Unions fail logic and history test
It was all so predictable the union reaction to President Cyril Ramaphosa’s announcement of reforms to finally fix Eskom. There are reasons to be sceptical of the government’s ability to find a lasting solution to Eskom’s crisis, which threatens the very jobs that the unions say they are trying to protect. At a time when most people realise that there is a national crisis on hand, they are offering war.
The plan to break up Eskom into three parts, Numsa general secretary Irvin Jim says, is “nothing more than privatisation through the back door”.
He then goes on to make the bold statement that only “an Eskom which is completely owned and controlled by the state is the best guarantee for cheap electricity. History has shown us that once the private sector is allowed to step in, prices increase and massive job shedding is inevitable”.
Whose history exactly isn’t clear. But the statement came just as the state-owned Eskom was asking the regulator for average increases over the next three years that will push prices for consumers up more than 50%.
It doesn’t take more than a Google search to find that in the 10 years up to 2017, electricity prices in SA jumped about 350%, compared with an inflation rate of about 74%. That has caused harm to the economy and industry bodies have warned of another jobs bloodbath if Eskom is allowed to increase prices by an average of more than 15% over the next three years.
The Minerals Council SA said that up to 150,000 mining jobs could be lost. One would have to assume a substantial number of the people who stand to lose their jobs will be members of the National Union of Mineworkers (NUM), which is also vehemently opposed to the plans for Eskom.
The current Eskom board has admitted that the nearly 50,000 people it employs are too many by about a third; it doesn’t seem worthwhile debating this point. NUM and Numsa seem to think these jobs at Eskom are sacred and by definition more important than those of the 150,000 mineworkers.
Even though Ramaphosa ruled out privatising what he called strategic state assets, let’s assume that NUM and Numsa are correct. What lesson can we draw from one of the biggest markets where privatisation and deregulation have taken place?
The privatisation of UK gas and electricity companies started in the 1980s, so there is enough history to draw some conclusions. A report by Ofgem, the UK regulator, looking at the state of the market in 2017 makes some interesting reading. While the six largest suppliers accounted for around 80% of gas and electricity supply, the market had transformed beyond recognition. Debating the future of a monopoly seems rather quaint in that context.
While prices still increased after privatisation and liberalisation, it was nothing like the numbers we’ve seen in this country. In the decade between 2006 and 2016, gas prices in the UK increased to 46%, while electricity costs gained 28%.
It’s interesting that this also came at a time when consumption was dropping, so this could also be used to show that liberalisation isn’t in itself a silver bullet.
One could also easily argue that this example supports the unions’ argument and that state capture and mismanagement alone explains the much higher increases in SA. The problem with counterfactuals is that one can also ask if the levels of depravity would have been possible in a competitive market?
The UK numbers don’t tell the full story. A significant portion of the increase was driven by deliberate policy steps such as higher carbon taxes. A constant theme is the huge discrepancy between prices paid by consumers who searched around and switched, compared to those who never changed suppliers.
The conclusion from that study may well be that competition is good for customers and the economy, and the trick is making sure consumers are aware of and will use their buying power.
AT A TIME WHEN MOST PEOPLE REALISE THERE IS A NATIONAL CRISIS ON HAND, THEY’RE OFFERING WAR