On the ethics of infrastructure business

December 31, 2011 § Leave a comment

I live in Southern Finland, where we were hit by a major power supply catastrophe on 26th December (I use the term ’catastrophe’ that is clearly avoided by our power companies, gov authorities, leading print media and radio) that lasted for 60 hrs. We were extremely lucky: it could have been -20 deg Celcius outside but it happened to be nearly the warmest Xmas ever and the damages were not nearly as bad as they could have been and it was easy to survive without the threat of breaking water pipes and freezing. Our governmental bodies were saved from total humiliation and loss of trust in them.

The storm cut down a massive amount of power wires and made South Finland look like North Korea. It was life in a total darkness. While the Finns do not live in social and media dark ages as our unlucky fellow citizens in N Korean do, we still seem to have a dark media age and public service club here that were irritatingly slow in understanding the scale of the disaster. Why do I call this experience a ‘catastrophe’, here where I live and where Helsinki, our capitol with most of its services untouched is only 50 kilometers away?

In a global sense, it was a minor problem, but locally and for many citizens it was a real threat, a source of stress, and caused major economical, work and health related and other losses. In a well-fare state like Finland it was an educational exercise to learn what such a simple incidence reveals about the society and especially of its infrastructure businesses. It was a serious test of trust that our public bodies live on.

In addition to our power supply, this question is most acute right now in Finland as we are discussing the model of opening the geographical map data of Finland to open markets. It is a modern version of infrastructure assets that we have. How should we open it for businesses and how could we prevent negative effects of greedy money making? We should know this exactly. Some are going to make a significant business out of it and we do not know how it will benefit or harm us – as citizens who enjoy and navigate in our nature.

In candle light

I started writing this blog in candle light and I could hear the sounds of the approaching chain saw crews – men cutting down the trees that had fallen on our power cables that run in the air. You may wonder why on earth are we using air cables in Finland where everyone knows what happens to the power lines in heavy winter or when trees fall down in storm. This question is the reason why I have used the specific title of this blog and will return to it later.  I could clearly hear the chain saw sounds but I had no idea when we will have power supply again.

Our fridge was already warm and the deep frozen lamb, reindeer filet, our delicious wild berries and mushrooms had been spoiled, the water heating system did not work, Internet was down, and the mobile had been down for two days. At the writing of this (still 21% of Mac power was left) I could already call my friends and ask for information about the situation, but even that did not help, there was no relevant or accurate process knowledge available from the energy companies. They had the net, but I did not. My mobile was charging in my car outside.  We were not trapped as many elderly and sick people were.

More than half a million people (we are 5 million altogether) were left without electricity for one or two days and some like we and our neighbors even for a longer time. Tens of thousands of us live in private houses where it is not possible to pump water without electricity, heating systems do not work without it, mobile and internet connections are dependent on the power supply to the link stations, local net connections are tied to functional wi-fi systems and of course, computers become quickly dead.

Yes, we can buy batteries and could even get converters to turn battery power to 220 V AC so that we could use our mobile and internet devices but the operators have been down because the links have reserve batteries that last only for a few hours. Why such a short reserve time? It costs. Power aggregates were immediately sold out. People in old people’s houses had been in serious trouble because they did not have reserve power sources and without water, functional kitchen and everyday heath care many of them have been evacuated to city area. Grocery stores had suffered serious losses.

The end of the year was approaching and individuals, communities and companies needed to take care of a number of economical processes and accounting that was not possible because the computer and net -based application systems were down. Sun was up only for 6 hours so that solar panels were of no real use and we lived under candle light which was not enough to read anything but was a great source of cozy atmosphere for listening to the radio. Luckily we had bought a small chargeable radio from a science fair in San Jose, CA. It has a small solar panel but it also works by manually winding its generator – and it is fun. We have similar flashlight as well so we were not dependent on batteries.

Where was radio?

We’ve been winding the radio, listening to it and searching for reliable knowledge of our local prognosis in power supply. No practically valuable information was available, the news were national and they talked with general references to locations like “south of Siuntio”, “whole Veikkola” “wide-scale”, but had nothing to say about the situation here where we live and where we could see the total lack of lights and hear the distant sound of an aggregate in the darkness. But as a bonus we heard great radio programs, some even local ones, and one that we especially intend to follow from now on: Oskar Mauritz and his Rytmrepublik that will become Musicrepublic from next Thrusday on in Yle Radio X3M. If you love novel and modern versions of rhytm rap, reggae and jazz, it is for you.

At least ten percent of Finns have suffered from this incidence and you would think that it is major news here. But it was not until after three days. Half a million of Finns had not been able to watch tv so they had turned to the radio, just like us. What was in the air over the first days? Believe it or not: business as usual, no big deal. After having been without power for two days, on the local radio we could still follow three hours of national ice hockey reporting with special commentators at every game site in Finland but practically no reporter on the sites of this unprecedented catastrophe.

No really local news was offered, and the national political and weather reports were broadcasted as usual. No local progress information, only the number of the affected going up and down: on the first day we heard that 300 000 households had been without electricity for several hours already, then the estimate decreased and increased and then another storm wave hit Finland and it increased again. The cumulative number of households affected is of the order of 400 000, in different parts of Finland, meaning that about 1 million Finns have been affected. No big deal for the national broadcasting company?

I have noticed it many times how our news broadcasting is slow and passive, but here I was struck even by the lack of their business vision. Is it really a surprise to them that they loose their audiences who must turn to Internet, facebook, CNN, BBC or any other source when our own broadcasters don’t’ care to (they probably say that it is expensive) have on-line reporting, especially when something significant takes place outside Finland? They have the same ignorance at home.

The present national catastrophe would have been a perfect opportunity for the radio to create a significant bondage and trust with their audiences but they failed to do so. I just watched a discussion on the power catastrophe on our national channel where one of our ministers, a manager from major energy company, a leading figure from our ministries and a specialist on emergency affairs participated. Nobody mentioned the word “radio”. You would expect that once, when both the Internet and the mobile were down, radio operators would have sharpened up and seen their chance of showing their real power and relevance. I would have been happy to pay 5€ extra a day for such a local radio service where knowledgeable reporters, perhaps only two or three of them, but somewhere around where we live, had acquired relevant information for us and helped us plan our life. Radio could have proven it social potential as well by allowing local people to share their observations, knowledge, and willingness to help. A little social thinking and they’ve had a new service up. But they failed.

Everything is under control – not

There will be an intense discussion on various problems seen during this process, but I have already noticed that a significant aspect has been missing. Living through this catastrophe I have profoundly realized the necessity to build healthy models of infrastructure businesses. All the problems that we Finns suffered from were not caused by nature only but also by the unhealthy business models of our operators and energy companies. If we do not take care of our infrastructures, these and other greedy companies will conquer them and we will loose what is rightfully ours, in any nation. This conquering is a most natural thing for companies to do, if they are allowed,  because it makes money, kicks out competitors and make customers helpless.

The case of the leading energy providers in Finland

I listened to news where one of the managers of a leading power company explained to a reporter asking why so many power lines are still air wires and cause this kind of disasters. He said that it is expensive to replace them by ground wires and that they are doing it, but of course, it will be reflected in the power prices. Another leader explained how expensive it is: in Sweden it had cost 5 billion euros to put 50 000 km underground (maybe I’m an amateur but I don’t believe in this price estimate, there must be an error in it or someone has made extra money in doing it. On average it would mean 100€ per each one meter).

But of course the energy companies – and everyone in Finland – have learned over a hundred years that air wires fail when trees fall over them. Knowing this, they have still sold us the idea of a continuous power supply, charged us for that, and we have trusted in this implied promise. The profits have been shared over the years for this privilege they have. What an amazing arrogance and blindness, no shame! This being good business (we have a strong monopoly history), over the last five year, for example, they have been able to offer hundreds of millions, perhaps billions of euros in return to their shareholders and as rewards to their top managers.

Who pays for correcting mistakes?

Shortly after writing this I heard an interview from a leader of a ministry sector claiming that it is too expensive to put the wires in the ground because the network consists of 340 000 km of connections.  But with the capital spent for shareholders and management bonuses over the years, I believe, it could easily cover let’s say 50 000km, and with even a slightest bit of strategy thinking, intelligent power net switching and line positioning it would have helped  200 000 people. But they have not seen this as a valuable investment. Why? If they were a hospital and I was a patient in their hands, I would take my small money and run. The question now arises, have the energy companies earned their profits and bonuses in an honest way?

A thought experiment is educational. Let’s assume that a company sells breast implants made of silicon to a medical center. Then it is found out that the implants have a fault in their material and they can cause serious health problems so that it becomes necessary to remove them from thousands of patients. When patient organizations and hospitals contact them they just explain that “Yes, we are very sorry and we are already working on a better version, but of course, we will include the development costs into the price of the new implants that can replace the risky ones.” “What about the damage caused by the removal operation? Lost working time? Other material and psychological costs”, you may ask. “Sorry, we can’t help you.”

Having been revealed the company now wants to make you pay for its mistake of which it has benefited greatly over the years. Why should you pay for this mistake or for their ignorance? They have been able to make profit by selling a cheaply manufactured but dangerous product (power supply that can seriously fail, dangerous implant) and the managers have been rewarded by their business success in doing this in an efficient way (selling the implant that was cheaper to make, power supply that did not require serious investments into ground wiring).

Now when it has become evident that the product fails (power supply failure, a national catastrophe with huge losses caused), the energy companies will make their customers pay for correcting the mistake that they made. Where is the logic? It was not a lack of money as can be read from their business sheets tghat prevented the investments, instead the managers had earlier deliberately chosen not to invest in ground wires or other better solutions and the board had rewarded them for this “efficiency” by hundreds of millions of euros over the years. But with this same investment, many of the power supply problems experienced now could have been avoided.

Clearly, the lack of investments in better wiring was seen good business in the companies who assumed that in case of problems it is fair to make the customers pay for it. In our power supply catastrophe, the damages include direct losses, for example spoiled food in households and shops, extra time and materials devoted on heating, evacuation costs, loss of working time, and travel costs due to lack of communication channels. The spectrum of indirect costs is huge, comparable only to the losses in wartime, including losses in businesses, lost customers due to their problems that were caused by the power failures, and many others. Who should pay these? Who should cover the damages caused by the implants. The ceo of the implant company has already run away.

These catastrophes were not caused by a force majeur factor of nature only but by the reluctance of the energy companies to invest in safe power transmission systems that they – and everyone else – knew would work better. The profits they have made from this and distributed within the company and its shareholders include the savings in such investments. A serious question remains: are the power companies responsible for both direct and indirect costs caused by their failure (or unwillingness) to invest in technology that they knew is safer?

I will not answer this question here, but suggest another theme to consider when thinking about the solutions to this kind of infrastructure problems that have serious ethical demands for any nation, and globally as well. The core in this is responsibility: any company whose business is based on the use of global, national or local infrastructure must be ready accept the responsibilities involved.  But these responsibilities are not self evident and they must be declared.

Business from infrastructure brings responsibilities

National infrastructure is a complex creature. It has fuzzy owners and nobody wants to pay for it and very seldom, innovators and developers who invest their passion in developing it can expect to be rewarded for their contributions in building it. An admirable special case is how President Roosevelt realized the value of infrastructures, not only in building it for the nation and its business life but he also saw its socially and economically stimulating effect, even a spiritual one, that it can have on those investing their work and knowledge in it.

As a counter example, at my own university, and in others as well, for any young researcher, building infrastructure for the university and for common good is the fastest way to university career suicide. Ability to plan and build infrastructure such as labs, research tools and software is not measured or rewarded and the use of infra that others have build has no value whatsoever. My own experience dates back to 1970’s when I was programming vision research and speech synthesis systems that were used for abut one hundred scientific publications, including Nature, but my name was lagging from all of them, not even in acknowledgements. Nobody has ever offered credit for building this infra. No wonder then that the value of infrastructure has remained very dear to me.

When infrastructure is not “owned” and it is available for productive uses it becomes a target for hungry souls in business, research and everyday life. Fast player like the oligarks in Russia have had the right time and place to make their fortunes. Society is typically late in realizing the real value of evolving infrastructures. Sometimes there are significant indirect effects like the Nordic agreement on mobile communication framework where early adoption of regulated and standardized communication systems allowed Ericsson and Nokia to invest on right technology and to gain the leading position on the mp market.

Finland has an exceptional system called every mans right which allows us to use our forests, private or public for recreation, picking berries and mushrooms as long as we do not destroy the nature or disturb people and their homes there.  Many entrepreneurs have developed businesses based on this national infrastructure.

But it can happen that someone gains almost like an ownership of the available infra when markets are not ripe and there are aspects of monopolized positioning. In Finland we did not have much choice to survive our winters and as my good friend reminded me, the original promise of our leading energy provider was to help us survive in the exceptional conditions of the Finnish winter. This seems to be forgotten now and our national power grid is being used for getting our money from and via it. We have no real options.

But when something goes wrong like in the power catastrophe in Finland, and there is a risk for major compensations for the damage made, the owners become transparent, our national offices and ministries throw the ball around and prove how they have taken care of their own formal responsibilities and nobody reminds us of the history of all this. Whenever a fresh business proposition is offered, candidates are visible again, ministries and offices pave the way and they rush to the market place. That is when we should have our eyes open even when our parliament representatives are blindfolded.

Here are some preliminary principles to start with, for our parliament and our ministries to consider in opening our national infrastructure for businesses (for our local oligarks, “olicompanies”):

  1. Ask people what they see as essential infrastructure in their country, why they feel so and what they worry about it and what they are ready to do for it. Don’t use the word “infrastructure.”
  2. Provide a yearly asset document that describes our main national infrastructures that we as a nation and as citizens own and what is their value for us.
  3. Declare the ownership of the infrastructure that is under consideration for businesses so that everyone in the country understands who owns it and what rights this ownership provides to us, as its owners. A good model is our everyman’s right. Every Finn understands the rights and responsibilities involved. We understand the implications.
  4. When infrastructure use rights are offered, sold or opened up to any actor declare the intended business models open for discussion, make a thorough what-if scenario analysis that describes what the owners (we) can gain and what we can loose.
  5. Describe publicly what businesses can be conducted with the rights achieved and to whom they can be sold, transferred or leased in future and how this would happen.
  6. Describe the investment history, presence and future plans to keep the infrastructure functional. This will help us decide about pricing and compensations for damage if needed.

And then, many know how our forest companies have been accused and convicted for their price cartels. indeed companies are able and wiling to join their strategical forces so why not once create ethically sustainable cartels between the energy companies, by sharing the principles of ethical production and distribution of  energy? They would easily kick out unethical competitors who would try to break the rules. Other infrastructure businesses could do the same.

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