Sunday, November 17, 2019

Good Effort

French marketplace

To start with, I am a convinced free-market capitalist, so this meditation is going to sound biased to some ears. I believe that people are individuals with free agency,1 and so they are the best judges of how to spend their hard-earned money: on which goods, what quality of goods, what level of service, and what place of purchase. They are also the best judges of which jobs they want to or can do, how much effort they will put in, and what place of employment will best suit them. I believe that people make an honest choice between Starbucks and Peet’s Coffee, and that this is their own business.

I also believe that shareholder capitalism, as it’s currently practiced, is the most democratic method of funding an economy. People put their savings—their nest eggs, their windfalls, and their 401ks and pension plans—into stock shares and bonds, or manage them through a financial services advisor, and this money fuels economic development. People invest their savings where they feel comfortable, have the most trust, or share a vision. And the essence, here as in the marketplace, is that a million individuals are making a million decisions that seem right to them—as individuals.

With a bachelor’s degree in English literature, my first job out of college—obtained through the good graces of one of my professors—was as a junior editor at the Pennsylvania State University Press. It was there I learned my first real trade and became a successful editor and writer. Unlike most university presses, the director and senior editor tried to publish valuable works that would sell in the marketplace of ideas—rather than simply functioning as a publishing service for the university’s own scholars. That is, they expected most of their list of books to earn a return in sales. And I was treated like any editor in traditional publishing: I had to perform to a work flow; maintain high standards of manuscript preparation, galley proofing, and overall timeliness; and earn my paycheck each month. But at the end of that year, when the Commonwealth of Pennsylvania experienced a $400 million budget shortfall during the recession of 1970, and it was a choice between plowing the roads and paying the salaries of junior editors and adjunct professors at the state university, I was let go. Good effort on my part and on the part of the university press management was not enough. For all their market savvy, the Penn State Press lived or died by allocations from the state budget.

After that experience, I went to work in the private sector. First, I was a trade-book editor at Howell-North Books, correcting manuscripts of railroad history and Californiana for a market that was interested enough in railroads and California history to pay for our books. Next, I went to be a technical editor at Kaiser Engineers, producing engineering proposals and reports for million-dollar projects on drop-dead schedules. Quality, speed, and responsiveness to customer expectations and requests not only earned my paycheck at these places but offered advancement in the organization. The budget was under our own control, not the number-crunchers back in the state capital.

My late wife graduated with a degree in history but, in the economic environment of 1960s San Francisco, the best job she could find was in the typing pool at Western Greyhound’s downtown offices. All her acquired knowledge and historical insights didn’t count so much as her typing speed. She quickly tired of being just a set of fingers, obtained her Master’s in Library Science, and went to work for the prestigious Bancroft Library on the University of California Berkeley campus. She stayed there until retiring almost three decades later as Head of Public Services. Every year, the Bancroft director had to fight for budget allocations against the rest of the library system and the university as a whole. Every year, my wife had to figure out how to maintain the collection and provide access to scholars using only the staff and budget she was given. Good effort were important but not sufficient for success.

I believe that people are pretty much the same, whether they work in private business or the public sector. Everyone—almost everyone, that is—gets up in the morning and wants to do a good job. They want to be productive, get smiles and thanks from their customers, however they define them, feel they’ve done something worthwhile at the end of the day, and earn their paycheck at the end of the month.

For ten years in the 1980s, I worked in Corporate Communications for Pacific Gas & Electric Company. Yes, that PG&E, which has recently been shutting off power to wide swaths of Northern California because their aged equipment and ill-maintained rights of way have started horrendous wildfires. People affected by these “public safety power shutoffs” blame the company for misallocating funds, skimping on maintenance and using the money instead for management bonuses, and generally goofing off at all levels. But while the company may have made mistakes, it is not run by fools and wastrels. When I worked there, PG&E people prided themselves on providing reliable service, maintaining a tight system, and keeping the lights on and the gas flowing.

What most people don’t realize is that PG&E—and any other regulated utility—is not exactly a private-sector business. When I first got there, I once used the word “profit.” Oh, no, no! I was told, by no one less than the chairman himself: “We earn an authorized return on investment.” That is, the shareholders put up their money—the result of selling PG&E stock in the equities market—to build new plant and facilities. In return, the California Public Utilities Commission (CPUC) grants them money taken out of rates to pay back that investment plus a designated percentage return—which is usually a bit higher than one could make on bank savings or would pay on a bank loan. To earn this return, the plant has to be “used and useful”; so the company cannot just build redundant and overlapping facilities and make money on them.

But aside from new buildings, power plants and gas pumping stations, powerlines and gas transmission lines, every other aspect of the gas and electric business was and is a “passthrough” in the rates the company charges. PG&E buys fuel and natural gas, wire and pipe, line trucks and equipment, tools and office supplies, and made not a penny on the sale of electricity and gas over and above the cost of these expenses. PG&E employed 23,000 people, at the time I worked there, but makes not a penny on their efforts above their regular salaries, benefits, and stipulated bonus programs. A customer service rep’s smile earns neither her nor the company not a penny more in rates.

Instead, the company goes to the CPUC every three years with the “rate case.” This is a showing before an administrative law judge (ALJ), who is also employed by the CPUC, as to what the company needs in customer payments in order to provide electricity and gas to customers in its service territory: so pipe and wire, so many trucks, so many people, so much for system maintenance, so much for clearing trees and brush in the powerline rights of way. And the CPUC staff faces the company lawyers as opposing counsel to challenge every article in the rate case in order to hold rates to what they believe is “fair and reasonable.” In the end, the ALJ and the CPUC decide what PG&E can spend in each category and recover in rates. And the CPUC keeps close tabs on PG&E’s books, so that if the company were stinting on maintenance and tree cutting but then paying out extra into management bonuses, the hammer would come down pretty quickly.

PG&E employees—at least when I worked there—wanted to give good service, keep the lights on, and make their service territory a good place to live. But they are not stupid. They know that, unlike a Starbucks or Peet’s Coffee—where good products in a wide selection, and good service with a lot smiles, can keep customers coming back, because they have a choice—the average PG&E customer has no real choice of provider, will pay what the state commission decrees in rates, and will get the level of service that wiser heads in San Francisco will allow.

Everyone, most everyone, wants to do a good job, but they are also aware of the internal and external incentives. They know how much control they have over outcomes. And when choice of products and services is nonexistent and the outcome is predetermined by number-crunchers far off and far up the line, then selection and service suffer. Putting that control over valuable public goods and services into fewer hands and at even greater distance—whether through stricter and more complex public oversight and regulation, public takeover of service providers, or outright government control of production—is not the key to public happiness. Or so I believe.

1. See A Classic Liberal from December 2, 2018.

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