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Electric Capitalism: A Discussion with David McDonald

Prabir Purkayastha: You have written a lot about electricity in South Africa particularly, and you also talked about how this concept of services being priced so the cost of service is recovered is actually starting a complete ideological change in the way infrastructure services are delivered.  So what do you think is the real crisis?   Is it the privatization or the commercialization of infrastructure services?

David McDonald: Well, they’re linked, and it’s not just the pricing per se that is the problem, although one could say that any form of pricing is a form of commodification, but then you can’t take it out of the context of what kind of system it is either.  The Cubans, for example, put a price on electricity for residential consumers, and the intent there is partly to recover the cost of production, but it’s priced in a social way that makes it largely accessible.  They also price water, but it’s effectively free.  That’s a pricing mechanism which is not a market-based mechanism, so it’s important that we distinguish what we mean by pricing — if it’s a marketized, commodified form of pricing or something else.

What’s happened in the last 15 or 20 years under neoliberalism is to try and “ringfence” — which is a term used in South Africa — where you figure out all of the costs associated with the production of a particular service by accounting for every last scrap of paper quite literally.  So, if you do a photocopy on a machine that is also shared by the Department of Water or the Department of Health, you have to punch in your code, and the cost of that particular photocopy goes to your department.  It’s down to that level of minute cost accounting.  And then finance people use those details to figure out, okay, here’s the actual cost of now producing this kilowatt hour of energy.  Then, the question is: well, are we going to discharge everybody a flat fee per kilowatt hour regardless of how much they consume because we figured this is our average cost of production, or are we going to have a progressive or regressive form of pricing?  A progressive form pricing would say that the initial cost of consumption would be low — or in fact, as it is in South Africa, with the first kilowatt hours of electricity per person per month, it’s free — and then the price starts to jump in step tariffs after that.

Prabir Purkayastha: In India we call it “telescopic rate of tariff.”

David McDonald: “Telescopic rate of tariff,” right.  You have to look at that more carefully and say, well, how quickly or slowly does that price jump?  And what are the incentives or disincentives, particularly at higher levels of consumption, to either reduce or promote the consumption of electricity?  And is the tariff structure for residential consumers the same as it is for industrial consumers?  What often happens is, though, they talk about the cost reflective pricing and say that this is of course what the market needs and people have to pay the cost of production because otherwise how we’re going to recoup our costs?  But, in the South African case, and indeed in many cases, you look at these tariffs, and you realize that they’re actually charging industry less than the cost of production, often less than the average cost of production, so it’s residential consumers, and often the poorest of the residential consumers, who are subsidizing middle- and upper-income consumers and industry.  It’s a very uneven distribution of cost recovery.  So it’s a technical question about how you price these things, but it’s a deeply political question around the kind of tariff structures that you decide to use.

Prabir Purkayastha: So, in the ultimate analysis, any of these tariffs can be decided politically, though the accounting makes it appear as if it is not and there is in some sense a “neutral way of accounting.”  That’s really what is reflected in all these tariffs.

David McDonald: There is a façade of objectivity.

Prabir Purkayastha: A façade of objectivity behind what you really want to do.

David McDonald: Right.

Prabir Purkayastha: But at the moment what you seem to see is that talking about full cost recovery is first arguing that this should be done commercially, utility should function commercially, and then saying that private utilities actually perform more “efficiently” and, if it is a commercial operation, the state really has no reason to do it and it should be left to private utilities. . . .

David McDonald: Yes and no.  I think the commercialization or corporatization of electricity utility has been done for two reasons.  One has been to prepare the ground for privatization, because no private company wants to buy utility where they don’t know what the actual costs and revenues are.  So, there’s been a political pressure over the last 20 to 25 years to financially ringfence these utilities, so that there is a sort of transparency on what it actually costs to produce something; and then you can go to a private company and say, look, here’s what it costs, here is so much money you can make; and often sweet deals are made to guarantee a rate of return of profit.  You almost have to commercialize and corporatize before any private company is going to be interested in buying.  So the question is always: well, are you corporatizing here simply in preparation for privatizing?  But what’s also happening is just a kind of inculcation of neoliberalism and marketized managerial ethos and skills and maintaining the publicness of these things.  They remain publicly owned and managed, but they’re run effectively like private businesses, and often management is paid based on whether or not the corporation, as it’s now called, is generating a surplus or making a loss. . . .  So, you introduce a whole new management ethos through the mechanism of a new accounting system, financing system, which completely distorts things.   These are still publicly owned and publicly managed entities, so the government can say, no, no, we are not privatizing; but in effect these companies are de facto private.  In the South African case, going back to your original question, ESCOM, which is the national electricity provider, is fully corporatized and now acts like a very aggressive multinational corporation, reaching out into the rest of Africa, and had at one point established Eskom, Inc. to go out and actually try and find private sector contracts.  They’ve since sort of come back with the tail between the legs, realizing that they weren’t actually up to the task and there wasn’t much out there for them to privatize.  But it begs the question of, if you’re not simply preparing for privatization, are you simply just gonna act like a private company in any event and cherry-pick and make profits on the backs of poor people?

Prabir Purkayastha: You’ve also written about how electricity and capitalism in some sense are intertwined, particularly in the developments in South Africa, so do you think that there’s something intrinsic, that capitalism needs the electricity sector to develop in a particularly way for its own development?

David McDonald: Well, to be honest with you, I came up with that term because I thought it sounded nice and would be a good title for a book.  And then I really started thinking more about it.  Actually, you know, it’s true, capitalism actually is increasingly dependent on electricity.  Now, you could write books called Oil Capitalism and in fact there are a couple of books out there titled Oil Capitalism; you could talk about water capitalism; you could perhaps have talked about wood capitalism or plastic capitalism.  But I think there’s a case to be made, increasingly in an electronic world that we live in, where the world would grind to a halt without electricity.  We would grind to a halt without oil as well, but — this is a little looking into the future, speculating — I wouldn’t be surprised if 20, 30, 50 years from now we’ve replaced oil with something else.  Electricity has become in fact the grease of capitalism’s engine. . . .  Now, having said that, the book is about Africa.  Less than 25% of Africans have access to electricity and yet are subject to the rules and regulations of capitalism, so they don’t enjoy the benefits of capitalism but they suffer the discipline of that, so they are not electric capitalists. . . .


David A. McDonald is Associate Professor and Director of the Department of Global Development Studies of Queen’s University, Canada.  Prabir Purkayastha is a member of the Delhi Science Forum.  This video was released by NewsClick on 13 May 2010.  The text above is an edited partial transcript of the interview.  See, also, David A. McDonald, “Electric Capitalism: Conceptualising Electricity and Capital Accumulation in (South) Africa.”



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