Wednesday, November 5, 2008

The Utilities part I

The Utilities. It would seem that many people are deeply concerned with where they get their utility service. They feel that water, waste removal, electricity, gas, phones, internet service, roads, and postal delivery are necessary for their existence, and fear that without a state authority, these services would dry up and people would be unable to survive.

It's understandable. Our society has become deeply dependent on these services, and without them simple hygiene, food safety and preparation, communication, transportation, and basic commerce would all be in jeopardy. The need for these services would seem to be beyond dispute, even to the point that many people consider these to be necessities, not luxuries.

But the challenge here isn't to the need for utilities. The challenge is that without government, many if not all of these services would disappear. What is it that motivates this fear? Perhaps it's a misunderstanding about the role government plays in bringing the products to the consumer. Perhaps it's a misunderstanding about the real cost of these products to the consumer. Perhaps it's a misunderstanding about the viability of a private model for these services. I intend to address these three concepts herein.

First, it is important to understand how these services are being provided to the customer today, and to explore some examples of how they could be provided in the future. Most of these services are already being provided, in whole or in part, by private concerns.

Water has been historically, and is to this day, offered primarily by publicly owned agencies. Approximately 10% of the worlds water services are privately owned however, and in England, where the water and sewage services have been privatized since 1989, albeit under strict governmental regulation, drinking and recreational water quality increased, even bringing water quality in line with previous standards which had not been met when the government was in charge.

There are several different classes of electricity providers. Some is provided by cooperative utilities, some by “public,” meaning state owned, companies, some by investor owned companies, and a very small amount is produced by companies who are not utilities for their own private use, and then sold to the local utility provider at wholesale cost, which is then sold to the end user at retail. In 1998 in America, roughly 75 percent of the electricity sold to end users was being provided by investor owned, or cooperative electricity retailers, meaning that the vast majority of electricity is already being supplied by private organizations.

Natural gas is almost solely provided by private concerns. In fact, in 2000, roughly 94 percent of the natural gas in the country was supplied by investor owned utilities.

Telephone and internet services are also provided primarily by private companies, many of which are publicly traded, and are regulated heavily by the FCC.

Roads are provided both by governments and by private organizations, with a variety of cost structures and services. While government owned and operated roads remain the norm, there is an increasing movement towards the privatization of roads, and in some parts of the world private ownership of roads has surpassed public. In Sweden, two thirds of the roads are owned by private road associations. Similarly, England and Wales are thought to have around 40,000 privately owned roads, whose maintenance is the sole responsibility of the local residents. As well throughout America there are a number of residential roads owned by home owners associations, housing cooperatives, and private developers and businesses. There are also a number of private, toll funded highways and roads throughout the developed world.

Postal service is provided largely by governments, although this is due in large part to their self-established and coercive monopoly. In fact in America, there are laws requiring that delivery of all non urgent letters must be payed for through the United States Postal Service, even if delivered by an unrelated private concern. The United States Supreme Court has upheld the USPS monopoly, stating that they are not subject to antitrust liability as a part of the federal government, and that only employees and agents of the USPS are legally allowed to deposit “mailable matter” in any letterbox approved by the United States government. There are even documented cases of agents of the USPS raiding businesses and demanding proof that the mail they were sending through competing couriers was in fact “extremely urgent,” and when deciding that it was not, fining them thousands of dollars. Even in the face of this violent monopoly, a number of independent couriers, such as FedEx, DHL, and UPS are responsible for millions of deliveries every year.

So we can see that even a cursory glance at the utilities industries shows that the majority of the services people depend on every day are provided by private concerns. It is then obvious that the majority of the fear that people feel about the removal of government from the utilities is unfounded, simply due to the fact that the role of government in providing utilities is far smaller than many people realize. In reality, the state plays far more of a regulatory role than a production role. And so we must address the performance of the utility regulators.

Are they, in fact, making things better, or making things worse?


Stefan Molyneux, MA said...

Sorry to pester you, but I was just wondering if you've ever had a chance to visit Freedomain Radio - - totally up your alley... :)

NickyViola said...

Excellent post. If only everyone was as rational as us...

Thesemindz said...

As a matter of fact, I post on the freedomainradio forums. I also link to it on the bottom of my blog, and have encouraged my readers to read Practical Anarchy and Everyday Anarchy. I'm glad to see you've read some of my posts. Thanks.