KAFKA IN THE POWER SUPPLY NET

Monopoly. When markets fail, the hour of communal property strikes – above all in the energy sector

By Florian Moritz

[This article published in: Freitag 14, 4/14/2008 is translated from the German on the World Wide Web, www.freitag.de/2008/14/08140501.php.]

The financial branch admits billions in new losses almost daily. The larger the holes in their balance sheets, the more banks transform themselves into peculiar socialists. The state should do what the market cannot do – but only as a financial banker, as reinsurance of the last authority.

Whether governments and central banks should limit themselves to the function of the milk cow is now an open question. Whether we are witnessing the overdue renaissance of a self-assured politics keeping a tighter rein on the markets is uncertain. A private enterprise freed from all limits is hardly the path of virtue. This cannot be repressed any more.

This new characteristic of the times could have consequences beyond funds and awarding credits. Power supply conglomerates must fear an unreserved discussion about the right relationship between the state and the market in Germany. Their basis of power, the electricity network, is actually a public concern which in private hands is a bastion of misuse. Thus socialization would be a fitting answer – a consequence urged by consumer protectors, the Left party and increasingly social democrats and the Greens.

The energy giant E.ON started this off when it announced at the end of February 2008 it wanted to sell its high voltage power lines to avoid a cartel fine. Confiscated documents reveal price agreements with which the European Union competition commissioner Nelly Kroes could justify a penalty fine in the billions. What was said to whom in the deal between Brussels and E.ON? To financial investors? To grasshoppers?

An argumentative state of emergency prevails in corporate headquarters and in the German government since this specter of the worst of all possible variants enlarges the circle of socialization friends every day. Blackouts in electricity supply are part of the weekly rhythm. Economics minister Michael Gios (CSU) announces the public authority is “least suited” for operating the power supply network. “Economic experts” stood at his side who want to establish private competition where it isn’t even possible – in a natural monopoly in the power supply infrastructure. Operating a single power supply network is simply cheaper than building a second and third. What is immediately obvious with highways is also true for electricity and gas.

In 1962 Milton Friedman, the primary rock of neoliberalism, said matter-of-factly there are three possible answers to the natural monopoly. Firstly, a private monopolist could be guaranteed. Secondly, the government could operate the network. Thirdly, a private monopoly could be controlled by the government. With a regulation, for example, the private monopolist’s price for his service could be prescribed. At that time, the market radical Friedman refused to give a preference to any of the three “evils” as he called them. For his contemporary disciples, nothing seems more bizarre than a business in communal property. Regulating or not regulating is the only question for most economists.

The skeptics warn that every incentive for investments in the infrastructure would be lost with strict regulation. Power supply operators also warn of this. The big power suppliers themselves want the conditions identified. German Telecom has a similar interest in preventing the competition from simply accessing its network. The German government codified this with its revised version of the telecommunication law. The new fiber-optic networks of Telecom are not subject to any regulation. Creating “national champions” that can expand globally with their monopoly profits and buy up other businesses is obviously the main interest of the German government. After E.ON’s sales announcement, prominent coalition politicians urged less regulation and increasing reasonable net profits in the power realm.

On the other side, the advocates of strong regulation warn of excessive monopoly prices and market power. The EU commission is also a promoter of regulation alongside the rivals of the energy conglomerate and Telecom. In the last years, the EU commission has developed into the highest guardian of radical competition urging one time dismantling electricity- and gas conglomerates and another time the “Lex Telecom.” The regulatory machinery will be increasingly detailed. So the commission recently presented a new legal framework for telecommunications – altogether 700 pages of regulations and guidelines.

The grandiose work calls to mind a novel by Franz Kafka. More and more obscure laws are created and agencies are produced out of thin air to simulate a market that cannot exist but in which many believe unswervingly. In 2006, the Friedrich Ebert foundation near to the SPD counted three times as many laws with four times as many paragraphs to regulate the German telecom sector since privatization and liberalization than in the times of the German postal service.

The most intricate laws will not change the fact that the power line nets are natural monopolies. In the future, private electricity- and gas monopolists will not have any interest in fair energy prices and a net structure for renewable energy. Communal property is the only sensible alternative that can gain a majority – sooner or later.