The proposed reform of waste collection policy was again in the news today.
The Examiner has a funny story. The proposed reform would cut costs (5,000 people less on the payroll) and increase charges at the same time. The Times is more thoughtful, although it is still curious. In our textbooks, regulators fight against market power. Here, the regulator wants to establish private monopolies and the companies that would likely obtain those are dead against.
Mr Kells issues an implicit threat of court action. Presumably, the companies would argue that they have a customary right and reasonable expectation to compete in any waste collection market.
A lot of the fuss is due to poor communication. As far as I know, the department wants to sell waste collection concessions to the highest bidder, rather than take waste collection back into the public sector (as the private waste companies seem to think).
Here is one way to get around this. Instead of auctioning concessions, they could be grandfathered.
AFAIK, there are four private waste collection companies in DLR. Counting bins on my way to work, I guess that one company has 50% of the market, two have 20%, and one has 10%. DLR should thus be carved into 10 concessions, with 5 going to company A, 2 to companies B and C, and 1 to company D. In two years time, the first concession should be auctioned, the second one two months later, and so on.
5 replies on “Waste collection”
Indeed dividing up the concessions into multiple smaller contracts is a good idea anyway to maintain a multiplicity of different operators. This in turn will prevent barriers to entry, such as regulatory capture or incumbent infrastructure.
I’m all in favour of regulated concessions, but they must be small concessions and remain contestable.
Hmm. So we have an existing competitive market, where companies are making money and employing workers, and the customers are mostly happy. The proposal is that the government establish local monopolies for waste collection, on the basis that a single company will have lower costs, which can be passed onto consumers.
The problem with this argument is that it could be applied to almost any product or service. We could have a single supermarket, or pharmacy, or bank, or cable TV supplier, or postal delivery, or taxi, or window-cleaning service in each area. Every two years they could bid to have their monopoly renewed. By having only a single premises and infrastructure, the local monopoly supplier would have lower costs and could provide a cheaper product or service to consumers. A single monopoly supplier would eliminate “wasteful” duplication.
However, all our experience is that monopoly suppliers are not cheaper. They are more expensive. And they are much less responsive to consumer needs, because consumers have no choice. Where the monopoly is created by a regulator, the regulator quickly becomes captured by the industry. Where politicians are involved in creating the monopoly, corruption is common. Where the monopoly is granted to the lowest bidder, quality often suffers, and a captured regulator who answers to local politicians can be slow to enforce the rules.
The proposal to grandfather concessions is worse than auctioning them, because it means a bureaucrat in an office or a politician is going to pick the initial set of winners for the first two years. It may be a way to get the industry to accept the system. If enough valuable local monopolies are given away for free to the industry, then they will probably allow themselves to be bribed. But the losers in this scenario are the consumers.
Please look up the definitions of “natural monopoly” and “grandfathering”.
Richard, can you make a case for why waste collection should be considered a natural monopoly? (without making appeals to motive or authority)
After all, there are low barriers to entry (trucks can be leased) and domestic roads off peak are an uncontended resource. Would you not be the first to argue that the negative externalities of trucks are overcompensated for by myriad taxes?
If a further tax is required to compensate for truck movements then so be it and perhaps this would encourage split-body waste trucks as seen in California, that can transport segregated waste in a single vehicle.
Grandfathering usually refers to exempting incumbents from new regulations. This is not what you suggested. Your idea is to grant a grace period to incumbents after which they must tender for their own business.
The simple problem with introducing local monopolies for waste run by the council is that the existing system is not broken. It is a solution to a problem that does not exist. In the past waste collection was more expensive and the service was worse.
Why should Ireland revert to council-run waste collection when this didn’t work in the past, simply because a theoretical argument can be made that costs will be lower?
There are a number of contingent risks with local monopolies for waste collection:
-collusion between suppliers to segment the market or fix prices
-corruption amongst council officials and elected representatives
-execution risk – the councils ran worse services at higher price in the past why should this change?
-regulatory capture – a small number of waste companies make friends with a small number of council officials.
-no incentive to innovate according to customer demand, instead the service parameters would be designed by council officials to meet their own needs.
Chief amongst Dublin council officials’ waste needs will be the need to avoid financial and political embarrassment from their kamikaze JV incinerator project. For example, why would they licence a collector that encourages recycling, waste avoidance or composting when this would cost them in shadow incineration penalties?
Licence auctions would avoid this problem but we don’t have a history of licence auctions in Ireland, instead we award them. Denis O Brien claimed absurdly that licence beauty contests lead to lower costs for bidders which in turn are passed on to the consumer as lower prices, as if a man who buys a house for a low price would then charge less rent to his tenants. This is a similar argument to the idea that waste collectors will charge less when they don’t have to bear the costs of competition.
Richard appears to derive his recommendations from an application of the narrow canon of neoclassical microeconomics. In my view, this is a necessary, but not sufficient, basis for the design and formulation of public policy. It may work in theory, but is seriously deficient in practice. It does not fully engage with – and generally ignores – key aspects of the economics of public choice, the nature of the transactions required, the nature and process of economic regulation required, the requirement for effective advocacy of consumers’ interests collectively and. most certainly not, the entrenched and irrational positions of both the left aand right when it comes to competition, markets and the role of private enterprise.
Your comments reflect many of these deficiencies. This is bad enough, but it causes serious damage, when civil servants, or other functionaries within the government machine, seize on the conclusions of such analysis (without taking account of the carefully defined assumptions and peer-reviewed analysis), drag them out of context and twist and spin them to effect some fix or fiddle for thier political masters.
The researchers can only mutter sotto voce, and never publicly, that that was not what they meant. And it is even worse when the scope of their research is constrained to generate the results the government machine wants.