The cause of the California power crisis, it is said repeatedly, is the result of complex, esoteric factors. It is not. As the current issue of the magazine The Intellectual Activist details, the power crisis is the direct consequence of economic statism: the idea that the government should have unlimited power to control the economy. For decades the California government has undermined or prevented new exploration for sources of fuel. Power plants that use coal, nuclear power, or hydroelectric power have been restricted, prohibited, and forced to close, thus forcing utilities to rely too heavily on natural gas. As a result, no significant new power plants have been built in the state for ten years. In the name of alleged deregulation the state then imposed new regulations, forcing the utilities to sell half their generating capacity, to cut and then freeze rates, to eliminate long-term contracts with suppliers, and to work through a state-controlled power exchange. All of these controls served to prevent what is essential to the success of every business: long-term planning and freedom of action.
The consequences of these statist policies should not be surprising. Prohibited from building new plants, faced with the rising cost of natural gas, barred from raising prices to customers, the utilities are now on the verge of bankruptcy. Power supply is at a critically low level, and there have already been power blackouts with many more to come, especially this summer.
What is Governor Davis's proposed solution to this mess? Shockingly, it is more government controls. His proposals include virtually blackmailing the utilities into selling to the state their transmission grids as well as land on which new plants could be built, forcing utilities to sell electricity at or below cost, refusing to allow the near-bankrupt utilities from laying off employees as a means of reducing their costs, and finally, the newest nightmare, forced conservation--backed up by the "power police." In short, Davis is offering statism as an antidote to the very chaos caused by statism.
Observe that the utilities' imminent bankruptcy could have been easily solved--virtually overnight--through the elimination of government price controls so that the utilities could raise their rates. Why, then, didn't Gov. Davis recommend that? Because he does not want the power industry to be free--he wants the state to control it. There is an old trick that statists have used successfully for generations. Regulate an industry to such a degree that it is unable to function. When it is finally driven to the verge of bankruptcy, blame the failure not on statism, but on capitalism, and then completely take over the industry on the grounds that more state control is the cure.
What will be the consequences of more state control? Taking over parts of a large industry and subsidizing the rest will require huge government expenditures. Where will this money come from? The taxpayers, of course. The state plans to float the largest municipal bond issue in the history of the United States. The temporary budget surplus aside, the interest on the bonds and the various subsidies proposed can only be paid for through higher taxes.
Since history has shown that the state cannot run any business competently, we can be certain that in the future California will have power shortages, brownouts, blackouts, rationing, and will refuse to serve new customers. And as a result of the higher taxes and poor electrical service, established companies will begin to leave the state, and companies that would otherwise have opened facilities here will open them elsewhere. This will destroy businesses, raise unemployment, and increase poverty throughout the state. And when these inevitable results occur, the state will once again blame capitalism--and then demand even more controls.
This whole scenario--California destroying itself through statism and beginning to resemble a third-world country--is right out of Ayn Rand's Atlas Shrugged, except that nobody has gone on strike. Not yet, anyway.
If Governor Davis really wants to solve the energy crisis, the solution is simple: eliminate price controls, allow utilities to own and freely run both plants and transmission lines, allow long-term contracts, and allow unlimited building of new power plants (including nuclear, hydroelectric, and coal) in the state. In short, substitute capitalism for statism.
And finally, support the moral base on which capitalism rests: the right of every person to pursue his own self-interest and happiness by trading freely with any other person. Let the state get out of the business of destroying and then seizing businesses and resume its proper role: the protector of individual rights.
Edwin A. Locke, a Professor Emeritus of management at the University of Maryland at College Park, is a senior writer for the Ayn Rand Institute in Irvine, Calif. The Institute promotes the philosophy of Ayn Rand, author of Atlas Shrugged and The Fountainhead.