This post is meant
as a basic exploration of difficulties in organizing public services and
goods, with a tentative suggestion for a better model—the public
nonprofit. It seems possible that such an organization may be able to
furnish the needed good in a stable manner while simultaneously drawing on
the strengths and avoiding the drawbacks of other business models. Those
considered here are public utilities, private business, and cooperatives.
I will restrict the post mainly to consideration of such things as
electrical utilities, but I think the basic model has the potential to be
adapted to meet a variety of public needs. To include communications such
as internet access but also the functions of a postal service, online and
physical marketplaces, social networking, healthcare, insurance, and even
macro scale operations such as stock or commodity exchanges or financial
regulation. In short, I think that all public goods should be furnished by
distinct publicly regulated (though not publicly owned or run) nonprofit
organizations as detailed below.
Very often public goods have started out
as being furnished by public utility companies, which is a good way to
capitalize the massive requirements in infrastructure and capital goods
needed to get things going. Governmental organizations can draw upon the
entire tax base to spread the large startup costs out as broadly as
possible. Thus everyone (or at least all taxpayers) is made to pay but in
a deferred and disguised manner. In many cases the economic stimulation
resulting from the availability of the public good over time has more than
made up for the initial investment.
So public utilities are good, even
very good, at first, but over time they tend to stagnate and become
inefficient. Public organizations are run by bureaucrats who, though they
perform essential and very important functions and are truly indispensable
in a complex society, also lack ongoing incentive to maximize the benefits
of such things as public utilities. Public salaries tend to lag behind
private remuneration, except in cases where they are excessively higher
and become the target of political sinecures and other forms of
corruption, and so the major motivation to excel is that of public duty.
Which can wane even over the course of a single lifetime in such an
underappreciated sector as a public utility, let alone across generations.
Then too there tends to be a limited talent pool willing to engage in
careers of public service and the best go to those areas that seem to be
more dynamic and vital, such as defense, law enforcement, public health,
etc.
Enter privatization, which promises
to cut cost and drive up efficiency in those stagnant public sectors. To
be fair this is very often accomplished and costs are driven down and
utility customers pay smaller bills and are happy with the fact. However
the fundamental drive of a private, for-profit company will always be to
generate profit for the owners. This means that the cost of the utility
will always be padded, in that the public will always be paying a
surcharge beyond the strict cost of the utility, and there will always be
a drive within the organization for a growing or at least steady
generation of profit. Some private companies, hedged in by public
regulation, do manage to maintain satisfactory service over time. It can
be argued that the padded bills (or public subsidies which hide the profit
draw) are justified in that the utility is still being furnished to the
public at a reduced overall cost from that of a less efficient public
organization. However, even then any circumstance or condition which
threatens the profit of the company can disturb this balance. It is also
often (always) the case that corners are cut and that infrastructure and
capital goods are not maintained to the same standards as with a public
utility, despite any attempts at legal regulation. Most private companies
do not manage to maintain satisfactory service over a longer period of
time, as they too are susceptible to inefficiencies and corruption over
time and there always remains the steady or growing demand for a profit.
Cooperative ventures tend to rise up
in response to failures on the part of the previous two models to maintain
satisfactory (cost-efficient) service over time. They have the capacity to
do so in normal conditions and also tend to be very accountable and
transparent to their customer/owner base. In part because cooperatives
tend to be smaller scale but also because the customers are also the
owners and so there is no built in drive for excess profit. A cooperative
is thus a good response to problems with the other two models. They do
tend to be limited to certain protected sectors such as electrical
utilities or grocery stores because those sectors can usually rely on
government intervention in case of abnormal conditions or disaster and are
also secured in normal times by a reliable customer base which will always
and steadily require their services. Attempts at cooperative ventures
otherwise tend to become financially insolvent over time...which means
that they must rely on subsidies which will not be long tolerated by the
general public or be able to dip into other private or public means of
capitalization. Which tend to be resisted both by larger private
organizations jealous of profit potential and public figures which want
more control over publicly funded organizations. Thus the cooperative
venture is a better model but also lacks the capacity to protect itself
from larger forces and so it too cannot be relied upon over time.
My suggestion, which I term the
‘public nonprofit’, is to combine various attributes of these other models
in such a way that services are kept satisfactory over time without a
built-in force for degeneration. It will be similar to a cooperative
venture in that it will be accountable to the customer base and in many
cases can be kept small-scale and so more transparent. It will be able to
draw upon a better talent pool and also keep its employees motivated by
offering good (though not excessive) salaries. It will also be able to
rely upon the power and financial credit of the public sector for
protection and capitalization.
So, the organization will be a
nonprofit company granted a mandate from government to provide a specific
service or good to the public. This will be a new type of company with
specific legal rules set out for structure and responsibilities and powers
granted, but not owned by the public and to some extent protected from
excessive legal regulation (strangulation).
As a nonprofit it will be exempt
from taxes other than those funds used to pay back government loans, which
it will be guaranteed to draw upon at need in order to meet the normal
parameters of its mandate. As a nongovernmental organization it will be
insulated from the political seesaw and at least have some hope of
fulfilling its mandate over time without excessive political interference.
In the case of new utilities or
goods startup costs can be generated by government loans and/or grants. In
the case of existing utilities eminent domain can be exercised and
appropriated property can be paid for over time by some combination of
slightly increased charges from the public nonprofit and/or government
funding.
This will grant the public nonprofit
most of the benefits of a public utility and possibly enable it to avoid
the pitfalls of over regulation and political swings. However, it must
also be able to do so without the problems associated with control by
government bureaucrats over time. Thus it will be a private, though
regulated, company, with all assets owned by the nonprofit itself (...or
possibly some sort of employee/customer partial ownership...), and will
have private employees. These employees should be better paid than public
servants, though not excessively so. Pay scales are difficult to be
precise about as societal conditions are always changing, but this could
be accomplished by including as part of the mandate the expectation that
employees of the public nonprofit will be better paid than comparable
positions in either the public or private sector, though not to an overly
significant extent. Perhaps 20-30% percent more. Employees of the public
nonprofit will have better pay, though without the greater possibility of
advancement and responsibility within a larger public sector. This seems
to provide a balance, as the promise of better pay often draws capable
personnel into private work but in this way some of those individuals will
still be helping with a public good. The public nonprofit should also be
required to be transparent about pay scales and other financial aspects of
the goods being provided to the public.
This type of organization will free
the company from the constant need to make a profit, but it need not
exclude the possibility of continual innovation—the other major draw of
private venture. Because private companies are profit-driven, they are
also incentivized to innovate in the hope that such innovation will
maintain profitability over time. As it has often been proven to do. So
funds are allocated for research and development and the profit drive is
brought to bear on innovating in order to ensure future profits. Greed,
coupled with fear of lost profit in the future, is harnessed to drive
progress. Yet both of these motivations can also be incorporated into
other business models, such as the proposed public nonprofit. Greed and
fear are both personal motivations and do not take place at the
organizational level other than as experienced by a collection of
individuals. A public nonprofit can include the expectation of innovation
as part of its mandate and can have the capacity to incentivize employees
to do so with bonuses and other rewards. This covers greed.
Fear can be added in with the
possibility that the public nonprofit itself can be subsumed or even
replaced with a private organization that proves itself more innovative or
otherwise better in some way. Or possibly by a neighboring public
nonprofit servicing a different area or just a different utility sector.
The mandate continues but the employees of the previous organization would
lose out (at least in small ways in the case of being hired into the new
organization). Unlike with a public utility the possibility of a
transferable mandate maintains a competitive environment, at least within
certain bounds which can be stipulated by the initial regulation of the
mandate. This regulation could also protect against monopolistic
aggregation by stipulating that the subsuming organization must then split
into dual entities in order to maintain regional or sector encapsulation.
So on an organizational level nothing need happen beyond switching names
around or the equivalent, but on the personal (personnel) level this could
mean demotion or other serious consequences. The threat alone that this
might happen will serve as a powerful motivator. It will also serve as a
countervailing force against the tendency for people to rise to a job
level of their own incompetence (people tend to get promoted if they are
competent but do not often get demoted if they do a barely adequate job in
their new greater role). Competition is thus maintained on the most
meaningful level—that of the individual.
So, if setup correctly or at least
well enough the business model of the public nonprofit has the potential
to be superior to other models, at least in those areas which furnish
public goods. In other areas which the general public good is not present
or not clear the draw upon public funds and protection will probably not
be justified. This does still leave a large number of possible sectors
which can benefit greatly from the proposed reorganization. Utilities such
as electricity and water are obvious candidates. Road infrastructure and
other transportation systems as well. I also think potential benefit
extends well beyond this into sectors which have long been private or were
never public at all, but nevertheless are deeply intertwined with the
public good.
Insurance companies which reduce
risk of loss of automobiles and homes or help with medical expenses. Auto
insurance is a legally required service but feeds the profits of private
companies which compete with each other by wasting funds (from the
perspective of the customer) on advertising campaigns that in no way add
to their services. A public nonprofit granted a mandate to provide auto
insurance within a state or a region could start out in competition with
private companies. Without the need to generate profit or advertise nearly
as much it could at the very least reduce costs for consumers by offering
cheaper rates and so also driving down the rates competitors could charge.
Many other types of insurance could be made better in a similar manner.
Similar principles could be applied
to the financial sector. A public nonprofit bank or series of banks could
provide great public good by fostering competition much the way credit
unions do but with greater protections and guarantees than credit unions
can provide. This will reduce immediate investment opportunities but in
the long term everyone will benefit from more efficient financial
services.
Markets and stock exchanges may or
may not be able to be improved in this manner, as it is unclear whether
such macro scale institutions directly draw from the public good by
remaining private. Replacement by public nonprofit organizations could at
least reduce the need for constantly changing legal regulation on the
economic and financial sectors. They would still need to be watched, of
course, but introduction of a nonprofit organizational structure might at
least help somewhat.
News media might be able to utilize
this model to escape from the general swing between egregious domination
by political power and private interest. Heretofore it seems that that
news gets dominated either by political groups or sectarian private
interests. A public nonprofit news organization (or many) with a mandate
to report accurate facts but without direct public control might turn out
to be better than what we have now.
Above all though I think the
emerging tech sector, many aspects of which are rapidly becoming essential
public goods, is the area of our lives which could best benefit from
reorganization along the lines of public nonprofits. Internet access has
become nearly essential—this is a public good and should be mandated and
organized appropriately, much like electric utilities.
The same with online marketplace
access. Amazon has become a near monopoly and that fantastic innovation
has been well rewarded in profit, but I question whether public interests
will be served by permanently maintaining such as a fully private venture.
A public nonprofit competitor or several competitors could help maintain
balance in the cyber retail space.
The same with information search
engines or databases. As with online retail marketplaces, this need not
(should not) constitute a takeover and replacement, but a public nonprofit
with a mandate to index the net and possibly provide a database of
information will help to balance out information access in a beneficial
manner.
I will end here for now. There is
much more to say but I think this an adequate beginning for this topic.
-Joseph Jones, 26 April 2021
Ruinoll Blog