Leading conservative, Grover Norquist, once said, “I don’t want to abolish government. I simply want to reduce it to the size where I can drag it into the bathroom and drown it in the bathtub.” And it seems the Republican presidential candidates agree with him, as exemplified by former Minnesota Governor Tim Pawlenty who recently stated, “We can start by applying what I call ‘The Google Test.’ If you can find a good or service on the Internet, then the federal government probably doesn’t need to be doing it.”
Republicans claim that private, for-profit companies can almost always do things better, and cheaper, than government. Some even go so far as to claim that we ought to privatize our highways, police forces, power and water utilities, libraries, schools, prisons and even our city governments. We’ve already turned over many military operations to private contractors. But according to Republicans, privatization doesn’t go far enough. They also want to do away with government regulations. They seem to believe that everything will work better if we just get government bureaucrats out of the way of free market enterprise.
At Democratic Perspective we have a great deal of evidence to the contrary. We’ve already shown that Social Security and Medicare are more efficient and reliable than private insurance plans. And the California Energy Crisis shows what can actually happen when we privatize a government entity and fail to regulate it:
In the mid-90s, California had almost twice the electric generating capacity it needed, and electric rates were considered reasonable. Despite that, Republicans and a few conservative Democrats decided they could lower rates, increase competition and encourage innovation by privatizing generation. So on September 23, 1996, Republican Governor Pete Wilson signed a bill into law that sold 40% of California’s power plants to private corporations and de-regulated wholesale prices for electricity.
The new owners then went about “gaming” the system to increase profits. By taking power plants offline during times of peak demand, they artificially reduced the supply and drove up wholesale prices by as much as 30 times. Yet even as the utilities responsible for delivering electricity to consumers (Pacific Gas and Electric and Southern California Edison) were forced to pay higher wholesale prices, their retail prices were capped at the previous rates. Republicans believed that once de-regulation took effect, wholesale rates would come down, and retail prices wouldn’t need to be increased.
Unfortunately, it didn’t turn out that way.
The illegal market manipulation of the generating companies resulted in a full-blown energy crisis in 2000 and 2001 with rolling blackouts. PG&E went bankrupt, more than 1,300 jobs were lost and the California Treasury had to lay out more than $20 billion to cover its inflated debt to the generating companies.
Although the fraud was eventually brought to light in a subsequent investigation, the costs of the energy crisis were never fully recovered. Enron, the company most responsible for the crisis, went bankrupt. Several of its officers were later convicted of charges not directly related to the California crisis and imprisoned. Enron’s CEO, Kenny Lay, a friend of President Bush and one of the biggest contributors to the Republican Party at the time, was convicted, but he suffered a heart attack and died before sentencing.
So what are the lessons of the California crisis and privatization?
It shows that private companies will look for ways to make more money as evidenced by this statement by Kenny Lay before his conviction, “In the final analysis, it doesn’t matter what you crazy people in California do, because I got smart guys who can always figure out how to make money.”
It also demonstrates the dangers of de-regulation. Since the Bush-Cheney administration disdained regulation, its Federal Energy Regulatory Commission refused to look into calls for an investigation. If Enron hadn’t later been forced into bankruptcy by trying to hide its losses from other fraudulent investments, the crimes it committed in California might never have been uncovered.
Finally, we believe it confirms our belief that government has a legitimate role in a decent and prosperous society. Yet that hardly makes Democrats the socialists that Republicans and the Tea Party claim. We simply believe that government and private industry both are needed, and that deciding which should be responsible for what requires common sense, not narrow, ideological preconceptions. In a democracy, it requires input from informed citizens like you.
