Deregulation: brought to popularity by two decades ago Reagan, Thatcher and converted into a religion by their successors, has failed. Sure, in a free and efficient market, deregulation should bring better results at lower costs to the consumer. But has this ever happened? Deregulation revolutionized the airline industry and brought cheap flights to all, but are we better off flying today than we were ten years ago? Will the airline industry survive ten years from now? The only other “success” story I can think of is the telephone industry.
The problem, of course, is rooted in the mythical efficient market. It seems that the biggest proponents of deregulation are the least likely to set the conditions necessary for it to succeed: true competition, liquid markets, and available information. The UK railroads was the first large-scale example of this I saw. How can you have competition when only one company is allowed to run trains in a specific region? Predictably, deregulation of the UK rail industry was a total failure, and led to wide-scale deterioration of the infrastructure and several deadly accidents.
On a smaller scale, I was astounded to learn that here in Seattle, only one cable company serves any one house. At our new place, we can only get Millennium; at my last place it was Comcast or nothing. Where is the competition? No wonder cable costs so much.
Check out this article on the effects of deregulation on the energy industry. Not only did the legislators that oversight and maintenance of large-scale public infrastructure, with so few players, could ever represent an efficient market, they ignored the basic physical design of the network and designed rules guaranteed to overstress the hardware. Despite the warnings of engineers and physicists, deregulation of the electricity market in the US was practically guaranteed to result in poorer service from widespread blackouts.
The fundamental problem is that deregulation requires all the generators to be linked together so that they can trade electricity, basically linking the entire grid into one big machine. So when a problem occurs in one area, it spreads widely. You’d think the solution would be to return to the old ways, where energy was generated regionally, without these interdependencies, right? Wrong. The FERC advocates increasing cross-country transmission, and is willing to spend billions and undermine environmental legislation to allow utilities to continue to trade electricity in support of this mythical free market. And who’s going to pay for all of this? From the article:
To pay the extensive costs, the utilities and the DOE advocate increases in utility rates. “The people who benefit from the system have to be part of the solution here,” Energy Secretary Spencer Abrams said during a television interview. “That means the ratepayers are going to have to contribute.” The costs involved would certainly be in the tens of billions of dollars. Thus, deregulation would result in large cost increases to consumers, not the savings once promised.
So let me get this straight. Deregulation was supposed to make electricity cheaper and more reliable for the consumer. It didn’t work. So now, we’re going to make the consumer pay to get the benefits promised in the first place?