The USS Quad Damage

Ethics Report: Private ownership of public utilities

Following is my Ethics report on the private ownership of public utilities. I thought I'd put it up so it looks like we have actual meaningful discussions on here. On top of that, it increases my word count by a fair margin. Be warned, it's bloody long!


1 Introduction

There are a number of ethical issues surrounding the private ownership of public utilities, most of which stem from a rift between the desire to reap the benefits of capitalism, and fulfilling the needs of the population. Public utilities exist to offer the basics of life to the constituents of a nation: clean water, sanitation, electricity, and telecommunications. These form the veins which fuel the operation of modern society, and their widespread proliferation is necessary to ensure equal opportunity and treatment. In short, the ideals of the government to provide these utilities to the people is not shared by private enterprise, which desires only to maximise profit.

This report discusses the ethical implications of privatisation from a variety of standpoints, and a personal conclusion is reached. Since ethical conclusions are personal, this report will be approached from a personal standpoint. In addition, due to the nature of this report pertaining to engineers, intuitive discussion & ideas will be borrowed from engineering, often using engineering terminology. We start by looking at general ethical frameworks, and frameworks specific to engineers, then move on to the principles of privatisation vs public ownership, and how this relates to the ethics of rights and virtue & public utilities. We move on to discuss the practical aspects of privatisation in the context of public utilities, utilitarianism, and the correct course of action. We conclude by discussing the most appropriate ethical background for use in this case, and discuss the ethical insights made.

2 Modes of Ethics

We can speak of ethics in different modes. We have ethics as living things, ethics as human beings, and ethics as engineers. To paraphrase an infamous uncle, we must balance our power and rights with equal amounts of temperance and responsibility. Some of this responsibility is direct, such as legal and social obligations. However, there is a deeper, moral obligation which must be fulfilled in some way, and an ethical framework needs to be in place to account for that.

2.1 The four ethical frameworks

We can see moral reasoning as having four approaches: Virtue Ethics, Rights ethics, Duty ethics, and Utilitarianism. In ideal circumstances, they can be seen as being equivalent, or drawing equivalent conclusions. Duty ethics and Virtue ethics can be seen as almost entirely equivalent, with the virtuous being those that fulfill their duties. These duties and virtues exist to protect the rights ethics. Utilitarianism can be seen as a further abstraction, or a general framework that defines virtues from rights. That is, it can be seen as asking ``what set of virtues can maximise the sum of rights that are available for the constituents?'' Thus we can see all of the ethical frameworks as being more solid or liquid forms of each other, some more adaptable but less definable, like utilitarianism, and others readily defined but not necessarily universally applicable, such as duty ethics.

Practically, however, these ethical frameworks are often at odds. Whilst duties and virtues are simply re-phrasings of one another, they have different implications. Duties are seen as more active tasks, whereas virtues are passive. Rights can be seen as something that one has a duty to protect, but can be seen in a selfish sense as something that one deserves. Utilitarianism also fails in producing accurate models of utility, even for subjective cases. In addition, the relative solidity of the different forms of ethics give more or less readily available answers. For example, virtue ethics can readily be used to produce ethical solutions to a conundrum, but this may not in fact be an optimal solution from the perspective of rights or utility. Therefore, while all ethical frameworks converge on the one solution, they all must be used in evaluating a practical situation.

2.2 The IEAust code of ethics

The IEAust code of ethics come in the form of crystallised principles and virtues, for situations and instances in which engineers are likely to be involved. That is, they are the set of duties and virtues which preserve a set of rights and maximise utility for the special case where engineers are involved. Some of these duties deal with preserving the public confidence in our peers, and dealing in social matters with due temperance. Others deal with preserving the rights of the public, and integrity of the engineer.

3 Ethos & principles

Most arguments take place on the basis of either principles or practicality. We now explore the principles behind privatisation and public ownership of utilities.

3.1 Privatisation

Privatisation helps to reduce the role of the state [1]. The principle here is essentially that the state should hold a minimum amount of power to achieve it's goals, which should also be minimised. This is a form of passive control, or Laissez Faire, which has a similar ideology to micro-kernel design in operating systems. This helps to make the system more responsive, more flexible, offer increased scalability, and increased efficiency (in theory).

Attempting to aspire to the natural state of things is an often useful principle. It is commonly held that public utilities are naturally owned by the government. However, it has often been the case that concessions were made for water and electricity to private companies from the beginning. At least in the case of the UK and Argentina, the electricity industry used to be private, then nationalised due to world war 2, then re-privatised[1]. Therefore, the ``natural state'' of public utilities is not only with the government.

Privatisation increases competition, which should fuel R&D, as well as developments into renewable technologies. One of the ways to improve the equal distribution of water is by monetising it, and giving incentives to help distribute the water in the poorest countries. Despite the market's singular goal of maximising profits, other goals can be coupled to these, making it possible to achieve things that are beneficial to the community.

One example of this is using incentives and regulation to ``guide'' the behaviour of the market. For example, in order to address the issue of environmental degradation, a carbon credits market can be introduced into the electricity industry. Well implemented, this can passively force the market to have a balanced environmental profile. Similarly, incentives can be given in the telecommunications market to allow carriers to inter-operate. Using these market driven strategies, an efficient, de-coupled system can be created that benefits everyone.

3.2 Public Ownership

Public utilities are not the same as other markets. Whilst things can be done to make the markets behave more conventionally, there are clearly differences when it comes to utilities that must be guaranteed for the people to ensure equality. Putting utilities in private hands means putting the protections of these rights at risk. Further, just as there is no incentive for publicly owned monopolies to innovate, there is no incentive for privately owned enterprise to provide guaranteed & fair service.

Duplication of distribution networks is exorbitant, and raises the barriers for the entry of competition. The main difference between public utilities and other markets is that they rely on distribution networks. Exorbitant prices required to set up distribution networks, and the efficient inter-operation of those networks lowers the reliability of the carriers, and makes it difficult for new players to enter the market. For example, if road networks were to be privately owned, then either huge companies would have to set up road networks to reach households, or small companies would own small stretches of road, making it difficult to travel, and would set up large expanses of vast, unused road. In addition, a road leading from point A to point B is not in direct competition with a road leading from point C to point D.

A similar situation occurs with the privatisation of Telstra. All other carriers must pay Telstra large sums of money to use their network, or set up networks of their own, at great cost. This is an inherent problem where distribution must be universal, and customers are not able to freely switch providers. [2] argues that the core network of Telstra must remain in public hands in order to provide universal access and a uniform platform.

4 Practical concerns and Implications

4.1 Larger Issues

In reality, there are larger issues at work and ethical decisions to be made. There are problems with the privatisation of public utilities that are more general problems with capitalism, and problems with public ownership that are more general problems with communism. For example, one problem with privatisation is the ``stickiness'' of money. That is, money tends to gravitate towards more money, and assets similarly pool towards the minority. That is, while the public offering of Telstra would ideally mean that large numbers of people would own small pieces of the company, in reality, large chunks of the company will be owned by only a few individuals. However, the corresponding problem in public ownership is the lack of incentives to innovate and increase efficiency. This is the very reason that so many countries are now considering restructuring their electricity industries. However, these issues are far too large to be covered in this report, and we will limit our discussion to issues that pertain specifically to public utilities.

4.2 Privatisation

Since the trend is towards privatisation, we will look at some of the practical concerns of privatisation. The problems with public ownership are largely the theoretical weaknesses manifesting themselves in practical ways, and practical problems which occur with the state in general. However, there are many practical problems with privatisation that do not stem from it's theoretical basis, but from it's passive control structures, and are limited to public utilities, and not pertaining to markets in general.

According to [1], ``privatization and restructuring do not produce the same outcomes in all places, and their design and implementation require considerable preparation and consultation. The processes do not necessarily lead to more competition, greater efficiency or more profitable operations, and must be developed within the larger context of market reform, with account being taken of the standards of good management, regardless of ownership, and with competition being seen as an important source of managerial discipline." In practical terms, privatisation is no ``magic bullet'', and must be implemented with care to have desirable consequences. We can see from the California crisis in [3], that de-regulation did not cause the intended effects. This is also an example of where privatised industry does not perform well in a crisis, and is not optimised for worst-case scenarios, where guaranteed service is required under extenuating circumstances.

Practically, the privatisation of Telstra in it's current form has significant problems. This has to do with Australia's population and it's density. No private company would realistically provide services to consumers which cost more than they produce. However, this is exactly what Telstra is expected to do, both ethically (from equation 1, we can see that the basic happiness of rural Australians is worth more than the increased happiness of suburban Australians) and socially. Further, because Telstra as a private enterprise owns the distribution network, it can use monopolistic strategies to it's own profits (indeed, it is already doing so [5]).

Despite regulation and incentive schemes, the goals of a private business cannot be changed from maximising profit, and regulation in practise is dealt with combatively by companies [4]. As Darwinism states: ``Nature will find a way''. Therefore, it is quite likely that regulation will be perverted for the use of the companies, and incentive schemes will be met without necessarily achieving the objectives. Coupled with a flawed intellectual property rights system and an inefficient legal system, private companies can often work around regulation, or disobey it entirely. When it is as necessary as it is in public utilities, the non-compliance of regulation can be catastrophic.

5 Conclusion

We can see that both privatisation and public ownership have significant ethical issues. Discerning and careful ethical consideration can create a system which will work in either case. There are many principles which show that privatisation is ethically superior, and others which show public ownership as the correct decision. As engineers, the onus falls on us in a more stark contrast than in other situations, since the public good is affected by everything we do in these situations. We must be careful to consider the public when developing technologies (eg: not developing technologies that may be used to stifle competition, and ensuring that reliability and interoperability is high). With care, in the circumstance of private ownership of public utilities, either way can work.


Managing the privatisation and restructuring of public utilities.
Geneva, 12-16 April 1999
International Labour Office Geneva
Extract on the web at
Dumb & Dumber
Stewart Fist
PBS America
Our Case
Citizens Against Selling Telstra
Telstra accused of anti-competitive conduct