The Futility of State-Directed “Market Reform”: Deregulation

A decade after Califormia’s disastrous experience with Enron-style electrical utility “deregulation” — rolling blackouts and price spikes — caused Arizona to abandon a similar project, the Arizona Corporation Commission is once again considering it.

The real problem with “deregulation,” as promoted by the libertarian establishment — the think tanks and lobbyists who pressure the state to adopt policies of “free market reform” — is that those policies are government policies. And the primary function of the state, since its very beginning, has been to enforce artificial scarcities and artificial property rights on behalf of one economic ruling class or another, so that said ruling class might extract rents from controlling access to productive opportunities and setting the conditions under which the producing classes might be allowed to produce.

In pre-capitalist Europe, this meant enforcing landlords’ ability to set the terms on which peasants might have access to the land. In our day, this means the state subsidizes many of the major operating costs and inputs of big business, and enforces the patents, copyrights, and other assorted entry barriers and legal monopolies that protect it from free market competition. In most cases, regulatory policies were adopted in the first place because they served the regulated industries’ interests in extracting monopoly profits at the expense of consumers and workers. So it hardly stands to reason that a state largely controlled by corporate interests would genuinely deregulate those same industries and open them up to full-blown market competition if they didn’t have the game rigged somehow.

As Noam Chomsky has argued, “Concentrated private power strongly resists exposure to market forces, unless it’s confident it can win in the competition.” Deregulation, as carried out by the capitalists’ state, is mirror-image of “lemon socialism.” Under “lemon socialism,”  the capitalists (acting through the state) nationalize those industries that big business will most benefit from having taken off its hands, and socialize those functions whose costs capital would most prefer the state to bear. They shift functions from the private to the state sector when they are perceived as necessary for the functioning of the system, but not sufficiently profitable to justify the bother of running them under “private sector” auspices. Under “lemon market reform,” on the other hand, the capitalists liquidate interventionist policies after they have squeezed all the benefit out of state action. A good example is the adoption of “free trade” in the 19th centuy by Great Britain — after the British Empire had taken over half the world and had an option on the rest, and most of the world’s shipping was carried in the holds of British vessels.

And even then, the ostensible “deregulation” is largely illusory, with the “deregulated” industry continuing to benefit from state regulation in all sorts of hidden ways. Consider, for example, electrical power “deregulation” in Texas ten years ago. After deregulation, the actual power plants continued to be owned by the same handful of incumbent utilities that owned them before. The incumbent utilities were divided up into the firms which owned the power plants, those which owned the transmission lines and poles and did the meter reading, and the billing companies. The same monopoly structure continued, for all intents and purposes, in the generation and transmission of power. The main competition was between the billing companies, which at least provided rate-payers with a diverting change in letterhead if nothing else.

That’s the typical pattern in state electrical power deregulation: Essentially leaving the monopoly in physical assets intact, while creating a new layer of billing firms with the illusion of market competition. The main thing the billing firms do is add a new layer to overhead costs — basically the same result you get from fake corporatist “privatization” that leaves the private service provider with a state-enforced monopoly and a taxpayer-financed revenue stream.

Whether you call it “Progressivism,” the “New Deal,” or “free market reform,” any policy that comes from a state controlled by capitalists will just be a minor variation on the same theme:  a collusive alliance between big business and big government, in which the state guarantees the profits of corporate capital.

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