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http://www.mises.org/fullstory.asp?control=1033
The Scana Scam
By Thomas J. DiLorenzo
[Posted August 28, 2002]
The Scana Corporation is a government-created monopoly that provides electricity to
most of the state of South Carolina.Like all regulated corporations, it is pressured by
regulators to promote politically correct causes and policies--or else.
Scana recently ordered its employees to remove Confederate flag bumper stickers
from their cars if they are parked in company parking lots, and it prohibited
employees from parking company vehicles in the parking lot of Maurice's Barbecue
in Columbia.Maurice committed the politically incorrect "sin" of placing the words
"support all heritage," along with a Confederate and a U.S. flag, on his bottles of
barbecue sauce (which is some the best around, by the way).
The president pro tem of the South Carolina Senate, Glenn McConnell, is so upset
with Scana's actions that he has proposed legislation that would punish the
corporation by allowing competition within the state for the sale of electric power
unless Scana reverses its position on the bumper stickers.
This is a good idea as far as it goes. But if Scana is plundering and stealing from the
citizens of South Carolina because of its government grant of monopoly privilege, its
franchise monopoly should be abolished regardless of what its position is on the
Confederate flag (or the Union Jack, the French flag, the "African National Flag," or
any other flag).
Mr. McConnell's position seems to be that Scana can plunder South Carolinians as
long as its employees can continue to place Confederate flag bumper stickers on
their cars.This is hardly an example of taking the moral high ground.
There is no reason why Scana--or any other utility--should be given a government
grant of monopoly, other than that the politicians who give such grants like to receive
"campaign contributions" and other forms ofkickbacks funded by the monopoly
profits created by the monopoly franchises.The notion that electric power is a
"natural monopoly" is a myth (see my article, "The Myth of Natural Monopoly,"
Review of Austrian Economics, vol. 9, No. 2, 1996).
According to this myth, the nature of the industry (high fixed costs) would, in a free
market, lead to one giant company becoming a monopoly.Therefore, according to
the myth, government should not wait for this to happen but should create a
monopoly and regulate the price so that consumers can benefit from economies of
scale and lower prices.
This theory is completely ahistorical.In the late nineteenth century, American cities
typically had a half dozen or more electric companies competing for
business.Economist Harold Demsetz pointed out in his 1989 book, Efficiency,
Competition, and Policy, that in 1887, six electric light companies were organized in
New York City; 45 companies competed in Chicago by 1907; and Duluth, Minnesota,
was served by five competing companies. The same was true for the natural gas
industry.
These companies attempted to create cartels, but since all cartels are notoriously
unstable, they decided that the only way to have a monopoly was to get the
government to use its coercive powers to prevent competition.On the free market,
this could never be achieved.They succeeded in doing so, and most Americans
have been victimized by government-sponsored electric power cartels ever since.
Not all state and local governments have conspired with electric utility executives to
fleece their citizens, however. In his 1986 book, Direct Utility Competition:The
Natural Monopoly Myth, University of Illinois economist Walter J. Primeaux noted
that, in some American cities, direct competition between electric utilities persisted
for some 80 years, as ofthe mid-1980s.
These rival companies competed vigorously through prices and services, unlike in
the monopoly states such as South Carolina.Customers in these competing areas
benefited greatly, and all the natural monopoly myths have been shattered by these
examples:costs are lower when there is direct competition; there is no excessive
"excess capacity"; price "wars" are not destructive but beneficial to consumers; and
consumers get better service and lower prices.
If Senator McConnell wanted to take the moral high ground in his spat with the
Scana Corporation, he would do all he could to deregulate the electric power and
natural gas industry in South Carolina regardless of what Scana's stand is on the
Confederate flag--or on any other public policy issue, for that matter.
Thomas DiLorenzo is a professor of economics in the Sellinger School of Business
and Management at Loyola College in Baltimore, and is senior fellow of the Mises
Institute.Dr. DiLorenzo is the author of The Real Lincoln: A New Look at Abraham
Lincoln, His Agenda, and an Unnecessary War(Forum/Random House, 2002). See
his Mises.orgArticles Archive, and send himMAIL.
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