The Energy Monopoly
Three weeks ago I had a chance to give a talk at the ITAM about one of my favorite topics: the opportunities at the Bottom of the Pyramid (BOP). During the session, a topic of special interest came up: monopolies. This is a fundamental economic issue. In principle, we’re all against this kind of industrial organizations because they limit consumers’ options to the smallest possible range of choices.
For example, in Mexico it’s fashionable today to talk about how the “telecommunications monopoly” is an obstacle to the country’s development. Well, I compete with that supposed monopoly and if I do that, then it isn’t a monopoly. It’s true that there’s a formidable competitor out there that has cornered a large segment of customers, but it definitely is not a monopoly. In addition, the price of telecommunications has dropped substantially in real terms since competition opened up in the sector more than a decade ago.
Let’s talk, then, about real monopolies, the ones that really affect our lives, especially the legal monopolies established in our Constitution. There are three in particular that stand out: (1) the monopoly of the use of force; (2) the monopoly of printing money; and (3) the energy monopoly.
I will begin with the last of these, the only one that we should probably eliminate. The other two could be exercised better, but I’ll talk about them another time.
It is curious to see how few people talk about the energy monopoly, but the fact is that we have no choice but to buy bad, dirty, expensive energy, subject to special taxes.
How many times have we had to put up with a blackout while we’re working at our computers, losing valuable hours of work? Those hours, multiplied by millions of people, make for billions of pesos in productivity losses. But that’s only part of the problem.
Many companies are forced to invest millions of pesos in their own, trustworthy energy sources because they would not be able to survive if they were subject to such an erratic electricity supply. Just think about a telecommunications company, a steel plant using an electric furnace, or simply a movie theater. Besides that, the companies forced to generate their own electricity have to sell their surplus to the electrical energy monopoly and monopsony at unfavorable prices. The worst is that many of these companies have to compete with global firms that have never had to deal with problems of this kind.
The energy we’re sold is also dirty: all we have to do is to look at the sky or take a breath to feel the enormous number of contaminants we inhale every day. How many more ecological tragedies will we have to suffer at the hands of the oil and gas monopoly before we understand that we can’t continue destroying our planet?
Besides being dirty and not very trustworthy, the energy we can acquire in Mexico is more expensive that in many countries we compete with. To make the problem worse, taking in taxes on this resource has become pernicious public policy.
Energy is a fundamental input for thousands of companies producing goods and services for the domestic market and for export. How can our politicians expect our industry to compete in a global market under such onerous conditions?
In public policy, it is customary to levy taxes on things we don’t like, like alcohol, because it’s bad, on tobacco because it’s bad, and on gambling because it’s very bad. The same goes for energy.
It is understandable that the government needs revenues, but why does it get them from energy, whose special taxes have devastating collateral effects on our country’s industry and competitiveness? Doesn’t that policy destroy more wealth than it brings in?
These are very important questions that we have to think about if we want to improve society’s well-being: the monopoly on energy is truly damaging for the economy of our households, the health of the population, and the competitiveness of our companies, not to mention for the moment the model of corporate governance prevailing in the state-owned companies.