Archive for March 16th, 2011

Time and again people regard capitalism / free market economies as being at odds with morality. Greedy businessmen are said to care about nothing else than profits and their bonus payments.

Recent developments in Japan have induced some people to argue that energy corporations ought to be run by the government instead of (voracious) private businessmen. Allegedly, this would put more emphasis on safety and environmental protection. Due to less pressure on being profitable state-run enterprises could afford to pay for societally beneficial investments. Looking at Tepco in Japan and BP in the U.S. one might be tempted to agree.

However, nothing could be further from the truth. We only have to consider the case of Chernobyl to have scruples about the superiority of state-run reactors. It was precisely in the socialist countries where environmental pollution surged to largest degrees. The reason is simple: having a sound environment is a luxury good. That is to say, demand for environmental protection rises with income. Unless you can afford a decent standard of living you simply do not care about pollution.

Furthermore, the disaster in Fukushima was caused by a natural catastrophe. This would have happened under any economic/ political circumstances. The fact that safety regulations were (presumably) too low is not a question of whether energy companies are private or not. It is a question of whether the constitutional state is working properly. The government lays down the rules. It ought to think thoroughly about every aspect to create the right incentives.

To give brilliant example of how to correctly analyze safety issues let us have a look a particular case in the United States. Professor Friedman was asked how the government should react to a car company’s calculation of potential deaths by waiving a $13 plastic piece that would prevent gas tanks to explode in some cases. In a second case he was asked whether an energy company ought to be allowed to switch off the current if some poor people cannot afford the bill.

The government has a right to provide courts of law in which corporations that deliberately conceal material that is relevant can be sued for fraud and made to pay very heavy expenses.

That was what the Japanese government should have done and what other governments should do in response to the Fukushima disaster. Provide a constitutional framework, penalize misbehavior, and let people decide about what level of safety they are willing to pay for. Alternatives to nuclear power might be safer but also considerably more expensive. New techniques have to be developed and in the end customers will have to bear the costs. Germany’s decision to shut down a couple of reactors has already caused electricity prices to surge by about 20 percent. Regarding the imminent costs that Japan will face, probably still a good deal.

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