![]() ![]() However, in each case the operators should move to buy in as much of their inputs and sub-services on the open market as is feasible and reduce their direct employment and production. Natural monopolies such as the gas, water and electricity distribution and transmissions systems should remain in public ownership. There are important lessons from this journey. The result was a very big reduction in cost and a major improvement in the service to customers. However, BGE rapidly moved to a new model where the bulk of the services in installing and maintaining the system were procured from smaller, independent suppliers as part of a competitive process, rather than being provided in-house. In a public sector monopoly this gain may be captured by workers or management through earnings or staffing levels above the norm. ![]() In the absence of competition, any monopoly can generate supernormal returns and charge a price well in excess of the true cost of production. Recent suggestions for reform in the UK emphasise the need for centralised planning in any new model (see What To Do About Railways by Dieter Helm: ). Rail systems are networks and they need to be planned as a network, not left to develop in a piecemeal fashion. This privatisation proved a failure, and the resulting mix of private and public ownership has had a significant cost for Britain. The British railway system, which was privatised under Thatcher, offers a topical example. This is important because networks need to be planned and organised centrally. In such cases, the best solution is to retain the natural monopoly in public ownership. It would be madness to have competing sets of wires and pipes traversing the country. Good examples are network industries, such as the transmission and distribution of electricity, gas and water. These are where the economies of scale of one big provider outweigh the potential for competition from having a number of smaller producers. ![]() However, there are many “natural monopolies” where competition is either impossible or far too expensive to be sensible. ![]()
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