Crony capitalism in practice? Green taxes, Smart meters etc.

I never did understand why we were going to have to pay so much extra to energy companies to get smart meters. Just before Christmas I chaired a meeting which indicated that spending billions on separate communications networks was unnecessary: the data volumes were piddling and could be handled at much lower cost by piggybacking on broadband roll-out (whether fixed or mobile) – provided response times and resilience were fit for purpose. 

Now the backlash against the underlying smart metering ” business model” has begun. I put “business model” in quotations because Which blames a government “hands-off” approach for that which might be better viewed as a cosy collusion of government, regulators and suppliers. Meanwhile the Register says it is another case of crony capitalism  inherited from the previous government. They have a case.Whatever it is, it is not a valid or sustainable “business model”.

The current government has yet to begin thetask of returning the regulatory system (Ofcom, OfGem, OfWat et al) to where itwas in 1997, before it was turned into a tool for imposing Soviet style centralplanning – as opposed to a means of protecting customers, (business as well as consumer),from cartels of privatised monopoly suppliers.The speech ofthe Deputy Prime Minister this morning give some hope that this is an approach that well help bring the coalition partnerstogether for the difficult times ahead, provided they stop looking over theirneighbour’s fence (banker bashing) andlook nearer home, in their own back yard – the way in which regulatory agencies became retirement homes for Civil Servants and Special Advisors.

I look forward, however,to seeing the task also done in ways that provide the regulatory certainty neededto encourage the innovation that will pull forward investment in cheaper and morereliable sources of energy than subsidised windmills and in energy generationand distribution infrastructures that will be all reliable and “future proof as  those our ancestors left us, built, maintainedand operated over a century or more by organisations like the Chartered GasLight and Coke Company  or the South Metropolitan Gas Light and Coke  Thelatter was the world’s largest and most successful co-partnership (i.e. co-ownedby shareholders, workers and customers) and provided a yardstick that put toshame the Gas and Water socialism of the Midlands and North until it was expropriated(alias nationalised) in 1949. Meanwhile the construction of the National Grid by Central Electricity Board , after Parliament had rejected the idea of nationalisation, was one of the great publicworks programmes that helped the UK throughthe recession of the early 1930s.

One of the courses I remember from my time London BusinessSchool  (MSc06, 1971 – 3 if you want to know) was on theregulation of monopolies. The examples used included MacBraynes and the Belloperating companies.  A key point wasthat they be controlled on price, quality of service and behaviour towards nichesuppliers and would-be market entrants. Return on capital should NOT be a controllingfactor because it merely led to regulatory games which got in the way ofencouraging them to be efficient and to invest in new, cheaper and better waysof meeting demand.

The Deputy Prime Minister, Nick Clegg made some very good points this morning on how theLiberals were the party that believed in open markets and protection against dominantplayers, whether private or public sector.The time has come to apply that approach to reforming theway we regulate utilities as well as banks. The objectives should include enabling direct long term investment by those who wish to take control of their savings for old age away from state-regulatedcrony capitalists, alias pension funds and their advisors, churning short terminvestments and government stocks which give returns below inflation.