11 July 2022

BFG003: public utility

A system for the management of public utilities, i.e. essential industries, that addresses issues with complete privatization and nationalization. Inspired by James Meek’s Private Island.

• The essential industry has a market participant called the third-way entity (TWE). The TWE is chartered and governed by legislative statute, but it operates independently from the government. It is a non-profit company that has no shareholders and is managed by a board of directors. It is initially endowed by the government and then must acquire and service its own debt. Its loans do not necessarily come from government.

• The TWE’s lack of shareholders promotes operation for the public good rather than profit or other interests. The fact that it is not owned by government liberates it from political whims, but the potential for statutory intervention discourages self-serving practices. The need to acquire and service its own debt promotes efficient operation, but this effect is somewhat limited by the fact that the TWE’s services are essential, so it is likely to be rescued by the government in case of failure.

• Effective directors and employees can be attracted with performance incentives in the form of pay rather than shares.

• The TWE must work with private suppliers to ensure a resilient supply chain and healthy market conditions.

• The TWE may or may not be monopolistic within its industry. If not, there must be a maximum share of the market that private participants are allowed to control. This prevents the TWE from becoming ineffectual and allows the government to retain competency in operating and regulating essential infrastructure. It also allows the TWE to serve as a provider of last resort that can take over the operations of failed private market participants. In general, a non-monopolistic TWE encourages competition, which increases service quality, and unlocks private investment, which increases market capacity.

• There is a separate government regulator, distinct from the TWE, that sets rules for its corresponding industry. Its goal is to prevent corruption and ensure all market participants operate in ways that serve the public interest.