The Privatization of Power

Power Tower

Why can't government be a business?

I've not heard that question answered often. For the neo-conservatives dominating the discussion these days, it's a self-evident fact: government can't operate like a business. It doesn't have a profit motive. It doesn't have an incentive to be efficient. There is no competition. The free market isn't allowed to rule.

For a number of neo-conservatives, privatization is always the way to go. Crown corporations? Dumb idea. Roads? Toll them if you can. Public transit? Probably a waste of money. If the free market can't provide the service, it probably isn't worth providing.

That's a simplistic way to describe things, but privatization is dogma for many neo-conservatives. Even in the face of numerous counterexamples that widespread privatization doesn't produce efficiencies in service, they'll still follow it. Indeed, occassionally they'll say that the failure of privatization was all the government's fault. Perhaps privatization itself should be privatized.

Take Ontario Hydro -- a government corporation whose debt nearly ate Queen's Park (or so we are led to believe). The Conservative government promised that selling off the utility, from its power plants to its distribution infrastructure, would release Ontarians from the burdens of the debt. Competition would lead to efficiencies, producing lower Hydro rates and innovative means of generating power. We didn't have to fear rising Hydro rates -- the counterexamples of California and Alberta on the news were just flukes.

Well, we soon learned that the privatized power crises of California and Alberta weren't flukes. During a summer where Hydro rates more than doubled, and brownouts became a serious possibility, the Conservatives backtracked in the face of public anger and imposed a rate cap of 4.3 cents per kilowatt hour.

This, of course, mucked things up more. The cost of subsidizing hydroelectric power so that rates stay at 4.3 cents per kilowatt hour is starting to pull into the billions. More than that, by capping rates, the province took away the one benefit that privatization yielded: innovative companies providing alternate power. With the prospect of making a profit on power generation and distribution reduced, companies are backing away.

Privatization and deregulation have worked in other sectors before. The provision of utilities (other than railroads and public transit) has been improved by deregulation in the United Kingdom. But clearly privatization is not always the right answer to every decision. In particular, I don't think that the dogma of privatization takes into consideration the presence of public goods. What do I mean by public goods?

In most capitalist transactions, the seller has something (or can make something) the buyer wants. The buyer supplies something the seller wants in return, and both receive a direct benefit from that transaction. Goods get exchanged (or one good and money symbolizing the work required to create that good); everybody leaves happy.

Public goods, however, can't be bought off of shelves. They are not even the raw materials required to create a good the seller sells (which a seller has to buy from another seller). Public goods are items such as roads, public transportation networks, sewer lines, water lines, garbage collection and disposal. The primary benefit of public goods is something the public in general enjoys, whether or not they pay for it.

So you've built a road, and people are suddenly happy that they're able to go places. They are able to buy and sell goods, mine resources, go to school or to work in an area they weren't able to before. This movement of people and resources generates capital, and soon a prosperous town emerges.

You, on the other hand, just have that road.

You could make back some of your money by charging people to use the road, but you're not reaping the full benefit of that road. It's the man who sells the new filing system to the clerk who drives to the area who gets it, and then spends the money he receives on a new sofa purchased next door, and the people who receive that money who reap the benefit from your road. In this situation, there are many people who benefit from the road, but who bear little or none of the burden of keeping it in business.

Public transit is an even better example. All across North America, we see that it is not a profitable enterprise -- so why does it exist? Because we realize that there are social and economic necessities in keeping people mobile. We overtax our roads if we force everybody to drive to work. We see significant fluctuations in wages and prices if large sectors of the population can't access certain workplaces. We understand that our cities become less desirable places to invest in if the quality of life is such that people can't get home after eight o'clock in the evening.

Can a private business run a public transit network more efficiently than a civic department? Possibly, but if they can't run the system profitably, it won't want to. And short of having one's operating deficits paid for by the government, and then some, there is no way a private company can generate a profit. Again this is because the primary beneficiaries of a public transit network include those who don't use it, such as the car drivers who get to work a little quicker, and the companies that can count on a large supply of qualified workers.

If only there was a way that those who indirectly benefitted from the benefits a public good provided could help share the costs of providing that public good.

And, guess what? We already have such a system: taxes.

The public at large is the primary beneficiary of public goods. The government is supposed to represent the public at large. It makes sense for the government to take up the risks and reap the benefits of providing these public goods. It is for this reason that taxes are necessary.

Returning to the subject of electrical power, few people purchase this commodity just for the joy of having it ("oh, look, I got power! See me flip this lightswitch!" Flick! Flick! Flick! Flick!). More people, and more companies especially, use power to make things. A cheap source of power allows companies to make things more cheaply, which stimulates the economy down the road. People who are not primary beneficiaries of the power infrastructure derive the greatest benefit. You could try treating power as a private good, as if it were a set of batteries in a grocery store, but doing so limits the ability of people and companies to spend money on subsequent economic transactions.

In other words, it may be in the interest of the capitalist system itself to keep such public goods as electrical power cheap. Cheap power is one reason Ontario has been such a good place to invest this past century. Without this government intervention, the ability of the capitalist system to prosper is limited. In some ways, the government has to impose itself on capitalism in order to save capitalism from itself.

That's pretty close to summing up my vision of what government is and what it stands for.

The Conservatives of Ontario and the neo-conservatives of California and Alberta had it wrong: power could not be operated as just another business and still provide benefit to the wider economy. In the end, these hyper-capitalists ended up hurting the very economy they sought to liberate.

Power companies should be run as non-profit agencies, whose primary goal is to make as much power as possible as cheaply as possible, and with as little impact on the environment as possible. This may not make business sense, but it will make plenty of cents to the businesses that choose to locate here.

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