Thursday, April 15, 2010

Nationalize the American Energy Industry?

The usually very smart Berkeley economist Brad DeLong has blown a fuse on the topic of climate policy in  recommending (here) that the American energy industry be nationalized. He writes:
In general I am opposed to state-run nationalized industries: that is definitely the private sector’s place, not the government. But the interaction of rent-seeking politics with the flaws of America’s political system have made me willing to make an exception in the case of America’s oil industry: the increased allocative inefficiency that will flow from government ownership and management is, in my judgement, likely to be much less than the increased political efficiency that will flow from no longer having the energy industry able to purchase enough Representatives and Senators to block needed policy moves that it fears will be adverse to its interests. So nationalize—not to expropriate or to penalize the shareholders, but to get this particular selfish and destructive political voice out of American governance.
Aside from my general skepticism about the wisdom of nationalization (which DeLong says he usually shares), there is a fundamental logical problem with his argument: If the energy industry is politically powerful enough to block meaningful climate regulation, then why wouldn't it be politically powerful enough to block outright nationalization?

Aside from that problem, government ownership of energy companies would likely result in regulatory conflicts of interest, which have historically arisen whenever governments have attempted to regulate, e.g., for environmental protection, industries in which they hold a direct economic stake. Invariably, the regulators lose out to other bureaucrats who want to maximize production. For that reason (among others) it really is best for polluting companies to be privately owned but government regulated.


  1. Perhaps..

    Nationalization is fundamentally a way of buying them off: they've been opposed to good government policies for fifty years because they are afraid they will reduce their profits, so give the shareholders their money up front--but then you have to keep the shareholders and managers from reneging...

    And, yes, the potential economic inefficiencies from nationalization are immense. But they are an order of magnitude less than the political inefficiencies we currently labor under...

    Do you have an alternative plan?

    Brad DeLong

  2. Well, we've had some success regulating conventional air pollutants over time. They key is to start putting the right institutional structures in place, even if the targets are initially weak. Over time, Congress and the EPA have managed to impose fairly strict environmental regulations, even on the energy industry. I expect the same to happen, over time, with respect to CO2 emissions. Obviously, the longer we take to get significant emissions reductions, the steeper those reductions will have to be. But, given the lack of seriousness with which the entire international community (with a slight exception for the EU) is treating climate change at this point (it is mostly a rent-seeking game so far), I think that we should not expect to see significant reductions until we get some kind of catalytic event, e.g., the extinction of polar bears in their natural habitat. Sad to say, but that too is the history of environmental law. In the absence of catalytic events, nothing much seems to happen.


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