Energy & Power Generation

India Power Market Article Shows NY Times Doesn’t Understand Capitalism

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This post is an intersection of my research on the power industry around the world and a lack of understanding of the power of capitalism that I see reflected around me in Chicago and in many news outlets.

India’s Power Industry

The NY Times recently had an article titled “Scandal Posts a Question: Will India Ever Be Able to Tackle Corruption?“. The article described a scandal about India’s coal mining industry, a critical element of their power generation since India has heavy reliance on locally sourced coal.

Coalgate, as the scandal is now known here, is centered on the opaque government allotment process that enabled well-connected businessmen and politicians to obtain rights to undeveloped coal fields.

Why is this important? Per the article, 57% of India’s power is generated by coal. The industry is hobbled for lack of coal. 300 million Indians are without electricity, and a recent blackout effected huge areas of the country.

The Indian government used a bureaucratic process to assign out rights to these coal fields, instead of an overt capitalistic auction process (a fact that the NY Times article fails to mention), and many politicians and their cronies of course received the rights, likely due to overt or covert bribery and connections.

(the) $34 billion coal mining scandal that has exposed the ugly underside of Indian politics and economic life: a brazen style of crony capitalism that has enabled politicians and their friends to reap huge profits by gaining control of vast swaths of the country’s natural resources, often for nothing.

Why does this matter? When property rights are doled out in this manner, the people who receive them aren’t the BEST POSITIONED to develop the assets. If a profit seeking company paid for an asset in a public auction, they would be paying cash from investors (or out of their own pocket) and would need to “monetize” the asset in order to achieve a proper return back to investors. You don’t go into the auction without a plan to develop the asset, since you would be bidding against actual competitors who were motivated to do so and they’d likely pay more than you would. Per the article on India, this is the type of behavior that you see, instead:

Investigators now say that some of the favored applicants, having acquired the coal fields free, quickly sold them for tens of millions of dollars to steel or power companies. Others simply kept them as an asset and have not yet developed them, even as the country faces blackouts and coal shortages.

The NY Times treats this as some sort of “scandal” rather than as a FEATURE of socialistic systems. Politicians in these systems are exactly like capitalists in a capitalist society, using their role to obtain power and riches rather than for some sort of utopian “betterment of mankind” which the NY Times would likely expect them to do. In fact, these sorts of behaviors are modeled as successful and drive out would-be capitalists since the politicians in socialist societies hold the cards in terms of laws and processes and will use them against those trying to open up the process to a fair and transparent capitalist alternative.

India has no power for 300 million people, an unreliable system with rolling blackouts, and is crippling growth BECAUSE IT RUNS POWER AS A SOCIALIST SYSTEM RATHER THAN A CAPITALIST ONE. The answer is absolutely as simple as that. The scandal and the failures are product of a socialist system as doomed to fail as the USSR’s five year plans.

The answers to this problem of inadequate power are simple and can be found in any text from Smith to Hayek.

1. Sell state owned coal fields to qualified bidders (have the capital and means to develop the fields) in an open and transparent auction process
2. Protect the property rights of power developers by ensuring that they are able to build and site transmission lines and power stations appropriately
3. Protect the property rights of power companies by ensuring that they are able to charge and collect from customers and eliminate illegal connections to their systems
4. For areas that are a local monopoly (distribution), the state should ensure that performance and reliability are monitored via clear criteria and that entities that don’t comply should be fined or the franchise put up for auction to another qualified entity

Since the NY Times fundamentally doesn’t understand how capitalism works and that it is a BETTER solution that top down central planning or socialistic bureaucratic “queuing” models” (of which this is a primitive variant) they don’t make any of these recommendations. Scandals aren’t a problem – they are a direct result of the SYSTEM and will always be present in these sorts of political environments.

Cross posted at LITGM

The Apocalypse – the fear we always have – and Fogel – the cheer we might consider

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Well the apocalypse may be near. But our generation has been lucky. Maybe we’ve taken from the next – but time and space aren’t zero sum either – we can explore both, fill both.

I haven’t digested Robert William Fogel’s Escape from Hunger and Premature Death, 1700-2100 (his tables alone are beyond me besides much else). Still, reading him, I pause in delight and gratitude. The very concepts of “premature death,” “wasting,” and “stunting” open windows time becomes different much as Amerians in the mid-nineeenth century saw their horizons recede & enlarge. It stretched their limbs & imaginations: leaving from St. Louis, they knew some of that land would be theirs – earned by sweat as it never could be in the still feudal worlds some came from. Space liberated them. Fogel describes an enlargement of time – time for us, time with and for our children. He also describes productivity, consciousness – the energy to live fully in that time we’re given (the image of French peasants hibernating in the winters to save food doesn’t leave my mind).

Time is a recurrent literary theme, its fleeting nature the tension of carpe diem. Man’s time countered by redeemed time permeates Eliot’s Quartet, is a mystery in Wallace Stevens and an ache in Frost. Foolishly, we think we can endlessly revise, all is revocable – this permeates Prufrock’s rather inadequate approach. Franklin tells us time is the stuff life is made of – use it. Well, yes, but did he mean what we do? Is it that disconnect that leads us to fragmented training? Dalrymple notes a shallow approach to time (and history) creates a different art.

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Tearing it all Down

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The fact that some environmental groups want to destroy existing dams, in the name of returning rivers to their natural states, is of course old news. Now, though, they have moved beyond the tearing down of dams and want to destroy bridges as well.

And, in the case of the historic Stoneman Bridge in Yosemite National Park, it appears that they may well get their way.

Environmentalists claim to have great respect for the works of nature. (Though–given the number of cars I see with environmentalist bumper stickers and the windows rolled up tight on beautiful days–it seems that quite a few of them want to minimize their actual contact with the natural environment.) But, all too often, they seems to have no respect at all for the work of human minds and hands.

Related: Frankly, my dear, I do need a dam

Powering Down in Arizona

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George Will writes about the the attack that Obama’s EPA is conducting against the Navajo Generating Station, which together with the coal mine that feeds it represents an important factor in Arizona’s economy and an important source of employment for members of the Navajo tribe.

Will notes that the NGS provides 95”‰percent of the power for the pumps of the Central Arizona Project, which routes water from the Colorado River and which made Phoenix and most of modern Arizona possible. A study sponsored by the Interior Department estimates that the EPA’s mandate might increase the cost of water by as much as 32 percent, hitting agriculture users especially hard.

Read the whole thing.

Wind Doesn’t Work

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For Whole Foods, “environmentalism” means supporting wind power, and saying that their stores are “100% powered by wind”. What this likely means is that they buy power from renewable suppliers, paying an additional fee since that sort of energy is more expensive (unless massively subsidized by the government).

Power, however, cannot be economically stored. Thus the real time when you want power is when it is brutally hot outside, which in the Midwest often means little breeze and an overhead haze (which makes solar less economical). This means relying on traditional “base load” resources like coal, nuclear, or natural gas fired fleets.

When I walked into that Whole Foods it was a cold as a meat locker, and the flags hung limply in the breeze. Wind power wasn’t supporting Whole Foods when it was most needed; wind power blows whenever the wind blows, unreliably.

My suggestion to environmentalists is to just move their support of causes to the next level; the same way that vegetarians don’t eat meat, those that do not support reliable base load power (coal, nuclear, gas) along with the necessary (unsightly) transmission infrastructure to bring the power into your city (since having a plant near the city is usually out of the question due to noise and emissions), should TURN OFF THEIR AIR CONDITIONING AND THEIR ELECTRONIC DEVICES during times of extreme heat. After all, this is what that hated infrastructure is buying – reliability and power during peak loads.

Like those that pine for a diverse society yet move to far flung mono-cultural suburbs, those that value their environmentalist credentials above all should start “living the sweat lifestyle” that they believe in. Turn off that air conditioner, and don’t be part of that peak consumption, which in turn justifies the base load power in the first place.

Cross posted at LITGM