President Obama can assume that IOUs Perverse Communism is false and disallow the presure from lobbies to keep IOUs price control business model. Applying W. Edward Deming transformation of the style of management and the transformation of government relations with industry, could start with the EWPC transformation of the power industry.

Forget Keynes, Think Deming

By José Antonio Vanderhorst-Silverio, Ph.D.

Systemic Consultant: Electricity

First posted in the GMH Blog, on January 15th, 2009.

Copyright © 2009 José Antonio Vanderhorst-Silverio. All rights reserved. No part of this article may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying and recording, without written permission from José Antonio Vanderhorst-Silverio. This article is an unedited, an uncorrected, draft material of The EWPC Textbook. Please write to javs@ieee.org to contact the author for any kind of engagement.

This article is a follow up of the EWPC article IOUs Perverse Communism and a response to the excellent article written by my e-mail friend Mr. Warren Causey Don't look now, but Atlas is shrugging. I respect his position on the industry.

Even though I know that it was Edison's secretary, Sam Insull, that extended the wires 'natural monopoly' (the only monopoly kept by EWPC) to the whole utility at state governments, I can respect others' ideas that the perverse communism is solely the government’s fault and that powerful lobbies do nothing (it takes two to tango). In fact, if IOUs are not communist like, the solution to the crisis is a lot easier. President Obama should in fact follow that advice.

However, I respectfully disagree in that EWPC is not about rearranging the deck chairs on the Titanic. Related to the disagreement, I found this on the Internet: “Idiom Definitions for 'Rearrange the deckchairs on the Titanic:’ If people are rearranging the deckchairs on the Titanic, they are making small changes that will have no effect as the project, company, etc, is in very serious trouble.”

In fact, the government has only been rearranging deckchairs so far with the incremental extensions of the IOUs paradigm, like PURPA, Open Transmission Access, EPAct 92, capacity markets, NERC mandatory standards, which have resulted in simple and stupid behavior. That conclusion is based on Dee Hock, CEO Emeritus VISA International, which gave us the insight:

Simple, clear purpose and principles give rise to complex and intelligent behavior. Complex rules and regulations give rise to simple and stupid behavior.

In the EWPC article Can the Power Industry Eliminate its Price Controls to the End Customer?, I suggested that:

The dead-end of regulator's capacity for price controls shows up once again, while modeling the Smart Grid business case. Under today's EPAct, price controls are for simple problems, when we are facing a very tough systemic crisis. A systemic solution requires a EWPC re-regulation EPAct that deregulates wholesale and retail commercial energy transactions, while keeping regulated the Smart Grid reliable transport.

This is a little personal history. My service activities, on what emerged as EWPC on the Energy Central Network, started in 1996 with a request to offer a solution to the electricity crisis of the Dominican Republic, using funds of the American taxpayer through the U.S. AID. I had a Ph.D. on Information Theory, since 1972, deep knowledge of the power industry, since 1996, and a heavy reader of management literature to be applied in a design course that I taught at Santo Domingo Technological Institute, since 1985.

To get our industry out a brutal electricity crisis (that has gotten worse, just as in the US), I proposed a real transformation of the Dominican power industry, as can be seen in the Spanish white paper - Necesidad de una Politica Integral de Electricidad para la República Dominicana (the need for an integral policy of electricity for the Dominican Republic). The transformation was towards a clear long run vision of the future power industry. At some point I understood that this was a global crisis.

In the preface of his book “Out of the Crisis,” the late W. Edward Deming wrote:

The aim of this book is transformation of the style of American management. Transformation of American style of management is not a job of reconstruction, nor is it revision. It requires a whole new structure, from foundation upward.

What Dr. Deming proposed was not about rearranging the deckchairs on the Titanic. So is the job of the transformation of the power industry that requires a whole new structure, and I submit that that structure is the EWPC market architecture and design paradigm.

Dr. Deming adds what President Obama and all global presidents and prime ministers needs to grasp:

Transformation must take place with directed effort. Need for transformation of governmental relations with industry is also necessary, as will be obvious... [After several paragraphs]… Only transformation of the American style of management, and of government relations with industry, can halt the decline and give American industry a chance to lead the world again... [after more paragraphs]…for this the reader will sense the fact that not only is the style of American management unfitted for this economic age, but that many government regulations and the Justice Department’s Antitrust Division are out step, propelling American industry along the path of decline, contrary to the well-being of the American people. For example, unfriendly takeover and leveraged buyouts are a cancer in the American system. Fear of takeover, along with emphasis on the quarterly dividend, defeat constancy of purpose.

After writing the above, an insight that has wanted to emerge through me can now be articulated. The insight started to emerge when I read the following in the article “Smith, Marx, Kondratieff and Keynes,” which said:

This paper attempts to show a convergence of these seemingly oppositional approaches through the common denominator of the labor theory of value. Thus Smith created the labor theory of value to describe how a small village economy worked, but Marx later showed the consequences of how the labor theory would function within a larger capitalist system, leading to excess production and a serious economic downturn, followed by a political collapse. Kondratieff believed that periodic downturns were resolvable within capitalism. Other long wave writers suggested that new labor-based innovations brought capitalism out of the serious depressions, in effect reestablishing the labor theory for another period, of perhaps twenty years.

The insight is that Out of the Crisis is the not the new labor theory of value (by the way the labor theory of value was replaced from economics), but the management theory of value or the transformation of the style of American management, that says that Deming is right in response to Mr. Causey’s article We'll see who was right, Keynes or Adam Smith & Milton Friedman. The transformation of the style of American (and global) management will enable new innovations to get capitalism out of the present depression. This is all about systemic thinking.

José Antonio Vanderhorst-Silverio, Ph.D.
Systemic Consultant: Electricity