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California's Energy Crisis: The Silver Lining

In a perverse way, California's energy crisis is a dream-come-true for progressives who argue for public ownership of public assets and regulation over private sector activities.
 
 
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The following are excerpts of remarks made at the all-day conference sponsored by Americans for Democratic Action on June 24, 2001 in Los Angeles. The conference was entitled "Wake Up Democrats; Take Back the Country.

In a perverse way, California's energy crisis is a dream-come-true for progressives. It gives us a chance to argue for public ownership of public assets and for greater regulation over private sector activities. The two questions for policy makers then become, "How does one determine what is and what is not a public asset?" And, "How does one know when to deregulate an industry or sector?"

The following is a five-point checklist that should be attached to the door of every member of Congress and every state legislator in the country:

1. If it's a necessity of modern life, don't deregulate or privatize it. Air, water, and electricity fall into this category. When it's dark outside, the consumer has little choice but to turn on the lights.

2. If the industry in question wants to be deregulated and then showers members with contributions to make things happen, red flags are in order. The following are recent examples of wholesale deregulations gone bad:

a. The savings and loan industry was deregulated in 1981 by the Garn-St. Germain Act. S&L executives including Charles Keating were free to invest in pork bellies and other speculative instruments. Because each savings account was insured up to $100,000, taxpayers ended up paying the massive tab.

b. The airlines were deregulated in 1979 and the Civil Aeronautics Board was abolished in the process. Airlines were free to establish their own routes and set their own pricing. But instead of creating more competition, the law resulted in more concentration not to mention deteriorating service, congested skies and flight delays. The major carriers control the gates at major airports as well as the computer reservation system. That made the entry of small carriers into the industry almost impossible. Now there' s talk of privatizing the air traffic control system and the major airports. That would be a recipe for a real cartel, with United and American in total control of the skies.

3. If fundamental civic values are involved, don't privatize. The most obvious example is prisons.

4. There is no such thing as a healthcare marketplace. We don't choose to be sick. And the cost of medical services doesn't go down when the supply of doctors goes up. Doctors' fees only decline when the corporation they work for says so. But there is another economic theory that is at work here: There is a strong relationship between healthcare profits and quality of care. If healthcare profits go up, quality of care usually goes down.

5. Privatization should only be considered where there is real competition in place in the industry and there is a union shop in place. Examples to be considered at the local level are garbage collection, and street and park maintenance

There are things we hold too dear to be left to the private sector. The next time a plane crashes, or a tire fails, or a deadly strain of e coli is discovered, do we really want the air carriers, or the tire makers or the meat processors to do their own internal investigations and leave it at that? I ask you: Do we really want the drug companies to market their products without prior FDA testing, as Newt Gingrich suggested with a straight face in 1994? Pay attention to the congressional hearings the next time disaster strikes. Republicans usually join Democrats in asking hard questions of agency heads, whether it's the FAA or NHTSA.

Now, what do I mean when I say we can argue for public ownership of public assets? Oil and gas come to mind here. They are, after all, diminishing natural resources. Both are crucial to our economy. At the very least, these are industries that cry out for greater regulatory oversight from Washington. Very few Americans believe the price at the pump has a relationship with supply and demand. At the very least, we should be able to know if the price of gas is set by the market or just gamed by the oil companies.

Fear and distrust of big government are embedded in our national psyche. Those suspicions increased during the 1960's and have been exacerbated lately by various misdeeds by the FBI. Still, the time has come to leave the government bashing to our adversaries. Two examples tell the story of the price we pay for inadequate federal oversight:

1. Until problems were discovered with certain Firestone tires a few months ago and over 100 people died as a result, auto and tire manufacturers were not required by law to report known defects to the federal government. And while the auto makers voluntary recall products all the time, NHTSA has only limited power to order mandatory recalls, and even then, the action can still be challenged in court by the car makers

2. The Department of Agriculture still lacks the authority to close down meat processing plants even when life-threatening bacteria can be traced to a specific facility.

The deadly price we pay when we engage in government bashing is unchecked and unbridled corporate power. PG&E, Duke Energy, El Paso Natural Gas and Enron are just the tips of this iceberg.

The writer is the President of the Institute for Government Renewal, a Washington-based public policy institute.