California’s governor Newsome just rejected PG&E’s proposal to exit bankruptcy.
At the same time, there are meme’s being shared around Facebook and other social networks that are using PG&E’s bankruptcy as an example of why capitalism and the free market does not work.
It’s the memes that’s got me fired up. Because they are dead-a$$ wrong!
But don’t go misunderstanding my position immediately – I do believe that PG&E basically failed to maintain its equipment and lines and therefore directly contributed to the loss of property, life and more.
But that’s not the free market’s fault.
PG&E was grant a MONOPOLY – that is anything but the free-market at work!
In fact, it was because they were granted a MONOPOLY that incentivized them to ignore their equipment and infrastructure.
I hear you all saying “wait, what???”.
In order to understand my thinking here, you need to back to back up a minute and ask yourself – what are the incentives that a FOR PROFIT company operates under?
The answer to that is clear and, in some ways, even enshrined in law: a for-profit company first and foremost has a fiduciary responsibility to its SHARE HOLDERS. Not it’s customers. Its SHAREHOLDERS.
If you grant a for-profit company a monopoly without STRONG oversight, it will maximize its returns to shareholders in the short term at the expense of its customers in the long term because:
- Its first responsibility is to the shareholders
- It has a monopoly and can raise prices in the long term to cover whatever losses to infrastructure is caused by its short-term neglect.
- Wall Street and shareholders encourage short-term thinking
Regulators FAILED at their only job
The only check on a for-profit monopoly is its regulators.
In this case, California’s regulators FAILED to do their jobs.
The wildfires are a direct cause of politicians and regulators not doing their jobs to keep a for-profit monopoly in check.
That is not a free-market issue. That is a monopolistic issue caused and granted by politicians.
In a free market with decent competition, there is rarely incentive to ignore your equipment and infrastructure to the point where they will burn down major portions of your customers assets and potentially give your competitors an opening.
Bottom Line: PG&E’s issues are not free-market issues. Its a monopoly issue – because regulators failed to do their jobs of forcing a monopoly to put their customers first.