Hi Arthur,
That was a plausible rationalisation for regulation that you posted (see
below), but quite specious in my view.
The most disturbing aspect of the Enron affair is not that thousands of
employees have been deprived of their pensions, and that thousands of
shareholders have been duped of their investments, it is that it will
happen again.
The expert commentators I have read so far have said two things about the
consequences of the Enron affair:
1. Yes, the government will be able to devise regulations in the future
which will prevent the same obscure accounting methods being used again;
2. A future unprincipled company will be able to devise even more
sophisticated scams which are likely to dupe even more people.
The problem about regulation is not only that it produces economic
inefficiency but also, as a byproduct, it produces whole new tranches of
professions which are not only unproductive free-riders, but are
soul-destroying -- individually and civic. They comprise a non-creative
cancer which grows ever larger and prevents the organic development of
civilisation as a whole.
There is only one answer to the evils which regulation is supposed to cure.
This is transparency of information.
If Enron's accounts had been transparent then it would have been stopped in
its tracks many years ago. Furthermore, future (inevitable) Enrons would
be prevented.
Keith
At 09:07 05/04/02 -0500, you wrote:
>I am passing along for your interest the following from the net.
>
>The article was originally written about 1997 but seems relevant to the
>thread.
>Arthur Cordell
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DEREGULATION, UNIVERSALITY AND SOCIAL COHESION
M.D. Albrecht
In the past 15 to 20 years, beginning with the airlines, we have
witnessed a profound move to deregulation just about everywhere. Pundits
tell us that we achieve a more efficient allocation of resources if prices
are brought into line with costs. An added incentive to deregulate is that
it will allow business to be more competitive in the new global business
arena.
And the arguments for deregulation are correct, from an economic
point of view. But there are other values involved, as well as a view of
community to be considered. As we privatize public functions, as we
deregulate to cut costs and be competitive we are undermining a way of life
for many communities as well as a way of life for many who consider
themselves to be middle class.
Consider telephones for example. For a cluster of reasons, pricing in
telephones has been based on cross-subsidization. Prices were set in such a
way that, subsidized by long distance, most residential users could afford
to have a telephone. Not the most efficient use of resources, agreed. But
in the old pricing model, or most pricing models that strive for
universality via cross-subsidization, the outcome was one that leaves
participants feeling as though they are part of the same community. A
social goal was met. Access was ensured.
With deregulation and competition, cross-subsidization declines as a
factor. Rate structures change. Some think the change will be slight,
others claim the change will be more extreme, especially over time. As
residential rates climb there will be those who can no longer afford to
have telephone connections. Well, as the deregulators say ' . . . get the
basic residential service rates right and take care of poor people with
direct subsidies, just as we do with food and medical care.'
The not-so-welcome twin of deregulation seems to the increasing use
of the means test. People who have had access to the phone all their lives
can now either pay more for access or can do without or can do as the
deregulators suggest -- apply for a direct subsidy. Consider what this
does to our notion of community. What happens when we create an A Team
(those who can pay) and a B Team (those who must be subsidized)? Is it
that important to encourage market forces to such an extent that we create
a new group of people who must apply for a subsidy thereby admitting they
are part of the B Team, the growing underclass who can't pay their way? And
what is the future for the B Team--a group that is growing in number but
losing in power. A group that surely must be trembling when governments in
almost every jurisdiction threaten cuts here and there in their fumbling
comic/tragic attempts to balance the budget.
So even if, as the deregulators urge, ' . . . we take care of poor
people with direct subsidies . . . ,' a serious question is: Will those
subsidies continue. We all know that 'what the State giveth, the State can
taketh away.' So deregulation, besides stripping people of their dignity,
may not be a long term solution after all.
And what about privatization and deregulation in other areas of
society? What happens when we privatize garbage collection? Will those
living furthest away from the land fill sites pay the higher prices? In a
move for prices to reflect cost will a privatized fire department (and
maybe ambulance and police service) charge more to go to certain areas of
the city or county. Or will we find that as with transportation
deregulation some areas are no longer served? Small towns have lost air
and rail connections. Sure, the bus and the private car can always fill in
-- most times and for most people. But what about that sense of
connectedness that binds and underpins nation and community.
What about the future of a one price policy for posting a letter
within a jurisdiction? Here too a deregulated postal service will scream
for changed postal rates since in this case the subsidization is the
opposite of the telephone system: the local postal rates presumably
subsidize long distance. In a Fedex world, where all postal service is
privatized, what happens to those in small communities, in remote areas?
Do we just say sorry but it is no longer efficient to serve you any longer?
Or if we do provide service it is at a rate that is not affordable by
most? Or do we say, sure we can subsidize your postal service but it must
be on a case by case approach and first you have to show that you can't
afford to have postal service.
Universality is another way of saying economic development. It means
reasonable access to a host of services: potable water, education K through
12, libraries--access to a social and physical infrastructure. Where
payment for services has been required, regulations were put in place to
ensure that the high cost areas (the small communities, the out of the way
areas, etc.) could still be served, could still be included -- they were
subsidized by the payments from the low cost areas where prices were
substantially above costs.
Cross-subsidization underpins the transportation system in North
America. Creation of a transportation infrastructure was a nation-building
exercise: canals, railroads, highways and an airline system. A way of
denoting a jurisdiction, a way of defining community. Cross-subsidization
and regulation were harnessed to create a system where the strongest takes
care of the weakest; the wealthier subsidize the poorer. With deregulation
we are moving away from cross-subsidization. We are moving away from
universality.
Our society is backing away from universality in a number of areas.
The market agenda driven by the mantra of the need to 'be competitive in a
globalized world' is leading to an outcome that takes us back in time. To
a time of class distinction. To a time of the rich and the poor. To a
time before the broad middle class was created. The middle class upon
which so much of the mythology of North America and Democracy is based.
The net effect is more than damage and hardship to communities and
individuals. We are also giving up many of the hard-won gains of economic
development. If we are not careful, we may find ourselves with many of the
features we now ascribe to the third world: a two-tier society, lack of
universality, upward mobility blocked, etc.
When all is said and done. When full deregulation has come to pass.
When the market solution is used in all areas. When universality has been
broken beyond repair. What then? We'll have a host of people added to the
underclass no longer able to participate in everyday affairs; another group
living on subsidies of one sort or another at the whim of government budget
fiascoes; and another group -- the top half or top third of the population
who will say: problems? what problems?
Society today is engaging in a series of small decisions. Step after
step after step. With each move we don't seem to realize the consequences
of our actions. As we undo universality, as we undo the elaborate
cross-subsidization schemes I fear we will discover that in our striving
for competitiveness and efficiency, we have undone those very pricing
schemes that built communities and nations. The very pricing schemes that
have helped to sustain a comfortable middle class way of life in North
America.
Regulation and associated pricing schemes all too often seem to be
illogical. But the intent is one where cross-subsidization is created and
endured because it serves a broader social purpose: that of inclusion.
Deregulation and the quest for ever more efficient market solutions poses,
for me, the greater cost (agreed one that cannot easily be measured): the
risk of exclusion. If economics is about trade-offs, then I think we
should take a closer look at what we are trading off in the name of
economic rationality.
Many of the ideas and arguments of the deregulators can be
persuasive, but in our quest for efficiency, competitiveness and preparing
for globalization we should be cautious. The gains of deregulation may be
illusory. I suggest that when all costs and benefits are brought together
in society's balance sheet -- the social bottom line, we may find that the
great privatization and deregulation effort has been one that has created
more losers than winners and that the biggest loser of all has been the
public interest.
(1997)
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�Writers used to write because they had something to say; now they write in
order to discover if they have something to say.� John D. Barrow
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Keith Hudson, Bath, England; e-mail: [EMAIL PROTECTED]
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