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The Scana Scam

Mises Daily: Monday, August 26, 2002 by

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The Scana Corporation is a government-created monopoly that provides electricity to most of the state of South Carolina. Like all regulated corporations, it is pressured by regulators to promote politically correct causes and policies--or else.  

Scana recently ordered its employees to remove Confederate flag bumper stickers from their cars if they are parked in company parking lots, and it prohibited employees from parking company vehicles in the parking lot of Maurice's Barbecue in ColumbiaMaurice committed the politically incorrect "sin" of placing the words "support all heritage," along with a Confederate and a U.S. flag, on his bottles of barbecue sauce (which is some the best around, by the way).

The president pro tem of the South Carolina Senate, Glenn McConnell, is so upset with Scana's actions that he has proposed legislation that would punish the corporation by allowing competition within the state for the sale of electric power unless Scana reverses its position on the bumper stickers.  

This is a good idea as far as it goes. But if Scana is plundering and stealing from the citizens of South Carolina because of its government grant of monopoly privilege, its franchise monopoly should be abolished regardless of what its position is on the Confederate flag (or the Union Jack, the French flag, the "African National Flag," or any other flag).

 Mr. McConnell's position seems to be that Scana can plunder South Carolinians as long as its employees can continue to place Confederate flag bumper stickers on their cars. This is hardly an example of taking the moral high ground.

There is no reason why Scana--or any other utility--should be given a government grant of monopoly, other than that the politicians who give such grants like to receive "campaign contributions" and other forms of  kickbacks funded by the monopoly profits created by the monopoly franchises. The notion that electric power is a "natural monopoly" is a myth (see my article, "The Myth of Natural Monopoly," Review of Austrian Economics, vol. 9, No. 2, 1996).  

According to this myth, the nature of the industry (high fixed costs) would, in a free market, lead to one giant company becoming a monopoly. Therefore, according to the myth, government should not wait for this to happen but should create a monopoly and regulate the price so that consumers can benefit from economies of scale and lower prices.

This theory is completely ahistorical. In the late nineteenth century, American cities typically had a half dozen or more electric companies competing for business. Economist Harold Demsetz pointed out in his 1989 book, Efficiency, Competition, and Policy, that in 1887, six electric light companies were organized in New York City; 45 companies competed in Chicago by 1907; and Duluth, Minnesota, was served by five competing companies. The same was true for the natural gas industry.

These companies attempted to create cartels, but since all cartels are notoriously unstable, they decided that the only way to have a monopoly was to get the government to use its coercive powers to prevent competition. On the free market, this could never be achieved. They succeeded in doing so, and most Americans have been victimized by government-sponsored electric power cartels ever since.  

Not all state and local governments have conspired with electric utility executives to fleece their citizens, however.  In his 1986 book, Direct Utility Competition: The Natural Monopoly Myth, University of Illinois economist Walter J. Primeaux noted that, in some American cities, direct competition between electric utilities persisted for some 80 years, as of the mid-1980s.  

These rival companies competed vigorously through prices and services, unlike in the monopoly states such as South Carolina. Customers in these competing areas benefited greatly, and all the natural monopoly myths have been shattered by these examples: costs are lower when there is direct competition; there is no excessive "excess capacity"; price "wars" are not destructive but beneficial to consumers; and consumers get better service and lower prices.

If Senator McConnell wanted to take the moral high ground in his spat with the Scana Corporation, he would do all he could to deregulate the electric power and natural gas industry in South Carolina regardless of what Scana's stand is on the Confederate flag--or on any other public policy issue, for that matter.  


Thomas DiLorenzo is a professor of economics in the Sellinger School of Business and Management at Loyola College in Baltimore, and is senior fellow of the Mises Institute. Dr. DiLorenzo is the author of The Real Lincoln: A New Look at Abraham Lincoln, His Agenda, and an Unnecessary War (Forum/Random House, 2002). See his Mises.org Articles Archive, and send him MAIL.