The case of utilities
Utility providers are a prime example of how funding mechanisms have changed at a time when this inequality gap has been widening. The provision of essential services, particularly utilities such as energy and water, has changed across the world due to the development of microeconomic reform. With the advent of “user pays” pricing and consolidated water and power companies, a “capital expenditure social contract” has been the main method by which companies designed and paid for transformation and big builds.
By this, I mean that when large projects are undertaken, the population is deemed to have agreed to repay this back over time under tariff structures for as long as they take supply. The transformation programs underway in utilities as they embrace the age of digital and big data have been similar.
Equal prices for equal access
The nature of utility charging is that customers pay for services based on the capacity they draw from the system, not their economic circumstance. While some protection is provided through targeted pension and benefit programs, the sharpening of pricing signals and the era of full-cost recovery has seen the rise of tariff design which splits fixed and variable costs on purely economic grounds. That is, the fixed costs of a connection are borne by all on the basis of the type and size of connection provided, not the economic circumstances of the customer or the household.
As overall expenditure rises for a utility, these charges rise to repay them, thus levying a flat tax on the population. Where adversity or hardship may occur, governments may deploy benefit systems to soften the impact of these sharpening charges on the poorest in our society.
At present, while wealth inequality is stark, rates of hardship are not outside the averages, and while there is certainly an argument that the costs of the utility of the future are falling upon parts of the population who neither need the optionality nor can afford it, the system is managing itself without uproar. For now, at least.
Will the robotic revolution widen the inequality gap?
However, as the rate of change of society increases, keeping pace with the gap between the give and take can be a challenge. This is particularly an issue with the introduction of new technology that deepens inequality. For example, the rise of automation and robotics will see a vast reduction in the number of low paid jobs – machines are already replacing servers at a top US fast food chain.
As with the industrial revolution in Europe between 1800 and 1840, the returns from these inefficiencies will skew towards capital and away from labor, and represent an increasing source of inequality in our society. This will put pressure on the way in which our society taxes, spends and charges.
How utilities choose to react to this will be interesting. On the one hand, the richer parts of society are demanding greater services, which require scale investment in both systems and processes. These wealthier customers want to own water treatment, batteries, solar and virtual power plants. They demand options, choice and IT-enabled. The poorer sections of society, through the economic impacts of flat capacity and connection based tariffs, will get taken for the ride.
But energy reforms of recent years have removed from utilities’ any social obligation regarding charges. They are empowered by government contracts to focus on efficiency and freedom of movement in relation to capacity based charging. Utilities are within their rights to ignore growing inequality and continue to design a system for the top 20%, enforcing a social contract with the remaining 80% to pay the access charges that accompany the design and execution of the smart network.
The difficulty with electricity and water however is that no matter how they are traded, commoditized and sold, they are still considered to be basic rights of all. As society becomes increasingly robotic, as the industrial step change begins again, utilities will see a growing trend of late payments and hardship among what could be termed an industrial proletariat, which they will lack the data to diagnose and which will form a small part of an overall system.