Civic markets: the case of the California energy crisis

Did California's great "deregulation" experiment fail? Was it flawed in the first instance as most economists argue? Or was the deregulation of a public "good" (such as energy) and as such a civic "trust"? What role does public policy play in economic decisions? No matter what the opinions about the causes of the energy crisis, the result is the same the crisis has created a "challenge" for all 34 million Californians. In fact, the challenge is for all US citizens, as it is in other countries as well. The reasons are clear: can energy, like water, waste or the environment, be subject to market forces? Or are these sectors qualitatively different from telecom, transportation, or manufacturing sectors? California has had to confront this basic issue directly since the energy crisis erupted in the summer of 2000. The actual causes of the energy crisis may never be really uncovered even after protracted lawsuits, but three issues became clear in the "challenge": understanding that a "higher" public good, hence a role for government in certain infrastructure sectors such as energy, exists; second, leaving such public good infrastructures to the "free market" is both naive economics and flawed logic - the fact that only a few power generation companies control the flow of energy into California demonstrates the faculty of free markets equals more competition; and finally, California has embarked on a journey with immeasurable consequences. For the first time in modern history, a nation's state must take control of its own destiny. Sustainable development will now be defined over the next few years of the New Millennium. The paper will focus on the economic and business issues surrounding energy with specific recommendations on "sustainable development" drawn from the California challenge.