The Eskom Chairman at this time made some appropriate requests, calling for the government to enact more economically liberal policies to encourage foreign investment. Peron, Jim.  This was to be expected as the National Party (NP) achieved increasingly peaceful relations with the African National Congress (ANC). Prices aren’t just means to make individuals rich. These include the fact that the state enterprise fell victim to the socialist calculation problem, a principle of Austrian economics that will be elucidated in the next section. This means that while demand was rising due to economic growth and low prices, the ability to meet it was shrinking. We prepare students to a diversity of jobs and sectors of activity : fine chemistry and applications, biotechnologies, agro industries, environment, energy, pharmacy, cosmetics…. It was meant to run like a business, but was not allowed to raise its price.  Over all of this, Eskom got its pricing all wrong.  Clark, Manufacturing Apartheid, xi. In line with GEAR policies to manage the national debt, Eskom faced potential privatisation. The Commission argues that Escom’s monopoly status allows it to take advantage of economies of scale in order to implement vast electrification and infrastructural development.  Bill Freund, “The significance of the minerals-energy complex in the light of South African economic historiography,” Transformation: Critical Perspectives on Southern Africa, no. Urbach, Jasson. Av.  William Hoyt of South African Railways was also instrumental in his call for the VFPC to face state competition or even expropriation. Without competition, an entity can retain control over an industry and direct it along their whims – raising prices to exorbitant levels or conducting business with inferior competence due to little to no incentive to perform admirably. The new chairman in the 1997 annual report stated the government’s desire to privatise Eskom by 1998 as well as Eskom’s adoption of Black Economic Empowerment policies. This argument falls for a common fallacy that Frédéric Bastiat addressed in 1850.  Its recommendations are as follows: It is clear that these recommendations are contradictory.  As negotiations continued between the NP and ANC, however, the need for a substantive exit strategy evidently declined, even though the ANC did, in fact, do as the NP feared post-1994. http://www.econlib.org/library/Enc/AustrianSchoolofEconomics.html, https://mises.org/library/primer-austrian-economics, http://irr.org.za/reports-and-publications/atLiberty/files/liberty-2013-the-rise-and-fall-of-eskom-2013-and-how-to-fix-it-now, ICC and Africa: Costs and Benefits of Withdrawal. If the market wants it, they’ll pay for it. This is quite odd, as the primary material seems to suggest that the Escom leadership thought it wasn’t meritocratic and needed to become so. … Jim Peron (Auckland: Institute for Liberal Values, 2003), 85-92. Eskom, despite being a monopoly, actually marketed its electricity to consumers. Annual report. With the principle of prices explained, this allows for the argument of the socialist calculation problem.  Jim Peron, “Two-Minute Reads on Economics,” in The Liberal Tide: From Tyranny to Liberty, ed. Overall, the Commission suggests that Escom maintain low prices, decrease costs and aim at conserving electricity.  What is seen in Escom/Eskom’s actions here is a vast misjudgement of its new role and vision. Competitors may not have been interested in entering the market in the 90s, but now that prices are normalised, South Africa is ripe for a free market in electricity. Electrification of areas is sufficient to generate demand. Ces cookies nous permettent d'assurer le bon fonctionnement du site et sont strictement nécessaires à la fourniture d'un service que vous avez expressément demandé.  Andrew Kenny is a policy fellow at the classical liberal South African Institute of Race Relations and revealed to me that he is libertarian in a conversation on the 27th of July 2015. Unfortunately, the White Paper didn’t make it into law.  Roger Southall, “The ANC, black economic empowerment and state-owned enterprises: a recycling of history?” in State of the Nation: South Africa 2007, ed. Save my name, email, and website in this browser for the next time I comment.  Frédéric Bastiat, “That which is seen and that which is not seen,” in The Liberal Tide: From Tyranny to Liberty, ed. Your email address will not be published. Pretoria: Government Printer, 1922. As such, only those who stand out as most relevant will be addressed. Accessed October 10.  In the 1989 annual report, the Chairman also stressed that their production capacity was satisfactory and that new plants would only need to be built in 2000. Now, this may have been necessary due to a need to uplift much of the people of South Africa, but Eskom could have done it while retaining economic sense.  Steyn continues to contend that Escom had not produced the correct amount of electricity since the late 60s.  That would not tie into the National Party’s professed and practiced economic beliefs of economic nationalism – simply, they didn’t believe privatisation worked, so why would they do it for positive gains? Johannesburg: Eskom, [1986-2001]. Your email address will not be published. We have therefore worked to create a sequence of volumes called the Eskom Power Series. As James Jude Hentz (2000) argued, the NP’s privatisation strategy was not a case of desiring efficiency. Accessed October 10, 2017. https://mises.org/library/primer-austrian-economics.  The 70s saw much of this come to the fore, when Apartheid’s strangled economy and Escom’s surplus saw three coal stations being mothballed.  This was short-lived, as 1989 saw costs rising due to a bad economy.  To accomplish this endeavour, Escom was expected to be run as a meritocratic organisation. The Electricity Act was not introduced in a vacuum.  This finding is contradicted by Christie, who argues that Escom’s state was much more precarious.  Gentle, “Escom to Eskom: From racial Keynesian capitalism to neo-liberalism (1910-1994),” 53. Succinctly, Escom’s prices didn’t reflect real world pricing. The Electricity Act’s restrictions, combined with Escom/Eskom’s refusal to raise prices (and their pride at lowering them!)  This was doubtless going to happen as a result of South Africa’s crime problem anyway, but steadier electrification may have contained and spread out the problem.  This was a gross miscalculation, but that will be dealt with in due course as we approach the new decade. This is most importantly seen in the legislation that established Escom and the annual reports in the 1980s and 1990s that suggest how Escom/Eskom tried to address its position and may have dug itself into a deeper hole.  Most notably in this year, plans to privatise Eskom were cancelled by government. Gentle, Leonard.  This removed a vital incentive for the industry, which perhaps led to the VFPC’s eventual, somewhat willing, expropriation in 1948. Prices of electricity provided by Escom were only allowed to cover costs, loan repayments and a small amount to go towards reserve funds. Cape Town: HSRC Press, 2007.  The Financial Mail maintained that, while looking good in the short term, this expansion was not effectively planned, as no long-term sufficiency was considered, such as renewable energy. Achieve maximum availability of power stations. The victim of this relationship was the VFPC, who was put under the control of Escom, even if indirectly. Bastiat, Frédéric. White paper on the Energy Policy of the Republic of South Africa. Without the ability to change its prices to meet the market, Escom was toothless. As the main source of capital in the country, of course the MEC would wield political power.  As explained earlier, this is nonsense. David MacDonald (HSRC Press, 2008), 52. Kantor claims that the Commission recommended financial management over sound economics. Manufacturing Apartheid.  What the annual report also reveals is a close relationship with railways and the MEC. Southall provides useful insight by being able to observe Apartheid and post-Apartheid Escom/Eskom in his analysis.  It attempted to stress that cheap prices were helping people, but one may argue that all they did was pass the problems onto the future people, who now suffer from even greater electricity prices.  Through the ownership of the commanding heights, the ANC had firm control over the economy. Clark, Nancy. Privatisation attempts will be discussed in earnest later in the study. , 5.  Escom, Annual report, Johannesburg: Eskom, 1996 , 8-9. This was combined with the Apartheid government’s strategy to secure the commanding heights of the economy to ensure their political security.. INSTITUTO POLITÉCNICO NACIONAL D.R. It happened because the government interfered in the industry.  Jasson Urbach, “Problems with State Ownership of Enterprises,” in Nationalisation, ed.  Prices are integral to the economic process as they allow the sharing of information and cooperation without explicit communication.  This paper disagrees with that assertion. As explored in the Austrian theory and classical economics, monopolies are not ideal in an industry.  Inherent in the act was, what this paper aims to show as one of the prime causes of Escom’s downfall, restrictions on Escom’s pricing system. Its pretense at playing private sector is costing it dearly, as it refuses to take advantage of its status.  Escom, Annual report, Johannesburg: Eskom, 1987 , 7. There is no point marketing as a monopoly. Southall’s contribution to this paper was the establishment that Escom was a part of Apartheid’s Afrikanerisation employment policy. This paper has demonstrated how Escom/Eskom did not pay heed to economic principles and, as a result, skewed the market and led to the downfall of its ability to keep South Africa’s lights on. Edited by David MacDonald, 50-69. Many historians, such as Fine (2008), Gentle (2008) and Freund (2010), among others, cite the MEC as the prime factor in Escom’s establishment and decision-making.  Jonathan M. Finegold Catalan, A Primer on Austrian Economics, Mises Institute, accessed Oct 10, 2017, https://mises.org/library/primer-austrian-economics. But, despite this transformation and politicisation, Eskom was doing well – recording profits and vast electrification from 1994-2000. “I, Pencil.” In The Liberal Tide: From Tyranny to Liberty, edited by Jim Peron, 85-92.  Kantor then proceeds to argue a salient point: that if Escom (now Eskom) is to be a monopoly, it should act like one. The academic programme is organized over 5 years, with a two-year undegraduate programme (“classes préparatoires”) and a three-year engineering programme.  Rather, all the White Paper accomplished was the government strangling Eskom’s already struggling ability to keep up with the demand generated by its electrification.  Christie, “Better than van der Bijl dreamed: Escom 1948-75,” 157.  Leonard Gentle, “Escom to Eskom: From racial Keynesian capitalism to neo-liberalism (1910-1994),” in Electric Capitalism: Recolonising Africa on the Power Grid, ed.  Kenny, “The rise and fall of Eskom – and how to fix it now,” 7.  Electrification continued, but had to be funded by cost-cutting elsewhere. Electricity is an essential resource. Succinctly, this principle proposes that state enterprise is a bad idea.  Austrian School of Economics, Library of Economics and Liberty, accessed Oct 10, 2017, http://www.econlib.org/library/Enc/AustrianSchoolofEconomics.html. The primary material of this study, from the legislation to the annual reports, reveals a policy and decision-making strata that didn’t understand economics.  Steyn maintains that the commission had an ulterior motive of ousting the incumbent Escom leadership, but nothing in the primary case material backs up that assertion. This started by giving Escom regulatory control over everything electrical. Analysis of this already insightful section established that Eskom fell due to its monopoly status, its dire pricing system, over electrification and government interference. Here, electrification expanded to people who could not or would not pay. 71 (2010): 19. Costs might rise, but that is a small price to pay for sustainability and the avoidance of crisis.  Renfrew Christie, “Better than van der Bijl dreamed: Escom 1948-75,” in Electricity, Industry and Class in South Africa (State University of New York Press: Albany, 1984), 150.  But Eskom’s transition to a business-like institution is misguided, as Kantor’s earlier arguments have shown. Reed, Leonard. But it was too rapid. Electricity is a crucial resource of commerce. While they may have thought they were benefiting South Africa, they were rather hooking them on an unsustainable drug.  Escom, Annual report, Johannesburg: Eskom, 1994, , 9. State enterprises are ultimately political tools, as will be explored in the historiography and analysis and this leads to appointments based on political connections rather than merit. The principle of pricing is crucial to the case of Escom/Eskom, as will be explained in detail in the analysis section. The previous historiography and case study aimed to examine the secondary material with the lens of Austrian economics, setting forth a history of Escom/Eskom while reviewing past examinations. Instead, they unsustainably expanded demand. The problem was that Escom was charging under the amount that it needed to, leading to inflated demand and unsustainable production. 4 (1988): 309. If you don’t, you are unsustainable. Marketing is a blatant waste of money.  He suggests that the Commission believed that South Africa couldn’t afford electricity at an economical cost. In this way, Austrian economics has addressed why Escom/Eskom fell, and how future economies should avoid the same fate. 5 (1993): 623-639. “That which is seen and that which is not seen.” In The Liberal Tide: From Tyranny to Liberty, edited by Jim Peron, 59-80. When the private sector does a good job, it profits. Accessed April 5, 2017. This explanation is credible. The very structure of Escom itself may be at fault.  Commission of Inquiry into the Supply of Electricity in the Republic of South Africa, Report of the Commission of Inquiry into the Supply of Electricity in the Republic of South Africa, 3. Being a monopoly prevented it from observing and adapting to competitors’ signals, as well as having any incentive to work effectively.  The initial investigation found that Escom had been performing adequately up till the mid-70s. But a planned economy may have set prices for beef. 2 (2000): 203-223.  This is a point of contention in the historiography. Escom eventually became a full monopoly in 1948 when the National Party nationalised the electricity industry.  Grove Steyn, Eskom: Are we missing the opportunity to learn from history? As explored in the case study, the MEC played a pivotal part in the formation of Escom and the elimination of private electricity competitors. Corruption and mismanagement is a given, but how did it come to pass?  Eskom is acting as if it is a private business that needs to appeal to consumers, but it isn’t. “The Pricing of Electricity in South Africa: A Critical Assessment of the De Villiers Commission of Inquiry.” Managerial and Decision Economics 9, no. As Bastiat argues, we must not judge something on its initial consequences alone, but by a review of its effects in their entirety, as well as what could have been. While it was founded as a state regulator, its first chairman, HJ van der Bjil, was very much anti-state intervention. The state only allowed Eskom to build new stations in 2004 – four years after its original estimate and possibly long after it actually needed to do so.  Southall, “The ANC, black economic empowerment and state-owned enterprises: a recycling of history?” 203-204. “Problems with State Ownership of Enterprises.” In Nationalisation, edited by Temba A. Nolutshungu, 94-137.  For example, there may be a shortage of beef.  Private competitors who were asked if they wanted to enter the market declined, as they could not compete with Eskom’s ludicrously low prices. While private electricity producers were still allowed, the Electricity Act of 1922 began the process of nationalising electricity. It is a state institution with monopoly power.  Escom, Annual report, Johannesburg: Eskom, 1994, , 9. This allows the business to run sustainably, as prices serve to provide a means of rationing scarce goods.  Escom, Annual report, Johannesburg: Eskom, 1995, , 4. With the stipulations and regulations wrought by Escom, incentive for private competition fell away. Kenny, Andrew. Interestingly, all of them are also broadly Marxist.  During this year, Eskom began earnest marketing campaigns to sell electricity. This paper ultimately found Escom/Eskom’s downfall to be inherent in its existence as a state company and its flawed price structure. Interestingly, Andrew Kenny (2015) disagrees that Escom faced Afrikanerisation. In a free market, an industry expands as it can to fulfil demand. The historiography and primary case material have been combined chronologically to present a timeline of events and how other historians have interpreted the material. In the 1992 annual report, electricity is stated to be becoming increasingly political, as the need arose to electrify the homelands. https://www.gsb.uct.ac.za/files/BusinessDay_newspaper_article.pdf. Both Southall and Kenny agree, however, that a departure from meritocracy caused the downfall of Eskom. 2 (2000): 203. They were attempting to raise demand, without raising supply and while lowering prices.  In 1988, however, good sales and lowered costs seemed to encourage Eskom from adopting sounder prices, despite it receiving permission to make a profit. As a result, it maintained an unrealistic price that led to unsustainable demand.