The next post will have to be delayed a week and I owe my readers an explanation. I realized after a little thought that this “explanation” is an opportunity to examine some of the economic laws we have been exploring throughout this blog.
In the early hours of Sunday, Aug. 16, a rare summertime cluster of thunderstorms, spun off one of the many tropical storms popping up like mushrooms this year due to global warming, swept the Bay Area in California where I live. Awakened by the storm, I noticed my clock radio was out indicating the power had failed. Normally, when the power fails it comes back on in a few hours at worst. I assumed that the power would be back on by the time the sun came up in the morning, or in the worst case shortly thereafter. The longest power outage I have experienced here was in December 1995 when a violent winter storm with near-hurricane-force winds caused the power to fail early in the evening. But even then the power came back on around dawn. Surely, I assumed, this power outage wouldn’t last longer than the one associated with the 1995 storm. I was wrong.
The block where I live seems to be prone to power outages. The power frequently fails for a few hours during winter storms, and sometimes it will go out when there is no storm or earthquake or for any other obvious reason while it stays on in surrounding blocks. Clearly, there is some weakness in the power delivery system for my block that has persisted over many years and Pacific Gas and Electric has done nothing to repair. Without power, I lose access to the Internet and thus normal fact-checking. With my laptop, I can still type, of course, but only at the cost of running down the battery. If the battery runs out of juice, I have no computer at all until the power comes back on.
The power finally came back on Monday morning but my schedule was in ruins. I have little reason to complain about what was personally a minor inconvenience and nothing more. In areas of the U.S. hit by major hurricanes and floods, power outages can last for weeks. And in many countries oppressed by U.S. imperialism, power might be on for only a few hours a day even under normal circumstances. However, there is a broader story here, far more important than some minor personal inconvenience that in and of itself would not be worth writing about.
The business of generating electric power and providing natural gas is what economists call a “natural monopoly.” You don’t have thousands of companies to choose to buy gas and power from or even a few companies. Therefore, the control of competition among rival capitalists does not apply here. But when under capitalism the natural monopoly is an “investor-owned utility,” neither does the control of the associated producers apply. Such natural monopolies of which our local power company PG&E is an example are therefore under capitalism supposed to be regulated by the state. In our situation, this is supposed to be the State of California.
The utility rates — the price of electric power and natural gas — is set by the state government. The rates have to cover the cost price plus the interest on the capital advanced by the monopoly utility. Since the profit is guaranteed by state regulators when they set the price, and there is virtually no risk to its capital, natural monopolies such as PG&E are not entitled to the profit of enterprise. They are only expected to receive the interest on capital. At least that is the theory. The problem is that the state regulators are often corrupted by the capitalists they are supposed to regulate.
Squeezing the last bit of value out of fixed capital
When discussing the reproduction of capital, Marx in “Capital” usually assumed that fixed capital lasts 10 years. However, in practice, some elements of fixed capital last a lot longer than that. This is especially true when a capitalist company is not subjected to any competition from rival capitalists. Under these conditions, it is in the interest of the industrial capitalist — the natural monopolist — to continue to squeeze the last drop of value out its fixed capital until it literally disintegrates.
Only by doing this does the industrial capitalist business recoup all the value embodied in its fixed capital. The job of the regulators is supposed to prevent dangerous situations that might arise from this. But if the regulators are corrupt or otherwise fail to do their job, this is exactly how a natural monopoly like PG&E, acting in the interests of its shareholders and executives, will behave.
When it comes to electricity and natural gas, this can lead to extremely dangerous situations. Just as the economic laws we have been examining in this blog would predict, this is exactly what has happened. PG&E’s century-old fixed capital, such as gas pipelines and power lines, is dangerous to anybody living anywhere near it. In northern California, that includes a lot of people. Power failures such as the one I was a victim of are the least of these, although even these can be lethal if you depend on a utility-powered medical device.
On the morning of Sept. 9, 2010, in San Bruno, located just south of San Francisco, a dilapidated PG&E gas pipeline blew up. The resulting inferno killed eight people and destroyed 35 homes. Even worse than the San Bruno disaster was the almost complete destruction of an entire town, ironically named Paradise, located in the foothills of the Sierra Nevada mountains north of Sacramento.
On Nov. 8, 2018, northern California experienced powerful dry winds from the northeast, common in the state during the fall. A tree branch fell on an ancient above-ground PG&E power line setting off a series of sparks. The vegetation was tinder dry at the end of California’s dry season and a blazing fire resulted that spread to nearby Paradise. Eighty-six people died and 95 percent of the buildings were destroyed displacing thousands of people. If PG&E had replaced its above-ground power lines with underground lines, none of this would have happened. But as we have seen, PG&E had absolutely no economic incentive to do so. And the state regulators who had the power to order PG&E to replace its century-old above-ground power lines failed to issue the order.
After the Paradise disaster and consequent lawsuits, PG&E was forced into bankruptcy. In court, PG&E pleaded guilty to 85 felony counts. If PG&E had been an actual person rather than simply a “legal person,” the defendant would have been sentenced to decades in prison. This was a perfect opportunity to liquidate the company and replace it with a state-owned public utility. The stockholders of this investor-owned utility would have lost their investment since they had invested in a criminal enterprise, but jobs would have been created for many workers as the desperately needed new equipment was built and then installed.
The Democratic Party and PG&E
Over the last century, as PG&E’s fixed capital has aged and deteriorated, both Democrats and Republicans have shared control of the California state government. However, over the last decade, things have changed. As the state population has become majority “brown,” the GOP has largely disappeared from the state government. The Democrats have enjoyed a super-majority in the state legislature, controlled the governorship, and held all statewide elected offices. The Republican Party has been rendered powerless. So what has happened?
The Democrats have in practice followed the policies that Republicans advocate. They promised to deliver single-payer health care on a statewide basis, a policy very much contrary to the principles of the Republican Party. But in practice, they followed the policies of the Republicans. Under the Democrats, the State of California has been the leader in the USA in the number of COVID-19 cases, just as the U.S. has led the world in COVID-19 cases. And how has the criminal organization known as the “investor-owned” utility PG&E fared under the rule of the Democrats? PG&E was allowed to emerge from bankruptcy on July 1, 2020, removing the possibility of using the bankruptcy to liquidate and replace it with a state-owned utility.
As I write these lines, the Democratic Party has just nominated the pro-war, anti-health care as a right, advocate of employer-centered health care Joseph Biden as its candidate for president of the United States. Biden’s running mate is a major leader of the California Democratic Party, Senator Kamala Harris. What happened, or rather didn’t happen to PG&E, gives us a pretty good idea of what a Biden-Harris administration will look like if Biden manages to carry the Electoral College and becomes president.
On the bright side, the road to a revolution is being opened up in the U.S., not by us Marxists on the “far left,” but rather by the capitalist rulers of the United States, who have made the U.S. the world leader in COVID-19 cases and deaths and now offer us the wretched choice between Donald Trump and Joseph Biden.
Next week, the gods that rule the weather and the PG&E power system willing, the regularly scheduled next post that covers very important political and economic developments will after a one-week delay be published.