Posted on 30-7-2002
Return
Of The Prodigal Government
By Alan Marston
Biblical tales, like all mythology that lasts, personalise recurring
themes
of human existence. The story of the return of the prodigal
son
encapsulates the observation that people find subservience useful
but in
the end value independence and integrity. I believe that this
lesson can be
applied to government, and we are witness to this fact right
now in the
so-called developed democracies.
Ever since the mid 1980s politicians operating in the democratic
states
have been vying with each other in a race to the feet of the
owners and
executives of the world's giant corporations. A few, very few,
have headed
off into the political wilderness by maintaining a belief and
advocacy of
the need for state regulation imposing limits on commerce. However,
now
that global corp unlimited and the rest of the planet is reaping
the
inevitable poisoned fruit of unbridled greed in the pursuit
of monetary
gain, and commercial sickness has at last joined social, environmental
and
personal sickness, the narrow beam of capitalist vision is darkened
by
internal bleeding and the fathers of finance are forced to seek
help from
the sons. And which son would that be? I submit it is the prodigal
sons who
will be called upon and the politically correct who submitted
to the
selfish dictates of the patriarchs, Bush, Blair, Howard, Clark
will be
turned on, rejected in favour of yesteryear's outcasts. Specifically,
the
promoters of market freedom, code for taking off limits to the
dictates of
money, will be spurned and those who have held to the need for
government
regulatory limits over politcal-economy will be welcomed back
into the
houses of government. It goes without saying that a number of
subservients
will turn overnight into regulators, such is the nature of that
sub-species
of humanity that grasps for political power at all costs.
Examples of `the return' are already apparent in the USA, though
New
Zealand will follow when, I predict, Helen 360 Clark will turn
Green and
regulate and re-nationalise.
Regularisation USA
For the first time since the Carter administration began deregulating
in
the late 1970's, the process has halted, and the winds are pushing
in the
opposite direction. The House and the Senate approved last week
the first
stab at renewed regulation — a bill that would punish chief
executives with
jail for hoodwinking the public and would erect obstacles to
future
hoodwinking, particularly by accountants. President Bush says
he will sign
the bill quickly, so quickly infact, I suspect he will put his
neck out as
he performs a sudden turn from the right.
Economists, with piles of papers with their names on them, find
it more
difficult to change direction in the blink of an eye, even those
who 25
years ago were leery of too much deregulation. Nonetheless the
views of
economists can't be sniggered at. They are the people who still
have the
cred who will provide the rationale and the cheerleading for
a new era of
regulation, just as they have provided the reasoning and crucial
support
for deregulation. For all the mayhem of recent weeks most mainstream
economists say they still hold to the theory that unfettered
competition,
achieved through deregulation, tends to lower prices and promote
efficiency
and innovation. The prodigals are there though, and they will
find their
voice is now listened to. James K. Galbraith of the University
of Texas at
Austin argues for balance between regulation and deregulation
in an economy
that relies for prosperity as much on the public sector as the
private
sector. And Robert Kuttner, co-editor of the American Prospect
magazine,
contends that mainstream economists are caught in a bind. "You
have a whole
generation of economists who have devoted their careers to supporting
deregulation," he said, "and now they are twisting themselves
into
intellectual pretzels to deny that they are recanting on deregulation."
Instead of giving up on deregulation, many economists are proposing
ways to
fix it; that is, they don't want to be sidelined.
Sidelined they will be, the experience of business-government
cycles is,
like all good mythology, true. A few of the more obvious US
business
examples is insightful.
Consider the airline industry. Deregulation started with the
US airlines in
the Carter administration, which lifted federal restrictions
on routes and
on fare changes. The goals were to lower fares through competition,
and to
admit more new airlines to the industry. Fares did come down,
although
often not by much, and certainly not for most business travel.
As an
alternative to lower fares, airlines lured travelers with frequent-flier
miles. Some economists consider frequent-flier miles a deregulation
flaw
and would fix it by getting rid of these lures. In New Zealand
the sole
national carrier has been re-nationalised, and a move to sell
bits of it
off again (to its competitors) will become politically impossible
in the
near future.
Or consider telecommunications, which the US Congress deregulated
in 1996.
Havoc followed. With the stock market bubble offering encouragement,
telecommunications companies overexpanded, built up huge debts
and engaged
in ruinous price-cutting in a futile attempt to make use of
idle networks.
As the shake-out proceeds through mergers and bankruptcy, the
odds grow
that a few surviving companies will acquire enough pricing power
to raise
rates for the telephone, Internet and television cable services
that so
many people now feel they must have. That would give the survivors
the sort
of monopoly power that AT&T enjoyed until the courts broke
up the company
in the early 1980's. In the absence of competition, government
had set
rates and operating standards, a regulatory practice that many
economists
said stifled entrepreneurship and innovation. But now that the
telecommunications industry is shrinking to fewer companies,
the new danger
is too much pricing power. As a result, price regulations still
in effect
for local service may have to remain, said Eli M. Noam, a Columbia
University economics professor. "There was the expectation,"
he said, "that
these tariffs would phase out through competition, but now that
no
competition is expected, the regulated rates are not likely
to go away."
The experience in New Zealand mirrors the above, there were
many telcos,
now there are two - who will already be negotiating an informal
oligopoly
which the NZ Government will have to pass regulations to break,
as soon as
2003 I predict.
Or consider electricity. Deregulation got into a lot of trouble
in
California in the summer of 2000. The electric utilities had
sold off
generators and power stations and were buying electricity for
customers on
the open market, presumably at competitive prices. But in 2000
the
suppliers spiked prices, partly because of power shortages but
also through
manipulation. That led to some fixes even before corporate scandals
and
plunging stock prices awakened much broader public interest
in repairing
deregulation. California began to buy electricity under long-term,
fixed-price contracts on behalf of the utilities, thus averting
price
spikes. And the federal government imposed price caps. In New
Zealand the
privatisation of the generators seprately from the line companies
separately from the retailers has been an unmitigated disaster
for everyone
except the owners of the generation companies - one of whom
is the NZ
Government.
I predict NZ Rail mark II will be born 2003. Limits are back,
they might
even last a generation.
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