Expanding the PUC model beyond just natural gas and electricity providers

By Glen Wallace

We need to decide what is a vital utility and what is not. The same reasons for regulating traditional utilities heavily exist for regulating non traditional utilities such as medicine and banking. The two main reasons for regulating are fairness and maintaining a smooth running civilization in a modern society. While it may be argued that the lack of regulating medicine as a utility tends not to result in a widespread civil emergency, the fairness reason holds at least as much sway in medicine. It is generally considered unfair for a provider of a utility to charge de facto extortion prices just because they can. For them to do so is wrong on its face. Also allowing utilities free reign to charge whatever the market will bear encourages the creation of artificial scarcity. This was the case with Enron, where the corporation would deliberately ask power plants to shut down in order to limit supply so as to be able to raise prices. In the case of Enron, we are fortunate to have, for comparison, the standard of heavily regulated utilities overseen by a public utilities commission, or PUC. The PUC determines both what a fair, but modest, margin the private utility provider can have and what amount of service the community needs that is served by the utility. The PUC then dictates, not negotiates, the maximum rate the utility can charge and the minimum level of service that it has to provide.

When Enron was allowed to decide what to charge and how much service to provide, the results were manifold in skyrocketing electric rates and regular brownouts and blackouts for their California customers. So it was fortunate that those customers could look to the rest of the nation and see that there was a better way of doings things in the form of a PUC carefully regulating an electric utility in a manner that ensures the customers have an adequate, reliably source of electricity at an affordable rate.

Unfortunately, in the area of medicine, the citizen customers, the patients, don't have a comparable PUC model for the delivery of health care service and products. As it stands in the case of Big Pharma, private hospitals, medical device manufacturers, private health insurance, the profit motive dictates that as much margin as possible is extracted out of the patient customer while no regard is payed to whether adequate supply of needed medicines are made available to the patients and their health care providers.

The Big Pharma corporations are legally obligated to look after the fiduciary interests of their shareholders without regard to the health interests of their customer patients. There is an added level of complexity in the arena of medicine in terms of regulating as compared to energy utilities like gas and electric. Electricity and natural gas are single commodities where it is just a matter of making sure the electrons get to the customers and natural gas supply also gets to the customers at an adequate supply and a fair price point.

Healthcare is much more complicated in terms of all the variables involved that ensure the patients and their providers get an adequate supply of products and services at a fair price. This would mean either a PUC governing the field of medicine would have to be huge and expensive or capitalism would have to be removed from the governing equation of the field of medicine. Or we could have a hybrid of the two with a PUC governing the more simple and straightforward aspects of medicine such as determining how much insulin is needed by all the patients and what is a fair price the insulin manufacturers could charge. I believe medicine would be best served, however, with the removal of capitalism from much of the research and development realm.

I often hear or read the complaint from free market advocates that heavy regulation and price controls would stifle innovation in the medical field. Yes, it would stifle innovation; heavy regulating and price controls would stifle all the amazing innovative ways the drug makers come up with to squeeze hard earned dollars out of patient's pocketbooks. Unfortunately, the average reader or listener might, however, be given the false impression that the innovation stifled would be that of in the area of improvements in medical treatment.

The researchers and scientists employed by a corporation typically give up any patent rights for their discoveries and inventions in exchange for the regular paycheck a regular job provides. So if any innovated treatments come from those corporate employee researchers, they wont get a dime of residual remunerative consideration. Therefore, as long as the researchers continue to get a paycheck, there should be no diminishment of incentive to develop new drugs, treatments and therapies if they were, for instance, working for a government research and development organization with no profit motive. If anything, the opposite of stifling of innovation should occur with a publicly owned and operated medical research organization -- the scientists would no longer be constrained by necessity for their employer to profit from their work. The scientists would then be able to conduct their studies with the clear mandate to discover treatments that will help patients in the end.

As it is, in the profiteering capitalist model, medicines and treatments end up treating patients if and only if it is in the manufacturer's best financial interest to do so. In the capitalist medical model, there is a disincentive to bring medicines to the market if those treatments replace a more profitable existing treatment. Therefore, even if in the early stages of research, a treatment is showing promise in improving the outcome or curing a given disease, the for profit firm will only be interested in furthering the R & D on that treatment if they are confident, after pouring more dollars into studying it, the new treatment will in the end be profitable for the drug company or medical device manufacturer. Therefore, I don't think it is a safe assumption that the drugs we have heard about showing great promise to treat or even cure some horrible disease, such as cancer, do not work -- it may be that the promising treatment was deemed not profitable enough to the drug companies that would have to be the ones developing the drug and getting it on the market in our capitalism based medical model we are all left to depend upon.

In the banking sector, there is strong evidence that an operational, smooth running traditional banking, saving and lending system is necessary for the basic operation of a modern developed civilization in a market based society. There was at least a tacit acknowledgment of the utilitarian necessity of bank lending when TARP was being debated in 2008. All those experts on the mainstream media were running around like chickens with their heads cut off, as though no one could have anticipated and proactively prevented the crisis from happening in the first place by leaving Glass Steagall in place, warning of doom and gloom; “there will be rioting in the streets” if something isn't done immediately to unfreeze the lending markets -- as we have a debt based economy that absolutely depends on lending for the system's continued operation.

But with the repeal of Glass Steagall, the utilitarian saving and lending arm of banking has become entangled with the casino, derivative speculative arm of banking. As a result, when the speculative arm of given bank 'bets the farm' on a bad bet, there is a risk that the whole bank, including the traditional saving and lending arm, will fall. Such a scenario can create a systemic hazard to the whole system where it can be difficult for banks, if they still have money to lend, to tell if another bank will pay them back if an interbank loan were to be granted. The whole lending market, and the overall economy that depends on it, can come to a screeching halt. The problem is that a modern developed civilization absolutely depends on a functioning economy for that civilization to function much at all. For some reason, I sarcastically say, businesses want to be paid for their goods and services -- including wholesale food deliveries and the fuel for the truck delivery and the trucking firms doing the delivery and so on. And for the vendors of vital goods and services to get paid there needs to be a functioning lending market to lend the customers of the vendors the money they need to pay the vendors. OK, so we have concluded that a functioning traditional banking sector is necessary for civilization to function as we know it in our current economic system -- so why do legislators continue to allow it to be in jeopardy by not reenacting Glass Steagall? An analogy could be made between a scenario where electric power companies were allowed to having a gambling division. And if that division made a series of very bad bets at the race track, the whole power company might have to shut down because it no longer had enough funds for operating expenses. Such a scenario might seem absurd, but that is very similar to what is allowed in the banking sector without Glass Steagall.

A resource based economy doesn't have to be an all or nothing proposition. I have often criticized the Venus Project for being unrealistic with a 'pie in the sky' goal of a completely transformative society unlike anything we are currently experiencing -- but without a path as to how to get there. While I do think we need a more resource based economy, or RBE, the key word there is 'more'. Sure, if some Venus project people want to start from scratch and make there own commune somewhere, that's fine. But I prefer to focus on the existing society at large and improving on that society by making it more RBE than it already is. And I think that utilities governed by a PUC are an example of a resource based economic system.

A RBE exists wherever an effective effort is made to direct a maximum amount of resources to society at a minimum cost to that society. We have seen how implementing a RBE works with energy utilities, therefore an RBE system should work for other resources as well -- including but not limited to medicines and medical devices. Laws could be enacted that forbid deliberately designing any product to prematurely fail. Designing to prematurely fail could entail having a point of failure in a product made of a flimsy material that could have been made from an inexpensive but more durable material. Another example of designing to fail would be if a computer chip in a product were coded so as to instruct the product's control panel to fail soon after the warranty expires. It sure seems like products lasted a lot longer, before so much manufacturing was moved out of the US. The problem with cheap foreign manufacturing is not just the loss of jobs, it also is loss of control over quality that can be a detriment to durability.

I find it interesting that the capitalist drug manufacturers and their allies constantly badmouth government intervention in the markets in terms of price controls, but I never hear those same people badmouth either the FDA that approves their drugs or the Patent Office that makes Big Pharma monopoly profits possible. If the government can do a good job approving drugs and issuing patents, why couldn't they also do a good job researching, developing, manufacturing and distributing drugs and medical devices as well? I think the government could do a good job in that endeavor and I think the big corporate kingpins of the medical world know that as well.