Privatize the North Dakota Public Service Commission

LPND Response To Recent Controversy
2016-10-17

Privatize the North Dakota Public Service Commission

*original posting found here*

Introduction

I have made my position clear that I would like to see the Public Service Commission phased out and essentially abolished. I have received much criticism (here, here, here) for what I consider to be a rational and logical position to take when considering the economic and ethical implications. The P.S.C. is incapable of determining and guiding appropriate economic signals because it fails to take into account the subjective valuations and preferences of North Dakota citizens. The P.S.C. interferes with the natural rights of North Dakota citizens to own and control property, engage in voluntary exchange, and enter contracts. It does this through restricted land development, licensure law, price fixing, government-granted monopolies, and other unjust rules and regulations. This interference only distorts and disrupts the natural order of the free market system which allocates goods and services to their most highly demanded/valued uses. Central economic planning leads to the misallocation of goods and services, boom and bust cycles, market disorder, and chaos. The North Dakota Public Service Commission can and should be privatized.

Below includes an introduction to economic reasoning, a theoretical approach to how free markets guide economic activity, ethical reasoning for supporting the free market system, brief analysis of the justification for current monopolization of P.S.C. jurisdiction, review of historical events relating to the debate between private and public services, and many insights from my intellectual influences. This essay is my attempt to provide elaborate and clear justification for the positions I hold with regards to the North Dakota Public Service Commission and why I believe it should be abolished.

 

Economics, Scarcity, and Social Cooperation 

To have a basic understanding of economics and how the science affects the implementation of a just social order it’s critical to note the significance of scarcity. If goods were plentiful and all inhabitants of a society were able to acquire land, water, food, shelter, and any other goods without coming into conflict with other parties there would be no need for an economic system. If all individuals were able to acquire all the goods they wanted free from conflict there would be no need for buying and selling, no price system, no economic calculation, and, hence, no economy at all. But since we do live in a world of scarcity an efficient economic order must be established.

Austrian Economist and Anarcho-Capitalist Theorist, Hans-Hermann Hoppe, explains:

“Alone on his island, Robinson Crusoe can do whatever he pleases. For him, the question concerning rules of orderly human conduct – social cooperation – simply does not arise. Naturally, this question can only arise once a second person, Friday, arrives on the island. Yet even then, the question remains largely irrelevant so long as no scarcity exists. Suppose the island is the Garden of Eden; all external goods are available in superabundance. They are “free goods,” just as the air that we breathe is nominally a “free” good. Whatever Crusoe does with these goods, his actions have repercussions neither with respect to his own future supply of such goods nor regarding the present or future supply of the same goods for Friday (and vice versa). Hence, it is impossible that there could ever be a conflict between Crusoe and Friday concerning the use of such goods. A conflict is only possible if goods are scarce. Only then will there arise the need to formulate rules that make orderly – conflict free – social cooperation possible.” [1]

Hoppe continues:

“Political economy begins with the recognition of scarcity. It is only because we do not live in the Garden of Eden that we are concerned about the problem of economic efficiency. According to political economy, the most efficient means of alleviating, if not overcoming, scarcity is the institution of private property. The rules underlying this institution have been correctly identified for the most part by John Locke. They are as follows:

“Every person owns his own body as well as all scarce goods which he puts to use with the help of his body before anyone else does. This ownership implies the right to employ these scarce goods however one sees fit so long as in so doing one does not aggress against anyone else’s property, i.e., so long as one does not uninvitedly change the physical integrity of another’s property or delimit another’s control over it without his consent. In particular, once a good has first been appropriated or homesteaded by mixing one’s labor with it (Locke’s phrase) then ownership in it can only be acquired by means of a contractual transfer or property title from a previous to a later owner.” 

Hoppe concludes:

“Finally, every voluntary exchange (transfer) of appropriated or produced property from one owner to another increases social welfare. An exchange of property is only possible if both owners prefer what they acquire over what they surrender and thus expect to benefit from the exchange. Two persons gain in welfare from every exchange of property, and the property under the control of everyone else is unchanged.”… “In distinct contrast, any deviation from the institution of private property must lead to social welfare losses.” [2] [2a]

Luckily there is an economic system that recognizes and conquers the challenges of scarcity and social cooperation; Free market Capitalism.

 

Free Market Capitalism

Free market Capitalism is the economic system that allows the free exchange of property between individuals. In an economic order free from artificial (government) interference (price controls, taxes, regulations, etc.) there is free exchange of property and a continuous process of cooperation between market participants guided by supply and demand. The businesses that are most suitable (efficient) for providing for the wants of the consumer will be successful; those who are not will be encouraged to adjust practices or go out of business. This process of free exchange and competition creates an environment where there is constantly pressure on businesses to adapt to the wishes of the consumer.

Austrian Economist, Historian, and Libertarian theorist, Murray Rothbard, on Free Markets:

“The essence and glory of the free market is that individual firms and businesses, competing on the market, provide an ever-changing orchestration of efficient and progressive goods and services: continually improving products and markets, advancing technology, cutting costs, and meeting changing consumer demands as swiftly and as efficiently as possible.”

Rothbard elaborates:

“No one can predict the number of firms, the size of each firm, the pricing policies, etc., of any future market in any service or commodity. We just know – by economic theory and by historical insight – that such a free market will do the job infinitely better than the compulsory monopoly of bureaucratic government.” [3]

The only way for an economic order to function smoothly is through appropriate economic calculation which demands accurate market prices guided by the profit and loss of all market participants. If buying and selling on an open market are the blood of a healthy economy profit and loss are the veins and arteries guiding appropriate allocation.

 

Profit and Loss

The objective of every business is to make a profit. If a business does not make profits consistently it fails. So how do businesses succeed in achieving consistent profit? By providing goods and services that are demanded by the consuming public. This ability to consistently satisfy the consumer is difficult especially when the trends in preferences are subjective and change rapidly at times. But it is the profit-motive that forces individual firms and businesses to provide goods and services demanded by the consumer. Without this profit motive guiding economic activity there would be no way for businesses and entrepreneurs to accurately determine the allocation of resources.

One of the Founders of the Austrian School of Economic Thought, Ludwig von Mises, explains:

                “The preeminence of the capitalist system consists in the fact that it is the only system of social cooperation and division of labor which makes it possible to apply a method of reckoning and computation in planning new projects and appraising the usefulness of the operation of those plants, farms, and workshops already working. The impracticability of all schemes of socialism and central planning is to be seen in the impossibility of any kind of economic calculation under conditions in which there is no private ownership of the means of production and consequently no market prices for these factors.”

Mises continues:

“The problem to be solved is the conduct of economic affairs is this: There are countless kinds of material factors of production, and within each class they differ from one another both with regard to their physical properties and to the places at which they are available. There are millions and millions of workers and they differ widely with regard to their ability to work. Technology provides us with information about numberless possibilities in regard to what could be achieved by using this supply of natural resources, capital goods, and manpower for the production of consumers’ goods. Which of these potential procedures and plans are the most advantageous? Which should be carried out because they are apt to contribute most to the satisfaction of the most urgent needs? Which should be postponed or discarded because their execution of which would contribute more to the satisfaction of urgent needs?”

Mises concludes:

                “It is obvious that these questions cannot be answered by some calculation in kind. One cannot make a variety of things enter into a calculus if there is no common denominator for them. In the capitalist system all designing and planning is based on the market price.” [4]  

Without the profit and loss system there would be no market prices and, hence, no appropriate economic calculation. Intervention in this natural process distorts market signals; sometimes benefiting firms with government connections. Coincidence?

 

Interventionism & Monopoly

In the free market system no business is able to establish a “natural monopoly” which so many use as justification for government control and regulation of numerous industries. Only when government intervenes in the free market system are there conditions for monopolies to arise.

Murray Rothbard explains:

                “It is clear that the term “monopoly” properly apples only to governmental grants of privilege, direct and indirect. Truly gauging the extent of monopoly in an economy means studying the degree and extent of monopoly and quasi-monopoly privilege that the government has granted.

                American opinion has been traditionally “antimonopoly.” Yet it is clearly not only pointless but deeply ironic to call upon the government to “pursue a positive antimonopoly policy.” Evidently, all that is necessary to abolish monopoly is that the government abolish its own creations.

                It is certainly true that in many (if not all) cases the privileged businesses or laborers had themselves agitated for the monopolistic grant. But it is still true that they could not become quasi monopolists except through the intervention of the State that must bear prime responsibility.” [5] (emphasis my own)

Support in favor of State-intervention undermines the voluntary actions of all market participants.

Murray Rothbard:

“{The} view (that free-market action must be brought back into optimality by corrective State action) completely misconceives the way in which economic science asserts that free-market action is ever optimal. It is optimal, not from the standpoint of the personal ethical view of an economist, but from the standpoint of the free, voluntary actions of all participants and in satisfying the freely expressed needs of the consumers. Government interference, therefore, will necessarily and always move away from such an optimism.” [6]

For historical context I turn to Professor of Economics at Loyola University Maryland and Senior Fellow at the Ludwig von Mises Institute, Thomas DiLorenzo.

In his Journal article, ‘The Myth of Natural Monopoly’, Professor Dilorenzo describes the Common Misunderstanding of Monopolies:

“It is a myth that natural-monopoly theory was developed first by economists, and then used by legislators to “justify” franchise monopolies. The truth is that the monopolies were created decades before the theory was formalized by intervention-minded economists, who then used the theory as an ex post rationale for government intervention. At the time when the first government franchise monopolies were being granted, the large majority of economists understood that large-scale, capital-intensive production did not lead to monopoly, but was an absolutely desirable aspect of the competitive process.

The word “process” is important here. If competition is viewed as a dynamic, rivalrous process of entrepreneurship, then the fact that a single producer happens to have the lowest costs at any one point in time is of little or no consequence. The enduring forces of competition — including potential competition — will render free-market monopoly an impossibility.

The theory of natural monopoly is also ahistorical. There is no evidence of the “natural-monopoly” story ever having been carried out — of one producer achieving lower long-run average total costs than everyone else in the industry and thereby establishing a permanent monopoly. As discussed below, in many of the so-called public-utility industries of the late 18th and early 19th centuries, there were often literally dozens of competitors.” [7] (emphasis my own)

Later in the article Dilorenzo points out that all major economists of the 19th century (by the late 1880’s there were roughly only 10 full-time professional economists in the U.S.) were in agreement that natural monopolies were nowhere developed and it was only government involvement that created such an environment.

Dilorenzo writes:

“During the late 19th century, when local governments were beginning to grant franchise monopolies, the general economic understanding was that “monopoly” was caused by government intervention, not the free market, through franchises, protectionism, and other means.”…

“Richard T. Ely, cofounder of the American Economic Association, wrote that “large scale production is a thing which by no means necessarily signifies monopolized production.” [8] John Bates Clark, Ely’s cofounder, wrote in 1888 that the notion that industrial combinations would “destroy competition” should “not be too hastily accepted.” (9)

“Herbert Davenport of the University of Chicago advised in 1919 that only a few firms in an industry where there are economies of scale does not “require the elimination of competition,”[10] and his colleague, James Laughlin, noted that even when “a combination is large, a rival combination may give the most spirited competition” [11] Irving Fisher [12] and Edwin R.A. Seligman[13] both agreed that large-scale production produced competitive benefits through cost savings in advertising, selling, and less cross-shipping.” …

“Large-scale production units unequivocally benefited the consumer, according to turn-of-the-century economists. For without large-scale production, according to Seligman, “the world would revert to a more primitive state of well being, and would virtually renounce the inestimable benefits of the best utilization of capital.” [14] Simon Patten of the Wharton School expressed a similar view that “the combination of capital does not cause any economic disadvantage to the community. … Combinations are much more efficient than were the small producers whom they displaced.” [15]

“David A. Wells, one of the most popular economic writers of the late 19th century, wrote that “the world demands abundance of commodities, and demands them cheaply; and experience shows that it can have them only by the employment of great capital upon extensive scale.” [16]

“And George Gunton believed that “concentration of capital does not drive small capitalists out of business, but simply integrates them into larger and more complex systems of production, in which they are enabled to produce … more cheaply for the community and obtain a larger income for themselves. … Instead of concentration of capital tending to destroy competition the reverse is true. … By the use of large capital, improved machinery and better facilities the trust can and does undersell the corporation.” [17]

The significance of these views should be self-evident. The 10 most important economists of the 19th century, a time that experienced the greatest period of economic growth in U.S. history (1870-1920), viewed open market competition as an appropriate process of efficient economic activity. In order to have an appropriate understanding of economic order and peaceful social cooperation it is also necessary to distinguish the difference between private and public property; a distinction not well understood by many.

 

Private vs. Public Property

How property is owned and controlled is the most basic and definitive feature of how a society is to function. Private property is that which has been acquired legitimately (according to homestead/first user appropriation principles) and can be controlled without consent from others. It is critical for a social order to recognize and respect the ability of individuals to own and control property since this process determines boundaries of civilized cooperation. Failure to identify and respect boundaries leads to social conflict; this is why private property leads to peaceful social cooperation and voluntary interaction instead of forced integration.

The concept of public property is inherently dysfunctional. Control and use of public land can never be agreed upon by all “owners” leading to continuous conflict over “appropriate” land development and control. If individuals were refrained from using property unless they had the consent from all of the “public” owners we would all literally be standing still unable to move. No individual would be able to occupy any space without the consent of all of society. Public property guarantees social conflict; private property promotes boundaries of order.

Professor at Southwestern University School of Law, Butler Shaffer, on the Importance of Property Boundaries:

                “This self-limiting nature of property boundaries is a crucial concept to grasp if one is to understand how privately-owned property is an essential system for harmonizing individual liberty and societal peace. “Life” requires both cooperation and separation from other living beings, particularly members of our own species. A system of property is the social expression of this fact of nature – just as it is with other species – affording a principle for informally allocating the spatial and energy consumption needs of all life-sustaining activity.

He continues:

                “We are so accustomed to living under political systems that introduce division and conflict into our world by separating our lives and our property interests from our individual control, that we accept divisive definitions of property. Because the state trespasses upon us by presuming the authority to control our lives, we come to believe that such transgressions are an integral part of property ownership. We have become so conditioned to the practice of the state defining the legal scope of our decision making, that most of us cannot comprehend the idea of property as a self-defining system of social order. We conflate what is legal with what is rightful, and become insensitive to trespasses upon our property interests, and disrespectful of the boundaries of others. We become more concerned with what the law demands of us than with what we, or our neighbors, desire to do with what is ours.” [18]  

 From this economic and ethical reasoning rational applications can be developed.

 

North Dakota Public Service Commission Jurisdiction

 

Abandoned Mine Lands

The ND P.S.C. website writes of its jurisdiction over abandoned mine lands:

“The mission of the Abandoned Mine Lands Division is to eliminate potential or existing hazards associated with abandoned coal mines in North Dakota for which there is no continuing liability under state or federal law. The nature of this mission is not regulatory but rather service-oriented.” [19]

When the P.S.C. claims control (regulatory or service-oriented) over land and forces North Dakota tax-payers to finance the cost of land development and/or care it is doing two harmful things. First, it is forcing North Dakota citizens to finance (subsidize) certain services they may not agree with and almost certainly will never be able to use. I certainly have never used (nor do I plan to use) any abandoned land mines currently held under P.S.C. jurisdiction. The second harmful result of this action is the P.S.C. has essentially removed a good (land) from possible private investment; limiting its use and distorting the natural price.

Lands should be returned to past property owners if documentation can be provided proving expropriation of land confiscation. This process has taken place before; most notably in the former Soviet Union’s vassal states, such as East Germany, Czechoslovakia, Poland, etc. Land unable to be legitimately claimed by rightful past owners shall be divided into shares and awarded to North Dakota tax-payers according to percentage of total taxes paid. (Individual taxes paid {x} divided by total taxes collected {y} equals percentage {a} of shares owned {x/y = a}) Since structures on land (mostly) cannot be physically separated any capital improvements (buildings, fences, other structures) located on newly privatized land will be considered added value to property appraised by private sector agency (possibly multiple). But what would these newly-created property owners do with their acquired land shares?

Hans-Hermann Hoppe, explains:

“It is practically impossible for anyone to reach a realistic appraisal of the “correct” price of an individual share in this property. Consequently, the prices asked and paid for such shares would be highly indeterminate and widely fluctuating and divergent, at least initially; and it would be rather unwieldy and highly time-consuming until some investor or group of investors had bought up the majority of all shares in order to then begin operating or selling off parts of this property to earn a return on its investment.”

He continues:

“This difficulty can be overcome by bringing the idea of original appropriation back into play. The titles in the hands of net taxpayers are not only saleable tickets. More importantly, they entitle their owners to repossess formerly public and now-vacated property. Public property (mine land) is opened to original appropriation, and the tickets are claims to vacated, momentarily unowned public property. Everyone can take his titles to specific pieces of public property (mine land) and register as their owner. Since the first one to register with a particular piece of property would be its initial owner, it is assured that all pieces of public property (mine land) would be almost instantly repossessed. More specifically, most public property (mine land) would thus, at least initially, come to be owned by local resident, i.e., by people living in close proximity to a given piece of property and most knowledgeable concerning its potential value productivity.”

Hoppe concludes:

“Moreover, because the value per property share increasingly falls as additional ticket-holders register with one and the same piece of property, and over-subscription or under-subscription of specific properties would be avoided or weeded out quickly. Very quickly, each piece of property would be appraised realistically according to its value productivity.” [20] [20a]

Also, since the salaries and land management in the public sector were financed by private sector participants (through taxation) public sector employees will have no claim to newly privatized land. They may keep their already established private property but would not be awarded any property titles to former public lands.

Auction

The North Dakota Public Service Commission website states:

“(T)he North Dakota Century Code requires that people be licensed and bonded before they function as an auctioneer or auction clerk in the state. The Commission is responsible for administering these laws and thereby ensuring that people who buy or sell merchandise at public auctions are treated fairly.” [21] (emphasis my own)

Participants in an auction should be able to determine the qualifications and credibility of the person(s) running it. Auctioneers, businesses, and attendees could establish contracts between themselves determining the specifics of their business arrangements. Failure to abide by set guidelines may constitute a breach of contract which would result in punishment stated according to the specifics of the contracts established. Private rating agencies would be able to award rates of service determined by customer approval and feedback providing incentives for businesses to operate honestly and efficiently while assisting consumers in evaluating the reputations of businesses.

This process can and should be applied to all industries. When the State limits market entry it restricts the ability of individuals to make their own decisions regarding how they wish to live their lives and cooperate with others. Licensure law is a prime example.

Austrian Economist, Harold E. Wirth Eminent Scholar Endowed Chair in Economics at Loyola University, Walter Block explains:

                “This legislation is an attempt to restrict the actions of others so that the value of one’s own property can be enhanced or stabilized. If entry into the industry of potential competitors can be precluded, one’s wealth increases. Naturally, this motivation is disguised, hidden behind a plethora of “public interest” billingsgate.” [22]

Auctions can and should be managed by individual property owners without the involvement of the ND P.S.C.

 

Coal mining

The justification for the ND P.S.C. to regulate coal mining is to ensure participants in the industry: 1. Are environmentally sound and minimize adverse effects 2. Protect public interest and the rights of property owners 3. Return mined lands to beneficial uses, and 4. Restore the productivity of mined agricultural lands to premine (?) levels. [23] These expectations can be met by private sector participants and do not require the bureaucratic management of the P.S.C.

  1. The most efficient way to protect the environment is by establishing a system that recognizes, respects, and enforces individual property rights. If individuals are allowed to own and control property they have an incentive to monetize, protect, and take care of it. This includes using land for the benefit of the consuming public but also refraining from damaging or destroying their source of newly created wealth; their private property. Excessive environmental regulations stifle innovation and investment hindering business’s opportunity to create new environment-friendly production practices and production. These excessive regulations restrict market competition creating unfair advantages for already established (well-connected) businesses and corporations leading to even less innovation and new technology.
  2. The public is made up of individual’s with subjective interests meaning there is no such thing as “public interest”; there are only individual interests. Therefore, economic and ethical standards should be based on how they immediately affect the lives of the individual. Claiming to protect the rights of property owners by forcing them to abide by arbitrary rules and regulations is a contradiction. Individual property rights can only be protected by allowing individuals to own and control property, engage in voluntary exchange on an open market, and establish contacts.
  3. “Return mine lands to” original (rightful) property owners or award tradable property titles to North Dakota tax-payers.
  4. Public land should be returned to original (rightful) property owners through review of tax records and documents or be awarded to North Dakota tax-payers through tradable property titles. New private property owners and/or shareholders should be responsible for all control of lands.

Murray Rothbard on Environmentalism and the Free Market:

“The environmentalists and conservationists totally fail to realize that the free-market economy contains within itself an automatic principle for deciding the proper degree of conservation.”

                “Let us consider, for example, a typical copper (or coal) mine. We do not find copper (coal) miners, once they have found and opened a vein of ore, rushing to mine all the copper immediately; instead, the copper mine is conserved and used gradually, from year to year. Why is that? Because the mine owners realize that if they, for example, triple this year’s production of copper (coal), they will indeed triple this year’s revenue, but they will also deplete the mine and therefore lower the monetary value of the mine as a whole. The monetary value of the mine is based on the expected future income to be earned from the production of copper (coal), and if the mine is unduly depleted, the value of the mine, and therefore the selling price of the shares of stock in the mine, will fall. Every mine owner, then, has to weigh the advantages of immediate income from copper (coal) production against the loss of capital value of the mine as a whole. Their decision is determined by their expectation of future yields and demands for their product, the prevailing and expected rates of interest, etc. if, for example, copper (coal) is expected to be rendered obsolete in a few years by a new synthetic metal (fuel), they will rush to produce more copper (coal) now when it is more highly valued and save far less for the future when it will have little value – thus benefiting the consumers and the economy as a whole.”

Rothbard continues:

                “If, on the other hand, various veins of copper (coal) is, therefore, expected to have a higher value in the future, less will be produced now and more withheld for future mining – again benefiting the consumers and the overall economy. Thus, we see that the market economy contains a marvelous builit-in mechanism whereby the resource owners’ decision on present as against future production will benefit not only their own income and wealth, but also that of the mass of consumers and of the national and world economy.” [24]

The free market economic system is most capable of promoting and protecting environmental safety, the only system that inherently respects individual property rights, and assures the most beneficial processes of land use will be implemented.

Damage Prevention

Life is not free from risk therefore individuals have to make choices every day regarding their own safety. Damage prevention is the responsibility of every member of the North Dakota workforce. Business owners, managers, and employees all participate, at some level, in damage prevention. Property manipulation including construction and trenching are no different. Property owners should be responsible for the safety of anyone entering property boundaries.

Private sector rating agencies are capable of measuring risk and rating businesses according to reputation and safety standards established through market mechanisms. Insurance companies are also the most appropriate agencies to determine risk factors associated with certain business practices and land development and participate in peaceful conflict resolution.

Hans-Hermann Hoppe on the Potential of Insurance Agencies to Promote Peace and Cooperation:  

                “(B)ecause competing insurers and law codes could and would disagree regarding the merit of at least some of the cases brought jointly before them, every insurer would be compelled to submit itself and its clients in these cases from the outset to arbitration by an independent third party. This third party would not just be independent of the two disagreeing parties, however. It would at the same time be the unanimous choice of both parties. And as objects of unanimous choice, artibtrators then would represent or even personify “consensus” and “aggreability.” They would be agreed upon because of their commonly perceived ability of finding and formulating mutually agreeable, i.e., “fair” solutions in cases of intergroup disagreement. Moreover, if an arbiter failed in this task and arrived at conclusions that were perceived as “unfair” or “biased” by either one of the insurers and/or their clients, this person would not likely be chosen again as an arbiter in the future.”

He continues:

                “Consequently, protection and security contracts would come into existence as the first fundamental result of competition between insurers for a voluntarily paying clientele. Insurers (unlike states) would offer their clients contracts with well-specified property and product descriptions and clearly defined and delineated duties and obligations. Likewise, the relationship between insurers and arbitrators would be defined and governed by contract. Each party to a contract, for the duration or until fulfillment of the contract, would be bound by its terms and conditions; and every change in terms or conditions of a contract would require the unanimous consent of all parties concerned.” [25]  

Damage prevention is most efficiently managed through free market process involving individual property owners, business firms, rating agencies, and insurance companies.

 

Electric and Gas

The justification for the ND P.S.C. to regulate ‘Electric and Gas’ is to ensure: 1. Regulation of the rates, terms and conditions of retail electric service provided by investor owned utilities (IOU’s). The Commission does not have jurisdiction to regulate rates, terms and conditions for rural electric cooperatives (REC’s) or municipal providers 2. Prescription and enforcement of safety requirements for electric service provided by all providers 3. Resolution of territorial disputes between IOU’s and REC’s 4. Siting of energy conversion and transmission facilities. [26]

  1. The P.S.C. is incapable of setting appropriate rates, terms, and conditions for any business. If the P.S.C. sets prices too high for services of energy providers (or other industries) clients will seek the business of alternative energy options (if any are available). If an energy provider has a government-granted monopoly and is free from competition they will have no incentive to innovate, expand research and development, or improve goods or services; negatively affecting business activity. If the P.S.C. sets prices too low for the services of energy providers (or other industries) the profits made by the business will not be enough to cover the costs of production. Appropriate economic signals can only be reached if market participants (producers and consumers) are able to engage in open transactions to establish market prices. These market prices are what guide production and investment. Without market prices there can be no accurate economic calculation. If economic calculation is distorted both businesses and consumers suffer the misallocation of resources and experience market disorder. The only way for goods and services to be allocated efficiently is through free market competition; the P.S.C. is inherently anti-free market.
  2. As with bureaucratic environmental regulations, safety regulations are no different. Safe working environments are of upmost importance for any business that wants to operate efficiently and effectively. Accidents are the result of poor working conditions, lack of training, and/ or negligence which lead to poor reputations and financial losses. All businesses succeed by increasing profits, therefore, if a business wishes to succeed it must operate smoothly which includes providing adequate training and safe working conditions for its employees and customers. Rating agencies and Insurance companies would also provide incentives for businesses to provide the highest quality of practices; including safe working conditions.
  3. Territorial disputes can and should be settled by individual property owners through property titles and contract enforcement. No company should receive government subsidies, therefore, all property development would be done so voluntarily.
  4. Siting can and should be done by private property owners. Land owners and energy companies can engage in contracts regarding property to be used for construction or other land development. It is only in the ability of individuals to own and control property that results in the appropriate allocation of scarce resources.

Common opposition to free market capitalism is based on the belief that “natural monopolies” are the result of open market competition. This allegedly leads to the inability of the public to be able to pursue different sources of goods and services outside the jurisdiction of the monopolist; this is a myth.According to Economist, Walter J. Primeaux, who studied electric utility competition for more than 20 years, competition is what drives efficient services; no bureaucracy.

In his book, ‘Direct Utility Competition’, Primeaux shows that in cities where there is direct competition in the electric utility industry:

–          Direct rivalry between two competing firms has existed for very long periods of time — for over 80 years in some cities;

–          The rival electric utilities compete vigorously through prices and services;

–          Customers have gained substantial benefits from the competition, compared to cities where there are electric utility monopolies;

–          Contrary to natural-monopoly theory, costs are actually lower where there are two firms operating;

–          Contrary to natural-monopoly theory, there is no more excess capacity under competition than under monopoly in the electric utility industry;

–          The theory of natural monopoly fails on every count: competition exists, price wars are not “serious,” there is better consumer service and lower prices with competition, competition persists for very long periods of time, and consumers themselves prefer competition to regulated monopoly; and Any consumer satisfaction problems caused by dual power lines are considered by consumers to be less significant than the benefits from competition. [27]

Thomas Dilorenzo elaborates:

“Ten years after the publication of Primeaux’s book, at least one state — California — is transforming its electric utility industry “from a monopoly controlled by a handful of publicly held utilities to an open market.” [28] Other states are moving in the same direction, finally abandoning the baseless theory of natural monopoly in favor of natural competition: [29]

–          The Ormet Corporation, an aluminum smelter in West Virginia, obtained state permission to solicit competitive bids from 40 electric utilities;

–          Alcan Aluminum Corp. in Oswego, New York has taken advantage of technological breakthroughs that allowed it to build a new power generating plant next to its mill, cutting its power costs by two-thirds. Niagara Mohawk, its previous (and higher-priced) power supplier, is suing the state to prohibit Alcan from using its own power;

–          Arizona political authorities allowed Cargill, Inc. to buy power from anywhere in the West; the company expects to save $8 million per year;

–          New federal laws permit utilities to import lower-priced power, using the power lines of other companies to transport it;

–          Wisconsin Public Service commissioner Scott Neitzel recently declared, “free markets are the best mechanism for delivering to the consumer … the best service at the lowest cost”;

–          The prospect of future competition is already forcing some electric utility monopolies to cut their costs and prices. When the TVA was faced with competition from Duke Power in 1988, it managed to hold its rates steady without an increase for the next several years.

“The potential benefits to the US economy from de-monopolization of the electric utility industry are enormous. Competition will initially save consumers at least $40 billion per year, according to utility economist Robert Michaels. [30] It will also spawn the development of new technologies that will be economical to develop because of lower energy costs. For example, “automakers and other metal benders would make much more intensive use of laser cutting tools and laser welding machines, both of which are electron guzzlers.” [31]

All property should be privately owned and no manipulation of property should be done without the consent of the property owner. Conditions would be established between parties to determine appropriate methods of property development and businesses arrangements. Electric lines (overhead or underground) can (and have) been routed through private property in exchange for compensation; this is a valid contract respecting the property rights of those involved. This again emphasizes the importance of peaceful exchange and contracts. Businesses that provide the best goods for the cheapest prices will be rewarded with success and those who fail to do so will be punished with losses; this is the natural market order.

 

Grain

State law requires that grain elevators, grain buyers, and hay buyers be licensed and bonded and regulation of these entities is said to be of the intention to “protect the people who sell grain to, or store grain in, the warehouses” and is enforced within a framework that “minimizes negative economic impacts on related industries and individual entities”. Also, in a recent news release from the P.S.C., it made the following statement:

“The Commission encourages farmers to sell grain only to grain warehouses and grain buyers that are licensed and bonded by the North Dakota PSC.  If a farmer sells grain to an unlicensed buyer and is not paid, the only recourse available may be action in civil court. The PSC encourages farmers to know their rights and responsibilities, keep accurate records, and know who they are doing business with. A license can be verified via the PSC’s website at www.psc.nd.gov (Click on “grain” on the left side of the screen) or by calling 701-328-2400. Farmers are also reminded to make sure they are paid for their grain in a timely manner or have signed a valid credit-sale contract.[32] (emphasis my own)

First, it is important to note that grain production and trade has been around for thousands of years (most of that time without government commissions). Early civilizations used grains for, not only food, but as a medium of exchange as well. The process of production, storage, and trade has evolved but the overall concepts are still the same: Farmers plant crops (invest capital) with long-term time preferences in pursuit of substantial returns (profits) during harvest. Farmers either bring their crop to market or store their crop with intentions of making greater gains in later market opportunities. This process has been repeated throughout the seasons since the agrarian era.

The justification for the P.S.C. to administer jurisdiction over “Grain” is insufficient. A market economy is the only system capable in providing “protection” against fraud and “minimizing negative economic impacts on related industries and individual entities.” A private-sector (non-government-licensed) grain warehouse would have profit incentive to provide the highest quality of service to its clientele. In order for this private warehouse to perform and operate within the guidelines of consumer demand it would have to continuously prove itself capable of consumer satisfaction including substantial financial overhead, efficient and safe storage facilities, secure locations, clear customer service communication, and more.

Ludwig von Mises, Explains the Process of Successful Business Activity in a Free Economy:

“Capitalism or market economy is that system of social cooperation and division of labor that is based on private ownership of the means of production. The material factors of production are owned by individual citizens, the capitalists and the landowners. The plants and the farms are operated by the entrepreneurs and the farmers, that is, by individuals or associations of individuals who either themselves own the capital and the soil or have borrowed or rented them from the owners. Free enterprise is the characteristic feature of capitalism. The objective of every enterpriser – whether businessman or farmer – is to make profit.”

He continues:

“The capitalists, the enterprisers, and the farmers are instrumental in the conduct of economic affairs. They are at the helm and steer the ship. But they are not free to shape its course. They are not supreme, they are steersmen only, bound to obey unconditionally the captain’s orders. The captain is the consumer.” …

                “The real bosses, in the capitalist system of market economy, are the consumers. They, by their buying and by their abstention from buying, decide who should own the capital and run the plants. They determine what should be produced and in what quantity and quality. Their attitudes result either in profit or in loss for the enterpriser.”

He concludes:

“The profit motive is precisely the factor that forces the businessman to provide in the most efficient way those commodities the consumers want to use.” …

                “Profit and loss are the instruments by means of which the consumers keep a tight rein on all business activities.” [33]  

In the setting where a private warehouse were to operate most successfully (a free market economy) it would have to establish contracts with its clientele and abide by those contracts consistently if it were to earn a positive business reputation and continue its practices. Any fraudulent activity, breach of contracts, or inconsistency in business practices would result in customer dissatisfaction and financial losses. These financial losses are a signal to the business it must adapt its practices to meet consumer demand. Failure to do so would result in failure i.e. bankruptcy.

 

Pipelines

The North Dakota P.S.C. website states:

“The Commission’s statutory responsibilities concerning pipelines in North Dakota include: 1. Establishment and enforcement of rates or charges and regulations by common pipeline carriers for receiving, gathering, transporting, loading, delivering, and incident storing of crude petroleum, coal or gas purchased or sold in North Dakota; and 2. Enforcement of safety requirements for intrastate distribution and transmission of natural gas.” [34]

  1. “Establishing and enforcing rates” can only be done accurately on a free and open market. Artificial price-fixing by a centrally-planned authority (P.S.C.) is completely arbitrary and results in inaccurate market signals and misguided economic activity. These results may be as obvious as excessively high prices, poor business activity, boom and bust cycles, shortages, or result in consequences that are not initially seen such as malinvestment and misallocation of scarce resources (property, labor, capital, etc.) One of the most common problems of government involvement in the economic and social affairs of individuals is its failure to foresee and acknowledge unintended consequences. This is what French Philosopher, Frederic Bastiat, termed “That which is seen and that which is unseen” in his famous book, ‘The Law’, and former editor of the New York Times and Austrian Economist, Henry Hazlitt, elaborated on in his influential book on economics, ‘Economics in One Lesson’.

 

  1. Safety standards can be met through private sector processes including protection of property rights, contract enforcement, rating agencies, and an extended role of insurance companies. Any individual or business that wishes to enter the pipeline market would have to enter contracts with other market participants. Failure to abide by set contracts would result in punishment enforced by established court system. Private sector rating agencies would determine guidelines of business activity for specific quality ratings made available to the public. These rating agencies would develop positive or negative reputations over time by consumer evaluation and feedback. These rating agencies would create environments where, if a business wishes to succeed, they will abide by set guidelines that have been developed by the consuming public. All business activity includes risk and insurance companies are the most qualified institutions to measure risk, therefore, there is a key role for insurers in working with private rating agencies and contract logistics and enforcement. Insurance companies would work with rating agencies to determine appropriate insurance coverage, rates, and other logistics. Rating agencies and insurance companies would be able to promote and/or endorse certain associations that meet their guidelines.

Pipeline routing and construction can and should be done so through the guidance of free market principles; specifically the individual preference and valuations of property owners involved in the process. Any forced confiscation of property (i.e. land or financing) is theft; an unjust process of resource appropriation. What is to be considered appropriate economic activity can only be done through the voluntary actions of all market participants.

 

Railroad

The North Dakota P.S.C. website states:

“State law provides that the Public Service Commission is the state agency that is charged with representing North Dakota’s rail interests before federal agencies and in direct negotiations with rail carriers. The Commission also has jurisdiction over specific safety and landowner rights matters.

The Commission’s regulatory authority over railroads diminished as a result of the enactment of the federal Staggers Rail Act in 1980 and the Interstate Commerce Commission (ICC) Termination Act in 1995. The 1995 enactment eliminated many ICC functions and transferred all remaining duties to the Surface Transportation Board (STB) within the Department of Transportation.” [35]

Railroad regulation and authority has (for the most part) been absorbed by the federal Dept. of Transportation; this is even more damaging to the individual property rights of North Dakota citizens by taking control away from local property owners allowing special interests in Washington to claim authority. All railroads in North Dakota (and other States) should be owned, controlled, and operated by private sector participants. The railroad industry has been one of the most obvious examples of the inherent flaws and inadequacy of bureaucratic management. Since the beginning of the industrial revolution the railroad industry has been consumed by bureaucratic mismanagement leading to inefficiency, lack of innovation, poor services, fraud, waste, and corruption. There was one railroad company, however, that seemed to stand out against the rest; James J. Hill’s Great Northern.

Historian Burton W. Folsom, Jr. writes of Hill and the Great Northern in his book, ‘The Myth of the Robber Barons: A New Look at the Rise of Big Business in America’:

“In the depression year of 1893, all the transcontinental owners but Hill were lobbying in Congress for more government loans. To one of them Hill wrote, “The government should not furnish capital to these companies, in addition to their enormous land subsidies, to enable them to conduct their business in competition with enterprisers that have received no aid from the public treasury.” He proudly concluded, “Our own line in the North … was built without any government aid, even the right of way, through hundreds of miles of public lands, being paid in cash.” [36] [36a]

Shortly after Hill wrote this, the Union Pacific, the Northern Pacific, and the Santé Fe all went bankrupt and had to be reorganized. This didn’t surprise Hill; he gloated, “You will recall how often it has been said that when the Nor Pac, Union Pac, and other competitors failed, our company would not be able to stand… Now we have them all in bankruptcy … while we have gone along and met their competition.” In fact, the efficient Hill cut his costs 13 percent form 1894-1895.”

Folsom continues:

“Hill criticized the grab for subsidies, but here is the ironic twist: those who got federal aid ended up being hung by the strings that were attached to it. In other words, there is some cause and effect between Hill’s having no subsidy and prospering and the other transcontinental getting aid and going bankrupt. First, the subsidies, whether in loans or land, were always given on the basis of each mile completed. In this arrangement, as we have seen, the incentive was not to build a quality line, as Hill did, but to build quickly to get the aid. This resulted not only in poor built lines but in poorly surveyed lines as well. Steep gradients meant increased fuel costs; poor building meant costly repairs and accidents along the line. Hill had no subsidy, so he built slowly and methodically. “During the past two years,” Hill said in 1884, “we have spent a great deal of money for steel rails, ballasting track, transfer yards, terminal facilities, new equipment, new shops, and in fact we have put the road in better condition than any railway similarly situated that I know of…” Hill, then, had lower fixed costs than did his subsidized competitors.” [37]  [37a] (emphasis my own)

It should be clear that railroad ownership and control can be, and has been, managed efficiently by private sector participants. The history of transcontinental railroad production, financing, and competition is one of the closest examples of a “case study” on the private sector outperforming the public sector at every turn. Government management is inherently dysfunctional and the more economic freedom, the better-off a society will become.

 

Siting

All siting and planning for future land development can and should be administered through the coordination of property owners guided by natural market signals. As discussed already, this is the most efficient and just system of resource allocation.

 

Telecommunications

From the North Dakota Public Service Commission website:

“The Public Service Commission has traditional regulatory authority, including authority over rates, terms and conditions of service, for only one telecommunications company, which has opted for this traditional regulation. Similar traditional regulation is applicable to the access service provided by other cooperative and small investor-owned companies that have chosen this traditional regulation for their access service. The access service of all others, and the access and local services provided by Qwest, are price capped by law, although company election of traditional regulation still remains an option. Except for disconnect issues, the rates, terms and conditions of the local telecommunications service of small investor-owned companies and cooperatives are outside the Commission’s jurisdiction.

Long distance service has been transitioning to a competitive market for many years, and since 1996 by federal mandate, local service is following the same path. The Public Utilities Division implements the Commissions growing role in resolving disputes between companies arising out of the transition to competition.” [38]  (emphasis my own)

As stated before, price-fixing is only a temporary distortion of appropriate economic signals which leads to misguided economic activity. The P.S.C. should not have the authority to manipulate prices of any service or good; accurate price systems are only established on a free and open market based on the subjective valuation and preferences of individuals. However, it’s somewhat encouraging to see even the P.S.C. consenting to a “transition to a competitive market”; this is what I’m advocating but on a much larger scale.

 

Weights and Measures

From the North Dakota Public Service Commission website:

“The Commission promotes fairness in the marketplace by enforcing state and federal laws governing the installation and operation of commercial weighing and measuring devices.” [39] (emphasis my own)

“Promotes fairness” by restricting the ability of North Dakota citizens to own and control property, engage in voluntary exchange, and establish contracts? Again, the private sector, which produced the goods and services to be weighed and measured, are capable of “promoting fairness in the marketplace”. This is an essential feature of contract enforcement; a system the free market inherently promotes. If a business that uses scales somehow manipulates the readings of accurate measurement, delivering false information to its clientele, it is engaging in dishonest business activity; activity that should be punished under a just court system.

Were businesses that use weights and measures to be privately rated by agencies suited for such evaluation the above situation could be limited or avoided. Granted, there will always be swindlers and shysters who attempt to gain at others expenses but with a system set up to discourage and punish these dishonest business activities they would be unable to administer substantial financial threats to major industries and the consuming public.

 

Conclusion

The study of political economy attempts to discover the most efficient process of the allocation of resources. The study of political philosophy attempts to discover how to establish a just social order. Free markets provide both the efficient allocation of resources and a just social order.

Historical evidence proves that all “public goods” or “utilities” have been provided by private entrepreneurs in the past. The continued support for the true monopoly control by government decree should be firmly discredited and refuted. There is no need for government to provide, regulate, or control utilities markets. Goods and services that are desired by the consuming public have, can, would, and should be met by private sector participants competing on a free and open market. When all scarce resources are allocated through natural market processes, economic efficiency is the result. When all individuals are allowed to own and control property, engage in voluntary transactions, and establish contracts, a superior system of justice is the result. A free market society will not be perfect but it will prove superior in establishing a peaceful, prosperous, and just social order.

Abolish the North Dakota Public Service Commission

Sources:

  1. Hans-Hermann Hoppe, The Economics and Ethics of Private Property (The Ludwig von Mises Institute, 2006) p. 332
  2. Hans-Hermann Hoppe, The Great Fiction: Property, Economy, Society, and the Politics of Decline (Laissez-Faire Books, 2012) p. 9-1
    1. Hoppe audio/video on The Great Fiction
  3. Murray Rothbard, For a New Liberty: A Libertarian Manifesto (Ludwig von Mises Institute 2006) p. 242-243
  4. Ludwig von Mises, Bureaucracy (Liberty Fund, Inc. 1972) p. 17-19
  5. Murray Rothbard, Man, Economy, and State (Ludwig von Mises Institute 2004) p. 1143
  6. Ibid, p.887
  7. Thomas DiLorenzo, The Myth of Natural Monopolies, The Review of Austrian Economics 9 (2) 1996
  8. Richard T. Ely, Monopolies and Trusts (New York: MacMillan, 1990), p. 162.
  9. John Bates Clark and Franklin Giddings, Modern Distributive Processes (Boston: Ginn & Co., 1888), p. 21.
  10. Herbert Davenport, The Economics of Enterprise (New York: MacMillan, 1919), p. 483.
  11. James L. Laughlin, The Elements of Political Economy (New York: American Book, 1902), p.71.
  12. Irving Fisher, Elementary Principles of Economics (New York: MacMillan, 1912), p. 330.
  13. E.R.A. Seligman, Principles of Economics (New York: Longmans, Green, 1909), p. 341.
  14. Ibid, p. 97.
  15. Simon Patten, “The Economic Effects of Combinations,” Age of Steel, Jan. 5, 1889, p. 13.
  16. David A. Wells, Recent Economic Changes (New York: DeCapro Press, 1889), p. 74.
  17. George Gunton, “The Economics and Social Aspects of Trusts,” Political Science Quarterly, September 1888, p. 385.
  18. Butler Schaffer, Boundaries of Order: Private Property as a Social System (Ludwig von Mises Institute 2009) p. 91-92
  19. http://www.psc.nd.gov/jurisdiction/aml/index.php
  20. Hans-Hermann Hoppe, The Great Fiction (Laissez Faire Books, 2012), p.97-98
    1. Hoppe audio/video on The Great Fiction
  21. http://www.psc.nd.gov/jurisdiction/auctions/index.php
  22. Walter Block, Building Blocks for Liberty (Libertas Publishing 2006) p. 12
  23. http://www.psc.nd.gov/jurisdiction/coalmining/index.php
  24. Murray Rothbard (Egalitarianism: As A Revolt Against Nature) The Ludwig von Mises Institute 2000. p.182-183
  25. Hans-Hermann Hoppe, Democracy, The God That Failed) Transactions Publishers, New Brunswick, New Jersey 2007) p.251-252
  26. http://www.psc.nd.gov/jurisdiction/electricgas/index.php
  27. Walter J. Primeaux, Jr., Direct Electric Utility Competition: The Natural Monopoly Myth (New York: Praeger, 1986), p. 175.
  28. “California Eyes Open Electricity Market,” The Washington Times, May 27, 1995, p. 2.The following information is from Toni Mack,
  29. “Power to the People,” Forbes, June 5, 1995, pp. 119-126.
  30. Ibid., p. 120.
  31. Ibid., p. 126.
  32. http://www.psc.nd.gov/jurisdiction/grain/index.php
  33. Ludwig von Mises, Bureaucracy(Liberty Fund Inc. 1972) p.17-18
  34. http://www.psc.nd.gov/jurisdiction/pipelines/index.php
  35. http://www.psc.nd.gov/jurisdiction/railroad/index.php
  36. Burton Folsom Jr., The Myth of the Robber Barons (Young America’s Foundation 2013) p.29-30
    1. Folsom Jr. audio/video on The Myth of the Robber Barons
  37. Ibid., p30
    1. Folsom Jr. audio/video on The Myth of the Robber Barons
  38. http://www.psc.nd.gov/jurisdiction/telephone/index.php
  39. http://www.psc.nd.gov/jurisdiction/weights/index.php