Water, monopolies, service and markets

I had a chance to discuss markets and monopolies today.  The person discussing the issue to me pointed out the following:

My water service is affordable and effective and government run. I shudder at the thought of a water oligopoly.

What follows was my response.

I want you to ask yourself: affordable in comparison to what?  Perhaps to a dystopia you were programmed to fear?

Now stay with me here — I have two thought experiments for you.

Imagine you are in the late sixties or early seventies. You're talking to a friend about telephone service. Now imagine you tell your friend "My telephone service is affordable and effective and government run. I shudder at the thought of a phone oligopoly."

In comparison to what?

Well, how can you know? You have no point of reference. All you've known is (a) the service you have (b) all the terrible things the monopolist has told you would happen, if he wasn't allowed to monopolize your service. All your life you've paid for calls by the minute, and any call not in your area code you had to pay through the nose. Sometimes calls simply won't go through, and sometimes calls just drop. Dialing is a chore — if it's not you asking someone else to dial for you, then it's you slowly rotating a disc that goes takatakataka. There's, of course, no Internet service, no wireless phones and, in fact, while modems did exist, you were prohibited from connecting a modem (or any other device) to the phone line, forcing people to use barbaric 300 bits per second acoustically coupled modems, even though the technology existed to make data connections much faster by simply skipping the acoustic coupling. Only really rich people had modems, and only for extremely large businesses. If my memory serves me well, not even large businesses were allowed to circumvent the phone monopoly by running cables (for faster data connectivity) between their offices — they had to go through the phone monopoly.

But, since that's all you've ever lived, this appears normal to you.

From this frame of reference, you aren't even aware that, in a few years, a landmark court case would force the monopolist to relax their authoritarian rules so that people could connect modems to their phone jacks... paving the way for modems to become mass-market, modem speeds to increase, actual dial-up Internet service to begin working, and for digital services like BBSes and the Internet to begin functioning. Which, of course, only began truly happening once the monopoly was broken up — in another court case — and there began to be actual phone service competition, making it economical for people to stay connected without having to pay actual fortunes for dial-up Internet. Suddenly, a 56K modem — 180 times faster than the 300 baud modem — cost 100 times less than the old 300 baud modem, and anyone could buy it. Enter the Internet and today's flat fee unlimited service.

The rest is history.

Now think of how much sooner something like the Internet could have happened, if the monopolist hadn't had the power to prohibit you from connecting a modem to your own home's phone jack.

You may be wanting to ask me, so why didn't that happen before? The technologies underlying it all were well-understood back in the seventies, as the theoretical (Shannon / Nyquist theorem) and the practical (transistors and solid-state semiconductors) underpinnings were already known.

The answer is that it took a market in communications to make these things cheap, tiny, efficient and available for all. And that needed the monopoly to go. Once it went and people had a choice of whom to go for connectivity (voice or data), only then, everything "modern" that you take for granted became 100% ubiquitous, from the ATM and the credit card processing terminal, to online shopping.

I don't have to tell you that we have seen the exact same process in many other countries with phone monopolies. Only when markets in communications developed, these incredible advancements began to exist in everyday life.

Stupid simple things that you find normal because a monopolist told you that's how things were, can actually have dramatic effects in how things change in the future.

I'll go over another example to give you a different frame of reference. This is not so much a thought experiment, as it is an actual historic fact of what happens when things go the other way around — from market to monopoly.

Look at Venezuela.

In the space of about ten years, the Venezuelan State constructed what effectively amounts to a food monopoly, with almost entirely nationalized production, distribution, and sale of food. There, you have rations, and for those rations, you must stand in line for hours. People buying food off this monopolistic market are thrown in prison. Only recently they opened the border to Colombia — tens of thousands of people walked from Venezuela to Colombia (sometimes dozens of miles), just so they could buy food. The latest news is that food production is going so badly, the State has decreed that businesses will have to send their workers to the fields to plow, sow, and reap food. Yes, I am describing literal State slavery in the 21st century!

In Venezuela, this too is normal (now!). The only reason people still complain about it, is that there are people still alive who remember how things were back before food was taken over and monopolized by the State. But (assuming this humanitarian calamity continues) once those generations die off, those who come after them will be sure to say "Well, at least Guv gives me food. I shudder at the thought of a free market of food."

The truth is that you have no idea how a water oligopoly, let alone a true water market, would work, because you have not experienced it. So, for all you know, you could be paying exorbitantly high prices for water right now, or getting shit water, and there's nothing you can do about it.

Maybe with a water market, the water you use in a month could cost $2. Maybe the water could come with a 100% guarantee — backed by a contract, or a money-back promise — that it will be clean. Maybe your water supplier could also guarantee that, even during shortage times, they will supply you. Maybe they could install and maintain reverse osmosis filters at the intake pipe of your home, guaranteeing 100% clean water. You don't know how the service could be or how much it would cost.

But at least we can guess it can't be much worse than a monopoly, because monopolies cause what you're seeing in Venezuela. And in the Soviet Union. And in Mao's China. And in Cuba. And so on, and so forth.

You speak with the utmost confidence about a fear you have no basis to have, you have no evidence for, and furthermore, based on many other examples we have from history, is quite likely unfounded. You must also contemplate, not just what you have and your conformity makes accept, but rather all of the things that could be if things were different.

I would encourage you to open your mind a bit more.