Why Eskom’s failure is Inevitable

As the country goes through another bout of power cuts (most severe of all), the country is once more confronted with the question as to whether the State-run power utility can be saved or not. Those that believe that it can be saved are showing a lack of ….understanding of why the company is resorting to ‘load-shedding’ in the first place.

Note on Load-shedding

This apparent new concept is immediately stripped off its novelty once one looks into its principles and sees it for what it is; the rationing of electricity. The world is quite familiar with Food shortages and empty shelves in supermarkets, however whenever this shortage comes in any other form, we often fail to see it for what it is, and Eskom’s electricity supply is a prime example. Once we look at this rationing in its true light, we find that taking an economic view and approach to this problem adequately leads us to Eskom’s real problem, and why it’s doomed to fail.

Shortages

Food shortages are nothing new, history show that communist countries are estimated to have killed over 100 million people[1] in the last 100 years, no other forms of governments come close to having “accomplished” this number. A portion of these deaths were a result of repression, however the other portion is a result of the inefficacious economic program that only brought about shortages and worst case scenario, famine. These economies failed to produce the required amounts of food to feed and sustain a whole country; South Africa is failing to produce the required amounts of electricity needed to sustain the whole country. Production is involves economizing and speculation.

Since Eskom is sole producer of electricity, the country’s whole generating capacity is centralized to one party. The situation is quite different in open market systems, where various parties speculate on what is (or will be) in most demand; the entrepreneur who believes that she sees an opportunity starts a business with the belief that what she will produce or the services she will render, will be in high demand in the near future. In this open market, if the entrepreneur is mistaken in her speculation, her business will not attract many customers as the demand for her products and services will not be as high as she had initially anticipated. Although her business will fail, her failure will be localized, she alone will go out of business as her miscalculation will not affect the economy as a whole. It is not that the open (free) Market is free of failure, but that the failure of each speculator is localized, unlike with the centralized version where the miscalculation impacts the whole society.

In a changing economy, action always involves speculation. Investments may be good or bad, but they are always speculative. A radical change in conditions may render bad even investments commonly considered perfectly safe[2]

Ludwig von Mises

Where the means of production are centralized through ownership by the state, the effects of any miscalculation of speculation are felt by the whole society due to the fact that no other speculation within that field was made, all eggs are in one basket and there’s no competition. In this context, when Eskom fails we all fail.

Load-shedding is a result of Eskom miscalculating the growth of the level of consumption that took place over the recent years. By failing to build or invest in the necessary number of power generating stations. It failed to prepare for this demand resulting in the need to ration the little electricity produced amongst all South Africa today.

If Eskom was a private entity, the effects of this malinvestment and miscalculation would have been localized, other competitors would have calculated and invested differently, with the one most accurate in speculation coming out on top. South Africa would have been extricated from these chronic menacing power cuts. The sad state of affairs mean that Eskom still has the sole responsibility of speculating on the growth of South Africa’s levels of consumption in the near future. Although it may get it right in one instance, it will not be right all the time. No company speculates accurately all the time, companies like Nokia, IBM, Blackberry and Fuji Films bare testament to this.

For as long as Eskom insists on being the sole producer, it is bound to miscalculate thus making its failure inevitable.

[1] Johnson, Paul; Modern Times page 772

https://www.thecrimson.com/article/2017/11/20/nicolae-one-hundred-million/

[2] Ludwig von Mises , Human Action page 551