Utilities Monopolize Land
The prices you pay go up whenever monopolies get their way. Will prices still rise if technology does in monopolies?
May 22, 2016
Jeffery J. Smith

This article is part of a series by Jeffery J. Smith on the surplus—also known as “economic rent”—that exists in the economy. Currently, this surplus is hoarded; yet once shared, this surplus could generate undreamed of possibilities for the entire human population. To see the entire series, visit Progress.org/Counting-Surplus

“Soft Land” Monopolies

While most people spend most of their personal budget on the surface land beneath their home, that’s not the only kind of land people spend a lot of money on. Indirectly, people also spend for farmland, rangeland, and oil land. We also pay, indirectly, for non-solid “land” (as economists define the term); that is, water and the totally intangible electromagnetic spectrum.

We pay to have clean water delivered to our homes and dirty water taken away. Those systems are like streets, and occupy the land beneath streets. And like streets, those pipes and sewers are natural monopolies; it makes no sense to have a plurality of sewer systems competing for your crap.

Same goes for electricity, phone, cable, cell towers, and satellites. All those utilities are natural monopolies, and need to occupy certain locations to be efficient. Presently, utilities get to use public space (beneath streets) or common space (geosynchronous orbits) without paying the public much.

Monopolies Inflate Charges

Utilities are monopolies and monopolies, by definition, lack competition. They can force prices up way above costs. Once they’ve enriched themselves—closing in on $300 billion annually—they pretty much have the public’s servant—government—wrapped around their little finger.

Elected officials are supposed to be our good steward, but often aren’t.

* The state does not excel at keeping prices down. Public Utility Commissions routinely rubber-stamp every request from privately-owned electric utilities to raise rates. People who live in areas served by publicly-owned utilities pay much less.

* Government fails to recover full market value for the fortune-making sites that utilities need. The Federal Communications Commission routinely lets the EM spectrum—which used to entirely public property—go to insiders or major corporations at well below market value. Heck, the TV broadcasters pay exactly nothing.

* In Oregon, the major utility did not hand over to the state the taxes it collected. Rather than get fined or go to jail, management contributed to campaigns. The legislature passed another law requiring the utility to obey the first law. They ignored the second one, too.

What kind of steward of the public interest is that?

The trend may be getting even less favorable to the public. Some localities are selling their water systems to private corporations. Water is right up there with oxygen as a life or death necessity. When you look at how many hundreds of times greater than cost that pharmaceuticals sell life-saving drugs, one must wonder to what level will the price for water escalate?

Enclosures of Common Space

To avoid paying the public, businesses, naturally, prefer to turn public space and common space into their own private property (not that anyone needs privacy beneath a street or in orbit). The cloak of private property is perfect for claiming to not owe the public anything. Poking into the issue of the worth of rights-of-way, you find them referred to as the private assets of private corporations, belonging to them and them alone.

Anyone who uses a public or common space as their own will come to feel like it belongs to them. Restauranteurs who set tables and chairs on the public sidewalk feel like our right-of-way belongs to them. Homeowners who park their car on the sidewalk feel the same. Whether encroachment by the less powerful among us or enclosure by the more powerful, it’s not an unusual human behavior.

But there is the matter of scale. The homeowner and cafe owner might not profit much by encroaching while the enclosing corporation will. Getting free use of a location beneath a street or in the EM spectrum or in outer space does save the corporation immense sums, but the savings do not get passed on as lower prices. Since those locations have been actually or in effect privatized, how can anyone lodge a logical complaint? Especially since almost all of us assume the value of property is properly private?

The only legal standing that corporate utilities have is the government-granted title. They don’t have moral tradition. They’re just lucky that the tradition of the commons has faded enough to have become invisible to modern humans. So if corporations are at all worried, they’d be way overreacting.

And besides, from the public’s vantage point, the issue of ownership is irrelevant. Government need not own a location in order to draw revenue from natural monopolies. Government can always tax. Or try to. Utilities have been pretty good at not only dodging taxes but getting back refunds far bigger than any tax paid.

Worth of “Soft Land” Monopolies

There are alternatives to the coercion of taxation. Government can require a license for delivering a basic necessity and set the fee at the full annual value of the monopoly. Were prevailing political winds to blow that way.

Via whatever mechanism, were government to charge utilities full-market value for the franchise, which grants a company a monopoly to deliver the juice, how much revenue could the government raise? At a minimum, government could recover the difference between public and private utilities, about $33 billion annually. That still leaves the value of the locations that utilities use. Cable companies alone pay $3 billion annually for their franchises. All totaled, about $160 billion per year.

So the grand total is close to $200 billion and that is likely to well under the actual annual rental value of utility franchises and utility spaces, given the political power of the utility lobby. But a fifth of a trillion is something. It keeps the value of familiar land and land-like assets around $5.7 trillion.

Monopolies Fight Progress

While hundreds of billions are real money, how long will they stay real? Might techno-progress shrivel the value of a utility franchise? Or, exacerbate it? What will the advance of technology do to monopoly?

Could techno-progress make it possible to provide service without having to have a monopoly, letting in competition, and driving down prices? It happened with telephones. If every home had its own power plant—as now it might have its own little garden—there’d be no need for electrical utilities. Already, a growing number are going off the grid. Not just green hippies but conventional companies, too, have turned to producing their own power.

It’s a scenario not likely to warm the hearts of monopolists. If we can foresee it, so can they. What steps are they taking? To date they’ve fought tooth and nail before to maintain their advantage. Back when Edison and Tesla were competing to see whose electricity would dominate, the one that traveled long distances without losing lots of juice defeated the one more efficient at short distances. Yet today if DC were dominant, much energy and money could be saved. Some day, perhaps.

That was not the only battle. Look at the intersection of politics and technology throughout history. RCA, which founded NBC (granted part of the broadcast spectrum for free), kept television from the American public until the patents of the actual inventor expired, so to avoid paying him his just reward.

Corporate interference in the progress of technology is not a relic of the past. Just recently, utilities are making a push to revive nuclear power, which would keep consumers hooked to the power grid. And they’re trying to keep solar from eating into their market share.

Locations—Old Reliable

If the delivery of water, energy, and telecommunications were de-centralized, then how would our government stewards recover the public’s share, assuming the requisite political will?

Back to location. No matter which way people turn—stay on or go off the various grids—they’ll need land, and so they’ll drive up the value of land. The best sites for water & sewer, for cell towers, for satellites, that have high value now are likely to have higher in the future. Our stewards could get our share by charging locations dues. If you want to play, you got to pay.

A lesson of geonomics is that, as usual, more spendy land must mean one of two things—a greater rift between haves and have-nots, or a higher standard of living for all. We’ll see.

This article is part of a series by Jeffery J. Smith on the surplus—also known as “economic rent”—that exists in the economy. Currently, this surplus is hoarded; yet once shared, this surplus could generate undreamed of possibilities for the entire human population. To see the entire series, visit Progress.org/Counting-Surplus

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Jeffery J. Smith

JEFFERY J. SMITH published The Geonomist, which won a California GreenLight Award, has appeared in both the popular press (e.g.,TruthOut) and academic journals (e.g., USC's “Planning and Markets”), been interviewed on radio and TV, lobbied officials, testified before the Russian Duma, conducted research (e.g., for Portland's mass transit agency), and recruited activists and academics to Progress.org. A member of the International Society for Ecological Economics and of Mensa, he lives in Mexico. Jeffery formerly was Chief Editor at Progress.org.