THE ALLOCATION OF EXPENDITURE IN THE ELECTRICITY SUPPLY INDUSTRY: SOME METHODOLOGICAL PROBLEMS
| Author | Ronald L. Meek |
| Published date | 01 February 1963 |
| DOI | http://doi.org/10.1111/j.1467-9485.1963.tb00913.x |
| Date | 01 February 1963 |
THE ALLOCATION
OF
EXPENDITURE
IN
THE ELECTRICITY
SUPPLY INDUSTRY
:
SOME METHODOLOGICAL PROBLEMS
RONALD L. MEEK
I.
INTRODUCTION
SINCE the second world war,
in
a
number of industries such
as
transport
and electricity supply, economists and engineers have been moving
towards
a
new identity
of
purpose. The process taking place is a two-
way one. The engineers, always highly cost-conscious at the lower
levels of choice, have been working out certain generalised criteria of
choice which are capable of use at much higher levels. This part of the
process is symbolised by events such
as
the transference of Mass6 from
Electricit6 de France to the Commissariat
au
Plan, and the trans-
ference of Khachaturov from the rail transport industry to the Institute
of Economics
of
the Soviet Academy of Sciences.
But the economists, too, are changing. They are increasingly
leaving aside their role
of
critical observers of the economic system,
and are being enlisted in large numbers
to
assist in the practical
solu-
tion of certain basic problems of choice
in
large economic units
(whether public
or
private) where the price mechanism can
no
longer
be relied upon to solve them adequately. The economists
are
thus to
an
increasing extent assuming
a
role which had previously been
associated more with war-time
or
the socialist economies.
In their joint efforts to solve these problems of choice, the
economists and the engineers have already developed certain general
techniques, and in the course of applying them to particular cases
they have met with certain difficulties. These problems, techniques,
and difficulties all appear
in
classic form in the electricity supply
industry, which is the subject of the present article. Since in every
advanced country the electricity supply industry is one of the most
powerful contenders for scarce capital resources, and since
it
is
obviously
a
matter of concern that these resources should be allocated
correctly, the subject is
of
some importance
in
itself. It is also
of
some
interest,
I
suggest, in view
of
the fact that
it
is at least conceivable
that the general aims, attitudes, and technical methods now being
adopted in relation to problems
of
choice
in
industries like transport
and electricity supply will eventually grow into
a
new science of
'
economic management
'
or
'
social engineering
',
replacing either
wholly
or
in
large part economics
as
it
has traditionally been known.
36
EXPENDITURE ALLOCATION
IN
ELECTRICITY SUPPLY
37
11.
BASIC
PROBLEMS
OF
CHOICE
IN
THE
ELECTRICITY
SUPPLY
INDUSTRY
The problems of choice peculiar to the electricity supply industry
must be seen in the context of certain wider problems of choice which
have to be solved by the economy as
a
whole. The first economic
problem which every economy has to solve, in one way or another,
is
that of the rate of capital accumulation. The second problem is that
of the allocation, between the group of industries producing con-
sumers’ goods on the one hand and the group of industries producing
capital goods, intermediate goods, etc., on the other,
of
the capital
resources made available as
a
result of the solution of the first problem.
In
so
far as these two problems have
to
be solved by conscious effort
(i.e., in
so
far as they are not solved automatically through the price
mechanism), it seems likely that the solutions arrived at will always,
even at the best, depend much more upon ‘political’ than upon
‘
economic
’
factors. The third problem, which
is
of
much more direct
concern to the electricity supply authorities, is that of the
detailed
allocation, between the industries producing capital goods, inter-
mediate goods, etc., of
the
capital resources made available to this
group of industries as
a
result
of
the solution of the first and second
problems.’ In connection with the third problem,
a
number of
important sub-problems have to be separated out. In all types of
economy, for example, the problem
of
the allocation of capital between
public utilities (however these may be defined) and the other industries
in the group has to be solved. And in all types of economy, the
problem of the allocation of capital between the different industries
producing fuel and power has to be solved.
As
a
result of this series of decisions, in whatever manner (and
order) they are in fact made, the electricity supply authorities usually
find themselves each year in possession
of
a certain amount of new
capital which has
in
one way or another been made available to them.
They also usually find themselves faced with the probability of the
demand for electricity increasing during the coming year by
a
per-
centage which can often be predicted with moderate accuracy.
Basically, the general problem of economic management which they
then have to solve is that of satisfying the demand at the minimum
cost, subject to the condition that the amount of new capital available
is limited to
a
given quantity. But once again this general problem
breaks up into a large number
of
sub-problems, all intricately con-
nected with one another and of widely differing degrees of importance
’
We abstract here from the obvious fact that the electricity supply industry
is
to some extent a consumers’ goods industry.
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