* Defending the public sector
Long distance control
Telecommunications reform in the third world
In most industrial and developing countries, telecommunication services have traditionally been delivered by a single, government-owned provider. Telecommunications was considered a "national" monopoly, alongside postal services, transport, electricity and water. Even the most conservative, market-oriented economists argued that it was desirable that an essential infrastructure sector like telecommunications be dominated by a single provider, preferably a government department. This was assumed to bring economies of scale and of scope by providing a range of related services cheaper than would be possible if, say, local and long distance telephone calls ran along different lines, installed by separate providers). Vickramabahu Karunarathne*
Similar justifications were applied to a whole range of utilities. What was special about telecommunications was the high profit margin. International telecommunications services were, until recently, provided by a carefully managed cartel of national telecommunications authorities. This cartel devised a system of high prices for international and long distance services, which they used to subsidise local services.
This was particularly true in countries like Sri Lanka, where most users of the telephone system are themselves part of the public sector Let's not forget that over half the world's population has no access whatsoever to the telephone system. This didn't just reinforce the strategic importance of telecommunications within the state structure. It also provided a powerful argument for subsidising local communications at the expense of long distance and international services.
At the time, it was accepted, in the South and even in the North, that the state had an important economic function in ensuring telecommunications and other infrastructure service. So there was no particular effort to mobilise private or public capital for technological advance. In Sri Lanka and elsewhere, telecommunications was considered to be a ready source of income for the state coffers. Heavy taxes, excessive interest payments on state-sponsored investments, 6 International Viewpoint #296 over-employment and outright plunder of resources and equipment plagued state telecommunications operators across the developing world. Profit was not a key criteria for evaluating telecommunication services, but neither was efficiency.
The bells began to ring in the 1980s. Leaders of one third world country after another began to stress the importance of fostering private initiative, so as to increase productivity and growth. By 1992, over 80 countries had launched privatisation programmes. An estimated 6,800 state-owned enterprises were privatised around the world between 1980 and 1992 (at which point the countries of Eastern Europe and the former USSR began their own, massive privatisation programmes). The World Bank contributed to privatisation programmes in 67 countries between 1982 and 1992.
Governmental economists in Sri Lanka are almost unanimous about the benefits of privatisation in sectors where competition exists, or where they think it can be promoted, as through trade liberalisation. But there is still a real debate about the possible benefits of privatising national monopolies, particularly where strong external influences restrict competition.
It is relatively easy to identify the imperfections of state management of the telecommunications sector, and their negative impact on the capitalists, the state itself, and even on the population. But, in a key infrastructure sector like telecommunications, privatisation threatens to replace imperfections in government direct management with imperfections in government indirect regulation of a private Who stands to gain?
The World Bank has been less than candid in producing empirical studies of the real savings a third world country can make by privatising telecommunications. But business magazines like The Economist give very clear information about the increased profits such "new markets" offer to multinational investors and their well-connected and corrupt local partners. World Bank telecom projects will bring an estimated 27% profit this year, which is much higher than the rest of the Bank's "development"
Demand for telecommunications in the third world has changed qualitatively since the state-owned systems were developed. A growing part of production and markets are controlled by multi-national companies, which organise production and distribution at the global scale. The constraints of global capitalism on a state like Sri Lanka used to be expressed mainly through the operation of the global marketplace. Today, these constraints are increasingly expressed through the strategic decisions of a small number of multi-national companies. Manufacturing activities are being displaced from industrial cities in the north to new industrial zones in non-industrial and semi-industrial countries.
Components of the same product are often made in a range of different countries, in sites separated by thousands of kilometres,
The quantity and quality of telecommunications is now perceived as a critical factor in attracting foreign investments, and in generating exports. Some export sectors, like apparel, are characterised by seasonal demand. Others, like auto parts, require close contact with customers, particularly where the final assembly site uses a "just-in-time" ordering system.
At the same time as the state realises the strategic importance of telecommunications, its control over the system is beginning to crumble. Sea-bed fibre-optic cables and private satellites provide telecommunications customers with alternative international phone, fax and data transmission services. They are no longer tied to the public telecom utility's service (via the Intelsat). In response to the powerful pressures of the multinational companies which dominate the international economy, most major telecommunications providers are forming alliances, and aggressively expanding their operations in what used to be protected national markets.
"The share of [world-wide] revenue from connection charges and monthly rentals has risen in the past decade from about 33% to 40%. It will increase to about 60% over the next ten years. Telecommunications utilities are not usually keen on such "re-balancing" since it usually involves reducing lucrative call charges rather than increasing fixed charges. But without it, they are vulnerable to competition, including competition from the Internet, which can offer rival services far less expensively."
The Economist, 19 October 1996
What can a country like Sri Lanka do? The private telecommunications firms which are lobbying for access here are subsidiaries of international co-operations which have access to a whole range of private information, technology, patents and know-how. No wonder they seem more efficient than state providers of telecommunications! Privatising telecommunications will allegedly help us to bridge this technology gap. The same argument, of course, is made whenever multinationals propose setting up down here.
The government may decide to solicit multi-national participation in telecommunications. It may even privatise the public monopoly. But the real issues are not economic ones. The capitalists are quick to point out that, unless the correct socio-political structures are in place, privatisation will be a
failure. Countries should adopt a set of institutions and a legal system that guarantee "transparency and fairness". This institutional framework must, of course, be "market friendly." There must be "a clear policy commitment" to "promote and protect the competitive environment." And, finally, there must be insulation of the new private providers from "arbitrary government interven-
Can the state put in place a regulatory system with the capacity to restrain its own arbitrary administrative action? Can the government tie its own hands, and keep them tied? Investors might trust a bourgeois state.
3
Into a new and better century!
with a long tradition of defending private property and market mechanisms, in a country where the bourgeoisie enjoys social hegemony, with a culture and traditions
The International Institute for Research and Education in Amsterdam is a research and training centre that is meeting the challenges of the neo-liberal world order by renewing and based on respect for private property and re-founding an alternative perspective. Fields under study at the IIRE include economic market agreements. In other countries, they globalisation, 20th-century history, ecology, feminism, ethnicity, racism and radical are, not surprisingly, worried about loosing
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The double bind
Help is at hand for nervous investors, in the shape of international organisations like the World Bank, International Monetary
Fund and World Trade Organisation. Under an innovative new scheme, the World Bank provides private investors and lenders in the north with guarantees (insurance) against non-commercial risks, including the risk of administrative expropriation or nationalisa-
The catch, of course, is that the host country in the south must promise to repay the World Bank for any costs incurred if
"interference" with the "free" market takes place. Otherwise, there will be no World
Bank guarantees. And without the guarantees, there will be less investments.
The result is that the national and international environment is even more dominated by the multi-national companies and the international financial institutions, and the room for manoeuvre of governments in the south is even more restricted. *
Notes
The author is a leading member of Sri
Lanka's Nava Sama Samaja Party (NSSP,
New Socialist Party)
This paper is an edited version of "Reform of telecommunications services: Aims and objectives," an undated and unpublished discussion paper.
Sources:
Proceedings of the World Bank annual conference on developing economies, 1993.
Robert D. Willig, Ana Julia Jatar, Jean
Jacques Laffont, Brian Levy and Pablo T.
Spiller, David E.M. Sappingtion and Ashoka
Mody. • Exploiting competitive opportunities in telecommunications, Veronique
Bishpo, Ashoka Mody, Finance and Development, 1995 • The Alternative, Vickramabahu Karunarathne, 1995 movement strategy. series, the Notebooks for Study and Research. No.1 The Place of Marxism in History. Ernest Mandel (40 pp. £2, $3.50, 20 FF) No. 2 The Chinese Revolution - I: The Second Chinese Revolution and the Shaping of the Maoist Outlook. Pierre Rousset (32 pp. £2, $3.50, 20 FF) No. 3 The Chinese Revolution - II: The Maoist Project Tested in the Struggle for Power. Pierre Rousset (48 pp. £2.50, $4, 25 FF) No. 4 Revolutionary Strategy Today. Daniel Bensaïd (36 pp. £2, $3.50, 20 FF) No. 5 Class Struggle and Technological Change in Japan since 1945. Muto Ichiyo (48 pp. £2.50, $4, 25 FF) No. 6 Populism in Latin America. Adolfo Gilly, Helena Hirata, Carlos M. Vilas, and the PRT (Argentina), introduced by Michael Löwy (40 pp. E2, $3.50, 20 FF) No. 7/8 Market. Plan and Democracy: the Experience of the So-Called Socialist Countries. Catherine Samary (64pp. £3, $5, 30FF) No. 9 The Formative Years of the Fourth International (1933-1938). Daniel Bensaid (48 pp. £2.50, $4, 25 FF) No. 10 Marxism and Liberation Theology. Michael Löwy (40pp £2, $3.50, 20 FF) No.11/12 The Bourgeois Revolutions. Robert Lochhead (72pp. £4, $6, 40FF) No. 13 The Spanish Civil War in Euzkadi and Catalonia 1936-39. Miguel Romero (48pp. £2.50, $4, 25 FF) No. 14 The Gulf War and the New World Order. André Gunder Frank and Salah Jaber (72pp. £2, $3, 15 FF) No. 15 From the PCI to the PDS. Livio Maitan (48pp. £2.50, $4, 25 FF) No. 16 Do the Workers Have a Country?,
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