What Makes Something a "Utility"?

As part of a (much) larger project I’m working on, I’m trying to define what makes utilities different than other kinds of services.

Or more specifically, why does government heavily regulate some kinds of services, such as power, water, and telecommunications, and not others, such as package delivery services?

Some parts of this answer are obvious. Others are less so (at least to me).

Yes, I’m sure there are reams of papers and discussions on this exact topic. However, as always, I’m going to approach it from first principles and see what I come up with - and then compare it to previous answers to see where it ends up.

In order to try and crystallize my stubbornly nebulous thoughts on this, I asked ChatGPT a version of this question. But even with appropriate prompt engineering to get into specifics, what I got was not as clear as I’d like. Because the answers it gave were more about how utilities are used and regulated than how we decide what services to designate as utilities.

So, let me take a crack at it. Here are the things I think determine when we consider a service of some kind as a utility:

• Requires physical, geographically-fixed infrastructure

  • Generally, but not necessarily, expensive to build and maintain

  • Generally, but not always, requiring the use of at least some commonly accessible land or property

• Essential to health (and/or safety, etc.) of individuals within or adjacent to the infrastructure

  • In other words, without the service, individuals may get sick or die

• Essential to economic activity of individuals within or adjacent to the infrastructure

  • In other words, without the service, people will be significantly more limited in what kinds of work they can do, and what they can buy and sell

There’s a fourth aspect of utilities that I’ll add here. But note that I don’t think this is necessarily a cause of defining the service as a utility; I think this may instead be a consequence of it:

• In common use by all (literally almost everyone) within or adjacent to the infrastructure

I’ll note a few things about the above list.

First, the need for physical infrastructure in a specific location is the greatest underlying feature. Without that, none of the others make sense.

So, for example, computing power might be considered very utility-like in many ways. In our current society, it’s becoming essential for both economic freedom and health and safety. But it doesn’t quite fit the bill, because it can be geographically distributed (which is actually because of our physical telecommunications infrastructure, but that doesn’t change the determination about computing power).

This need for physical infrastructure is the main reason that governments allow utility providers to be monopolies in the areas they cover. It doesn’t make economic sense (for anyone) for there to be two or three sets of roads going to and from the same place, or two sets of power lines for different providers.

This is also why governments often provide free or cheap use of land (through cheap sale or lease, free use, property tax breaks, easements, etc.) to utility providers.

Second, utilities are defined by how they’re used not by businesses or other organizations, but by individuals.

For example, in the early 1990s, there was telecommunications infrastructure which was explicitly not treated as a utility - businesses could pay extra for access to a T1 line which wasn’t available to individuals.

At the time, individuals were considered to need a phone line, but that’s all. However, that’s changed, and now the talk is that everyone in developed nations needs a high-speed data line.

And what this means is that what counts as a utility changes over time.

Some might say this changes as a technology becomes more powerful, but I don’t think that’s it. I think it changes as any given technology becomes more integrated with our society and economy.

In other words, when we (as a society and/or economy) become dependent on a technology that requires physical infrastructure, we turn that technology into a utility.

Third, although health and safety are a part of this, they’re a small part. The greatest driver to designating and regulating utilities is economic. The services that we consider utilities are the basics that nearly every individual and business needs to be able to earn their living and make their own economic choices.

For example, without common roads, all of us would have much fewer choices about where to work (and thus what kind of work we can choose), what we buy, and which services we can purchase.

In fact, the second and third points above (individual health & safety, and individual economic activity) could be considered two sides of the same coin. Because choosing what health services we get is a specific case of economic freedom.

My next question is why we regulate utilities. And the one after that is should we (and if so, how?).

However, in order to keep this short enough that I can post it without it sitting in my drafts for a month, I’m going to stop here. But there’s more to come (eventually).