As we enter the year 2019, State-owned electricity utility Eskom, once a success story of South Africa’s industrialisation programme, is now an albatros around the neck of the National Treasury and is hampering the State’s efforts to realise the country’s full potential for economic growth.
In the past, Eskom helped to knit together the different pieces of the industrial puzzle – from the use of raw coal and steel to their conversion, first into energy that drove the steel plants and then the laying of the vast network of rail tracks that connected the different parts of the interior into a seamless logistical and distribution network.
The problem with public monopolies is that, if they do not work well, they systemise the economic risk; worse, they socialise the cost. Monopolies fail do so not because the coal runs out or due to the old machines clanking their rusty and bruised pistons with sluggish mediocrity as we try to get more out of them; rather, they can be blindsided by the emergent technology future.
Emergence is a concept that describes a collective set of behaviours that are a product of the sum of their parts. The parts exist independently but, together, they create a different entity or dynamic – very much like the way hydrogen and oxygen form water, with water droplets subsequently forming a pool of water and then a river and an ocean. The river and the ocean are each a completely different entity and dynamic from the original atomic composite parts of hydrogen and oxygen on their own.
Eskom is caught in a trap between two forms of emergence. The first is a general, collective push of different parts that generates a negative emergence – the push for more of the same, such as government’s desire to hold onto the monopoly, the choices of technologies that preserve the old order, the power of lobby groups that entrap Eskom in the same cycle of energy carrier choice and then the very dependence of the entire economy on a single mode of supply for its energy needs. The latter gives little room for flexibility and entraps the system and its parts in the same circular motion.
Even the present desire to save Eskom from pilfering hands does not suggest that out of the crisis will arrive a new emergent: a different collection of parts, which we are seeing elsewhere, where the very idea of how energy will be supplied in the future is being turned on its head. The thing with Eskom is that we can neither shut it down immediately nor change it radically, given the combination of forces and factors that have narrowed its decision-making space.
Utilities are as much physical things as they are cognitive spaces where decisions in the present help shape not only the future chances of a utility but the whole of society. It is a moot point to say that Eskom should have made important decisions two decades ago or that there should have been a systems operator.
The point is that perhaps these decisions would have been too early and limited the scope for introducing the new emergent, given that it is only really visible for its true potential and meaning today. And the costs of cleaner technologies have come down radically.
The debate is not even about the energy choice but the way we think about the link between energy and the institutional system that supports its generation and distribution to the evolution of the economic system. It is a complete cognitive dissonance to talk about parts without imagining the whole.
For now, Eskom is too big to fail or to be abandoned, as there is already talk of a R100-billion bail-out just to ease its debt burden and boost its cash flow as revenues continue to decline. It is no longer a question of what machine Eskom uses but very much a question of what its new emergent should be. The thing with new funds being injected is that these sunk costs tell us nothing about how deep Eskom’s financial black hole is and whether the utility can really escape further entrapment should it continue using the same business model.
Eskom is not the only entity to face this sort of situation. In Greg Clydesdale’s book, Waves of Prosperity, an economic history of trade and shipping in Asia and the West contains vignettes about innovation and dominance, and then forms of cognitive dissonance and path dependence saw economic power shifting from one country to another over 1 000 years as new innovations drove change and competition.
Take, for example, the English shipping industry during the period between the two world wars; it encountered fierce competition along key sea routes which it had dominated for more than a century. The English relied on cheap coal, superior shipbuilding, State protection and better organisation to dominate the ocean trade routes.
Competitors began to adopt new technologies, such as diesel-driven engines instead of bulky coal-fuelled ships. The English could see the emergence of the new technology but, because of English pride, perhaps arrogance, they were slow and reluctant to respond to a changing world and continued to depend on coal. Their being reluctant to adapt was perhaps also influenced by the sunk costs into coal-fired ships. The purchase of some diesel-fuelled ships did not transform the entire shipping industry, given the overreliance on the old way of doing things. This was a classic case of path dependence that entrenched the old system when the new emergent was clearly visible on the horizon.
Experts are cracking their heads on how to deal with the Eskom quagmire because the whole of South Africa faces a systemic crisis if Eskom goes under. Liberalisation of generation capacity may be an option and revitalising the ability of municipalities to generate and buy their own power may be one of many ways to divert risk away from a single and centralised monopoly.