UTILITY REGULATION by Walter Adams and Horace M. Gray Regulation And Public Utilities Among all the devices used by government to promote monopoly, public utility, or public interest, regulation is in some respects perhaps the worst. Here, under the guise of public interest and necessity, government abandons its traditional antimonopoly policy, abdicates its responsibility to supply essential public services, and delegates these functions to legalized private monopolies, reserving only a negative and ineffective restraint under the police power as a surety of good conduct. The legal relationship is not, as common sense might suggest, one of master and servant, or principal and agent, where ultimate power and responsibility remain in the hands of government. Instead, government alienates a portion of its sovereignty to a private corporation under a grant of privilege; the grantee, although ostensibly a chosen instrument for the effectuation of some public purpose, actually is an independent proprietor, free to pursue his profit interest, make his own decisions, and circumvent as best he can the feeble restraints of the police power.
The illogical and contradictory nature of this relationship is an almost certain guarantee of subsequent deterioration. Once a community becomes dependent on a legalized private monopoly for essential services, three things happen: (1) termination of the relationship becomes increasingly difficult and improbable; (2) the dependency of the community increases with growth of population and demand; and (3) the monopolist, aware of his strategic advantage, becomes increasingly demanding and arrogant. In the end the servant becomes the master, and the community must support him in the style to which he has become accustomed. In short, society must in one way or another subsidize the monopolist to induce a tolerable level of economic performance. The status of a legalized private monopoly is analogous to that of "an handmaid that is heir to her mistress —a situation which Agur, son of Jakeh, affirmed "the earth cannot bear" (Proverbs 30:21 and 23).
But it was not always thus, nor was it so intended by those who in the late nineteenth and early twentieth centuries first evolved this form of regulation. The men of that period were faced with a practical problem that admitted of no easy solution by means then available. New and superior technologies—first in transportation and telegraphic communication, later in electric power, gas, telephone, urban transport, and water supply—had been perfected. There was an urgent demand for these services, profit expectations were attractive, and private corporations were clamoring for grants of privilege to exploit them on an exclusive basis. Furthermore, where attempts had been made to organize these services competitively, it was observed that competition either operated unsatisfactorily or was soon eliminated by the process of consolidation. Hence, the conviction developed that monopoly was a preferable, perhaps an inevitable, form of organization. The existing situation was so generally unsatisfactory that some new institutional arrangement had to be found.
There were then available, however, few public institutions legally and financially competent to organize these industries on the scale required and to operate them as public services. The limited economic functions of government during our early history had not called for the evolution of complex institutions of this character. Moreover, there was little in our previous economic history to suggest that provision of such services was an appropriate responsibility of government. Thus, lacking both the requisite institutions and popular support for public operation, government at all levels was caught unprepared and empty-handed. As a consequence, it was forced to yield to expediency and to accept the principle of legalized private monopoly. For implementation of the latter, two basic institutions—the grant of privilege and the private corporation, were readily available.