From: summer@mullian.ee.mu.OZ.AU (Mark Summerfield)
Subject: Re: Cream skimming considered beneficial
Organization: Computer Science, University of Melbourne, Australia
Distribution: aus
Date: Wed, 16 Dec 1992 05:44:41 GMT

chris@suite.sw.oz.au (Chris Maltby) writes:

>In <1992Dec16.084913.165369@dstos3.dsto.gov.au> mjp@itd.dsto.gov.au writes:

>>Isn't this presupposing that competition was necessary, in
>>my opinion that argument was never conclusive and the
>>introduction came as much as anything along in a wave of
>>other deregulation.

>Hey, Telecom! You need this guy. He's the only one in Australia
>who thought your service was perfect and couldn't be improved.

He didn't say that.  Your comprehension skills have been clouded by your
ideological outlook.  He said that the idea that competition was necessary
was not proven, *not* that Telecom was perfect and could not be improved.
To reach your conclusion, you have added the additional assumption that
competition is the *only* way to improve service and performance.  I don't
know if you actually believe this to be universally true.  I *do* know
that I don't -- Telecom's service, performance and efficiency has been
steadily improving for some years *without* competition.

Here is a quick summary of the arguments as I see them:

1)  A natural monopoly exists in telecommunications.  It is a fact that the
    larger the customer base, the cheaper the cost of provision per customer,
    all else being equal.

2)  Thus, the *theoretical* cheapest service, averaged over all customers,
    is provided by a monopoly operating at maximum efficiency, and minimum
    profit.

3)  Since no company actually operates at this theoretical cheapest level,
    the question is "how does one achieve the *practical* cheapest service?"
    For example, a duopoly sharing customers has a higher theoretical cost,
    since neither company has the maximum possible customer base.  However,
    it may be argued that the presence of competition causes both companies
    to be more efficient that they otherwise would be, thus resulting in
    a *practical* lower cost than the monopoly.  Another way to reduce the
    actual cost of provision is to maintain a monopoly, but *force* the
    provider to become more efficient by legislating economic restraints.
    This was being done with Telecom, which has been forced to keep its
    price rises below the CPI for some years now.

    There is a large measure of economic ideology contained within this
    particular point, since it involves a choice between more centralised
    control, and a more free-market approach.

4)  Enter the issue of cross-subsidisation.  Lemma: Telecommunications
    is a vital service in modern society, and thus must be available and
    affordable to all.  Proof: None.  Which doesn't seem to stop most people
    agreeing on this point in general terms.  Once again, ideology enters
    the picture.  The more "socially" minded argue that if some people
    who are better off are subsidising those who are not, then that is
    a Good Thing.  The more "economically rational" argue that it is an
    issue of "micro-economic reform": if the operating costs of the 
    business interests whose performance drives the economy are being
    artificially raised by hidden cross subsidies, then ultimately the
    whole economy suffers.  This can be reduced to a social argument by
    concluding that having reformed the economy into such a state that
    it is vibrant and competitive, everybody benefits, and thus the
    desirable Good Thing is ultimately still achieved.

    Personally, I (and obviously a number of others) have a problem with
    the latter argument.  The extra degree of theoretical abstraction,
    combined with the enormous increase in the number of variables involved
    in determining the eventual outcome, to my mind increases the risk
    involved in implementation.  Experiments are all very well as tests
    of theory, so long as nobody stands to get hurt -- at least, not
    anybody who didn't volunteer!

I cannot agree with the economic rationalists.  Not because I can't understand
the arguments, but because I can't accept that the individual human beings
who form the living elements of the ecomomy will behave according to the
"rules".  The present Victorian example demonstrates how certain types of
reforms can cause people to feel threatened, and can affect their confidence
in themselves, their government and their society.  These are important
factors, but they do not appear in the equations.  I believe in a society
with more direct social responsibility and accountability, and I believe
that such a society is capable of functioning better than the alternatives.
Which is, ultimately, what I think this whole discussion is about.  There
are plenty of areas in which competition is desirable and effective (e.g.
clothing, food, consumer goods), however there are industries which form
part of the social infrastructure where I believe more centralised control is
appropriate (e.g. energy provision, telecommunications, many forms of
transport).

I seem to have gone on longer than I intended, which means that probably
no-one will read this sentence! :-)

Mark.
          --------------------------------------------------------
              Mark Summerfield,  Photonics Research Laboratory
Department of Electrical and Electronic Engineering, University of Melbourne  
                ACSnet[AARN/Internet]: summer@ee.mu.oz[.au] 
          --------------------------------------------------------
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