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Friday, September 19, 2008

Why is our power so crappy?

Last week, thousands of locals lost power after the remnants of Hurricane Ike passed through, bringing very strong winds and rain. Probably a million people in this state over all. Many still don't have it back on yet. I was fortunate that my power remained on, but many of my friends and coworkers weren't so lucky. West of Cleveland and south towards Columbus seem to have been hit pretty hard.

It's puzzling that we don't have a stronger, better system in place after 100+ years of operation. We are paying through the nose for barely adequate service. Who is the culprit in this problematic industry? Is it the nature of for-profit business is to provide shoddy service at the highest possible cost? Or maybe our utilities are deemed a natural monopoly by the government and then given rights over wide areas. I whole-heartedly agree with the latter.

If you look at the different sectors of the economy today, the ones that are thriving all seem to be competitive industries. Technology and retail are perfect examples. My question is why on earth can there be successful businesses in one industry and not in another. We probably could have gotten better electricity service if the government hadn't screwed it up so badly back when it was all nationalized and regulated.

Don't try to tell me that utilities are a natural monopoly. There's no such thing as a natural monopoly unless it is created by the government. We all know that monopolies are bad for the economy, and states are always the worst offender when it comes to monopolies. Just look at the history of Ohio Edison. This is a company that was formed from the forced consolidation of 200 electric companies. Can you even imagine 200 electric companies being in this service area?

I would be willing to bet good money that those companies back in 1930 had good service before they were all brought together. They would have had to in order to stay in business. If you have easily disrupted power lines, you can bet your ass you won't stay in business, because customers will take their money elsewhere. And if there's a storm, their crews would be out servicing their limited area and have you back up in no time. At least, that's what it would look like without government regulation.

If you have any doubts about this please read The Myth of the Natural Monopoly by Thomas J. DiLorenzo. One interesting excerpt follows:

The theory of natural monopoly is a-historical. There is no evidence of the "natural monopoly" story ever having been carried out of one producer achieving lower long-run average total costs than everyone else in the industry and thereby establishing a permanent monopoly. As discussed below, in many of the so-called public utility industries of the late eighteenth and early nineteenth centuries, there were often literally dozens of competitors.

1 comment:

sfsdfd said...

"If you look at the different sectors of the economy today, the ones that are thriving all seem to be competitive industries. Technology and retail are perfect examples."


Energy: Five little letters - Enron.

Retail: Walmartization.

Cellular communications: spotty coverage; lack of improvement in infrastructure (contrast our complete lack of 3G deployment with most developed nations); obnoxious service contracts (contrast our two-year standard contracts with open SIM card swapping in Europe); grossly inflated prices (per-text-message prices? outrageous.)

Technology: Well, ALL of our hardware and software markets are fighting to own the markets in non-capitalist ways: tying (MacOS and Mac hardware), leveraging (closed standards), embrace-extend-and-extinguish (Office Open XML), FUD, etc. Our computer tech leaders (both hardware and software) have expended more resources in the last decade fighting over market control, rather than just making a better product at a better price... the latter is a laughably outdated and inapplicable concept in the world of IT.

- David Stein