Kevin Williamson: A Lesson in Cooperative Capitalism
In theory, this kind of cooperation should not exist. If every utility executive were in fact a rational specimen of Homo economicus, he would gleefully greet hurricanes that put his competitors at a disadvantage and imposed large losses on them. (Utilities may not often compete directly with one another for customers, but they do compete for capital.) The difference of a few tenths of a percentage point in the dividend could be the difference between a large institutional investor putting its money into Jones Power instead of Smith Power, with billions of dollars potentially at stake. And, yet, Jones Power does not revel in Smith Power’s troubles — instead, it sends its own workers into Smith’s market to help out Smith’s customers.
No doubt you could construct a plausible economic narrative in which this can all be explained in terms of each firm seeking to secure its own self-interest very broadly defined — utilities maximizing utility.
But that misses the point.
NRO: After the Storm: In Florida and Beyond, a Lesson in Cooperative Capitalism
Ideally, stories of cooperative capitalism shouldn’t be noteworthy.Report
Williamson explains what he means in the essay. His message is that we always hear how capitalism engages rotten horrible backstabbing behavior that ignores the customers’ needs at best and, more often, screws them to do a competitor out of a few pennies; and yet here’s an example where that doesn’t happen, despite no government regulation compelling it.Report
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Great, they’re not stupid an evil 100% of the time. Are you going to support Hillary if she took an extra turn driving the kids’ carpool once?Report
Yeah, this is kind of a “do you want a cookie for doing your job” thing to me.
Also, it doesn’t understand what’s the core belief for the majority of welfare state proponents (ie. not actual socialists who are probably 2% of the population tops) – if everything is working and nobody is complaining and there’s no hazard to other people being effected, we don’t want the government to run things.
I mean, look at food production. Yes, we have some ideas for changing the regulations or specific laws, but nobody, even at the Jacobin, is asking for a takeover of farms and grocery stores. They’re running pretty well.
The reason why people want a government takeover of health care because it’s not working in any reasonable way for vast chunks of the population.
That’s the point of highly regulated market capitalism – it smooths out the problems of capitalism while also allowing innovation.Report
did you actually just cite american food production as an example of an unregulated-yet-still-cooperative capitalist enterprise because uh damn dude american food production is about as regulated as you can possibly imagineReport
Yes, just like utility companies are highly regulated. Which Willamson seems to ignore as possibly partially the reason why those companies work well together.
But, I’m talking about Williamson saying, “When it comes to important social concerns such as health care, affordable housing, and education, the progressives say: “This is too important to leave to the unpredictability of the free market.” My response is, yes, on those important things, the free market has largely failed massive swathes of the population either in the recent past or in the present.
But, with something like what Williamson points out in his story, it’s working fine. I’m a godless socialist and I see no reason why the gov’t needs to step in.
Same with food production – it’s highly regulated but nobody is calling for a ‘public option’ for supermarkets or that government money shouldn’t go to privately owned farms. Because the supermarkets and farms are doing a good job all things considered.
Like I said, there’s this weird assumption among some conservatives that liberals want the government to run everything. We really don’t. We just want the government to step in when the market, even a highly regulated one, is failing at it’s job, especially something as serious as health care.Report
Plenty of people in food deserts want a public option for food.
Here in Pittsburgh, there’s a charity-run market once every two weeks in one of our neighborhoods.Report
You think we haven’t already taken over the farms? Last I checked, we had price controls on milk…Report
Here I’m picking nits and what I’m about to say is probably a quibble over definitions and thinking outloud, but I’m not sure how we should define capitalism and the role of “competitiveness” (or “competition,” or “free marketry”) in that definition. Perhaps some element of competition has to exist for it to be “capitalism,” but I’m not sure that’s such a key feature. I find it very hard, maybe almost impossible, to separate the economic system from the state and set of state-like entities in which that system exists to say that it can ever include competition that isn’t somehow also coordinated or channeled in some ways by politics.
I do agree, though, that critics and defenders of capitalism often latch on to its presumed “competitiveness.”Report
It’s a cooperative venture — helping other utilities out in emergencies means that you’ll get help when you need it. In effect, it’s an insurance policy. Williamson’s “explanation” of why doing this is against interest is nonsense.
But I suppose they get props for sharing risk with other companies that have qualified workers, rather than with one that in an emergency would say “Huh? What do you want from me?” (and yes, AIG, I am looking at you.)Report
This. The point seems unsubtle. I suppose it is interesting that the insurance works informally, assuming it does. Do we know that? Or are there agreed-upon industry standards, with the companies settling up afterwards. And now, going and reading the linked piece, it turns out that my assumption was correct. This isn’t benevolence. It is planning. I suppose we should be impressed whenever we see a corporation planning past the next quarterly report, or at best past when the CEO’s stock options mature. So yes, it is remarkable in that respect.
Note also that even the snippet excerpted acknowledges that utilities usually aren’t in direct competition. Yes, there is indirect competition, but that is less likely to inspire cutthroat behavior the way an opportunity to poach customers would.
The notion that we should look at this and place our hands on our hearts as our eyes tear up is absurd.Report
What would a utility company in a different state which is unlikely to face the same level of risk as one in Florida or Louisiana stand to gain from such an arrangement?Report
There’s a chance of violent thunderstorms and tornadoes everywhere east of the Mississippi more or less to the same degree. Plus, Appalachia and the Ohio & Tennessee valleys, where electricity is actually generated, have more inherent critical infrastructure even if they are somewhat less at risk for specific events.Report
Oh, and ice storms, probably the biggest overhead line killer of them all.Report
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Hurricane Ike, only a Cat 3, did a killer number not just because of it’s size (it was, admittedly, gigantic) but because it continued over Texas and into Ohio, turning into ice storms as it raged north.
Texas’ utilities had trucked in a lot of folks from Ohio to repair lines — who had barely started work when they had to turn around. Ohio has a lot of folks who do that job, and Texas and Ohio utilities tend to share them pretty heavily (Tornados in north texas and Ohio, ice storms, and the occasional hurricane mean both states tend to employ a lot more of them than neighboring states).
It took two weeks to get my power on, and a guy that lived another sixty miles inland didnt’ get his on for several days after me. (Neither of us lives terribly near the coast. I’m at least 20+ miles away and 30 feet up).
It’s because the repair area was spread over half of Texas (literally) and continued on north in a wide swath all the way to Minnesota. I think they were eventually trucking in people from as far away as Florida and Utah to try to make repairs.Report
Wouldn’t the “what do they stand to gain” issue be best explained by “profits received from contracting out it’s own workers to a “competing” utility company”?
Is there any suggestion in the article that the do so at a financial loss?Report
Well if I manage a branch of McDonalds and the Burger King next door is in need of workers, the rates at which I rent out my workers to Burger King should be high enough to make up for a) the drop in my productivity and b) the opportunity cost from failing to take advantage of my competitors weaknesses to corner the market and drive them out of business. I don’t know that it would ever be worth it for burger king to rent my employees at such rates.Report
Sure. But didn’t the linky writer concede that power companies aren’t actually in direct competition?Report
In real life, it’s a good business
The salaries and the equipment of the loaned personnel is already in the rate basis. The ratepayer is already paying those in full.
Now, Jones Power gets to rent them out for two weeks, all costs paid. Jones is getting paid twice for the same operators, trucks, etc., for 4% of a calendar year. All pure profit, no costs
It’s like Christmas in October.
And you get free publicity, and a pretty plaque of thanks, to put in the corporate Board Room.Report
It’s been said here a bit, but still..
Power companies aren’t free market companies, they are heavily regulated monopolies. Rate payers do have, and use, political power to effect them. Pissing off the rate payers AND the regulators isn’t a good thing.
Quid pro quo
“But, I’m talking about Williamson saying, “When it comes to important social concerns such as health care, affordable housing, and education, the progressives say: “This is too important to leave to the unpredictability of the free market.” My response is, yes, on those important things, the free market has largely failed massive swathes of the population either in the recent past or in the present”–Yes, except housing, education, and health care have been heavily regulated for over 50 to near 100 years, so…..Report
“…he would gleefully greet hurricanes that put his competitors at a disadvantage and imposed large losses on them.”
Williamson doesn’t seem to have heard about physical damage and business interruption insurance (*). Acts of God don’t come any more Godly that named hurricanes. The large losses are limited to the deductible, which in distribution utilities is fairly small because the Maximum Probable Loss of a distribution utility is very small, compared, for instance, with a power plant that can blow away.
(*) Not that business interruption plays much of a role here, because regulated utilities do not make money selling power, they make money charging fees for the existence of the wires. Absent power sales they still get revenue.Report
Williamson seems to be talking about two things as if they were the same thing.
The first is altruistic or at least “non-competition-fueled” cooperation. And while I agree with Jesse above that Williamson “seems to ignore” that the regulated nature of the utility industry is “possibly partially the reason why those companies work well together,” I also believe that there is sometimes such cooperation.
The second is the type of “cooperation” that comes through the many market transactions and price systems that are required to build many of the widgets we use and enjoy everyday. I believe that’s a real thing, but to me, “cooperation” is not a good word for that.Report
“Mutual dependence, until such time as someone else can undercut your price”.Report
The thing that struck me was that this really has very little to do with capitalism. Williamson very nearly admits as much when he says, “Some of them are quasi-public, some of them are organized as co-ops, and some of them are ordinary profit-seeking ventures.”
Regardless of whether the entities are capitalistic, socialistic, or something in between, they all face the same problem and somehow miraculously arrive at the same solution. Color me unimpressed.Report