Balneus

Australian Lefty on Politics, Governance, Science and Info Management

Environment and nationalization

Posted by Dave Bath on 2007-05-30


The application of common economic theorems, and the inescapable environmental need to increase efficiency and decrease consumption, implies a need to nationalize industry and services, especially for natural monopolies.

If valid, the arguments presented here suggest the need for a strong shift to the "left" for most political parties.

This post explores the following lines of reasoning:

  1. Economies of scale
  2. Superfluous Oversight
  3. Advertising and inefficient consumption/production

Economies of Scale

Capitalists applaud mergers and acquisitions because the resulting economies of scale increase value through the opportunity to cull duplicated efforts.

This has obvious application in natural monopolies, most notably essential services.  Where there is more than one supplier of an essential service, they must compete for a fixed number of customers, expending energy unnecessary for a single supplier with a captive consumer base.

This is also relevant for essential (or quasi-essential) domestic items, such as whitegoods.  If a population needs production of 100 medium-size washing machines a day, then even if two different manufacturers use the same components, the production of those goods requires twice the number of administrative staff and more tooling costs than a single supplier with two separate factories.

Further, with one supplier of the same washing machines, it is likely that only one factory is required, and certain that marketing efforts are unnecessary.

Sometimes, two factories are more useful than one, where supply can be optimized by decreasing transport costs (direct and consequential) between material or component sources, the factory, and the end-consumer.

Superfluous Oversight

Non-government supplies of essential services, even if there is only one within a particular natural monopoly, requires a regulatory machine that would not be needed for a nationalized service provider.

A non-government supplier also makes effort to prepare reports to regulators that place the supplier in a better light, spinning up the need for increased profits, and spinning down their inefficiencies.

Such efforts would be unnecessary in a nationalized supplier which naturally has complete access to all relevant information.

Advertising and inefficient consumption/production

Advertising by producers aims at two things:

  1. Increased demand:

    If a consumer felt the need for a product, they would buy it.  Advertising to increase demand directly increases consumption that does not fill an obvious need.

    The use of planned obsolescence to increase demand, with shorter useful lifespans of products, with greater energy expenditure for otherwise unnecessary production and recycling, is an obvious waste of energy, and contributes to environmental degradation.
     
  2. Product differentiation:

    To compete within a single class of product (again imagine medium-size washing machines), producers create perceptions of points of difference, real or imaginary, and even if real, differences in utility are usually trivial.

    These differences obviously increase costs and energy expenditure for development, assessment by authorities if required, and tooling compared to production where there were no differences.

Nationalized industry, on the other hand, would aim to decrease demand, thus decreasing investment in production, or redirecting effort to R&D to create products that met societal objectives (better safety, greater efficiency, etc).

Conclusions

Economies of scale considerations make quasi-essential goods and services natural monopolies, just as essential services are natural monopolies.

Natural monopolies are more efficient if nationalized, because of decreased regulatory, administrative, marketing burdens.

Nationalized natural monopolies decrease energy use and environmental degradation because of the incentives to decreasing demand, in contrast to non-government suppliers.

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3 Responses to “Environment and nationalization”

  1. Dave Bath said

    Excellent discussion of related issues from a PhD (with a couple of books) in the area Is energy a public good?

  2. […] "Environment and Nationalization" (2007-05-30) talks of the necessity of nationalization to force and manage decreasing "sales" for utilities. […]

  3. […] banks = lower interest ratesKrugman echoes in favor of nationalization « Balneus on Environment and nationalizationKrugman echoes in favor of nationalization « Balneus on “The Economist” wants to […]

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