“We are a society, not just an economy.” I cannot attribute this one-liner to a name but it struck me when I listened to a program on health care recently. Since we are engineers, I stick to a technical problem, where, very much like in health care, extreme profiteering has or is threatening to take over a basic community service, ultimately to the detriment of society.
years ago there was an incident in Bolivia where people demanded the government take back the water supply operations from a foreign corporation that had been given the contract for this operation, the idea being that privatization would lower the cost. Now this entrepreneur had raised the cost on his captive clients and was accused of price gouging.
But also in Europe things are not well these days with private enterprise dabbling in what was once the domain of non-profit public service operations, such as providing drinking water, sewage treatment, and electricity. Private enterprise has been discredited by reckless profit taking and shoddy operations. Now communities want their water works and power plants back. Instead of the promised lower prices for these commodities, prices have gone up and up.
A non-profit enterprise, if run efficiently has got to be able to produce a cheaper product than a profit-taking enterprise, simply because profits are added to the cost
in one case and not in the other. There is a philosophy in western democracies that public operations, whatever they are, water, power, sewage, or health services, are inefficient and corrupt and private enterprise can do better. This may hold in a basically corrupt government system, such as third world aristocracies, or dictatures, but not in a functioning democracy, like the United States, where the people are the government and have the means of controlling government and its activities rather tightly. When I joined the TVA more than forty years ago we were constantly reminded that the TVA was conducting a squeaky clean operation and everybody had to follow strict rules, and we did. The public was watching. The TVA had the lowest electricity rates, probably in the entire country then (of course, one must admit that they didn’t dare to charge the full price for their product, but so didn’t private suppliers). TVA’s electricity prices were about half those in Massachusetts.
The Germans who tend to follow the U.S. lead, instituted the so-called liberalization of markets for water, gas, electricity and sewage treatment and prices for these commodities exploded. The profit takers were four big electricity corporations, E.on, EnBW, RWE, and Vattenfall. These companies had made so much money with private electricity sales that they were looking for areas in which to invest, so as to make even more profit. A law in the U.S. that prevented this kind of expansion here was repealed a few years ago by Congress. The Germans and other European countries probably never had such a law.
So these profitable companies were on the look-out for other lucrative business ventures and they got into these community services with which they had already experiences. They did it on a grand scale, not just at home and in big cities, but also abroad. The German RWE, a huge electricity producer, bought Thames Water of London and has been in the meantime criticized for wasteful operations there. In Potsdam water prices doubled after privatization. The French-German Eurawasser, that was in charge of the Potsdam water supply lost renewal of its contract after the third price increase in two years. Other cities, like Bochum and Dortmund, had to out-bid a French supplier to get back some control of their waterworks. Within one year the public agency made a surplus of 100 Mio
Euro without raising energy prices. It sounds as if this was the profit margin of the private entrepreneur that now flowed back to the city. Seven years after Hamburg sold its electrical powerplants to Vattenfall, a Swedish power supplier, they are creating a communal competitor that is supposed to take
back the city’s energy supply. But not only large cities, medium sized ones also are getting back into the communal energy business. As a matter of fact, in a sort of “communities strike back” mode communal providers are banding together to become super-communal providers.
Despite all the bad experience of many communities with private entrepreneurs, some city fathers cannot resist the lure of a quick fix for their ailing city budgets, a one-time financial shot in the arm, by selling community assets to private industry. They pull the wool over the citizens’ eyes, and perhaps over their own, by avoiding a tax increase but don’t realize that they will pay the tax anyway in the form of higher prices and, on top of
it, lose the control of the community’s assets.
The frequent failures of private enterprise to deliver satisfactory and efficient operations at low prices may also have a technico-political cause. The community systems for sale have probably suffered from lack of maintenance and investment, as it seems to be difficult to raise money for these works in a political climate in which people want top services but don’t want to pay for them. That lack of willingness to pay poses a serious problem for any career politician.
Only a crisis big enough to sensibly impact the pocketbooks of the majority may finally bring people to their senses. But a large number of captive consumers is a lure that will keep private enterprise salivating, and they will find ways to make the little sheep stand still to be shorn. (Inspired by an article by Tim Engartner, VDI, Cologne 7/17/09. WOW).