Mutually Assured Dependence: A Sure Way to Survive and Prosper in Solid Waste Management
High-quality service to the consumer at the lowest price is best ensured when private and public sectors work as a team.
We Americans discard a lot of stuff–almost 3.3 lb./day per person. Many Americans live in large, single-family homes and have more disposable income than others.
Americans want someone to pick up all the stuff, at least once per week, they discard. In many respects Americans demand routine utility services (e.g., electricity, water, sewer, and solid waste collection) at the lowest price. In comparison, Americans are willing to pay a lot more for entertainment (cable and satellite service, ball games, gambling) and convenience (cellular phones and Internet services). Perhaps more American homes have cable TV service than routine solid waste collection service.
Solid waste collection, recycling, and disposal-service operations are provided by municipalities, sanitation districts, and private companies. Most homeowners rarely care who provides the service as long as their waste is emptied on time. Yet proper delivery of this service is essential for protecting public health, safeguarding environmental quality, and making good use of resources.
In news media there is often much ado about who offers more efficient service: the public sector or the private sector. Often the public sector is portrayed, in a pejorative way, as inefficient, overpriced, and overstaffed. In contrast, the private sector is portrayed as efficient, cost-conscious, and bottom-line oriented. Both portrayals are overgeneralizations, and the truth lies somewhere in between.
The strength of leadership determines the quality and efficiency of service provided by either a municipality or a private company. Leaders (in the private or public sector) with a clear mission can motivate their staffs to excel and improve performance.
Private companies have a compelling reason to earn a profit to satisfy their shareholders. They can be profitable by being innovative and efficient or by eliminating competition. Consolidation of service areas, effective utilization of available equipment, large purchasing power, and opportunity for vertical integration are the actions that can eliminate competition. In the relatively open market system in the United States, investors are willing to support consolidation of services, assuming it will lead to greater return on investment.
Over the past two decades, the elimination of competition has been furtively practiced in all industrial sectors: airlines, banks, grocery stores, merchandisers, chemicals, computer software and hardware, water services, cable television, and solid waste services, to name a few. In the public sector, regionalization of government services is the process for consolidation.
In a recent survey of the top 100 companies in the solid waste business, the top three showed revenues of $18.3 billion out of a total of $22.52 billion for all 100 (81.3%). The top 10 accounted for $20.04 billion or 88.94% of the total. The remaining 90 companies are targets for future tuck-in by the big 10. If the top 10 are not forced to compete, the consumer pays a higher price. If they compete head on, the price will go down along with their profit margins.
The real winners in the consolidation game are the attorneys and investment bankers involved in mergers and acquisitions. They get their money upfront. If the consolidation fails to deliver the expected result, they still benefit by reselling or breaking up the consolidated company.
The consumer benefits when there is real competition among service providers. Prices for solid waste services have gone down in some regions of the nation where effective competition exists. The private sector is often successful in supplanting public-sector services in the guise of lowering costs to the homeowner. There is often mud slinging and influence peddling to eliminate public-sector activity in solid waste management.
When the public-sector service group is disbanded, the real savings (or improved efficiency) accrued for the community depends on the intensity of competition. Absent meaningful competition, the community will end up paying a higher price for the service. The short-term gains are offset by future higher costs. High-quality service to the consumer at the lowest price is best ensured when both private and public sectors work as a team.
All basic, reliable, and high-quality utility services (including solid waste management services) require long-term planning and periodic reinvestment to upgrade the infrastructure. In the zeal to reduce regulation and venture into a laissez-faire marketplace for utility services, political leaders do not clearly examine the downside risks. The California energy crisis is a good example of overanticipation of consumer benefits.
Solid waste management services are no different. When the US Supreme Court ruled that solid waste was a commodity of interstate commerce, the private sector entered into a new era of unregulated competition and anticipated higher returns, ostensibly through vertical integration of various portions of the service. Rapid consolidation of companies actually resulted in lowering the number of competitors in many regions of the nation. The top executives of the consolidated companies apparently (wrongly) assumed that service prices can be increased while improving efficiencies.
The current systems for collection of solid waste are dependent on use of special trucks, trained drivers, and laborers. There is no way of getting around that requirement, although automation is reducing the number of laborers and improving collection efficiency.
If the private company is not earning a good profit, the service quality will suffer and complaints will increase. The company might lose customers and even be forced to go out of business. One approach to creating a win/win situation is by developing a partnership between the public and private sectors. In effect, a mutual dependence ensures rational support for sharing of risks.
Recycling service is one such area where public and private sectors can share market risks and operation costs. Operation of transfer stations and landfills also offers opportunities for mutually assured dependence (MAD). The public sector can reach its goals for protecting public health, recycling select materials, and diverting others from landfills at lower costs when a MAD relationship is developed. The private sector also benefits from MAD because it is ensured sufficient revenues to meet its revenue goals.
In Delaware, the MAD system has worked very well over a 20-year period. The Delaware Solid Waste Authority (DSWA) plans and implements a statewide program for solid waste management and recycling, reducing risks to the environment. Although it can enter into door-to-door collection of solid waste, it has refrained from doing so and instead depends on the private companies for such services.
In recycling, a private company collects the recyclables from more than 147 drop-off centers, and DSWA takes the responsibility for processing and marketing recyclables. Private companies provide services for collection of household hazardous wastes, recycling white goods and tires, transferring solid waste, and operating two landfills. DSWA creates an even playing field for all users and service providers through a statewide uniform user-fee structure.
Private companies are encouraged to participate in all such activities even though DSWA has both the financial and technical capabilities to perform the services through its own staff. In return, private companies contractually agree to deliver all the solid waste collected within the state to DSWA facilities. The result is a highly organized, stable, statewide solid waste management program. Solid waste that remains after recycling is disposed within the state’s borders and in its own backyard.
Over the past 20 years, Delaware has been crisis-free in solid waste management because MAD has worked well in the state.
Author's Bio: N.C. Vasuki is the former CEO of the Delaware Solid Waste Authority