Is National’s energy policy “ideological spite”
Posted August 15, 2008on:
Every day I look at the blog and don’t think I will have anything to write about – then I read some of the things that are sold on the political blogs and I find myself writing posts.
Frog blog discusses the issues they have with Nationals energy policy (something I gave some early impressions on here). Now they do have some fair points (I can understand concerns surrounding the RMA – given that we don’t know what the changes will be). However, the language they use in several parts of their discussion betrays a unreasonable focus on governments ability to improve the industry.
Fundamentally, I take issue with the way they use the following two of their claims:
- consumers will be left entirely to the whims of the … market,
- businesses, which are inherently inefficient
Lets discuss these below:
Consumers will be left to the whims of the market – in a bad way
First – if the reason they have for this is that a market is fundamentally more inefficient than a government run body, then they are being ridiculous. This will be countered in the next part of the post.
Now, I assume that this claim stems from the removal of the ECA, rather than any of the other policies. Fundamentally, frog blog suggests that an organised body like the ECA ensures that we have security of supply – when leaving it to the market does not ensure this.
If we do value security of supply, then they may have a point – but then again they may not. Ultimately, if we value security of supply we will be willing to pay for it – and so we can have an equilibrium where we all have security of supply and we all pay for it.
However, given competition between providers, and given that security of supply is not avoidable, a firm has the incentive to lower the security of supply (which is costly) and under-cut its competitors – in such a case we end up with no security of supply.
Now even if we take this extreme example, this does not support current government policy through the ECA. Why? Well as National states, the government is currently heavily underestimating future energy demand – which implies that even when they are in charge of setting up how much energy is available, we are not going to have enough.
As a result, in this case I am uncertain about removing the ECA (although National seems more interested in removing it and replacing it with something more efficiently run, rather than dumping it). However, given that National seems willing to make more realistic estimates of future energy demand – I do not see there overall policy document as detrimental to consumers.
Businesses are inherently inefficient – compared to government
Now in the “businesses are inherently inefficient” line I had to add a bit to make what they are stating clear.
Ultimately, I do not think that business are run in a purely efficient way – nothing is. I don’t make decisions in perfectly efficient ways, and the government doesn’t make decisions in the most efficient ways possible either.
However, this does not take away from the fact that we all make choices, and we make those choices in a way that we are happy with. As a result, a business will make decisions based on an interest in making the most profit, while also making sure that it achieves other goals (the right type of work environment, charity etc).
Now the usefulness of the organisation is constrained by the behaviour of the individuals in it – to be sure, but businesses will still try to get the correct outcomes.
As a result, information and education are the best ways to get business into things that will be “more efficient” – if you provide information to the business they will take it into consideration, and will change practices if it really is in their interest.
Businesses are not lemmings that sit there producing a product inefficiently, waiting for government how to do things properly – however this appear to be the view that Frog Blog takes when describing businesses.
Now the Frog might be trying to say that bureaucratic inefficiencies make it hard for large firms to take actions in their interest. However, who is more likely to have this problem – a large business or a government. My suspicion is that government will be less efficient in these terms.
As a result, I am very uncomfortable with a government body telling businesses that they can make better profits if they do X – I suspect the business knows better, once it has the appropriate information (as they are actually at the coal face, facing risk and talking to customers and suppliers). As a result, this does not seem like “ideological spite” there is actually a trade-off between efficiency and what the Frog may view as equity.
Ultimately, I do not dispute that Frog Blog is making these assumptions in good faith – as they want what is best for all of us. However, they should realise that the National party is doing the same.
Stating that a focus on actual security of supply will hurt consumers seems unreasonable. Furthermore, the statement that businesses are inefficient and government can improve them by intervening is similar untenable.
It was these statements I was uncomfortable with – and if they are the reason behind current policy, then I believe that current policy needs to be changed.
Note: I definitely do not think National policy is anywhere near optimal – I just think that parts of it would be an improvement on current policy.