Why Competition?
Went to a workshop today, hosted by
Civic Exchange, a Hong Kong non-profit, on electricity industry regulation. I have, in fact, been working with Civic Exchange on a policy paper on this particular topic, so it was interesting to participate in group discussions and hear people's thoughts on objectives as well as specific methods of implementation.
As will be evident from the report, when it comes out (hopefully within the next couple of weeks), I don't think that Hong Kong is necessarily the best environment for electricity competition at this point - 7 million people is pretty small, and with only two existing operators, the divestment process would be undoubtedly be extremely complex and contentious.
However, in the end, I am much more of a proponent for competitive markets (in HK or elsewhere) than most of the voices heard on the topic, including at the workshop today. The biggest problem with natural monopolies is that they assume, and then make a self-fulfilling prophecy, technological stasis. Disruptive technologies rarely, if ever, make it into industries of regulated monopolies because they frequently render existing investments worthless (or worth a lot less, anyway).
The near (or current) bankruptcy of many telecoms and airlines, often cited as examples of 'too much competition' and 'excessive deregulation', does not indicate a failure of deregulation to me - consumers have seen a both huge explosion of innovative options (including, but not limited to, the Internet and close to zero cost long distance/IDD) and decrease of prices in both industries. It indicates a failure of the old-line companies in the industries to properly adapt. For example, the very high cost basis of airlines such as United and US Air has severely hindered their ability to compete with successful new entrants such as Southwest, JetBlue, etc. The situation is different in telecom where everyone has taken a beating as a result of the over-investment, but even in telecom there are firms that are still on their feet, albeit barely, and the industry is starting, slowly, to recover.
The electricity industry is ripe for disruptive innovation over the next decade or two, given the proper enabling market structures, and the benefits of that innovation will far exceed the costs of today's transition to a more dynamic market.
Posted by Stephen Bronstein at February 26, 2003 03:49 PM