Deregulation Fever
by Francois Tremblay (e-mail: [September 8th, 2000]

     Maybe deregulation was all the rage, but now it seems we need to regulate stupidity.

     Capitalism is once again taking hits from media pundits for the failure of power deregulation. San Diego in particular was the target of price hikes after the government of South Carolina sold most of its energy facilities to the private sector. According to San Diego Gas and Electric, prices have more than doubled during the year.

“At any rate, the failure of the deregulation process proves once again that the government does not understand capitalism, and that it cannot get itself to change its socialist 'big daddy' mentality.”

     The argument of anti-deregulation people is that since prices have skyrocketed when the free market is supposed to be more cost-efficient than ponderous governmental systems, then it is a demonstration that the free market has failed. I hate to be Mr. Obvious again, but that is a patently absurd proposition. How can one be so ignorant of economics as to propose that this is the case? It doesn't take a university diploma to understand the inevitable failure of such measures.

     Why is it inevitable that such a situation would end in failure? The two main advantages of a capitalist system, in strict economic terms (of course if we tally human rights in the equation, it's not even close to comparable), are the customer-provider advantage, and the competition advantage.

     Companies work better for their customers because every sell is important : without customers, you're not going anywhere. The government already has your money, and like an insurance company he has no reason to grant you anything. Every new customer demand is not an opportunity but a chore.

     But if there are few players in a market (or if these players are united in a trust), the price of products will rise accordingly (remember the offer/demand curves?) depending on the elasticity of the products. If there is no governmental restriction on offer, then new competitors may rise at any time to fill out the gap, and therefore take a part of the profits that the monopoly is doing. If there are restrictions, then price is determined by elasticity.

     Elasticity is the measure of whenever a product will be bought by customers regardless of the price: non-essential things like video games are usually more elastic, while things like soap are inelastic (the reason why soap is relatively cheap, of course, is because of the high offer). Well it's pretty obvious that everyone needs electricity. It is an extremely inelastic product.

     This may seem extremely obvious, but I'm afraid that it isn't to the people of San Diego. Taking a political monopoly and expecting it to flourish immediately is ludicrous. Not only does it take time for an economical area to recuperate from destructive political policies (ask the Russians), but it also demands that the possibility be bereft of big barriers to entry and with the necessary space (landmass and economical) for companies to establish themselves.

     The power market has two big barriers to entry: equipment and space. It requires massive investments in material and positioning. Considering South Carolina as a power market, it is much too small to be considered a valuable market in itself. And since the other state markets around are still run exclusively by the government, that's all that can possibly be involved. Combine these problems with the small amount of time given by the deregulation program (more precisely, no time at all) and you have a recipe for disaster.

     Furthermore, they omit to mention what part of the people of South California's tax bill was dedicated to maintaining this energy monopoly. No doubt we would find that this skyrocketing of prices is not as dramatic as they would like to portray it.

     At any rate, the failure of the deregulation process proves once again that the government does not understand capitalism, and that it cannot get itself to change its socialist "big daddy" mentality. The reaction to the debacle by San Diego officials was to call off the privatization. Some of them were even advocating civil disobedience against the private companies whom they have supported in the first place! Is this a conscious attempt to sabotage the deregulation process in the United States? Who can say.

     We know that the free market works, when we compare it to its socialist counterparts -- when done properly -- mainly for the two reasons I mentioned earlier. For example, socialized health care in Canada falters compared to American capitalist medicine, doctors run south of the border and waiting lists grow longer and longer. But in the name of equality we decide to give people the poorest service and prices possible. The same thing applies to Social Security, which we know now is destined to bankruptcy. And many other such systems. Friedman's Law shows us that governmental systems, because of the calculation problem, can only at best be half as efficient as a privately-owned system.

     The obvious free market solution to the energy problem would have been to open the market to the private sector while retaining the prior structure -- in short, a public-private competition. Such a competition would necessarily lower prices while retaining the advantages of an immediate privatization. So why didn't they do this?

     The government, as I said, has a "big daddy" complex and thinks itself of a superior level to "the population". Because of this, competing with lowly "capitalists" would be unthinkable. The easiest solution was to simply get rid of it, cash in on the money, and let the silly taxpayers wrestle with the aftermath.

     If it doesn't work, blame capitalism for the problem and barge in to impose your restrictions on the market. This tactic is seen again and again with socialists and people of their ilk. Create problems (which are inevitable in such a system), blame capitalism for the problem, and claim that more control is the answer. Too much poverty? Destroy all private charity initiative thru wasteful social programs and increase taxation, create more poverty, and then blame the free market for making poor people poorer. Rinse and repeat.

     The fact of the matter is, until we find a more efficient way of transmitting energy, it is still a public good. It is irresponsible for any government to leave it to the private sector and wash its hands of its duty to the population.

     In colonial news: A judiciary decision in Quebec has ruled that the Charter of Rights and Freedoms is subservient to the law of the land. Vive les communistes!

Further Research

  • ABCNews: Electricity Deregulation Under the Gun in U.S.
  • CNN: Rate Rebellion Threatened as Electricity Crisis in California Worsens
  • Lexum: Quebec Charter of Human Rights and Freedoms

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