Friday, December 24, 2010

Free Markets & Infrastructure

This was going to be a slashdot comment, but I decided it was too long.

Somehow we must nail this myth that deregulation means competition: it doesn't

I could be convinced, assuming nobody educates me on my ignorance, that the idea of free markets was from the beginning not actually meant to include the kind of infrastructure we see today in telecoms, power, and transit--or at best, it was simply not thought about.

Infrastructure is essentially a two-phase investment--in the first part, huge sums of cash are used to build it out, and in the second, relatively small sums are used to maintain it, while it receives little (if any) income. That means in principle that
1) It requires a substantial investment for phase I
2) That investment will not be paid back for an exceptionally long time

However, assuming that the infrastructure is well made, everyone who uses it will be happy. It is perceived as a steady revenue stream (assuming it is paid for--counterpoint being roads) because it improves quality of life and is therefore worth the payment. That payment will not come as a lump sum by the consumers (which would repay the initial costs), but only through a long subscription. If that cost is too high--which is necessary to pay back all the loans or recover the investment, and therefore finally be in the black--consumers balk. If the cost is too low, it takes an unreasonable amount of time to cover both the investment and the maintenance costs; especially given loan interest, it can be utterly devastating.

However, there is a median price which is presumably just fine. The biggest question is, "will the company accept it?" And this in my mind is where free market and infrastructure part ways. Free market rides entirely on people's ability to turn a profit. You aren't supposed to turn a profit right away when providing infrastructure, but someone who comes from a capitalist world will see "continuous revenue stream" as "unlimited profit" and will bleed the market dry trying to achieve that profit. From the standpoint of the company itself, as long as it someday is guaranteed to turn a profit it has succeeded. From that point forward, the infrastructure is in place and the debt is paid off--the world is better than it was before, nobody's the poorer for it, and meanwhile the company has been paying everyone their salaries, which frankly should be what the employees worry about anyway. However, from the point of view of An Executive In The Company, the value of The Company rests on Profits This Year, and An Executive is of no value if The Company is of no value.

Setting aside whether or not you trust the government with internet/telecoms and power, they really are public interest and should be treated as such. Even if you say that private companies will do telecom improvements faster, etc, there really ought to be a minimum value-per-service such as is provided by cheap government utilities. I have to imagine tons of people would gladly pay reduced cost for reduced service in telephone, power, and internet if they're currently paying for more than they need. As long as those functions get moved out of "these are infinite profit potential" and into "if you need it, it's there," then that should fix the process at least a little.