election comes around. You can bet that if rolling brownouts were proposed, someone would be sweating the re-eleciton prospects pretty badly.

It all comes down to trusting your government to look out for your interests.


Cable Regina (3.50 / 2) (#31)
by Mantrid on Thu Jan 18, 2001 at 04:19:41 PM EST

Last I lived there, Cable Regina was a coop company and they seemed to have the best tech and services around, especially for someplace as isolated as Regina (pop. 200K or so, with one of the best cable services around) Never had any complaints really with SaskTel or SaskPower...and the auto insurance was cheap as dirt too! Ah good 'ol Saskatchewan!

[ Parent ]
They still do... (none / 0) (#50)
by sec on Fri Jan 19, 2001 at 08:36:04 PM EST

They've changed their name to 'Access Communications', (http://www.accesscomm.ca) but they're still pretty good. They now also provide cable service to the surrounding smaller communities of Yorkton, Estevan, and Weyburn.

One thing that I noticed was their attitude towards running servers. While other cable internet services have a tendency towards saying, "Thou shalt not run servers," Accesscomm's user agreement basically states, "You can run a server if you want, just don't blame us if some cracker breaks in."

[ Parent ]

Crown Corporations (4.00 / 1) (#39)
by DoomHaven on Thu Jan 18, 2001 at 11:00:54 PM EST

I would say, between working with SaskTel (the government-owned phone company, when I lived in Saskatchewan), and working with Ameritech and Nextel down in the States, that not would I pick Sasktel instantly, but I would hug the first Sasktel employee I met simply because the American private phone corporations are largely a pile of idiots.

Crown corporations (government owned) are the *only* way to go when it comes to *basic* services, which I include as the following:
1) Phone
2) Power
3) Heat(gas/natural/etc)
4) Water/Sewage

There are *so* many reasons for this. Firstly, private corporations, no matter how *driven* by competition, are ultimately driven by PROFIT, where PROFIT = REVENUE - COSTS. Government organizations aren't driven by profit; however, because of their accountability to the voting public, they still have to cut costs and keep up efficiency. Thus, you get the bonus of corporate *competition* (cheaper, better products), without the hubris of profit motivation. If said crown corporation starts jack up prices and/or drops quality of service, said voters start working over the government. I know, by definition, that a crown corporation is giving me the best quality at lowest cost, because as a tax-payer, I have the right to examine their books at year's end.

Secondly, you know the company will always be there, as long as the government exists.

Thirdly, long-term projects and views happen with crown corporations. Ultimately, a crown corporation has the financial backing of government, which has very deep pockets (judging by the tax rate, anyroad). If the company can put a feasible plan to spend X Billion dollars short-term to save 3X Billion dollars long term, they can afford it. And they *know* they will still be there to reap those rewards.

Fourthly, if costs over-run projections, they have two justifiable ways of screwing over their customers: rate hikes and tax hikes. That may sound bad, mainly because it is, BUT: if a 1% tax hike is cheaper, for you, then a 10% rate hike, what would *you* pick? Don't forget: the vast majority of taxpayers will be subscribers to all the basic services, and vice versa.

Fifthly, the inverse of the above: if, despite their best attempts, the crown corporations *makes* money, that goes back to the government, who then can lower taxes and/or put the surplus into public projects.

Sixthly, industy regulation works. Rest assured, if the crown corporation started committing questionable acts, the government is in there like a dirty shirt, so that they don't get a stained (no pun intended) reputation. And, instead of doing puny, slap-in-the-wrist fines, the government can get right in there and start firing people and enacting new corporate policies and making a *change*. Honestly, in America, this is the same: if an organization is screwing the public over, you complain to the government. In Saskatchewan, this complaining *works*, because the government actually has the power to *control* the company directly, rather than indirectly through laws, that may or may not work. As well, turn-around time is generally faster when the government deals with crown corporations, because the government already has an understanding of the business (because they own it).

The only problems with crown corporations is they can't offer some of the perks that private corporations can, and the lost revenue, tax-wise, they don't receive from private corporations that *would* be there instead of them. For example, a crown corporations can't really offer employees stock incentives (government-owned agencies generally have *illegal* IPOs). Generally speaking, salaries in crown corporations are lower, because of fears of voter reprisals ("Hey, Tim, you hear that Joe Blow gets $60 000 of our tax money to be an engineer?" "No! Let's lynch him!"). And since there is no private corporation there, by inspection the government can't tax the private corporation.

However, in the end, I truly believe that crown-corporations are the only way to successful manage and operate the basic services needed by today's standards.

My bleeding edge comes from cutting myself on Occam's Razor.
[ Parent ]
Service Or Price it is up to you (3.00 / 3) (#7)
by maddhatt on Thu Jan 18, 2001 at 11:41:52 AM EST

If you are not paying for something there is no insentive for the people providing the service to provide you with quality service. Let me use a pretty extreme example. Look at Russia, they have had public utilities for many years, public water, public heat and public hot water...among other things, now the problem arises in that when they government decides that it would be most cost efficient to not provide them with these utilities any more then they just shut them off. Suddenly in the spring whole towns might have no heat regardless of the temperature, even if it is snowing, because someone at the heating plant decided it was the right time of year to cut the heat. What prevents something like this happening with electricity say the government in California decides that they don't want to have the extra expense of finding everyone electricity well suddenly millions of people are without water with what recourse? This is not a far stretch for any public utilities. And not even a very large stretch for most other companies. In general if you want decent service you are going to have to pay for it, it is just a matter of how bad of service are you willing to put up with.

There is no free lunch.

true, true (3.50 / 2) (#9)
by Refrag on Thu Jan 18, 2001 at 11:44:42 AM EST

In China there is a line south of which you don't get heat, north of which you do. I can't remember where the line is, but I think it is near either a major town or river.


Kuro5hin: ...and culture, from the trenches
[ Parent ]

Bad example? (4.66 / 3) (#10)
by reshippie on Thu Jan 18, 2001 at 11:46:28 AM EST

You do have a valid point, but like Nodecam said, in a democratic country, the elected officials have to be careful. If the state Heat Company decides to stop running in the spring, well, you can bet the people in charge are gonna be redoing their resumes.

In the USSR, it didn't matter, because the people in power were in no real position to lose it.

Those who don't know me, probably shouldn't trust me. Those who do DEFINITELY shouldn't trust me. :-)
[ Parent ]

Valid point (2.00 / 1) (#20)
by maddhatt on Thu Jan 18, 2001 at 01:36:17 PM EST

This is very true, but...it still happens today, in fact it has gotten worse since the fall of comunism. Of course in the US if you don't like something you can usually go to a different state, but...what if every state did this, what if the whole country thought it was a great idea there would be nowhere to go to get away from it and you would have no other choice. Eventually everyone would be used to it and not really care.

[ Parent ]
Resources and bullying (4.00 / 2) (#13)
by slaytanic killer on Thu Jan 18, 2001 at 11:55:06 AM EST

There are two problems that strike me, other than the value of competition in keeping prices to minimum. One is that a limited resource should be paid for with limited resources. Energy is limited, and for most people money is as well. I think a good refinement on your plan is for important things like water to be price-controlled under a certain usage. Maybe the price control could be a little above normal market price, but if there were ever a price war or monopoly, the price could never spike above the ceiling. And perhaps, for the very poor, there could be vouchers paid by the government.

Also, the political power wielded by having control of necessary utility is enormous. One byproduct of the IMF's requirement to privatize, is that it decentralizes power away from the local government. And if a non-profit group owned the utility, someone could maneuver into control as well. However with privatization, the owner might possibly get enough power to be fairly independent from government bullying. And if the government or malicious group gained control of the utility, as long as competition is not discouraged, there remains some possibility of competition. Otherwise, the IMF can consider that a good reason for pulling out of the economy.

Linited resources (none / 0) (#43)
by Brandybuck on Thu Jan 18, 2001 at 11:37:23 PM EST

One is that a limited resource should be paid for with limited resources.

One particular city I am familiar with spent several years in a drought. Water was scarce. The river was drying up. Farmers were going out of business and moving away. And business were following them.

That's because the monthly water bill was about $15 per house. Period. The obvious solution was to install water meters and charge people based on how much water they used. But councilman after councilman who proposed that solution was run out of office.

Eventually the wells started drying up and people were *buying* bottled water to cook with. The water meters got installed, and guess what? There was plenty of water and the average water bill was still only about $15.

[ Parent ]

Electricity,Gas, sure. Water? Hell no! (3.42 / 7) (#16)
by tetsuo on Thu Jan 18, 2001 at 12:27:29 PM EST

Working in a highly libertarian office this is one bone of contention among me and the more radical; they feel every service would be better offered privately.

While I admit gas and electricity are two industries that could stand to benefit from being privatized, water supply is not; that is because neither of the former are anywhere near as important as the latter.

There are far too many issues:
  • Who owns the pipes?

  • And more importantly, who would do the maintenence on them? If we're to have X number of competing companies, would we need X number of pipes run everywhere? I can't think of anyone who could afford doing that; digging up almost every road in every county in the country ... forget it.

  • Who owns the water?

  • This would be another arguing point. Who owns the water? Would a company PURCHASE a river and have exclusive rights to it? Would consumers foot the bill of lawsuits between two companies over water sources? What happens if their river drains somewhere else and they dam it up? While it's being disputed, who suffers? The consumers.

  • Who is to blame?

  • This is most troubling of all, and ties in with my first set of questions. Suppose maniac X at company Y puts chemical Z in the supply. Without seperate pipes from each company, it would travel unhindered into all water supplies. Yes I'm sure that filters catch 99% of whatever, but I'm also equally sure that there's stuff they can't. So who's to blame? There's no real way to tracing the water back, is there?

    Now, that's still a possibility today, what with the monopoly and all. But there's a course of action to be taken and a single target to blame, not multiple targets scrambling their PR guys to try to cover their asses.

These are a few that I came up with off the top of my head after lunch (carbohydrate coma here I come). I'm sure there's several others I've neglected to mention.

failed deregulation (4.00 / 3) (#18)
by Nyarlathotep on Thu Jan 18, 2001 at 12:58:15 PM EST

The current trend in deregulation goes somethi8ng like this: The state will regulate the pipe to allow competition ammong sellers. This type of deregulation is very well justified from a libertarian standpoint since the utilities had to get the states assistance to force the lines/pipes to be burried on everytone's property. Simillarly, the roads are not owned by any individual so why should the pipes be owned by an individual. Unfortunatly, we have situations like California whiuch suggest that this type of deregulation can be really fucked up.

Personally, I would like to see at least a few regions go with a diffrent option amd change how stock works for these utilities. Specifically, they would make alll the stock non-voting and allow the local population to vote on the corperate executives. I think this would be a very interesting experement, i.e. would people still buy stock in the power company when they could not control the company with that stock. I think the answer is yes since the power company would still be a monopoly and would still pay dividends.

Campus Crusade for Cthulhu -- it found me!
[ Parent ]
Not a Canadian (3.50 / 2) (#32)
by Matrix on Thu Jan 18, 2001 at 04:36:00 PM EST

I'd guess you're not a Canadian, or from any region that has reasonably cold winters. Having electricity or gas to heat one's home during the winter is just as important as having water in the summertime. Especially since one could, in theory, get water from the fairly abundant snow and ice during the winter months.

"...Pulling together is the aim of despotism and tyranny. Free men pull in all kinds of directions. It's the only way to make progress."
- Lord Vetinari, pg 312 of the Truth, a Discworld novel by Terry Pratchett
[ Parent ]

Nothing new (3.71 / 7) (#19)
by skipio on Thu Jan 18, 2001 at 12:59:31 PM EST

What you are proposing isn't new. It's called socialism. The same socialism you find in France and many other countries, especially in Europe.

You do, perhaps, mention that you want those essential services to be run, not by the government because you don't trust it, but by nonprofit organizations. But that is socialism, just as well. You must not forget that the government is just one big nonprofit organization.
A nonprofit organization that would run, say electricity, would just be another form of government, and not necessarily a better form than you have today. How would you, for example, hold such an organization accountable for it's mischief? Who should be in control of the organization? How could the organization be able to raise money to build new and necessary facilities if it isn't allowed to turn a profit? Why should organizations even compete for customers if they don't gain anything by doing it?

And if private companies should not be allowed to compete in the utility 'business', why should private companies be allowed to sell food, oil, phone-service, and all the other 'essential' services of modern societies?
Heck, why should private companies even be allowed to own newspapers and TV stations. Isn't the media 'essential' for true democracy?

Should private companies have any role at all in modern society?

Too far... (3.50 / 2) (#23)
by Cyberrunner on Thu Jan 18, 2001 at 01:55:52 PM EST

First, you forget that socialism controlled by the state is still a form of statism, too often beyond the influence of the people and with their own agenda. Then, they use propaganda to perpetuate their power... Boring...

For everything else, the definition of nonprofits are problematic and don't lump in the government as one. The accountability problems are currently here and causing the goverment to have to step in and save the power company (if they can't turn back to profitability, quickly). Where are they spending all this money, do they run the most efficient organization in the world?

What I'd like to see, is a form of a collective group (call it a corp. if you want) that is rewarded for efficiency and minimizing its actions for long term sustainability. More than corps today and not socialism, just with a mission that doesn't include getting into debt for tax reasons and having to charge you the interest that goes to banks, paper work, and super rich people that have no reason to change things for the average person...

[ Parent ]

Voluntary socialism... (none / 0) (#46)
by Woodblock on Fri Jan 19, 2001 at 09:44:03 AM EST

[T]he government is just one big nonprofit organization.
The government may be a non-profit organization, which is debateable, but it is the only NPO that has an army and the threat of force implicit in every action with it's citizens. A non-profit, like the author suggests, would only be acceptable, to me at least, if it were entirely voluntary just like any other privatized utility. If they have the best service, then I'd be glad to trade with them. However, coerced me into their service at the end of the barrel of a gun, I would probably sign on the dotted line, then flee the country.
-- Real computer scientists don't use computers.
[ Parent ]
Is there a difference? (3.50 / 6) (#21)
by sinclair on Thu Jan 18, 2001 at 01:44:51 PM EST

I don't put much stock in ideological arguments about how the utilities should run, as my real-world experience has put the lie to them. In my house, we have the following utilities: water/sewer, gas/electricity, cable Internet service, and telephone. The entities providing these utility services are (respectively): the city government, a highly-regulated monopoly business, a moderately-regulated corporation with competition, and a corporation facing competition.

Oddly enough, I'd rate my satisfaction with these various utilities in exactly the order I gave, from most government control to least. Madison's water/sewer service is cheap, cheap, cheap, and they're always right on top of any problems. Madison Gas & Electric seems to do a good job of keeping energy prices low, and enacting energy conservation programs. Charter Communications does a passable job at providing TV and Internet service, although it's spendy and I've suffered a few boneheaded service disruptions. Ameritech is the worst, even though they face direct competition. The local service is fine, but the "local long-distance" rates are outrageous, and their customer service bites. Hard.

That's not to say I favor government control, though. The marketplace does sorta work. I could go for DSL Internet service, and satellite TV. I could also go for phone service from TDS Metrocom, but they require 12 or 24 month contracts to get the lower rates, and I'm only renting. It is to say, though, that I don't think there's any particular advantage to these different schemes.

similar situation (4.33 / 3) (#27)
by cbatt on Thu Jan 18, 2001 at 03:07:04 PM EST

Edmonton, Alberta, Canada:

water/sewer: city government. Passable. Rates are decent, service - well, can't say I've ever had a notable problem.

electric/natural gas: regulated for-profit corp. Rates are continuously going up up up. Service, it's there, but they always hold the gun of "higher rates" to our heads. As if Alberta would ever have an energy crisis. Terrible situation right now.

phone: regulated for profit-corp. Terrible customer service, unless they're taking you money, then they're happy as pie. Local rates are stupid as they have a monopoly. Their long distance rates are a joke, so I use Sprint.

cable: regulated for profit-corp. The city is divided into zones for the cable carriers of which there are two. You deal with the one that's owns your zone. Mine is alright. Service is usually prompt and competent, but they're slow to upgrade their networks and took forever rolling out their 'net services, which are @Home, but not as bad as most @Home situations that I've heard about.

My biggest beef is with the power/natural gas guys. That sector just recently privitized and it's been nothing but grief from them ever since. Threats of brown outs, insane rate hikes, absolute callousness towards the public. What I can't figure out is why that is so?

Alberta produces oil and natural gas by the boatload. It's blessed with a bonanza of natural resources. When the government ran the power/natural gas, we were always running at surplus capacity "just in case". And the government was still staying in the black overall. So even if they were being subsidized, it wasn't hurting the government at all.

Before you can understand recursion
you must understand recursion.

[ Parent ]

My perspective (4.60 / 10) (#22)
by Estanislao Martínez on Thu Jan 18, 2001 at 01:48:08 PM EST

Having moved out only relatively recently from a so-called "developing country", which has made moves to privatize its electricity and water utilities, and wholly privatized its phone company, I think I have a special perspective on this.

Goverments have a mandate to serve all of their citizens, and no profit motive; this makes a government more appropriate to bring utilities to the biggest possible segment of the population. A private company, on the other hand, is interested in profits above all; if it's not profitable enough to their liking to bring adequate service to certain places, they will not do it unless forced, and even then they will try to wiggle their way out.

In the history of my country, this is the reason why the goverment bought off a private company that provided telephone services-- the company was simply unwilling to wire up more remote areas, and even poor areas in the city. They just wanted to go after the urban middle and high class, as the biggest source of profits. Only after the government took over phone service did it happen that most households got service.

Private companies are simply too much into the culture of capitalist profit-making, and not at all into the culture of public service.


off-topic (none / 0) (#33)
by aphrael on Thu Jan 18, 2001 at 05:06:27 PM EST

Having moved out only relatively recently from a so-called "developing country",

Which country?

[ Parent ]

Included utilities (3.50 / 4) (#24)
by zzyzx on Thu Jan 18, 2001 at 02:34:52 PM EST

I would like to point out that even though heat and electricity are included in your rent, you are still paying for them -- in your rent. The landlord passes the costs on to you indirectly, usually because the apartment infrastructure is too old to allow individual metering. Of course, this means your apartment is as hot (no hotter) than the landlord makes it. Or, alternatively, your rent is subsidizing someone else who is running up the bill. Don't be deluded.

RE: Included Utilities (3.00 / 2) (#25)
by reshippie on Thu Jan 18, 2001 at 02:45:18 PM EST

Or, alternatively, your rent is subsidizing someone else who is running up the bill.

Unless you're the one running up the bill. ;-)

Those who don't know me, probably shouldn't trust me. Those who do DEFINITELY shouldn't trust me. :-)
[ Parent ]

I pay for gas and electricity... (4.00 / 1) (#37)
by winthrop on Thu Jan 18, 2001 at 07:42:16 PM EST

...and 60% of most bills is a charge that covers the cost of billing individuals.

I would gladly subsidize the old lady next door who keeps her heat up high if it meant cutting out the expense of seperate record-keeping.

[ Parent ]

Incentives (4.25 / 4) (#26)
by bjrubble on Thu Jan 18, 2001 at 02:55:08 PM EST

The conventional wisdom seems to be that government is inherently fat and lazy because it doesn't have the incentives that profit-seeking corporations do.

I find it interesting, then, living in California and watching the power crisis, because who's sweating? The power suppliers, AFAICT, are laughing all the way to the bank. PG&E/Edison are busy howling and bitching about how the deregulation they sought has gone wrong. The only guy I see really sweating in all this is Gray Davis, the governor who took office after the damage had effectively been done and who is mostly blameless for the whole thing, but is the only one who stands a good chance of losing his job over it.

If there's a problem with government control, it's that the responsibilities are either not clearly defined or not lined up with the electoral process. Sheriffs, for example, are frequently booted; I think democracy works well in that office because it is elected and it's very clear to everyone what its responsibilities are. The power crisis doesn't really lend itself to responsive government because the only (or maybe just the easiest) office to blame is the governorship, which is really not directly culpable and is anyway such a broad office that it's difficult (and often unfair) to take it to task on a single issue.

And this is why I think the IMF is right to ask for utility privatization. Truly effective government control of utilities is still a challenge for the mature and responsible democracies of the world. For those governments just recently cobbled together, it's too difficult a task and too big a temptation.

More democracy (3.00 / 1) (#40)
by driptray on Thu Jan 18, 2001 at 11:10:44 PM EST

If there's a problem with government control, it's that the responsibilities are either not clearly defined or not lined up with the electoral process. Sheriffs, for example, are frequently booted; I think democracy works well in that office because it is elected and it's very clear to everyone what its responsibilities are. The power crisis doesn't really lend itself to responsive government because the only (or maybe just the easiest) office to blame is the governorship, which is really not directly culpable and is anyway such a broad office that it's difficult (and often unfair) to take it to task on a single issue.

This is a very good diagnosis of what is wrong with govt ownership. However your proposed solution (privatization) suffers from a bunch of other problems that others have explained. Another solution that you hint at, but don't quite reach, is that the govt bodies that control the utilities should be democratically responsible to their users in the same way that the sheriff is.

I haven't thought through this idea at all, but how about a co-op structure with a management board. Every two years there is an election for board membership, and every person that receives an electricity/phone etc. bill has one vote.

Whaddaya think?

We brought the disasters. The alcohol. We committed the murders. - Paul Keating
[ Parent ]
Yes (none / 0) (#48)
by bjrubble on Fri Jan 19, 2001 at 02:50:43 PM EST

Another solution that you hint at, but don't quite reach, is that the govt bodies that control the utilities should be democratically responsible to their users in the same way that the sheriff is.

Actually, that was one of the main things I was trying to say. Guess I need to work on my writing skills some more... ;)

[ Parent ]
My theory about this... (4.33 / 6) (#29)
by delmoi on Thu Jan 18, 2001 at 03:28:41 PM EST

I personally think that providers should be privatized, IE you can have privately owned power plants, ISPs, etc. But that the infistructure should be public, IE, the wires, and pipes and tubes and everything. The big problem, at least here, is that you get utility companies gaining `local monopolies' on things like electricity and dataflow. And because of the need for competitors to dig up the ground and put lines in, the barrier of entry is way to high.
"'argumentation' is not a word, idiot." -- thelizman
Public infrastructure, private services (4.50 / 2) (#38)
by driptray on Thu Jan 18, 2001 at 10:57:54 PM EST

I personally think that providers should be privatized, IE you can have privately owned power plants, ISPs, etc. But that the infistructure should be public, IE, the wires, and pipes and tubes and everything.

Bingo. This gives you the best of both worlds. It allows the govt to control the infrastructure, and yet allows for a competitive market in the services that utilise the infrastructure.

The equity arguments for public ownership are strong, but everybody who has ever dealt with a govt monopoly knows that the service usually sucks. That's what is so sweet about this model - the govt monopoly remains only to provide the infrastructure, and so their main clients will be the telcos/electricity companies etc. Those big companies get the poor govt service! Meanwhile, consumers will frequently be able to choose from among a bunch of frantically competing companies for their essential services.

Are there any countries that have done this? When telecommunications was mostly deregulated and partially privatized in Australia, this model was proposed by a few commentators (mainly Stewart Fist), but was ignored by the government. By implementing a competitive market in the services, the govt would have been demolishing the market value of the monopoly that it wanted to sell, and at the same time retaining for itself the costly responsibility of providing all that infrastructure.

'Twas easier for them to allow only limited competition (to protect the market value of the govt monopoly), while selling off that monopoly on the share market to raise a whole buncha money they could then spend on getting themselves re-elected. A great opportunity missed. Sad.

We brought the disasters. The alcohol. We committed the murders. - Paul Keating
[ Parent ]
It bugs you? (4.50 / 2) (#34)
by trhurler on Thu Jan 18, 2001 at 05:32:10 PM EST

If you want to start a nonprofit utility, in this present day of government incentives for "competition," I don't doubt they might let you. However, you say "it bugs you" that people can make money on utilities. I have to ask: if I want something, and you have it, and you want money, why should it be illegal for us to trade? That's what you're saying, in effect - you want to make it illegal for consenting adults to trade their possessions unless the transaction is of a kind you approve of.

Personally, I think the government has well and truly fucked the utilities in the US, which have always been technically privately owned and in reality government run, and at this point, there is no solution that isn't going to hurt really, really badly. California is probably not the last disaster we'll hear about. However, what I do not understand is how people can blame the "private" companies for following the regulations the government laid out?! The power crisis in California is caused by a rate cap so low that it is impossible to make money selling electricity in the state - yet somehow people want to blame the corporations?!

You want to see a better day, move towards autonomy. When they're available, get a fuel cell for your home, and use it instead of electrical and gas hookups. Put solar cells on your roof if that helps. There's no replacing the water utilities insofar as I know, but it is conceivable that in rainy areas you could do so. Those are the only things you really have to have, and when it comes to communications... well, I will be very surprised if wire based telecom services are still in common use in residences in the urban US in ten years.

'God dammit, your posts make me hard.' --LilDebbie

The goal of a company (4.00 / 3) (#35)
by scross on Thu Jan 18, 2001 at 07:07:53 PM EST

There is a fundamental reason why deregulation doesn't work. The oft cited goals of deregulation seldom align with revenue maximizing stratagies employed by most corporations slaved to Wall Street.
The goal of a company is to make as much money as possible. The fact that most companies need to provide a good or service to make money is cost of doing business. When a product is produced, it only needs to be Good Enough and only has to be Cheap Enough to maximize revenue.
A simple example. Over in Cincinnati, OH, they have a football team (grid iron style). Based upon two different criteria, they either had the worst team or the best team. The only won one or two games all season. But, they were the most profitable team this season. Which do you think the team owner really cares about?

Cheers, Sarah
Deregulation (4.50 / 2) (#41)
by Brandybuck on Thu Jan 18, 2001 at 11:18:06 PM EST

There is a fundamental reason why deregulation doesn't work. There have been extremely few cases of real deregulation. Most industries that have been called "deregulated" are nothing of the sort. One big example is the California power industry. Everyone *knows* that it has been deregulated, but everyone knows wrong! What happened was that one tiny part of the industry was opened to competition and the price ceilings were lifted. The rest of the industry is still firmly under governmental control. It's like a dictator who wishes to become a democracy. So he holds free elections but allows no one but himself to run for office. Is that a case of democracy failing? Hardly.

[ Parent ]
Privatization (2.50 / 2) (#42)
by Brandybuck on Thu Jan 18, 2001 at 11:27:33 PM EST

Why should utilities be private?

Why should they be run only by those with soldiers and police?

I guess it comes down to what you feel the role of government is. My belief is that government should protect the lives, liberties and property of the citizens, nothing more. Obviously you feel that providing and distributing electricity and water is a proper role for government. Why? And if they should provide those services, why shouldn't they also provide the lightbulbs that use that electricity? Or the garden hoses that use that water? Or bread and milk? Or jobs and houses? Or gasoline and automobiles?

People need those services (4.00 / 1) (#44)
by squigly on Fri Jan 19, 2001 at 05:24:54 AM EST

The western world considers water, electricity or gas, and communications to be essential quality of life requirements. Supplying all of these to someone who lives miles away from a city might not be profitable. Even if it is, the few percent of people who aren't in an accesible area are not a significant market for a national industry. Failing to supply them will hardly show up on the balance sheet.

The government has an obligation to these people, because thats their job. They should not neccesarily have to supply them, but they need to make sure safeguard are inplace to buy them at a reasonable cost. In just about all countries, these services have some regulation.

But regulation requires regulators. The beurocracy needed for this is expensive. Nationalisation still needs people to run it, but that can be payed for as part of the billing for the service.

People who sig other people have nothing intelligent to say for themselves - anonimouse
[ Parent ]
Why? (none / 0) (#49)
by Brandybuck on Fri Jan 19, 2001 at 04:26:37 PM EST

The government has an obligation to these people, because thats their job.

Why is it there job? That's the basic question I'm asking. Just saying "because they need it" isn't good enough. People also need food, but the US privatized food production and distribution industry gets food produced and distributed just fine. Why would electricity be any different? What premise can you provide from which to build a philosophy that justifies government interference in these markets?

In California, PG&E is acting like thugs, threatening to cut off power to hospitals and fire stations. The solution is simple: take your business to someone other than PG&E. But California law forbids that! PG&E and SCE are artificial government created monopolies. If I were Gray Davis I would immediately open up all areas of the power industry to competition, and tell PG&E to take a long walk off a short pier the next time they ask for a bailout.

[ Parent ]

Private profits, public costs (5.00 / 2) (#45)
by mdavids on Fri Jan 19, 2001 at 08:01:18 AM EST

The standard arguments for privatisation are that competition produces greater efficiency and lower prices, and that governments should not carry the risk associated with running these enterprises.

Well, lets examine the claims. There's a good article on deregulation in Australia by Tim Anderson from the University of Sydney. Considering the claims of price savings in telecommunications since deregulation, he concludes:

...the evidence to suggest that actual competition has generated market efficiency, or greater benefits for consumers, is very weak. However there has been a gain for corporate efficiency, as large private corporations have been allowed a new share of a highly profitable market.

And in a particularly ludicrous twist, for the sake of efficiency, the rolling out of fibre-optic infrastructure in 1996, demanded the rolling out of two identical sets of infrastructure:

It does seem extraordinary that, on the one hand, the new technology of fibre optics delivers the potential efficiency of combining several functions (telephony, data connections and cable television) in the one network, yet on the other hand an economic policy demands the inefficiency of immediately duplicating that physical network. The head of the Australian Competition and Consumer Commission, Professor Alan Fels, defended the dual cable layout, claiming that competition would push prices down. However telecommunications expert Dr Peter Troughton condemned the duplication as "crazy" (Walker 1996: 4). Authorisation of the dual cable layout is explicable, though, as state support for the strategic move by Optus to secure its share of the market, by ownership of vital infrastructure.

On the question of risk, where's the risk? Are elecrticity and water likely to become suddenly unfashionable? As John Ralston Saul has pointed out, private corporations want public assets precisely because there is no risk associated with them. These are guaranteed cash cows, even more profitable if governments can be pressured into dropping the requirements that these utilities provide a minimum level of service to the whole population.

The main issue is who is responsible to whom? A private corporation answers only to it's shareholders, so it's definition of efficiency is likely to be very different from it's customers and the general community. In fact, corporate efficiency is the antithesis of market efficiency (remember, economics was born in an age before corporations).

Efficient markets are supposed to reduce the margin between the cost of producing a good and it's price in the marketplace. An efficient corporation however, seeks to maximise it's margins to produce the greatest possible return on investment for it's shareholders. So it keeps prices as high as the market will bear, while shifting costs elsewhere. It transfers costs to it's employees, by shedding staff and increasing working hours (that's called raising labour productivity), or to it's customers and the general community, by lobbying to remove minimum level of service requirements, environmental requirements, and so on. This is called deregulation, although of course it's just re-regulation, shifting control over what goes on from the government, which may be somewhat democratic, to corporations, which are as Noam Chomsky rightly says, as totalitarian as any institutions ever devised.

The public, meanwhile wants affordable goods, reliable services, and by the way, reasonable hours of work and good pay. If you measure performance by these criteria, "good corporate governance" is staggeringly inefficient in just about any enterprise you care to think about, certainly in the provision of essential services which are, usually, natural monopolies.

The ultimate answer is that all forms of industry should be democratically run. This means that the institutions concerned should answer firstly to the people who work there, secondly to their customers, and thirdly to the communities that are affected by their operation. There is no place for shareholders, because shareholders are market-distorting, as seen above.

How this is to work in practise is a tricky matter, and I wouldn't presume to guess at how people will want to do things. It's not a job for manifesto writers or "vanguard parties". The immediate task is to put into place the forms of organisation that will allow democracy to function in the industrial sphere. Here's one of them.

Private companies owned by their customers (3.50 / 2) (#47)
by guinsu on Fri Jan 19, 2001 at 01:46:39 PM EST

I've always thought that essential or highly-neccessary services (phone, electricity, auto insurance) should be somehow non-profit. But it seems very heavy handed for the gov't to just come in and make them all non-profit overnight. So my idea was to make all of these things privately owned corporations but the shareholders would be the people who used the services. So when you move into a community you purchase shares in your local utilities and when you move you sell them. This way the company has no great incentive to make too much money and as a shareholder you could vote out any bad executives.

Besides utilities, I have always thought this would eliminate the price gouging in auto insurance in the US. There would be no need to make billions in profits because all the money would go back to the shareholders (i.e. the people that were being charged excessive reates) in the end anyway.

Private Utilities | 50 comments (48 topical, 2 editorial, 0 hidden)
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