Monopolies, Markets and Mumbo-Jumbo: Privatised Utilities

Telecommunications are - so far - the only sector of privatised provision of utilities where the original network of copper wires has largely been replaced by the use of airwaves. The great Volta achieved some measure of success with his experiments to transmit electricity without wires, more than a century ago. So it is not beyond the bounds of possibility that some equal genius, with the advantage of a century more scientific discovery to draw upon, will be able to distribute electrical energy safely without the infrastructure of a National Grid. But that it not yet on the horizon.

It is most improbable that gas or water could be distributed to their millions of domestic and commercial users other than by pipelines; and trains will always need tracks, even if they become vacuum tubes through which the vehicles are sucked or pushed at hundreds of miles per hour.

By selling the licence to use the copper wire telephone system [that was originally laid across the country by Post Office Telephones] to the shareholders of British Telecom [BT], the Thatcher government did not extinguish the material monopoly that POT had created: they simply sold the ownership of the system. Alongside the massive development of airwave communications, some rival firms have put their carbon-fibre equivalent of wires in some parts of the country, to compete with the mix of copper and carbon-fibre that BT now use; but in most of the country the BT infrastructure provides the single means by which a consumer can connect their devices to the global telecoms system. As a result of this fact, which is derived from the impossible cost of replicating or triplicating the BT infrastructure, 'competitor' companies of BT have to hire the use of BT capacity. An 'economic regulator' OFCOM was established at the time of privatisation with the task of making the 'competition' of BT and other providers look a bit like the sort of a market that Economists imagine in their fantasies, and teach to captive students on the basis that acceptance of the 'model' is necessary to pass the exam. Thus the students are in the equivalent position of students of literature who are studying 'nonsense' poems by Edward Lear: with the difference that the Eng Lit students know that the content is not real-world rational thought; while the Economics students are expected to pretend that the Econocratic model is superior to the reality that prevails in a corrupt and inefficient world.

The job of OFCOM in communications, like that of OFWAT in the mock market in water and that of OFGEM in the speculative sphere of energy, is to make rulings which set the basis for the provider firms to charge customers and to maintain and enhance their distribution systems. Each of these organisations hires youngish Economists who are still at least half-convinced of the 'scientific' validity of Econocratic assertions, and these constantly come up with ways of 'refining' the models that the regulators use to bring the regulated system closer to the models they had from their teachers. When one of these tweaks of the system seems to be effective, some of the Economists who introduced the new wrinkle are recruited on higher wages by the other regulators to tinker with their systems.

Hence we have seen water companies urged to invest massively in replacing old pipes: then suddenly to stop as the regulator realises that the notional capital value of the company is being increased too much [for their model] at the expense of consumers' bills. We see constant attempts to compel users of electricity to join in a game of swapping 'suppliers', when everybody knows that the competing firms all use the same power stations and wires: the competition is only in publicity and customer relations [including billing]: and on a basis of 'swings and roundabouts' over a ten-year period of staying with the same supplier there will be periods when that is the most expensive and periods when it is less expensive than a firm to which one might have switched.

The whole experience of privatisation is of an expensive game: paid for by the poor consumers. The gut reaction of the British people has been to agree that Labour has a point, in putting re-nationalisation of at least some of the utilities back on the political agenda.