Blog 30 Power Play

Power

Money

Blog 30   POWER PLAY

One of my favourite places is New Zealand. Not primarily because it was the first national state to experience the Neo-liberal destruction of the post-war welfare state, but because New Zealand has partly recovered from that public catastrophe.

In 1994, a new Labour government was highjacked by disciples of the Chicago School of Economics, and among the things done in the next four years was the privatization of publicly-owned infrastructure. In 1998, a big lesson was learned. With credit to Wikipedia, here's the story.

The 1998 Auckland power crisis was a five-week-long power outage affecting the central city Auckland, New Zealand. At the time, all of downtown Auckland was supplied with electricity by Mercury Energy via four 110 KV power cables originating from the national grid at Transpower's Penrose substation, with two cables each connecting to two central city substations at Liverpool Street and Quay Street. The two cables connecting to Quay Street were 40-year-old gas-insulated cable that were past their replacement date. One of the Quay street cables failed on 20 January, possibly due to the unusually hot and dry conditions, although this did not warrant a crisis; the three remaining cables could still supply the central city. The second Quay Street cable failed on 9 February, leaving only the Liverpool Street cables supplying the city. Due to the increased load from  the failure of the first cables, these remaining two cables failed on 19 and 20 February, leaving the entire central city supplied by a single 22 kV cable from Kingsland, resulting in about 20 city blocks (except parts of a few streets) losing power. Queen Street was almost deserted for the first few days, as few businesses could operate. Some brought goods out onto the street to sell, but heavy rain in the first week made that impractical. Generators were brought in from around the country to power essential services and some businesses. These made queen Street a very noisy place and thus deterred customers.

In the five weeks it took to restore the power supply, about 60,000 of the 74,000 people who worked in the area worked from home or from relocated offices in the suburbs. Some businesses relocated staff to other new Zealand cities, or even to Australia. The majority of the 6,000 apartment dwellers in the area had to find alternative accommodation. Temporary power was supplied for a while from large container ships at the port supplying power to the CBD grid

The old gas cables were found to be repairable and were put back into service, but were restricted to 30 MVA capacity. The newer oil cables were irreparable, so to restore full supply to the city, a temporary 110 kV overhead line was constructed along the rail corridor between Penrose and Liverpool Street.

Subsequent public inquiries into the causes of the outage blamed two things - failure of components used beyond their replacement date, and "failure of governance." Translated, "failure of governance" means the directors of the recently privatized electric corporations were not technical people, but were solely focussed on serving their constituency - the shareholders. That is, making money for dividends.

The final lesson of the blackout I have found well summed up by

Sharon Beder, University of Woolongong, Australia:

"Electricity is not a commodity that can be governed by market forces. It is a service that is essential to human welfare and economic prosperity, and it needs to be controlled by those who place public interest ahead of commercial imperatives."

Let me conclude with two quotations offered in the New Internationalist article, "Ten Economic Myths that We Need to Junk.:

"The myth of private-sector superiority has three components that feed off and reinforce one another. First, that the private sector is always dynamic and best; second, that the public sector is costly and inefficient, and third, the conclusion that everyone benefits from the continual incremental privatization of the public sphere. All three elements are false." Andrew Simms British author.

and,

"Privatization means you take a public institution and give it to an unaccountable tyranny. Public institutions may have many side benefits. They're not for profit. They may purposely run at a loss because of the side benefits. So, for example, if a public steel industry runs act a loss it's providing cheap steel to other industries. Maybe that's a good thing. Public institutions can have a counter-cyclic property. So that means that they can maintain employment in periods of recession, which increases demand, which helps you to get out of recession. Private companies can't do that in a recession. Throw out the work force because that's the way you make money.  
Noam Chomsky, in the film "The Corporation."

So Ontarians, what can you do to offset the increase in your hydro bills?  (Remember those dividends.) Or to compensate for the inconvenience of longer blackouts, especially in those winter storms, where your TV news (when you can get it) shows your heroic public power workers labouring long days and nights to get the power flowing?

Can't help you. Your new neoliberal government has three years to go.

Maybe, after the election of the next government they might do as New Zealand has done, recover some of your public power ownership.

Or, for now, if you are a well-to-do opportunist, you could buy some of the newly-offered stock. Toronto Stock Exchange. Symbol (H).  Easy to remember.

"The Economy is Slowing." Part 2

Blog 29  "The Economy is Slowing,:  Part 2

Blog 28 had a diagram representing money moving through four zones. It named the functions of each zone.

1 Government     (tax and spend)

2 The Economy    (produce and exchange goods & services)

3 Banks
    i.    create money;
    ii.   lend money;
    iii.  collect interest on money lent;
    iv.  pay taxes;
    v.   pay dividends to shareholders

4 Shareholders, who own the banks and other corporations, and  receive dividends. They also pay the unavoidable taxes.

Now I have made the point that money to keep the economy moving can be injected by both governments and banks.

Elsewhere I have made the point that bank-created money carries a burden because interest has to be paid on it. The banks do not create the interest; it has to come out of the economy. So government money goes further and stays in play longer because it has no interest strings pulling it back out.

                   No, this is not a chicken with a house over its head. Read on.



Let's take another look at that word "moving".  It makes a significant point about money in the economy.

For this I like to picture a fancy cuckoo clock, with little figures popping out every quarter-hour, displaying a little hip action to entertain you. In my imaginary clock, however, there is a knob to turn up the speed of the actions. Turn it on high, and watch those figures dance through a whole week on the clock - in half an hour!

Money is like that speed-knobbed cuckoo clock. So if you need money to make the economy go, you have two things to consider: the total amount of money available, and the speed at which it changes hands.  In the jargon of economists the second is called "velocity".)

You can have a lot of money out there, but if it is not being spent  back - whether it's the puny jar behind the microwave, or the billions of dividend dollars/yen/francs  which the richest of the earth's citizens divert from the real economy to buy up more wealth-producing assets -- well, it's a losing battle if the real need is to prime a slumping economy.

The usual, and wrong,  process of trying to escape a dismal slump is to turn to governments and plead for public austerity. The right response of government on the other hand, is to pour money directly into the real economy in a way that promotes a rapid exchange of money ("velocity"). For example, by direct lending/granting of money to young people to buy and furnish new houses. What governments are usually bribed, bullied or bamboozled into doing, however, is to give banks money (taxed or, usually, borrowed). and beg the banks to lend to young people to build and furnish houses. This is the slower and costlier ("private") way to do it.

Same option with government direct spending to build or repair bridges, highways, harbour facilities, power lines - where most of the wages are quickly spent and circulate throughout  the economy.

Why have governments around the world gone further and further into debt over the last forty years?. Because of Myth #5: "The private sector is more efficient than the public sector."

We must ask, "More efficient at what?"  Not at moving the economy, keeping workers fed, highways paved and hospitals and schools open. No. But - because of those little financial devices  called interest and dividends - the private sector is better than government at extracting money from the productive economy.

It is time to see that governments are more efficient in achieving the goals of public good. Look for that in Blog 30.

A little hint: the next blog will make a short observation on privatizing public services, with a glance at the New Zealand experience and the Ontario provincial government's current sale of shares in its publicly-owned hydro-electric company.

Till then, turn your lights off and go to bed early.