Where’s the outrage?
The electricity supply crisis that has South Africa’s economy in a mortal grip has been predicted for years. Though these pessimists had only basic arithmetic, elementary economics and common sense as qualifications, they can today claim vindication. That years of regular blackouts and would be this country’s lot, however, was known both within and without Eskom since at least the mid-1990s. If our central planners had analysed things closely, assuming only moderate economic success post-1994, they could have foreseen this even in the 1980s. Doesn’t “power rationing” sound awfully communist?
In many ways, the crisis caught South Africans completely unprepared. In early January, I wrote a column dismissing low-wattage fluorescent light bulbs as an ineffectual and expensive eco-fetish, and that even if some people prefer them, governments should not force such a choice on consumers by doing something stupid like banning incandescents. That column now appears spectacularly ill-timed. Even if the arguments remain valid (which they do), they’re rather beside the point now. I had not considered a catastrophic failure to meet electricity demand very likely. In short, I was too optimistic about the promises and competence of the government. I was naïvely willing to believe the repeated lies we were told by the Eskom fat cats and government bureaucrats that they had things under control.
The government failed its citizens in the most irresponsible, negligent and incompetent manner possible. Eskom directors got paid millions in “performance” bonuses. The shareholder that employs them — government — seems to think telling the media now and again that there is no crisis constitutes due performance.
The shortage of electricity, even if it turns out to be mild in the long run, has the potential to cause extremely grave consequences for economic growth, job creation, poverty reduction, price inflation, small-business survival, and investor confidence both here and overseas. Everyone except the idiots who caused the crisis says so.
Yet nobody has been fired. Our politicians didn’t even feel it necessary to shift the blame by some token dismissals of powerless and innocent underlings. They seem to think that saying sorry will make everything alright.
They feel they can get away with sending out press releases such as this:
As part of the nation-wide effort to tackle the country’s electricity shortage the ANC will mobilise every ANC minister, deputy minister, member of parliament, member of a provincial legislature, councillor, organiser, member and supporter behind this effort.
This follows the decision of the ANC National Executive Committee Lekgotla last week to make this response a centrepiece of the movement’s mass work for 2008.
The NWC was briefed by Minister of Minerals and Energy Buyelwa Sonjica on government’s urgent and extensive response to the current electricity situation. It noted that the success of this programme in dramatically improving energy efficiency will depend on the contribution of all South Africans and all sectors.
Why weren’t they behind the effort to prevent the shortage? What did they get paid for all these years?
The meeting noted the massive investment already committed to significantly increasing generating capacity, but recognised that immediate action will need to be taken in improving energy efficiency to ensure the power remains on until the new generation capacity comes on line.
It is therefore critical that South Africans respond to the energy-saving proposals made by government, for industrial, commercial and residential consumers.
How can they blithely shift the responsiblity and make this the problem of all South Africans? As if we did something to deserve this? How can we just bleat meekly and accept this? How can we just accept the necessity, brought upon us by government bungling, of having to invest fortunes (that some of us cannot afford) in low-power devices, solar water heaters and gas stoves? We’re going to have to do this anyway, but where is the outrage over the idiots that caused it? Why don’t the people demand that heads roll?
When California got hit by blackouts, the electorate revived an old and obsure measure that permitted them to revoke the mandate of an elected representative they felt had failed them. California’s governor, Gray Davis, became only the second state governor in the history of the United States to suffer a recall by popular vote. To add insult to injury, the reliably Democratic state of California replaced him with Republican Arnold Schwarzenegger. Now that, ladies and gentlemen, is outrage.
Over at Moneyweb’s sister publication, Politicsweb, James Myburgh makes a thoughtful case about the inevitability of the ANC majority, and what might bring about its collapse.
Myburgh compares and contrasts with the Indian National Congress (INC), which after liberation had a hold on the Indian electorate not unlike the dominant grip the African National Congress has here. The two parties also historically share strong socialist instincts. The INC was eventually unseated because “how can the people see Congressmen as other than office-seekers without scruple and office-holders without merit? How long can the party live on its capital?”
Likewise, Myburgh argues, the ANC government has, by several recent events, been exposed as both “without scruple” and “without merit”. “At some point the ANC’s hold upon its support is going to break. It is just a matter of when,” he concludes.
But then you hear moonstruck positive-thinking delusions like those of journalism professor Guy Berger, and you despair for the future of this country.
Then you hear things like public enterprises minister Alec Erwin telling us with a straight face that neither the current crisis, nor longer-term electricity supply rationing, will harm our economy. I kid you not. The guy has an honours degree in economics from the University of Natal, Durban, so this leaves four options:
- Alec Erwin learnt nothing in economics lectures,
- The University of Natal, Durban, isn’t worth attending,
- Alec Erwin thinks the people the government lords it over are idiots,
- Alec Erwin is on crack.
There’s a good start. Fire the fellow. Please. There’s a bolt loose in his head. Maybe it’s sabotage. I’d recommend a brain scan, but that would be a waste of electricity at the tax-payer’s expense.
Then start going down the list:
- Jeff Radebe, Erwin’s predecessor, who was told umpteen times to expect a crisis, and failed to act, in the vain hope that the government’s half-baked plan to establish independent, private power producers under severe price and market controls would somehow come off, and who failed to act when he saw that it didn’t.
- Jacob Maroga, current Eskom CEO, who joined Eskom in 1995. At the time of his appointment, Eskom was talking about a five-year R150 billion expansion plan for generation capacity, and a supply shortage that would last until 2010 or 2011. Recently, Maroga casually mooted capex of R1.3 trillion (almost $200 billion) over 20 years, which amounts to raising annual capex by a factor of two and a half after five years. For good measure, he added, “If there’s anybody to blame, I’m the first in line”. So, off with his head.
- Thulani Gcabashe, former Eskom CEO, still under multi-million rand contract to Eskom to help with capital expansion plans. Not only did he fail to raise sufficiently loud alarms, but he reportedly told then-energy minister Phumzile Mlambo-Ngcuka that South Africa would never run out of power. Fire him, but make him repay his “performance” bonuses first.
- Mohammed Valli Moosa, chairman of the board of Eskom, and recently elected to the ANC’s National Executive Committee. He should go, along with financial director, Bongani Nqwababa. The raft of well-paid but clearly superfluous non-executive directors might as well leave too: Mpho Makwana, Zee Cele, Wendy Lucas-Bull, Versha Mohanlal, Jacob Modise, Uhuru Nene, Errol Marshall, Lars Josefsson, Sintu Mpambani, Allen Morgan, Brian Count, and Mustafa Bello. This includes only “major directorships”, whatever that may mean. What on earth are all these hordes being paid for? Heads. On spikes. The lot of them.
- Phumzile Mlambo-Ngcuka, former minister of minerals and energy affairs, and current deputy president. Received the 1998 White Paper on the Energy Policy of SA from her predecessor, and directly contradicted its contents by insisting, apparently on the word of Thulani Gcabashe, that no crisis was looming.
- Buyelwa Sonjica, current minister of minerals and energy affairs, who had the temerity to tell a special parliamentary sitting that we shouldn’t focus on the past, looking for people to “crucify, crucify, crucify”, but look forward. “There is no need to panic about future investments,” she said, gainsaying every observer and economist outside of government and Eskom. But if she’s promising that this is the last time she’ll be telling citizens and businesses to buck up, shut up, write off sunk costs that assumed adequate electricity supply, and bear the cost of conserving energy, there’s a way to make sure of that. Since we’re going to have to do that anyway, we can modify her plan in one small respect. Add a new step one: off with her head.
- Thabo Mbeki, for being the Gray Davis of South Africa. As president, he most of all must take responsibility for the central planning policies that failed to avert the impending crisis in electricity supply, not to mention for the simple fact that he repeatedly lied about it to the elected parliament and to the people of South Africa.
If any of them had any honour, they’d resign. Failing that, here’s hoping that a no-confidence motion that will be tabled when parliament reconvenes on 12 February 2008 will give the ruling party the swift kick in the posterior it deserves. For heaven knows it’s true. Who could possibly have any confidence in a bunch of people that not only spent the last decade mismanaging the energy sector, but proceeded to lie through their teeth about it, all the while collecting massive performance bonuses for their efforts?
Excising the rot is the first step on the way to recovery. So if heads don’t roll over this catastrophe, what confidence can the people of South Africa have in anyone else in government, or their ability to address the crisis?
Precisely. Great article!
No doubt, the long-suffering public will be thown a bone.
How is Mr Yengeni, anyway?
“No amount of baying for sacrificial lambs” would obviate the need for South Africans to “pull together” and solve the situation.”
Yes, Mr Erwin, because it’s clear we should allow those responsible for the present crisis to continue unabated and to even *snort* attempt to solve the crisis. Yeah, holding those culpable for this monumental screw up with repercussions is just so “sacrificial”.
As Ivo says, off with their heads! Out of the lifeboats with them!
No amount of not baying for the blood of sacrificial lambs (to use the correct expression) will obviate the need for South Africans to pull together and solve the crisis (to use the correct term).
Also, it seems to me that putative sacrificial lambs might be somewhat biased on this point.
Not only does the government shift responsibility to SA’s citizens, now we are actually to blame for the crisis too…
Taken from the recently published, poorly written “National Response to South Africa’s Electricity Shortage” (see info.gov.co.za):
“South Africa has historically enjoyed a large reserve margin, but that has declined over the recent past as a result of robust economic growth and the associated demand for electricity.”
No fault on the part of government or Eskom. With lower growth and less demand, all would’ve been well.
Oh, and off course South Africans pay too little for their electricity too, according to the same document! So up the rates, problem solved. Normally I subscribe to paying less for more (the case in most healthy economies), but let’s all pay more for our blackouts!
Bravo Ivo!
I wonder if the ANC might see a vote of no confidence in the government as the ideal opportunity to get rid of Thabo and his cronies early.
It would never happen but if the ANC didn’t know that they would lose votes they might actually do it.
Thank you. Frankly, I would be gobsmacked if ANC parliamentarians joined a vote of no-confidence tabled by the minority opposition parties. If any do, I’ll make a point of commending them by name, and to recommend them for future promotions, elective positions, or performance bonuses (if this country has any performance pay left after the Gadarene horde of major and minor Eskom directors get their snouts out of the trough). I do, however, hope that a failed vote will be enough of a shock to prompt them to issue a few pink slips. Or sternly phrased written warnings, at least.
No further details, But I hear the head of generation was fired last Sunday.
Poor guy. To have done anything useful, he’d have had to countermand his CEO, his board, at least two cabinet ministers, and probably the president himself. And he’d have had to loot the treasury for funds.
On the other hand, assuming we’re talking about Ehud Matya here, he did get R2.8 million a year for his job as scapegoat.
Has this been reported anywhere?
Hi ANC basher, PhD
Look your presentation of the electricity crisis Ivo is too simplistic to be useful to anyone. All you see is ANC failure everywhere and anywhere. Ivo, are you mad or what? Are you so desperate to be knighted by the English queen? Ok, Sir Ivor Vegter!
Your comical economic thinking is of the conservative Thatcherist type. You know your right ilk was behind the privatisation of Eskom but you are hiding this fact. That privatisation project failed but it cost SA the chance to actually see these problems as they were then in the late 1990s. There are many presentations, for example by the SA Intensive Energy Users Group, that point to a technical collapse, rather a political collapse of Eskom. But you ignore these, typical war-monger Thatcherist. The technical collapse of Eskom is inspired by the fact that self-interested white Eskom middle managers and some senior executives are more interested in doing what will reward them.
Ivor, I don’t deny that the ANC should have been more ruthless in crushing under an iron boot the resistance of those of you who wanted privatisation. We should have made sure that Eskom and other critical entities are under a stricter political regime to ensure continuity of economic operations. The present failure is a product of the weak leadership and the love for praise and being hero worshiped by ignorant whites like you. JZ should avoid this temptation and stick to doing all he can to make things work in our country, especially for the poor.
Now that a power crisis has been created, what is the way out of it? I’m sure an Ivor Vegte’s knee jerk reaction is privatisation of Eskom and free market solutions. But we already have a free market, so free that we even have slaves in SA. So that is out Ivor.
The most important thing is to restore reliable power supply as soon as possible. The government must discipline Eskom executives for betraying the nation’s capacity to operate efficiently. There is no question about this. But more has to be done. The fight against apartheid capitalism has to intensify now to prevent use of this crisis to justify white capitalist solutions. Right wing DA colonial fanatics like you Ivor are quick to accuse us of socialism but we are the Freedom Charter. To us Eskom is a state capitalist entity that needs to become more accountable to the people. Therefore the solution to the power crisis is not in state capitalism or in any capitalism but in recognising the need for decentralisation of power production, with peoples’ power behind such an exercise. At every turn, we must do this to defeat the sway of the colonists.
My name is Ivo, Nobhead. Ivo Vegter. And not being English, I don’t think I’ll qualify for that knighthood.
But thanks for providing some comic relief in this, our darkest hour. Need some pliers, whips and finger-clamps with those iron boots of yours?
You know the real irony in your confused and demented rant? That you call for decentralised electricity production with the power of the people behind it. Just like I do. You mad capitalist war-monger colonialist slave-driver you.
Look, the growth argument for the power crisis is just not on. There’s no such growth here but white Eskom collapse. Bye.
THIS IS CAPITALISM!
“The most recent report - which covers the period February 2006 to March 2007 - shows that Thulani Gcabashe, the former chief executive, took home a R6,1-million package (R4,6-million in salary and a R1,5-million bonus), he also received a R689 000 housing loan and 4-million bonus shares. Gcabashe earned R13-million in 2005.
Parts of South Africa, especially the Western Cape, experienced power cuts in 2006 and early 2007 during Gcabashe’s tenure.
Bongani Nqwababa, the financial director, got R2,8-million (including a bonus of R856 000) and received a R3,3-million housing loan and 1,4-million bonus shares, effective in March.
Jacob Maroga, who in May took over the hot seat vacated by Gcabashe from his previous role as managing director of the transmission division, earned R2-million, picked up a bonus of R1,1-million and has a R3,1-million housing loan.
All divisional directors at Eskom received hefty salaries and bonus packages.
Brian Dames, the managing director of the enterprises division, earned R2,5-million; Johnny Dladla, the key sales and customer service head, took home R2,4-million; Steve Lennon, the head of resources and strategy, received R2,4-million; Mpho Letlape, the human resources chief, got R2,3-million; Ehud Matya, the managing director of the generation division, earned R2,8-million; Duncan Mbonyana, the corporate division boss, received R2,2-million; and Mongenzi Ntsokolo, the head of distribution, earned R2,6-million.”
Ivor Vegter’s selective eye site is only concerned with seeing the bit about the ANC at fault, but only praise for capitalist greed.
Ivor Vegter is a war monger as I said. He had sites with praise for the invation of Iraq linked to his site!
Good bye, “Thought Leader”, or war monger for the M&G.
Eskom is a state-owned monopoly, funded by taxpayers, and subject to price controls. Those people, most of whom are black (since you are so fixated upon your racism), are paid by the ANC government. That, my friend, is not capitalism.
You could benefit from a clue. And a Valium.
Oh, and did I mention that my name is Ivo?
Don’t feed the trolls, Ivo.
But they’re so cute! And it’s so lonely under the bridge.
[…] generated supply in 2006/7 if measures were not taken to increase capacity (e.g. here, here, here and […]
Nobhala: Could you please have another go, but this time try to make your thoughts clear and well presented?
I just want to make sure I’m laughing at you for the right reasons.
Nobhala, the white engineers, technicians & artisans were purged from Eskom in the years post ‘94 in the name of transformation. How can it be their fault if they weren’t there?
And another thing, Nob: you refer to Ivo’s “comical economic thinking”. Well, right now, the ANC government’s “non-comical” thinking has plunged the country into darkness, huge chunks at a time. And is responsible for a host of other failings. And that’s no laughing matter.
Around 94, I was of the opinion that any change was for the better. Give ‘em a chance, I thought.
It’s now very clear to me, that by and large, the ANC is incompetent at running South Africa. There: I said it.
Look, let’s not kid ourselves. The ANC’s 1994 election win was right and just. I voted for them, and do not for a minute regret that. Also just and necessary, for that matter, was the policy, in principle, of affirmative action and black economic empowerment. Blaming either for this problem is missing the point. In California, the state was run by experienced whites and you couldn’t blame affirmative action. The old NP was no better either. It’s not a race thing, and whatever AA might have contributed, it wasn’t the deciding factor. The problem is an economic policy that depends on the state for delivering services and organising production. The problem is failed or badly botched deregulation, state-owned monopolies and price controls. So the problem isn’t with the ANC per se, but with government in general. The ANC should go not for having failed, as such, but for pursuing an economic policy that depended entirely on its success. Mbeki said tonight it’s not that policy needs to change, but that the implementation must be addressed. Even if I could believe that he can fix the implementation, and even if the government didn’t consistently lie to us (as it continues doing, still), he’s exactly wrong. It is very much about policy that needs to change, and we need a government, black, white, mixed, or martian, for all I care, that recognises this.
Oh no doubts that the govt were the just victors in the ‘94 election. However they or more correctly their policies have been found wanting. But what do they do? They lie to the electorate (nothing unique to SA here) and worse, they attempt to shore up policies that have failed.
Ivo, Eskom has been state owned forever and working perfectly fine, just like Telkom, the police, the Post office. Like with Telkom, your barking up the wrong ideological tree I’m afraid.
Private generators of electricity could well have filled the shortfall we now have, but at what cost to the poor?
The problem were dealing with here is something entirely different and it will eventually lead to the breakup and privatisation of the power grid, just as you say you want, and just as it is private all over Africa (and only supplied to the rich).
How many developed countries do have genuine private power provision, and those that do have, which of them have not experienced price increases and even black outs?
I too believe that in most areas of economic life the free market is the most efficient way to distribute resources, provided you have the rule of law.
But thats not true for all areas of economic activity all the time. Telecoms being a good case in point. Unfortunately our problem is of an entirely different kind and magnitude than this debate.
In fact, the best way to get services to the poor is to let private companies compete on price, and find innovative ways of reaching unserved markets. Telecoms actually offers a classic example in cell phones, which were left to private suppliers because the government considered it a rich man’s luxury. Guess who provides telecoms services to 80% of South African households, and guess who doesn’t? And that’s despite a protected cartel that can profiteer without much fear of new competition arising.
Granted, the short-term solution is to fix what’s broken with Eskom now. But the long-term solution is to ensure price competition, and to ensure that if one company gets it wrong, another is able to step into the breach. That’s how consumers can ensure they get the quality and price that meets their needs. And the longer we wait, the longer we’ll be facing this sort of systemic risk to essential services.
Ever notice how people don’t run out of plentiful food and cheap toilet paper, until governments get involved with price controls and marketing boards and other instruments of intervention?
“the best way to get services to the poor is to let private companies compete on price” unfortunately that is not always the case, and there’s an economic term for it. Market failure.
A definition: Market failure can be viewed as a scenario in which individuals’ pursuit of self-interest leads to bad results for society as a whole.
In developed well governed societies with the rule of law (which in itself is a form of government intervention), Market failure only happens in small segments of the economy.
Telecoms is a case in point.
Allow me to quote myself:
“A brief look at the history of telecoms should indicate that things are not that simple. Telecoms tend to be natural monopolies. The economic value of the network rises exponentially with the connections or users added, and considering the costs of constructing the network, especially the last mile, it’s economically inefficient to have two separate networks. If left alone the larger network will swallow the smaller.
In practise Western governments accepted this fact. The USA realised that for the US to get a large network they should allow AT&T to develop unhindered (and thus become a monopoly), but to regulate the prices and the the roll-out to sub economic parts of the country (called universal service). Although nominally a private company Ma Bel (AT&T) under these conditions grew fast (faster than anywhere else) and provided all Americans with cheap phone calls. The government regulated its prices but the economy of scale it achieved made it still possible for AT&T to be hugely profitable.
In the 80’s with the rise of Thatcherism and Ronald Reagan, right wing ideologues launched an assault on this old idea of a public telephone monopoly under government control. Competition was forced into all markets and also this market. But this particular one was no free market. To create competition a web of legislation, regulation and monitoring had to be spun, else the incumbents would just swallow up the new comers.
After more than a decade of a dearth of true competition, the UK started showing some of its benefits in 2003. Broadband prices started to fall, and true competitors entered the market. By this time however countries like South Korea enjoyed much higher bandwidth at lower prices for a number of years. But Korea has broadband provided by monopoly state owned company.
Why had competition taken so long to take hold in the UK? BT, the UK incumbent, had tried every trick in the book to forestall competition in the last mile. (The so-called local loop.) Competitors had to be allowed to connect to BT’s local exchanges, because it would not have been economical for them to replicate this infrastructure. It was even claimed that BT had engineered its technical protocalls to interface less effeciently with that of its rivals. But with the vast amount of resources thrown at the problem of opening up BT (including regulatory splitting it into two seperate parts, one of which only business is to allow acces to the local loop), eventually it paid dividends.
Still the UK feels themselves far behind countries like Korea in terms of the speed it can provide.
In the US they did not try to solve the real problem at all. Instead of opening the local loop they split AT&T into a number of geographically defined telcos. They kept them separate via regulation. Each was a monopoly in his own back yard. Prices predictably went up. Today with regulation lifted somewhat, the telcos are swallowing each other once again.”
The point is that to introduce a ‘free market’ in sectors like telecoms and roads and energy you need copious amounts of complicated regulations that is strictly policed and strongly enforced. Hardly free.
Research has shown that elites in Africa welcome privatization because of the opportunities for corruption multiply exponentially and because they don’t give two hoots about the poor. In fact, the textbook definition of corruption in the seminal, Th Criminalization of the State in Africa, is “the privatisation of public resources”.
That I’m afraid is not our problem.
Wessel, do you have a link to that research mentioned in your second last paragraph?
And as for your cellphone example, why is it then that we have the most expensive telecoms costs, the cell networks included, adjusted for purchasing power, in the world?
Yes, here is a link to the book,
http://links.jstor.org/sici?sici=0008-3968(2000)34%3A2%3C454%3ATCOTSI%3E2.0.CO%3B2-X
and an article about it
Questions we must start asking to bring SA back from the brink
http://www.businessday.co.za/articles/topstories.aspx?ID=BD4A412666
…because, at least in the cellular industry in South Africa, we have no real competition? *shrug*
are you suggesting the are colluding on pricess? Maybe a little regulation will sort out the problem? ;)
Competition in telecommunications have to be created by government. That’s a really complex thing to do.
No, it’s an incredibly simple thing to do. Just remove the laws that make it illegal to compete, rather than limiting “competition” to a hand-picked, unchanging cartel. Make spectrum tradeable, like land, so owners have a motive to use it efficiently, and the most efficient get to use it. And stop claiming “market failure” where free markets have always been illegal. Yes, there are a small number of services that could be considered “technical public goods”, but technology has a way of overcoming these technical impracticalities if they lead to inefficiency, and markets are perfectly capable of developing real “natural” monopolies. If a monopoly (or cartel) has to be established by law, you can be sure it’s not a “natural” monopoly.
I’ll answer other points when I have some more time.
Ivo, you know deep down this is not the real source of our problems.
Why don’t we just give every company a private army to fight over who gets the right to extort us. That’s a completely free market for you. And know what? Theres a chance you might get it. To call this a centrally controlled government is laughable.
The point is that without laws there won’t be competition. It’s been proven over and over again in several countries. If the US have not achieved this panacea you yearn for how do you hope that we will?
Of course technologies can disrupt this balance (in either direction) and I’m all for it. But thats not South Africans main problem. When you look at South Africa you see a very ugly society where government only cares about its cronies, where theres no safe public space except in private plastic shopping malls.
It’s so free, its the law of the jungle.
I really fail to follow your logic. If a monopoly is the only way to bring services to “sub-economic” areas, why did South Africa’s fixed line density fall, and prices rise, under Telkom’s monopoly?
If an electricity monopoly is the only way to deliver electricity cheaply and efficiently, why is ours not delivering electricity, unable to maintain its networks in “sub-economic” areas, and now proposes to raise prices for “ele.t.ic.y se.vic.”? Why do we now have the worst of both worlds?
And what must a country do when it accidentally stuffs up its monopoly provider of this or that service? Apologise to its people while telling those evil profiteers who offer to deliver a service — for a price — to stay out of the market?
If the only alternative to state-owned monopolies is complete anarchy, how do Pick n Pay and Shoprite Checkers operate without killing each others’ mercenary armies? How do competing telecoms firms, or TV stations, or electricity generators, or mines, or harbours, or indeed roads, operate in places where they’re legal?
You say “at what cost to the poor”, but how can you say that when there is no power? Having cheap services that don’t exist doesn’t help either the poor or the rich, now does it? California was a case in point: its deregulation was only partial, which created unresolvable conflict between floating wholesale and regulated retail prices. Worse, this created opportunities for market manipulation that companies like Enron exploited. Neither problem would have occurred if California permitted retail prices to rise to match supply with demand. As they say in economics, the cure for high prices is high prices: it spurs competition and increases supply, which brings prices down again.
I’m afraid your vision of state-owned monopolies for infrastructure services is at best outdated. The only thing worse is a private monopoly for the same, because that’s the only case where rising prices are not the cure for rising prices. You seem to confuse, as the government did, mere privatisation with market liberalisation.
It may indeed be necessary to regulate a previously state-owned monopoly, to prevent it from crushing new competition. It may indeed be necessary to run some utility parts of infrastructure operations (the local loop, the grid) for the public good, as a shared service to all suppliers of telecommunications or electricity. But if you must write laws to ban competition somewhere, you can be pretty sure that competition is not only possible, but will benefit consumers, by permitting the price mechanism to match supply and demand, by improving quality and long-term price levels, by offering alternatives in case of failure, or a combination of these.
The sooner our government recognises that free markets require not only privatisation, and cannot operate under price controls, limited licences and other heavy-handed regulation, the sooner we’ll have a market that offers services we can depend on, that spurs innovation and development, and that can reach more and more consumers over time.
Ivo Ivo Ivo
You are either considerably less bright than I thought. Or you detest loosing an argument and are trying to use smoke and mirrors to obscure the issue - but secretly you agree with me - indicated by the little concessions you make in the later part of your post.
“It may indeed be necessary to regulate a previously state-owned monopoly, to prevent it from crushing new competition. It may indeed be necessary to run some utility parts of infrastructure operations (the local loop, the grid) for the public good, as a shared service to all suppliers of telecommunications or electricity.”
I’m glad you don’t want to take your argument to its extreme, because quite frankly, nobody wants to live in a Somalia.
You know, allot of people have been trying to fathom why the ANC government has been so ineffectual, to put it mildly. I was (perhaps like you) looking for an easy ideological answer, you came to it from the right (economically), and myself from the left. My argument was that the ANC’s big fault was that it was not interventionist enough. Not left enough.
To an extent this is true I still believe, but the real answer is considerably more complex and subtle and we don’t even understand it completely yet.
But you choose to ’saal op die privatisasie perd’, and I’ll tell you why you are very wrong.
The world (even the Chinese) excepts that free markets are the best way to create wealth and distribute resources, but there are fundamental differences about the details.
You just have to look at the difference between the US, and countries that have reserved certain sectors for the state. Yes, the US is fabulously wealthy, but it has a high incidence of poverty, crime, disease, inequality and other social ills like depression, compared to France, the Netherlands, Sweden, Spain, and yes, even the UK (all of whom are capitalist societies).
This is because in most of the countries I have mentioned their are large social grants, a free national health service, and many state owned corporations that provide services for other reasons than profit (like growing the economy, or keeping people happy).
So governments around the world intervene to create certain social outcomes.
Lets look at our history. The Sappe were pro capital to their bone. But it took Hertzog’s Nationalist’s to realise that in order build local industry and not just export commodities, it would have to be nurtured and protected. How ironic that Cosatu should thank Hertzog and not the Oppenheimers for that. You see markets can be very shortsighted. Years later the Japanese and Koreans and to extent the Chinese, have done the same and look at where they are now.
Now lets look at facts. The country (Korea) and territory (Singapore) with the fastest broadband in the world is state owned. India will soon have a blistering fast network due to, you guest it, state intervention.
But guess what, their other private corporations love it because it’s good for their businesses and the economy in general. Just as building highways and roads are good for the traditional economy.
Bill Gates called open source communism, and guess what, he has a point. It does not make it bad. It’s unlikey we would have had this conversation had html belonged to Adobe or Microsoft.
To address your specific points: “If a monopoly is the only way to bring services to “sub-economic” areas, why did South Africa’s fixed line density fall, and prices rise, under Telkom’s monopoly?”
I never once said it’s the only way. But the reason why this has happened in SA is simple. It’s sub-economic and does not justify the expense, so the monopoly won’t invest, unless forced to by regulation.
Ah, I hear you say, but what’s to stop anybody from opening their own network. Nothing should, but they still have to interconnect to the main network at an affordable price, else their customers will scream. Because the main network is allot more valuable, it has more nodes, it can command a premium. The small network adds little value to the big one’s users.
So the big network charges the small one allot more to interconnect for the privilege.
What if the small network can’t afford it? Well tough. In the end as has happened in countries without regulation (and is happening in the USA now that regulation has been relaxed) the big one simply swallows the small one. The result is that savvy investors never put money into small networks that have no government protection and guaranteed interconnect regulations that also stipulate price.
You said: “If an electricity monopoly is the only way to deliver electricity cheaply and efficiently, why is ours not delivering electricity, unable to maintain its networks in “sub-economic” areas, and now proposes to raise prices for “ele.t.ic.y se.vic.”? Why do we now have the worst of both worlds?”
In case you have not noticed we had a government controlled monopoly for as long as we can remember that was ticking along just fine and providing cheap electricy and enticing foreign companies to invest here and now suddenly we have a problem. A proper trouble shotting procedure will ask, what changed? The answer is obvious, the government. Dig deeper and you look a what this government has done. It has little to do with socialism or capitalism. This brings me back to my original point that your barking up the wrong tree.
“And what must a country do when it accidentally stuffs up its monopoly provider of this or that service? Apologise to its people while telling those evil profiteers who offer to deliver a service — for a price — to stay out of the market?”
If we look at what happened in other sectors of our economy, theirs a good chance we will see more liberilsation and privatization. This will lead to higher prices but excellent service if you live in the right area. Just like some of us has very good security services looking after our houses. Chances are that this will encourage the government to pay even less attention to Escom because wealthy customers wont squeal anymore and so we go on a downward spiral. Half the country lives in Lagos wile the rest can have a nice warm cup of tea.
“If the only alternative to state-owned monopolies is complete anarchy, how do Pick n Pay and Shoprite Checkers operate without killing each others’ mercenary armies? How do competing telecoms firms, or TV stations, or electricity generators, or mines, or harbours, or indeed roads, operate in places where they’re legal?”
First this bit “If the only alternative to state-owned monopolies is complete anarchy,” your brasenly putting words in my mouth that I never said and never implied, and that is not acceptable. Please point out where I said that?
I merely tried to point out that their obviously is room for the state, because whats to stop with unfettered competition, the guy with the biggest gun not controlling everything. The question is not whether we need a state, but where and how it should function for all south Africans.
“California was a case in point: its deregulation was only partial, which created unresolvable conflict between floating wholesale and regulated retail prices. Worse, this created opportunities for market manipulation that companies like Enron exploited. Neither problem would have occurred if California permitted retail prices to rise to match supply with demand. As they say in economics, the cure for high prices is high prices: it spurs competition and increases supply, which brings prices down again.”
You fail to mention that California is the only developed ‘country’ that has had blackouts for any considerable period of time and the first to ‘partially’ liberalize. But otherwise a good point. They just had to wait for competition to bring the prices down again. Has that happened?
But interesting how in most developed countries this model has not been followed, and how California’s energy market is still regulated. Seems the California and US government just can’t trust these corporations to provide energy to its richest state.
Do you have any idea how long it took, and how many regulations it required, to have BT open its local loop. First regulations decreed it open. Still the pace of interconnection was glacial. Then regulation placed a time limit on how long BT could take to open a local loop. That did not help. BT claimed that the so called collocation centers were too small to house equipment from more than one company. Then they had security cocerns. In the end regulations forced BT to split off a new company (still owned by BT), under new management, that would only be responsible for opening the local loop.
Recently a report in Britain expressed fears that their network is too slow compared to that of many countries in Asia and the reason is that BT sees no incentive to invest in more expensive local loop equipment. Now some kind of a regulatory formula will have to be found to incentivise them.
Now I still maintain that this is not the core of our problem. The ANC has had a propensity to talk left but walk right. It has dawned on me that this is not necessarily due the fact that they are secret agents of capitalism. But they just don’t have the institutional capacity and culture to run the machinery of a modern state.
And one of the reasons is that I think this is the case is unfortunately as expressed in “The Criminilisation of the State in Africa”: African culture is hyper individualistic. Their is no we, there’s only me.
Van Zyl-Slabbert who I normally admire recently said something that made me cringe. He said we should not moan about crime, “Crime is also a form of civil society participation, a negative one, but riddled with entrepreneurs.”
Also recently Jonny Steinberg wrote of his experience with the SAPS. To him it seems every cop was a “shabby entrepreneur”. They used their positions to bribe and make money. Now if even our public bodies have been ‘privatised’ in this manner. What hope is there for us?
This explains allot of things, from the arms deal, right down to people jumping red traffic lights.
No country in the world can be governed by laws alone. Thats our problem. South Africa’ns just don’t see themselves as citizens. Their is no community.
To respond in detail to your tome would take me a day, which I might be able to spare later this week.
A host of your points beg for rebuttal, such as citing Somalia, which actually provides a terrific case study in anarcho-capitalist telecommunications complete with voluntary interconnection, or citing consolidation and large-company domination as a case of market failure, or citing Europe as an example of successful interventionism, or citing crime as an example of free market activity, or citing South Korean broadband as an example of government service provision, or citing California as an example of markets failing to bring down prices.
The raw stats alone — economic freedom measures versus poverty, prosperity and growth measures — would sink your general argument, but most of your specific arguments can be shown to be mistaken too. Which I’ll do as soon as I’ve got some paying work out of the way.
One wonders if the ID and DA are opening up a huge can of worms - A vote of no confidence in the current government could lead to new elections. And just who do you think will have the popular support then? Our very favourite ANC top-man, Jacob Zuma.
This could be JZ’s perfect opportunity to take over the country in a ‘coup d’état’ of sorts, replacing the status quo, with, well, the status quo. A very African move that would be, indeed. Sure they might lose a handful of votes, but realistically they don’t *have* to get much over 60% of the vote (if indeed they require even that much).
The opposition better be careful what they wish for.
I’d be extremely surprised if either the DA or the ID could sustain a vote of no confidence. But you’re right, if the Zuma faction were to support it, things could get very, very interesting indeed. That would probably force a split in the ANC.
Hey Ivo, is that rebuttal coming. I’d love to hear of the anarcho-capitalist telecommunications going down in Somalia.
I’ve posted an article on Somalian telecoms, which I wrote a few years ago, here:
The Somalia anarchocap experiment
Hi Ivo, All this rambling of all these people just goes to show why this country is in this state.
I completely agree with IVO.
The government knew what was happening and they should’ve solved it long ago, but they were just thinking about the money they can pocket and not the poor people of our country.
Its not about race but about poor leadership.
The people of this country should receive more respect. Why shoould the people suffer for the ignorance of the government?
That is all I can say.