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In Northern California the Electric Utility, Pacific Gas and Electric (PG&E) has to apply to an oversight body, the Public Utilities Commission (PUC), to be able to increase its rates. Usually when a business raises what it charges its customers, its reasons are usually intentionally well hidden. There is no high standard of disclosure of internal decisions as there is the the public sector. In this case we get insight into the political nature of economics because the obvious factors were disclosed as news and general awareness, and because the utility company went public with a political campaign whose hidden agenda became obvious.
When PG&E applies for rate changes it has to offer some justification. Several years ago it started cutting back on pervenative maintenence as a cost cutting measure, and aside from some long outages caused in part by manpower and equipment shortages, they were able to aid their bottom line at a modest expense, exporting risk, to their customers.
The pipeline explosion last September in San Bruno that killed eight and destroyed 37 homes and damaged many more, and its aftermath revealed much. Not only did it cost the company several hundred million dollars and growing, according to the Utility, but now they want to pass that cost on to the consumer in rate hikes and have applied to the PUC to do so. The investigation has revealed that the company had poor records of the pipelines for high pressure natural gas and even poorer maintenence records. The did not know the physical makeup of the pipe that exploded, and the disaster has touched off concern about similar pipelines nationwide, and should inform the national concern about infrastructure.
So why should consumers have to pay for PG&E's neglect? We would in fact be paying for the failure of its business plan. The same way the TARP Fund is something we pay for in taxes because the large Wall Street banks (Bankstras) had failed business plans that were too risky and they were able to export that risk. In fact they are still exporting risk in the allowance of new fees to customers. It is as if you would save money stashing money under the natress, the FDIC insurance is now the only perk of having money in the bank, they don't even pay interest, and now they are nickel and dimeing us. So, like the failed banks, PG&E's priorities failed. Who should pay?
The shareholders and the management should pay. True, ultimately the public does pay if the company survives and reduces services, but then again, if the Utility goes bankrupt, that is not the end of the world, someone could take it over and very likely run it better. And why should consumers support a company that went public with a self-interst plan to restrict the availability of alternative energy to its customers in the form of a State Ballot Proposition? For the same reason that a Texas Oil company tried to do the same thing more recently, the business plan does not entail alternative energy, despite lip service, as in that dispicapable Cheveron ad, the energy grid is configured to burn carbon and will take time and capital that this company does not want to spend. The Jig is up. It is public knowledge that PG&E's priorities are not in the public's interest. The PUC could grant them a rate increas and so on, but people can make a political and economic decision to go off Grid.
TopDisclosure is the enemy of injustice. The system being overthrown in Egypt has been aptly characterized as "Crony Capitalism". It is in fact a Plutocracy, something America could or has become. The enemy of such networks of old chums makeing backroom deals is disclosure and scrutany.
This has wheeler-dealers of all types quaking, as it should, and as we now know, the cloud has a long memory, which is good, because a hypocrtical or corrupt choice made years ago can come back to haunt someone who in the past would have had the means to squash secrets through exercise of power.
This is where Conservatives who cry that government, and with it more disclosure than is customary in business, is the enemy of Capitalism are wrong. Capitalism, or more of it and less regulation, won't fix things. It will make it easier to be greedy, and harder to make people disclose their decisions, but that misses the point, which is that people are no different anywhere when it comes to use and misuse of power, if they can conceal their motives, they can literally get away with murder if not fraud and corruption. That is why social media so galvanized people in the Middle East, it showed that a far larger body of people are thinking the same things about their situation than the people creating it. In Iran, the balance of power might mean that the change is harder to make, but the forces are working there too.
TopPeople want fairness above all. This means that they must understand why things have prices and that the factors determining the changes, particularly price increases are fair. It is well known that the price of bread in 1789 in Paris was a trigger of the French Revolution. It is why the Fisher Women went after Marie Antonette and almost got her, and is why wealthy people today have "panic rooms" where they can hide from a murderous mob or a home invasion, today.
The revolts happening today in the Middle East are due in part to prices and earnings that are too low to pay for the necessities, bread, meat, petrol, even in an oil producing region.
The news had been warning about food prices going up and offered the plausable explaination that the prices are due to the extreme weather. There aren't riots in the streets here because people accept that explaination and believe that prices represent some reality about supply and not malfeasance. They even accept, even grudgingly, that the price of coffee, which has been skyrocketing, is due to increased demand from new markets like China. And there is no Coffee Riot in the streets. That is because they think that the economic decisions and the conditions shaping them are fair, that they have some input can decide what to do, pay more or not.
TopSpeaking of the price of Coffee! A nieghbor laughed out loud at me because I went back to a Cafe at which I said I was outraged at for the amount it raised its price of a cup of coffee. In fact this little episode reveals the real process of making economic decisions that we all make about the prices we live with. I knew well that the price suppliers were charging for coffee was going up, but when the Cafe raised the price of a cup of brew. their house coffee, by 1/3, I was outraged and told them how I felt and have said so several times, but I went back.
My housemate now brews a couple of pots of coffee at home a week and has offered to share, but I have to stay in. I also went to a competator for about a month before deciding to go back to the old place where I had been a regular for years. I like to think that my decision is rational and considered and although I don't like paying more, there were intangible factors that I didn't imediately consider when I made the original change.
The original brew is better than the alternative at Starbucks. The latter is very uneven in quality and some days I get a decent cup, but on others I get an awful cup. I realize that I need to get out and walk the distance to the original place, especially in the morning, even though the Starbucks is closer. The crowd at Starbucks is not as good at the other place even though the larger place has some rude and thoughtless customers at times. it is just a signal to save money, buy one cup only, and time to leave. On the upside I have numerous acquaintences in that crowd I like to visit with. The Starbucks crowd is even more hunched over laptops and there are more objectionable people there. Finally, the sun is a huge draw at the original place.
People make decisions for all the best and the worst reasons. Marketers know well that laziness and convenience are big factors, and tend to believe that deliberative and delayed decisions are harder to control than impulsive ones, visit any grocery.
TopChoice is good. It means that the marketplace is competative. But how is that condition created? Entapaneurs start business and seek investors to set them up and fund them. What results depends on the quality of the business plan and the astuteness and good will of the investors toward the effort. The banks could use some pressure from alternatives, and I worry that the regulators are too cozy with them, it being clear that people in the government, and supposed to be regulating the banks, are too close to them and the stock market. It isn't enough for the public to be upset with what the banks are doing to them. Someone in the business community has to have enough imagination to see discontent as an opportunity and to offer something that is more safe than stuffing cash under the matress.
If you are out of work or need to reenter the work force, you need to find out if there is a place where your skills are useful and that you want to enter into a relationship with a certian employer. The limiting factor can sometimes be that there are too few qualified applicants, but it can also be that there are too few investors, that the need insn't there. This is entirely a matter of perception and priorites, as is the creation of choice on the spending side. If something is destracting investors away from some pressing need, that fact alone determines, in a market system, that the need, no matter what its merits will not get set. This is why a market system alone cannot set all the priorities in a civilization. Incentives don't necessarily flow from economic decisions alone, especially if the view is "financalized", that is, everything is reduced to the same accounting abstraction. Not only does this tend to ignore less tangible factors, but it may ignore factors peculiar to the industry being managed. This is why someone like John Scully, or countless others whose primary orientation is a Business School training, often do mismanage companies.
The short answer to why the economic meltdown of 2008 happend is that there was too little scrutany of the quality of the investements that evaporated, some $15 trillion, which are being paid down. This is why the recession continutes, why the "recovery" is jobless, and probably why the whole world is erupting in protest at this moment at accmulated injustices exaggerated by unemployment. At the same time finger pointing goes all around, none of it totally unjustified, afterall the U.S. Government acceeded to what the Wall Street Banks did and in fact may have contributed by making sub prime loans too easy to get. Because States and Municipalities were overexposed to the bad investments, and because the resulting slow down has cut their revenues in half, they got a double wammy.
Fiscal Conservatives the world over are in reactive mode and want to cut spending, often with total disregard, and hope that someone else has to pay in the end. Business, whose mismanagement is largely to blame, could not absorb the people displaced from public employment and benefits if they are cut. It can't keep up with the demand for jobs by people who have to work for them, let alone deal with those affected if the Conservatives did away with governments even if their only reason was to balance its books, which it isn't.
This is really a crisis of creativity which the established institutions and the type of training we give people to manage and lead, has failed. It is a deficet of the imagination that otherwise proactive people seem to not be able to find the means to create alternatives to broken structures.
The soboring fact about choice and change is that often the old baggage has to be violently swept away. That is what is trying to happen in the Middle East, but indirectly it may be takeing place in more places. The cause of this tragedy is the lack of imagination of those in power, and the fact that people invested in obsolete business models resist change, as in the above example of energy companies, and earlier in the U.S. Auto industry. Go talk to individuals and they will acknowledge that things need to change and then turn around and act as if they are resisting that change. The reason for that appearent paradox is that the lag time and cost of inplementing business models that have already become outdated by change, makes it imparative to recover marginal costs before more change is adopted. The risk is that the world will not wait patiently for change to be adopted at this pace, especially if people come to feel that they haven't been treated fairly by it. Hosne Bubarak got warned several times that things needed to change in Egypt, and he didn't act fast enough to fend off the eruption that swept him aside. This could happen to JP Morgan/Chase, and to other Wall Street Banks, to the Federal Reserve System, and to other establishments of power. And as the past periods of instability in the World Order show, quite often this neglect results in war that the people in charge often never see comming, or if they do, they use the killing to give their economies the purpose their business poeple and investors couldn't. A pretty sorry state of affairs.
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