Social Movements And Free-market Capitalism In Latin America: Telecommunications Privatization And The Rise Of Consumer Protest

Social Movements and Free-Market Capitalism in Latin America Telecommunications Privatization and the Rise of Consumer P...

Author: Sybil Rhodes

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Social Movements and Free-Market Capitalism in Latin America Telecommunications Privatization and the Rise of Consumer Protest

Sybil Rhodes

Social Movements and Free-Market Capitalism in Latin America

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Social Movements and Free-Market Capitalism in Latin America Telecommunications Privatization and the Rise of Consumer Protest

Sybil Rhodes

STATE UNIVERSITY OF NEW YORK PRESS

Published by State University of New York Press, Albany © 2006 State University of New York All rights reserved Printed in the United States of America No part of this book may be used or reproduced in any manner whatsoever without written permission. No part of this book may be stored in a retrieval system or transmitted in any form or by any means including electronic, electrostatic, magnetic tape, mechanical, photocopying, recording, or otherwise without the prior permission in writing of the publisher. For information, address State University of New York Press, 194 Washington Avenue, Suite 305, Albany, NY 12210-2384 Production by Diane Ganeles Marketing by Michael Campochiaro Library of Congress Cataloging in Publication Data Rhodes, Sybil, 1969– Social movements and free-market capitalism in Latin America : telecommunications privatization and the rise of consumer protest / Sybil Rhodes. p. cm. Includes bibliographical references (p. ) and index. ISBN 0-7914-6597-7 (hardcover : alk. paper) 1. Consumer protection—Latin America—History—20th century. 2. Protest movements—Latin America—History—20th century. 3. Privatization—Latin America—History—20th century. 4. Telecommunication—Latin America—History—20th century. I. Title. HC130.C63R48 2005 384'.041—dc22 2004029611 10 9 8 7 6 5 4 3 2 1

For c.h.g.


Contents

List of Illustrations

ix

Acknowledgments

xi

CHAPTER ONE Consumer Movements: New Social and Political Actors in Latin America

1

CHAPTER TWO Explaining the Emergence of Consumer Movements: The “Crossed Wires” Effect of Democratization and Privatization

9

CHAPTER THREE Authoritarian Privatization and Delayed Consumer Mobilization in Chile

45

CHAPTER FOUR The “Original Sin” of Privatization in Argentina

67

CHAPTER FIVE Contentious Consumer Mobilization in Argentina

81

CHAPTER SIX The Gradual and Contested Privatization of Brazil’s “Telessauro” vii

105

viii


CHAPTER SEVEN “Post-Jurassic” Regulation and Contained Consumer Response

137

CHAPTER EIGHT Democratizing Free-Market Capitalism: Consumers and the Codevelopment of “Voice” and “Exit”

167

Notes

173

Bibliography

193

Index

215

Illustrations

Figures 2.1. Repertoire of Contention of Latin American Consumer Movements: Scale of Contentiousness and Institutionalization

21

2.2. The Opportunity Structure Leading to Latin American Consumer Movements

38

2.3. Arguments Explaining Variation in Latin American Consumer Movements

41

Tables 3.1. Telecommunications Services in Chile

58

3.2. Telecommunications Growth Indicators in Chile

59

5.1. Regional Comparison of Public Support for Privatization and a Market Economy: Have Privatizations Benefited the Country?

95

5.2. Regional Comparison of Public Support for Privatization and a Market Economy: Support for a Market Economy in Latin America and Argentina

95

ix

x


6.1. Comparison of Brazilian and World Telephone Tariffs in 1995

110

6.2. The Trajectory of Telecommunications Reform in the Brazilian Congress

118

6.3. Issues Debated in the Brazilian Congress

122

6.4. Rebalancing of Tariffs in Brazil, with International Comparisons

131

7.1. Growth and Projected Growth of Fixed-Line Telephone Density in Brazil

144

7.2. Some Legal Actions Regarding Brazilian Telephone Service

156

Acknowledgments

The country case studies in this book are the product of two years of research in Argentina, Brazil, and Chile, during which I benefited from the assistance of a great many people and institutions. Thanks are due to all the scholars, government officials, activists, legal professionals, and business people who agreed to be interviewed. Special thanks to Josué Rios in São Paulo and to Claudia Collado and Antonino Serra of Consumers International in Santiago. For institutional support, I am grateful to the department of political science at the University of Brasília, especially David Fleischer, and to the Getúlio Vargas Foundation of São Paulo, especially George Avelino. I also must thank the staff at the office of the Fulbright Commission in Brasília. Funding for the field research was provided by the Fulbright Commission, the Social Science Research Council, and the Institute for International Studies and the Center for Latin American Studies at Stanford University. Sections of the manuscript benefited from the advice of Leslie Elliott Armijo, Lesley Bartlett, John Barton, Miguel Centellas, Larry Diamond, Carlos Gervasoni, Terry Karl, Anu Kulkarni, Victoria Murillo, Philippe Schmitter, Eduardo Silva, Barry Weingast, and Leslie Wirpsa. Finally, I would like to thank Carlos Gervasoni not only for once suggesting that the regulation of privatized businesses xi

xii


might make an interesting dissertation topic but most of all for providing me with a far nicer incentive than academic research to spend a lot of time in Buenos Aires.

CHAPTER ONE

Consumer Movements New Social and Political Actors in Latin America

CONSUMER GROUPS SUE TELEFONICA OVER PUBLIC TELEPHONES BUSINESS AND USERS POLARIZED CONSUMERS COMPLAIN MORE AND GET MORE RESULTS GOVERNMENT AND TELEPHONE COMPANIES PREPARE FOR DECISIVE BATTLE PLAN TO GRANT TELEPHONE LICENSES TO BE DEBATED AT PUBLIC HEARING PRIVATIZED BUSINESSES FEAR CONGRESS WILL GIVE ITSELF PRICE-SETTING POWERS

Several years before the Argentine economy collapsed and produced a political crisis in December 2001, newspaper headlines like the ones above already had begun to reflect people’s dissatisfaction with the outcome of economic reforms enacted during the 1990s.1 Among such reforms, the privatization of stateowned public services such as the national telephone company resulted in especially angry and organized protest under the banner of consumer protection. Political mobilization around economic policy issues certainly was not a new phenomenon in Argentina, but consumer protection was a novel mobilizing 1

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principle in a country where political debates historically have been organized around production rather than consumption. The growth of Argentina’s consumer movements was not an isolated phenomenon. Indeed, not just in Argentina but throughout Latin America, in the 1990s consumer movements emerged as one of the most visible new forms of political mobilization countries had seen since the movements against military rule. While analysts from in and outside the region noted the declining power of many traditional class-based organizations in this era of globalization, some innovative Latin American politicians and political parties, along with grassroots organizations and other civil society leaders, increasingly were using consumer protection issues to build political capital and influence public policy.2 As a result of their activities, economic regulation, formerly the exclusive turf of technocrats in the executive branch of government, became an arena where presidents, bureaucrats, and businesses scuffled, at least occasionally, with activists working for nongovernmental organizations (NGOs), legislators, and other nontraditional actors.3 In this book I explain that the privatization of state-owned public services such as telecommunications was a primary impetus for the wave of consumer mobilization that began in the 1990s. I do not argue that privatization was consistently a failure across the region; to the contrary, it injected much-needed investment into the service sector. 4 Despite frequent rhetorical claims that privatization and the promise of eventual economic competition would benefit consumers, however, often the immediate practical result was private monopolies that provided problematic service at higher prices than the former stateowned companies had charged. Their monopoly status legitimized people’s complaints against the new private operators of public services. The higher prices for certain services, poor quality of services, and other abusive treatment of captive users affected large groups of people uniformly, making collective grievances easy to identify and collective action relatively easy to coordinate. Thus, the specific characteristics of public utilities— including the mass nature of services essential to everyday life and the regulatory problems associated with the transition from

Consumer Movements

3

state-owned monopoly to operation by the private sector—provoked and facilitated the new consumer movements. The relationship between privatization and consumer mobilization occurred because it was embedded in the political context of democratization.5 The confluence of democratic transitions with the economic reforms such as privatization altered what scholars of social movements refer to as the “opportunity structure” of legal professionals and political activists.6 Most crucially, the deepening of democracy codified political and legal rights and led to a greater political role for democratic institutions such as legislatures and courts as well as civil society organizations. At the same time, globally driven economic and technological changes resulted in a decline in the power of organized labor, greater exposure to the consumption habits of wealthier countries, and increased importance of telecommunications services. Against this backdrop of larger changes, the new consumer consciousness was forged by Latin American politicians, lawyers, and activists, whose organization of consumer movements contributed, very tentatively, to changing the substance of democratic politics in the region from a class base to a consumer base. Local activists in the region received support from global civil society. While economic policies such as privatization openly favored global business, improved communications technology and changing norms during the 1980s and 1990s also made it easier for NGOs to operate on an international scale.7 The latter half of the 1990s saw the development of transnational Latin American consumer advocacy networks that received technical and financial aid from abroad. International activism had a snowball effect on locally initiated consumer movements and in some countries, including Chile, served as a catalyst for consumer mobilization where little or none had existed previously. Consumer mobilization took a variety of forms, including mass protests such as the refusal to pay telephone bills or coordinated boycotts of telephone service (called colgazos, or “great hang-ups” by some advocates and reporters), expanding membership in grass roots consumer protection associations,

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complaints filed with NGOs or government agencies or reported to the media, individual lawsuits, class action lawsuits, and support for politicians who campaigned under the banner of consumer rights. Different acts of mobilization yielded wins and losses for the participants, but the overall result was formal and informal recognition on the part of government and business that Latin American consumer movements had the power to claim a voice in the policy process. By the end of the 1990s, in quite a few Latin American countries economic regulation had lost at least some of the technocratic mystique it held at the onset of the economic reform process and had become subject to the rules of a more democratic game.8 Explaining Variation in Consumer Movements Economic reforms such as privatization affected all Latin American countries, but at different rates and intensities, in different forms, and with different consequences. The speed and sequence of different types of economic reforms and their synchronization with democratic reforms, as well as the ideologies and interests of political parties, affected both the economic and political structure of industries after privatization.9 Rapid and early privatization of the telecommunications industry often produced private monopolies and weak regulatory regimes. The case of Argentina is emblematic of the category of fast and early privatizers. In 1991 the government divided its state-owned company in two and sold the halves as guaranteed regional monopolies for seven years with the possibility of an extension for three additional years. In contrast to its neighbor Argentina, Brazil privatized telecommunications more gradually and later compared to other sectors. Brazil promoted partial competition in the telecommunications market almost immediately after it sold off the state-owned monopolies, and its new telecommunications regulatory agency was stronger and more respected than that of Argentina. Institutional factors such as the nature of political parties and the level of prior state organization of consumers largely determined the repertoires of contention available to consumer

Consumer Movements

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movements after privatization.10 Under the leadership of politicians and activists, Argentine consumers engaged in highly contentious collective action. Some of them refused to pay telephone bills in protest of higher tariffs and organized boycotts of telephone service. The Argentine Congress threatened to give itself the power to set the prices of public utilities. Brazilian consumers also mobilized to protest tariff increases and service problems, but they did so through existing channels such as the court system and state consumer-protection agencies. The disputes were not as confrontational as in Argentina and were less central to presidential and congressional political campaigns. The reasons for the more muted mobilization in Brazil included the relatively gradual privatization process, the existence of surprisingly respected state governmental consumer-protection bureaus that dated from the 1970s, a more developed consumer advocacy network, and the class-based ideology of the principal political party that opposed privatization. Chile was the first Latin American country to privatize its telecommunications sector but one of the last to experience consumer mobilization. The military government of General Augusto Pinochet sold the state company in a gradual process that began in the late 1970s and was completed a decade later. In addition to being first, Chile was unique in Latin America in that it carried out privatization under an authoritarian regime that repressed any political mobilization. By the time democracy returned, Chilean consumers already had born the brunt of the transition costs of privatization, making the same type of contentious protests seen in Argentina and Brazil less likely. The combination of the return of civil liberties and growing international consumer activism led to an incipient consumer movement in Chile by the end of the twentieth century, however. Consumers as the Missing Link Between Economic Reform and Democracy The advocates of privatization generally have ignored the importance of a political voice for consumer advocacy in Latin American countries. Economic studies that do mention consumer

6


involvement warn that any changes in policy might result in accusations that the government was reneging on its commitments to business.11 Many political economists and business specialists seem to view the participation of consumers and consumer advocates in regulatory decisions as unnecessary politicization of technical policy arenas. Some political scientists even consider the expression of discontent through social movements to be disruptive and undesirable in new democracies generally. Others view political protest generally as a positive thing, but distrust the idea of consumer protection, or “consumerism,” as a mobilizing factor. Most political scientists and economists, as well as politicians and policy activists, agree that new stakeholders in economic reforms must be created for such reforms to be sustained politically.12 Yet while consumers would appear to be among the most obvious potential beneficiaries of reform, most analysis of privatization in the developing world rarely identifies consumers explicitly as political actors. Given their agreement about the importance of stakeholders, the widespread ignorance and even outright rejection of consumer-based politics on the part of policy specialists is a puzzling contradiction. In the 1990s scholars were aware of political mobilization around “postmaterial” issues such as the environment and human rights (as well as traditional causes such as unemployment and access to land), but real existing consumer movements were assumed away in much of the analysis of Latin America’s experiments with market-oriented (or the more critical “neoliberal”—I use both terms interchangeably throughout the book) reforms.13 Evaluating the outcome of reforms from the standpoint of consumers improves our understanding of the mixed record of market reforms as well as the growing rejection of neoliberalism in much of the region. A recent book about global financial policy poses the question “what’s democracy got to do with it?”14 The author argues that political questions about who participates and how policy decisions are made are becoming as important as technical questions even in the highly sophisticated arena of international finance. This book about telecommunications regulation pro-

Consumer Movements

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vides additional evidence in favor of the argument that democracy matters a great deal for the regulation and development of market capitalism. As democratization deepens throughout the world, and particularly in Latin America, formerly arcane areas of policy become subject to citizen pressure. Where public services are involved, much of that citizen involvement concerns people’s interest as consumers. It would be premature to claim that much of Latin America has undergone a full and irreversible swing toward consumer-based politics, but I do contend that when members of the middle class and some of the working class as well begin to find it feasible and worthwhile to exercise their rights as consumers as well as workers, this is a trend that bodes well for the codevelopment of pluralist democracy and regulated markets in the region. The Salience of Telecommunications Telecommunications is a good starting point for an analysis of consumer mobilization because it is emblematic of the issues the new Latin American consumer movements addressed. Unlike in previous eras when only the wealthy could contemplate paying for telephone service, in the 1990s telecommunications policy affected members of nearly all social groups in some way. Technological advances and private sector investment reduced the initial cost of and waiting period for basic telephone service, which meant that a larger segment of the population could afford to have telephones.15 The information revolution meant that basic service, whether through a private line or a public telephone, and also more advanced services such as the Internet, increasingly were necessary for active participation in social and economic life. Privatization led to greater investment in telecommunications, but also to a number of problems. Under state ownership, relatively few people had telephones, but those members of the middle classes who did benefited from a system of cross subsidies from business and long-distance customers. Privatization meant the end of these subsidies, and indeed sometimes

8


reversed them so that residential consumers were subsidizing the corporate sector. People who were accustomed to receiving subsidies naturally did not care to lose them, and when activists and politicians gave them the chance to voice their ire, they protested against the changes. Many other consumers were subjected to overcharging, poor service, and unclear pricing structures and complaint procedures. They, too, began to respond to the invitation to support organized consumer movements. Indeed, telecommunications generated greater numbers of official consumer complaints than any other sector in some Latin American countries in the 1990s; however, the mass nature of services and the regulatory problems associated with the transition from state-owned monopoly to private sector provoked similar consumer responses to the privatization of all public utilities, including electricity, water, and mass transit services. Chapter Outline Chapter 2 of this book summarizes what is known about consumer mobilization in the United States and parts of Western Europe and lays out my theoretical argument explaining the emergence of consumer movements in Latin America in the 1990s. Chapter 3 shows how authoritarianism preempted the rise of consumer movements after telecommunications privatization in Chile, and then explains how activists slowly began to build consumer movements after the transition to democracy. Chapters 4 and 5 analyze the emergence of a contentious consumer movement after the privatization of telecommunications services in democratic Argentina. Chapters 6 and 7 explain how milder consumer mobilization occurred after privatization in democratic Brazil. Chapter 8 discusses the relationship between privatization, regulation, and consumer mobilization throughout the Latin American region, and concludes that consumer mobilization is essential for democratic development to accompany market development.

CHAPTER TWO

Explaining the Emergence of Consumer Movements The “Crossed Wires” Effect of Democratization and Privatization

Most analyses of privatization and economic regulation in Latin America have left consumers out of the story. Although the politicians and technocrats who implement economic policy and their economic advisers from in and outside the region almost always believe consumer welfare should be the ultimate goal of the regulation of privatized industries, they assume, implicitly or explicitly, that Latin American consumers have not developed and will not develop a political voice to protect their collective interests. The assumption of consumer passivity is not surprising. Advocates of privatization and their economic advisors usually apply assumptions about the rational behavior of individuals to the study of economic policy making. The rational choice theory of collective action considers consumers the quintessential example of a large group with diffuse interests and little incentive to mobilize. Thus, a simple version of the rational choice approach is very useful for explaining why consumers do not organize easily, in Latin America or elsewhere. Consumer movements do occur, however. In the United States, consumer advocates claim credit for the creation of the United States Food and Drug Administration in the beginning of 9

10


the twentieth century. Fueled by social mobilization, legislative battles over automobile safety and numerous other consumerprotection bills raged in the early 1970s. Although less visible politically, in the 1980s consumer protection groups remained among the most active public interest lobbies in the United States.1 Consumer organizations developed throughout Europe and in Japan in the 1960s and 1970s, and in the 1990s consumer mobilization shaped the trade policies of the European Union.2 Influential consumer movements traditionally have been confined to the wealthy countries of the developed world, but strikingly, the subsequent chapters of this book demonstrate that in some Latin American countries in the 1990s consumer movements developed a voice in economic regulatory policy. What accounts for Latin American consumers’ increasing propensity to mobilize the way their European and North American counterparts more often do? To answer this question, this chapter first seeks a general answer to the puzzles of when, how, and why consumer movements may emerge anywhere. The arguments previously used to explain consumer movements in the wealthier countries of Europe and North America often have been drawn from the broader political theories of rational choice, pluralism, and corporatism. I ask what each of these theoretical traditions would predict regarding the outcome of privatization in Latin America in the 1990s, and find that individually each is inadequate to explain the reality of consumer movements in the region. I conclude that all three approaches provide some ideas or concepts that are useful if, and only if, inserted into a broader historical and institutional context. To develop an explanation for Latin America’s new consumer movements, I follow the tradition of the rich scholarship addressing social movements and contentious politics, focusing on historical context and borrowing ideas from broader theoretical traditions without necessarily accepting all of their assumptions.

The Rational Choice Paradigm Also known as public choice, the new institutional economics, or the new positive political economy, the rational choice approach

Explaining the Emergence of Consumer Movements

11

views consumers as rational, self-interested individuals for whom political organization is a cost.3 As I stated above, the rational choice paradigm is better at explaining why consumers do not mobilize than why they do. Because of their large numbers and because their joint interests are diffuse and usually of a low intensity, rational choice theory argues, individual consumers have little incentive to engage in collective action.4 Their interests therefore remain latent and underrepresented in the policy process. The simple logic that collective action is costly undoubtedly explains much about the world. Many policy decisions probably would be different were it not for the lack of incentives for latent interests to organize. Yet numerous studies of social movements have revealed that people sometimes do mobilize even when it might not outwardly appear rational for them to do so. Furthermore, most wealthy countries do have formal and informal consumer advocates who have the ability to mobilize larger groups of people and who influence policy formation at least some of the time. There are several possible explanations for consumer movements that do not violate strict rational choice assumptions. For example, collective action may occur when one large or wealthy member has an incentive to absorb the costs of organizing. Indeed, large corporate consumers of public services often do organize in order to affect public policy and to negotiate directly with public utilities. In most cases, small or individual consumers do not benefit from free-riding on such efforts, however, because services are not pure public goods; smaller consumers are excludable from benefits such as bulk discounts.5 Debates grounded in rational choice also focus on how groups may use side payments to induce their members to participate in activities. For instance, consumers might join a consumer group in order to receive a subscription to its product-rating magazine. Indeed, a few of Latin America’s new consumer organizations do offer magazines and similar inducements to membership, but not all of them do so. Side payments hardly seem to matter when it comes to other acts of mobilization such as participation in consumer boycotts. Certainly side

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payments cannot explain the timing and content of consumer movements. Another line of argument consistent with rational choice assumptions would contend that so-called consumer advocacy usually is a sham linked to different, narrower, interests. Examples of activity that fulfill the criteria for this rather cynical view of consumer movements may be found in many countries. In 2001 two New York Times reporters found that a so-called consumer advocacy group was a front for a pharmaceutical company that hoped to convince the United States Food and Drug Administration to enact regulations that would hurt its competitors.6 While carrying out the research for this book, I found that telecommunications firms and their unions occasionally have claimed to be (in some cases their critics might say posed as) consumer advocates in order to influence policy makers and public opinion in Brazil and Argentina. The purely cynical approach explains only a small fraction of all activity in the realm of consumer protection in Latin America as well as in the United States and Europe, however. At the cusp of the twenty first century, consumer advocates demanded and achieved a presence in important debates about nuclear power, electrical power deregulation, and genetically modified foodstuffs in the wealthy countries of the world.7 Real mobilization of consumers seems to occur more often than bogus mobilization does, and to have more of an impact on policy. The most compelling rational choice-grounded explanation for consumer mobilization rests on the concept of “political entrepreneurship.”8 According to this line of reasoning, politicians and activists are willing to absorb the costs of advocating for consumer protection because they win votes or other forms of political capital for doing so. The rational choice school is rarely sanguine about the impact of political entrepreneurship on policy, however. Some analysts use the political entrepreneurship approach to argue that consumer mobilization is cyclical. Short-lived consumer coalitions emerge when an issue becomes politically prominent. These coalitions create regulatory regimes that supposedly protect consumers’ interests, but when the public attention fades later the lobbyists for industry


13

succeed at modifying the regulatory institutions after corporate interests. In this view, people may develop the idea that consumer protection exists, but really it is just a kind of myth, or “symbolic politics.”9 Consumer protection in the United States (and other countries) is not entirely a myth, however. Indeed, business lost political power in the 1960s and 1970s because of the increased power of consumer groups.10 Consumer-protection advocates existed before the 1960s and remained active in the United States long after the highly publicized movement spearheaded by Ralph Nader. The consumer-protection movement weathered the Reagan years, economic deregulation, and the shift of political power back toward business. Nutrition labeling and cable reregulation were two victories for consumer advocates in the United States in the 1990s.11 In the early years of the twenty-first century, consumer advocates led debates about the importation of pharmaceutical drugs from foreign countries. The argument that cycles of consumer activism make real consumer protection a myth reflects an important truth. People tend to organize to protect their interests in production—as laborers or capitalists—with greater vigilance than they do to protect their interests in consumption.12 This pattern has been especially true in Latin America for most of its history. The dismissal of political entrepreneurship as a fleeting phenomenon does not do justice to the intricacies of the policy process, however. Nor does the symbolic politics argument explain why an issue becomes politically prominent at a particular time. By itself, the concept of political entrepreneurship merely tells us that mobilization is possible in a world of rational, self-interested actors, not when it happens or what its effects will be. Part of the difficulty of explaining consumer mobilization, for rational choice theorists as well as for others, stems from the difficulty of defining an objective consumer interest. One interesting argument moves away from pure economic rationality, holding that consumers tend to be content if nominal prices are constant or falling, especially in an economy where the average price level rises over time, but that nominal price increases lead to mobilization: “Consumers and public interest

14


groups, politicians, etc. become active when nominal prices rise, service quality deteriorates or of late, when environmental damage is inflicted.”13 Regulatory agencies, in this view, have an interest in keeping conflict and criticism to a minimum. In the United States, for example, rising consumer advocacy overwhelmed the regulatory system in the 1960s and 1970s because of “money illusion” caused by inflation. Consumers believed they were paying more for the same service because nominal prices rose, while real prices decreased or remained the same. The main point here is that the regulatory agencies, accustomed to acting incrementally to keep consumers happy, were ill prepared to cope with demands for radical change. A strict rational choice paradigm is less capable of explaining the origins of those demands. The main reason the rational choice approach fares relatively poorly (or at least, is insufficient) at predicting consumer mobilization, I argue, is that it employs a narrow economic definition of the consumer interest that is isolated from complex reality.14 The basic assumption that consumers prefer to pay lower prices often seems to work very well in economic price theory, but it works less well for predicting outcomes in politics or public policy.15 Even the more sophisticated assumption that consumers may mobilize when they mistakenly believe they are being charged higher real prices is overly simplistic. As a group, consumers have an interest in overall lower prices, but they may also have an interest in the regulation of advertising, information about health risks, and the right to sue, among others. A narrow rational utility assumption does not explain when consumers perceive that they are being treated unfairly or when they opt to voice their discontent politically. Given the myriad of factors that affect them, it may be that consumers often are not even sure what their real interest is, but as an explanation for political action, consumer ignorance is as unsatisfactory as the Marxist concept of false consciousness. The assumption that mobilization is always a cost is another problem with the rational choice approach. On occasion, individuals may view mobilization as a benefit.16 They may derive satisfaction from the venting of frustration even if no


15

tangible benefits ensue, or they may enjoy achieving benefits for others as well as themselves. Political entrepreneurs may use their powers of persuasion to encourage this kind of motivation. The larger political context affects the way political activists appeal to people’s motivations and calculations. I was told by several of ther persons I interviewed while researching this book that some consumer advocates in the 1990s had engaged in other forms of political activism in the past. Several of them had been involved in struggles to protect human rights and end dictatorships in the region.17 They actively sought new issues once democracy returned and severe human rights abuses for political reasons ended. The context of economic reforms associated with globalization had much to do with their selection of consumer protection as a new source of activism. Overall, my research shows, an analysis based solely on rational choice theory would make too light of the importance of historical, political, and economic context on how individuals and groups define their interests and strategies for defending them. In keeping with the emphasis on material individual incentives, rational choice approaches to privatization in Latin America tend to assume away the possibility of consumer mobilization. If we were to try to develop a rational choice-based explanation of the consumer movements that occurred in the region in the 1990s, we might borrow from the argument about rising nominal prices, as even the real price of local telephone calls increased in many countries that experienced privatization.18 The price of local service increased in Chile also, however, and no consumer movement emerged there. This discrepancy, while unsurprising in some ways, establishes the need to incorporate democratization into studies of privatization, as the chapter on Chile argues. Another argument—that consumers complain more when quality declines—would have predicted Latin American consumers would mobilize more prior to the onset of economic reforms such as privatization rather than afterward because of the deterioration of services that most countries experienced in the 1980s, but most consumer mobilization occurred only after privatization already had been implemented.

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In sum, the rational choice paradigm proves very useful in its differentiation between latent and organized interests, its definition of the concept of political entrepreneurship, and also, I believe, in its strict emphasis on logical consistency. I rely extensively on concepts developed by rational choice scholars in this study, while arguing that rational choice strictly defined is not sufficient to explain the emergence of Latin America’s new consumer movements. I further contend that when the advocates of market-oriented reform assume away consumer movements they may sabotage their own understanding of the political sustainability of reforms and the regulation of privatized industries in developing democracies.

Pluralism and Corporatism A simple explanation of consumer mobilization traditionally comes from the pluralist tradition of politics in the United States. Pluralism holds that because consumers have a collective interest, they naturally organize to protect it, just like any other group in society.19 Founding father James Madison saw the tendency to protect self-interest as innate in the nature of humankind; his solution to the problem of “factions” was to allow all interests to organize.20 In the 1950s and 1960s, American pluralists argued that such bargaining among interest groups was beneficial for all. As society becomes more complex, the pluralist argument goes, interests become more differentiated and numerous. Because in the pluralist world membership in groups is overlapping, in this view class conflict and all its perceived dangers for democracy does not define politics in pluralist democracies such as the United States. The rational choice paradigm dealt a severe blow to the pluralism school in the late 1960s by showing that individual consumers do not necessarily have the incentive to mobilize even if they perceive that they have a shared interest. In a similar vein, other critics of pluralism argued that a class bias taints the pluralist system. According to the class bias critique, interest groups, notably business but also other upper-class groups in


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general, tend to preserve privileges for elites, making desirable radical change difficult to implement. John Kenneth Galbraith, for example, argued that producers maintain their power over policy in spite of consumer protection movements.21 In the area of public utility regulation, the privileged elite argument agrees with the economistic rational choice view (in spite of likely broad ideological disagreements between some contemporary proponents of the two schools of thought) that government agencies are likely to be captured by industry and pay little attention to the perspective of consumers.22 A European critique of pluralism is found in the development of the corporatism school. Corporatism is considered to be a system of subgovernments in which interest groups hold real power.23 The difference between corporatism and pluralism, in brief, is that pluralism involves consulting with many groups, while corporatism involves sharing power with them. Corporatists contend that pluralist theories do not explain how interest groups in some European and Latin American countries have morphed into governing institutions.24 Like pluralism, corporatism has been applied much more frequently to capital and labor than to consumers. Out of concern that unorganized interests, such as that of consumers, are at risk under corporatism, countries such as Great Britain have financed national consumer councils in an attempt to incorporate consumer interests into bargaining arrangements between the state and producer groups. In the 1990s some Latin American countries considered implementing similar arrangements in response to demands by consumer advocates. Pluralism and corporatism are useful concepts for describing the institutional mechanisms through which movements attempt to influence or formulate public policy. They also incorporate a material explanation for the development of an objective consumer interest. The idea that a more complex society produces differentiated interests is useful for explaining why consumer movements do not emerge in traditional agricultural societies. This argument does not explain the difference in timing between the emergence of consumer movements in the United States and their emergence in Europe or Latin America,

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however. A strict pluralist approach to privatization in Latin America would suffer from the opposite problem of a rational choice approach: that is, it would assume that consumers already were organized prior to privatization (at least in the more economically advanced countries of the region) and would remain organized afterward. A corporatist approach might predict that the state would co-opt any consumer movements that emerge, but alone it also would fare less well at explaining why they emerged at a particular time or stage of modernization.

Consumer Movements as Contentious Politics Analysts of a broad array of social movements have developed what might be called a meso-level theoretical paradigm to explain collective political mobilization. As defined by Sidney Tarrow, “the irreducible act that lies at the base of all social movements, protests, and revolutions is contentious collective action.”25 Tarrow argues that the term contentious politics does not imply that mobilization is necessarily violent. Rather, collective mobilization becomes contentious when “it is used by people who lack regular access to institutions, who act in the name of new or unaccepted claims, and who behave in ways that fundamentally challenge others or authorities.” The contentious politics, or social movements, paradigm differs from pure rational choice, pluralist, and corporatist approaches as well as their critics in its specific substantive consensus that context affects people’s motives and interests and also in its embrace of interdisciplinary methods. This approach borrows the concept of “political entrepreneurship” from rational choice, but makes the concept travel farther by theorizing how activists seize opportunities and frame issues to win support as well as the organizational tools they use to advance group goals. Social movement theory does not necessarily rely on a narrow definition of individual self-interest, but neither does it necessarily violate the assumption of individual rationality. Social movement theory also may incorporate and explain both pluralist and corporatist structures of interest representa-


19

tion without necessarily assuming that all interests are weighted equally in political systems. Three principal ideas from the social movements school— opportunity structures, issue-framing, and repertoires of contention—are valuable for analyzing Latin America’s new consumer movements. The first two concepts are especially useful for understanding when mobilization will emerge. A change in opportunity structure implies changes in state structures and political cleavages that may “lower the costs of collective action, reveal potential allies, show where elites and authorities are most vulnerable, and trigger social networks and collective identities into action around common themes.”26 In the Latin American countries discussed in this book, the confluence of democratization with broad economic reforms reshuffled the mix of grievances and created new possibilities for political organization. The concept of issue-framing is useful for explaining how political entrepreneurs use the raw material of grievances to build political support.27 For example, they may find that potential loss is often more conducive to collective action than potential gain. Mobilization also may be more probable when people are threatened with costs that violate their sense of justice.28 Yet another reason people may become outraged and mobilize is that they feel an unwritten, or written, contract or norm has been broken.29 As I explain in the country case chapters, applying these insights from the social movement school to the price restructuring associated with public utility privatization predicts that consumers who stand to pay higher prices after privatization are likely to mobilize to prevent their potential loss. Consumer advocates, or “political entrepreneurs” in the rational choice parlance, in Latin America often capitalized upon this grievance to build the foundation for a longer lasting movement organization. My argument here is consistent with Russell Hardin’s game theoretic explanation of how social movements are able to endure despite the unwillingness of individuals to pay the cost of mobilization for more than a short time. Using the language of game theory, we may view social movements as the product of cooperation in a one-shot game.

20


The initial cooperation creates a contractual relationship of representation between constituents, whose participation may be fleeting, and movement leaders who are in the struggle for the long haul.30 The idea of repertoires of contention describes the forms of collective action movements may take and the tools they may use.31 In Figure 2.1, I list the repertoire of contention utilized by Latin American consumer movements and rank each tool or mechanism on scales of contentiousness and institutionalization. By contentiousness of conflict, I am referring to the intensity, visibility, and confrontational character of mobilization. By institutionalization, I mean the extent to which complaints and disputes are processed through pre-established organizations in a bureaucratically routine way, such that the conflict is over policy content rather than process. One salient form of unchanneled and contentious mobilization involves mass actions such as the refusal to pay bills, large groups of people taking their phones off the hook simultaneously, or traditional forms of mass action such as taking to the streets. Individual actions such as complaining directly to privatized businesses or to regulatory agencies, other governmental departments, or nongovernmental organizations may increase; depending on which organization receives them (and whether it has an existing policy of receiving them), they may be institutionalized or uninstitutionalized. Complaints also may take the form of class action lawsuits in the regular courts or sometimes newly created consumer courts: again, the degree of institutionalization depends on whether courts accept the lawsuits or whether there is a dispute over process. Legislative committees may assert that they have the right to oversee regulatory agencies or to protect consumers in other ways, and individual politicians and parties may campaign on platforms of consumer protection. If legislators and politicians have not previously taken on this role, these actions are relatively uninstitutionalized. Promoting media coverage of all these forms of mobilization as well as investigative journalism uncovering abuses of consumers was also a tactic used by the new consumer movements in the 1990s and later.

Figure 2.1. Repertoire of Contention of Latin American Consumer Movements: Scale of Contentiousness and Institutionalization CONTENTIOUSNESS OF TACTIC high Mass protests such as refusal to pay bills or coordinated boycotts

Lawsuits challenging constitutionality of regulatory procedures

Use of consumer protection issues in electoral campaigns

Attempt to file class action lawsuits

Class action lawsuits routinely filed on behalf of residential telephone users

Attempts by legislators to establish right to intervene in regulatory policy

Following established procedures for congressional oversight of regulatory agencies

Collective and individual complaints to the media

Collective and individual complaints to businesses and government agencies

Routine use of complaint procedures of business and regulatory agencies

Issuing of newsletters and pamphlets to consumers, sponsoring radio and television programs about regulatory issues

Attempts to file lawsuits on behalf of individuals

Lawsuits routinely filed on behalf of individuals

Advertising general grassroots consumer protection services such as legal aid

Attempts by consumer advocates to participate in public audiences and other administrative procedures

Routine participation by consumer advocates in public audiences and other administrative procedures

Public demonstrations against businesses and government agencies

low low

high INSTITUTIONALIZATION OF TACTIC

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From Class to Consumer-Based Mobilization Political mobilization in Latin America since the region’s independence has been predominantly class-based. Business and labor (and—in some countries—peasants) have been the major groups to which politicians specifically appeal for political capital. In countries where mass democracy emerged with industrialization, the bulk of appeals to the masses have been framed in Marxist terms, and these appeals have been made to workers, represented by unions. Indeed, some scholars have argued that the incorporation of labor into political systems was the most important determinant of the nature of political regimes in the twentieth century.32 The political power of labor has ebbed and flowed, or, very frequently, been violently repressed. Many military regimes in the region have been founded largely on antilabor policies. In some cases, labor unions and workers’ parties returned to the forefront of politics by playing an important role in transitions to democracy. Organized labor’s political importance declined in the 1990s in most countries, though, as it has been unable to block liberal economic reforms.33 The regional average unionization rate in the 1980s was close to 23%; by the 1990s, it had declined to below 15%.34 The decline of labor did not mean the end of popular mobilization in Latin America, however. New movements based on issues such as unemployment, human rights, and issues of identity such as race and gender emerged in the 1980s and 1990s, and many of them achieved important victories in public policy.35 With the exception of the unemployed, such movements, while important, do not directly relate to the economic arena in the way that organized labor does. Of the new social movements, the consumer movements most frequently demand to participate in the arcane and technocratic arena of economic regulatory policy. Prior to the emergence of consumer movements, only women’s groups and popular neighborhood organizations provided a modicum of representation of consumers in Latin American policy processes. Low-income women’s groups often


23

negotiated with governments to acquire electricity, water, or sanitation services in peripheral areas. Middle class housewives’ organizations kept track of the prices of basic goods and services, and occasionally even negotiated the price of public services with politicians and managers of state-owned enterprises. These groups did not identify themselves as primarily consumer advocates, however; rarely, if ever, did they refer to their constituents as consumers at all. The focus of their discourse was the state’s duty to fulfill basic needs. The terms consumer movements have used to make claims upon the state reflect a shift from the right to fulfillment of basic needs to the right to the enforcement of contracts between consumers and producers.36 Latin American politicians have a long history of appealing to constituents on the basis of the price of public services, but as with women’s and neighborhood groups until the 1980s or 1990s these appeals rarely were framed in terms of consumer protection. When utilities were state-owned, it was not in politicians’ interest to encourage people to think of themselves as consumers with rights, such as the right to choose among competing products and services. The opportunity structure of the state ownership era favored a more paternalistic style of appeal to the state to take better care of people. For this reason, advocates of privatization criticize public utilities for promoting paternalistic politics. Critics of state ownership also point out that public utilities provided plenty of opportunities for clientelistic, or patronage-based, politics to develop.37 Jobs in the state-run companies were plums to be given to key supporters. Politicians also traded access to services for political favors. When pent-up demand implied waits of up to ten years for the average person, a telephone line was an excellent incentive for votes or other forms of support. Critics further argue that Latin American states traditionally have rewarded rent-seeking behavior rather than production, and provided favors to special interests rather than promoting policies to benefit the public good.38 In keeping with the rational choice predictions of the outcome of most government regulation, state-owned companies, in particular, are said to have served the interests of the bureaucracy or the unions,

24


but never the consumers. “[In Argentina] the actors are not consumers, but employees,” proclaims an Argentine economist, in a critique of what he terms a “corporatist,” or special interest, society.39 In spite of these criticisms of rent-seeking and the paternal state, the implications for Latin American consumers of the end of the protectionist policies that encouraged rentseeking along with the decline of labor and the rising power of business rarely are addressed explicitly in most political economic analysis. A few disclaimers are in order about the scope of my arguments in this book. None of the new social movements mentioned above, including consumer movements, has filled the vacuum left by the demise of unions. Nor is the relationship between the growth of consumer movements and that of organized labor necessarily negative. (Indeed, in both the wealthiest countries of the world as well as in Latin America, some of the time unions themselves have undertaken legal and political actions on behalf of consumers.) Consumer movements are largely, if not exclusively, middle-class, and still relatively small. Reliable data to construct a chart comparing participation in consumer mobilization across countries in the Latin American region are not available, but the numbers undoubtedly would be far smaller than the unionization rates I quoted earlier. Because of these limitations, it might be argued that in some cases it would be more accurate to apply another label—perhaps selfappointed consumer advocacy networks or interest groups—to what I call consumer movements. I choose to use the term consumer movements because consumer advocates at least sometimes have been capable of mobilizing large groups of people. The privatization of public services is one of the chief explanations for their ability to build political support.

Critiques of Consumption in Latin America Advocates of the dependency school of development were the first scholars to pay attention to the concepts of consumption and consumerism in Latin America. This attention generally


25

consisted of critiques of elites’ taste for luxury and conspicuous consumption, which appeared obscene when compared to the conditions under which many poor people lived. According to some variants of dependency theory, the demonstration effect of consumption in the elite countries promotes spending on luxury imports rather than local production. Badly needed foreign exchange thus satisfies the cravings of the rich instead of investing in improving the lot of the masses.40 A few studies of new Latin American social movements, such as movements for environmental protection or human rights, argue that the demonstration effect of consumers in wealthy countries continues to have negative effects on the Latin American region, and some even view the suggestion of consumer protection with suspicion, believing it to be a poor substitute for the deepening of citizenship rights.41 The advocates for some social movements are concerned with improving democracy and often contend that civil society in general, and NGOs in particular, should play a far more important role in policy decisions, which are too important to be left to the technocrats.42 In spite of the calls for a more important role for civil society in policy making, however, often analysts of civil society and social movements ignore consumer issues. The index of Alvarez, Dagnino, and Escobar’s important volume, for example, lists only one reference to consumers, which turns out to be a citation of a book about popular culture in Mexico.43 Some scholars of civil society also argue that while NGOs have become increasingly visible on the world stage their capacity to promote radical change has been weakened by the forces of globalization or “neoliberalism.” The latter are notoriously complex and variable, however. In some instances, globalization has increased the power of NGOs and epistemic communities. Although broad context is important, I try in this book to identify the causes and effects of particular types of economic reforms such as the privatization of the telecommunications sector rather than to make sweeping generalizations about fairly nebulous forces. From Latin American social movement advocates, I derive the very useful insight that the strength of the consumer protection movement may be in part due to its basic

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acceptance of “neoliberal” or “market” values such as economic competition. Critics of neoliberalism (and of the use of the label “free-market capitalism” in the title of this book) may argue that the global phenomenon of neoliberalism is more about oligopoly than fair competition, but the defenders of such policies use the language of markets, as do most of Latin America’s new consumer movements. In the 1980s and 1990s, for good and for bad, Latin America was more similar in its consumption patterns and political values to the United States than it had been in the past. The growing success of consumer movements is an example of increasing similarities between the regions.

The Privatization of Public Services Complex variables such as globalization may be the ultimate cause of the increasing homogeneity of countries and regions of the world, but the emergence of social movements anywhere usually has causes that are more direct and immediate. In the case of consumer movements in Latin America, that cause was the privatization of public utilities, which provided politicians and activists with a ready-made set of issues, constituents, rhetoric, and legitimacy. According to the privatizers’ rhetoric, the privatization of public services would transform Latin American citizens, who formerly had been captive users, into sovereign consumers with the right to protection of their contracts with private businesses and the power to vote with the purse. Economic studies of privatization have not noted the rise of consumer movements, but they do help explain the causal relationship between these two variables by analyzing the challenges associated with regulating privatized companies. The problem they highlight most frequently is that of regulatory capture, or the control of regulatory agencies by special interests, normally those of industry.44 Some political economists have shown that hasty privatizations, characterized by the failure to create regulatory agencies prior to sale of the state-owned enterprise, were more likely to result in the phenomenon of regulatory capture than were more gradual privatization processes.45 Others have


27

demonstrated the importance of independent judiciaries and other checks and balances on the regulatory body to avoid capture and otherwise achieve effective regulation.46 Still others have shown that party politics and other political variables affect the rules governing investment and competition after privatization.47 When privatized businesses capture regulatory agencies and competition is curtailed, prices and quality do not improve as promised and consumers pay the difference. Some advocates of privatization have recognized the cost to consumers, but, sometimes openly and usually implicitly, they assume consumers will do nothing about it. Public services contain features especially conducive to consumer mobilization, however. If they are monopolies or oligopolies, they provide a legitimate target for government regulation even in a pro-business economic context. The mass, homogenous nature of the services makes it relatively easy for large numbers of people to figure out they all have been duped or mistreated. Consumers also can make the case to their governments that services like electricity, water, and, increasingly, telecommunications, are a necessity and a right.48

Telecommunications in Latin America The history of telecommunications in Latin America resembles the trajectory of other public services such as electricity and transportation in that the ownership structure of the sector varied from private ownership with some competition (approximately 1860–1940), to state-owned monopoly (approximately 1940–1985), to private ownership and some competition (approximately 1985–2000).49 Unlike the other utilities, however, policy makers and opinion leaders did not consider access to telecommunications essential for ordinary citizens until the latter period. During the period 1860–1940, telephone service was limited to large companies, government offices, and the wealthy in capitals and major cities. Foreign investors owned almost all telephone companies, and cities were covered with the overlapping wires of competing and unconnected networks.

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Acquisitions and mergers ended most real competition before the turn of the twentieth century. The companies that remained therefore often were private monopolies, and were unregulated or loosely controlled through franchise contracts. National governments took over the telecommunications sector in the 1940–1985 period, in part out of security concerns and because of ideological changes regarding the role of the state in development, but also in an attempt to improve inadequate services, which often did improve after nationalization. In addition to expanding telephone service, however, governments also funneled revenues from state-owned companies into other sectors. This kind of behavior caused inefficiencies in stateowned firms, as they were unable to devote revenues to maintenance and expansion. Some countries even siphoned foreign exchange revenues from international service for the general treasury. Most countries developed national monopolies, although there were some variations in the structure of the sector, such as the separation of long distance from local service, and a few private local cooperatives continued to exist. By the 1980s, most state-owned monopolies suffered from outdated equipment, long waits for installation, lack of capital for investment, and poor maintenance. In spite of these problems, however, the reasons for the privatization of utilities were mostly fiscal rather than performance-related. Telecommunications privatization signaled commitment to neoliberal reforms and thereby attracted foreign capital, filled state coffers, and propped up incipient stock markets. That state-owned companies really were inefficient and unpopular with citizens was a political convenience.50 Privatization was less painful for governments than other ways (such as tax reform) of reducing debt and controlling the fiscal deficits that contributed to hyperinflation and other economic problems. Furthermore, lending institutions often linked international loans to privatization. Politicians thus tended to focus on obtaining the best possible price rather than on benefiting consumers. One way to be assured of a high price was to guarantee the purchasers a private monopoly, called an exclusion or exclusivity period, for a certain period of time after the sale.


29

Latin American countries privatized and otherwise restructured their telecommunications industries to a more radical degree than any other region during the 1980s and 1990s. Chile was the pioneer; its two state-owned companies were completely privatized by the late 1980s. Other countries followed Chile’s example, and by the end of 1999, of the 89 telecommunications companies privatized worldwide during the two decades, 25% were in Latin America. Monopoly phone companies were the single most profitable sector privatized in the region, earning more than $40 billion for Latin America as a whole.51

Privatization and Technological Advances in Telecommunications While the direct causes of privatization had little to do with consumer protection, they coincided both with changes in the dominant economic ideas regarding telecommunications regulation in the wealthier countries and great advances in telecommunications technology. During much of the twentieth century, economists regarded telecommunications as a natural monopoly to be regulated or even owned by the state. According to this view, it made economic sense for one company to control the lines connecting customers to its network as well as the links within that network, because of the high level of sunk costs, such as telephone poles and underground cables, associated with constructing the network initially and the diminishing cost of adding more customers (or the marginal cost). Network externalities—the idea that the value of the network for everyone is affected when one customer is added—were another justification for the natural monopoly idea. Most people only demanded one type of service, the voice-grade telephone circuit (or plain telephone service). Local calls were much more frequent than long-distance and international services. Telecommunications increased in importance around the same time that most Latin American political leaders were abandoning nationalist ideas about the role of the state in the economy in favor of liberal economic reforms such as reopening

30


their economies to foreign capital. Technological progress and increasing demand for telecommunications services helped weaken the natural monopoly idea in the 1980s. Not only had economies of scale been reduced, there also were great declines in the cost per unit output in every component of the industry. Fiber optic cables and digital technology allowed for much greater carrying capacity, for example. Digital technology also reduced the cost of mechanical switching. As technological possibilities advanced, business customers demanded differentiated services such as mobility, data transmission, and greater speed. The heterogeneous demand provided an incentive for the entry of specialized, niche service providers. The traditional pricing structure in telecommunications was based on distance and time, but the new advances made distance and time of day practically irrelevant to the cost of transmitting calls.52 The differentiation of demand upset the principal means of achieving universal service that had existed in both wealthy and developing countries. As installing and maintaining local networks was (and remains) far more expensive than establishing a long-distance network, under the old model telecommunications monopolies subsidized basic local services with revenues from other services. As defined by the International Telecommunications Union, the cross-subsidies were broken into three categories: • different services (e.g., from national long distance and international to local communication services); • different user groups (e.g., from commercial to residential users) • different geographical areas (e.g., from urban to rural areas)53 Developing a liberalized telecommunications market thus meant the demise of the traditional system of cross-subsidies, as crosssubsidization by existing monopoly telecommunication providers is a significant barrier to competition. New market entrants would be unable to match the incumbent provider’s prices if these were supported by extensive subsidies. This prob-


31

lem would be aggravated when the incumbent provider continued to operate as a monopoly in certain sectors, using the resulting profits to compete unfairly in other sectors. A new efficient entrant might have an immediate advantage in any service sector in which the incumbent provider had priced services far above costs, such as long distance. The principal policy implication of the end of cross-subsidization was the need to implement tariff rebalancing programs. Tariff rebalancing refers to the realignment of telephone charges to reflect more closely the cost of supplying them. Local calling becomes more expensive, as carriers rebalance their tariffs to cover more of their costs from access to the local loop and local calling. In other words, rebalancing meant that the prices charged to users of plain local residential telephone service must increase. As one specialist puts it, “Rebalancing in most markets goes hand in hand with a rise in the cost of residential services. Given that, in most of the Americas, residential services were heavily subsidized, there is a good chance that the progress made in the provision of universal service might suffer a setback. . . .”54 The need for rebalancing is not the only cause of higher prices for the local calls that residential consumers primarily make. In the 1980s the United States Federal Communications Commission implemented benchmarks on international settlement rates. The United States is the largest traffic partner for virtually every Latin American country, and in the past the accounting rates system caused it to make net settlements in Latin America’s favor that were significant both in terms of the absolute amount and the relative value. (In 1998 net settlements to Mexico totaled more than $850 million, and settlements to Haiti totaled more than half of the total telecommunications revenue in that country.)55 Latin American countries formerly used these settlements to keep prices for residential users low, but the new benchmarks capped the settlement rate, making such redistribution infeasible. When competition was introduced, another type of crosssubsidy, from noncompetitive to competitive service, became a problem. It was feasible for companies to use cross-subsidies to

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drive competitors out of the market. Thus, it was possible (and probable) that residential users of local services would end up being charged a subsidy used by a firm to compete unfairly in long distance and other lucrative services.

The Mixed Effects of Privatization on Residential Consumers The privatization of telecommunications benefited many Latin Americans to a very large degree. In most countries where it occurred, within a year or two after the date of sale there no longer was unmet demand, meaning the end of horror stories about ten-year waits for line installation or advertising of apartments for sale as “walls around a telephone.” The introduction of technological advances such as wireless service enabled many people living in rural areas or urban slums to leapfrog over the old wire line systems.56 Not everyone found the benefits worth the costs, however. While the cost of telephone installation normally went down after privatization, the monthly charges for local access increased and became unaffordable for many people. The rebalancing of the tariff structure benefited corporate consumers and wealthy users of long-distance services at the expense of residential users of mainly local services. Special groups, such as the elderly, also stood to lose subsidized lines that they used for little more than a local call in an emergency but that greatly enhanced their independence and security. It may be argued, and governments have done so, that overall the tariff rebalancing was necessary for greater competition, which resulted in overall more choice for consumers including low-income users who did not benefit from the cross-subsidization under the old system. Thus, we might expect those who stood to gain from more rapid liberalization of the market to mobilize under the banner of consumer protection and lobby in favor of rebalancing policies. As I discussed earlier in this chapter, however, research on social movements tells us that potential loss is often more conducive to collective action than potential gain. It was middle-


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class Latin American consumers who stood to lose in the rebalancing of tariffs who organized the first salient consumer movements after privatization. Once created, consumer movements took on a number of causes that affected the middle class and also some members of the lower classes, including number portability, itemization of bills, the right to not pay disputed charges, waiting periods for installation and repairs, call completion rates, and others. In the language of game theoretic models of representation contracts in social movements, the struggle against rebalancing was a one-shot game establishing a contract of representation between consumers and movement leaders. Consumer advocates remained in the regulatory game even after rebalancing began to lose its prominence as a comsumer protection issue.

Democratization The privatization of public utilities such as telecommunications imposed costs on residential consumers in all countries, but consumers only protested those costs in democracies. It was the confluence of democratization with economic reforms such as privatization that made the emergence of consumer movements extremely likely. Democracy permitted political mobilization, while reforms such as privatization weakened the power of labor. Some progressive scholars and policy makers (and also some conservatives and neoliberals) came to see civil society organizations and social movements as the region’s greatest hope for improving democracy and social justice. Democracy also meant that individual politicians and political institutions such as parties and legislatures needed to seek for issues around which to appeal to constituents. Economic policy has been the most pressing issue for politicians in emerging Latin American democracies. New civilian governments often tried to keep economic policy making insulated from social pressures by granting autonomy to small groups of technocrats. In most scholarly analyses, the struggle over economic policy generally is viewed as another elite game,

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carried out among the domestic business class, the political class, and the cadre of technocrats.57 Separating economic policy from democracy is more difficult than many technocrats and economic analysts would like, however. As two political scientists argue, “Economic policy was marked not just by conflict over the content of policies: it involved a deeper struggle over both the procedures, mechanisms, and style of governmental decision making and also the whole tenor of state-society relations.”58 Democratization thus meant that new actors begin to demand a voice in economic policy. Civil society organizations, political parties, and legislators usually have been the most important of the new players. I discuss legislators and civil society below, and turn to the role of parties later in this chapter.

New Actors: Legislators and Civil Society Legislatures were one of the arenas in which consumer protection became an important issue. Given their nonexistence or lack of real authority under authoritarian rule, legislatures have not traditionally received much attention from Latin American scholars or foreign social scientists studying Latin America. The wave of democratization in the region in the middle and late 1980s was also an impetus for change in social science studies of the region. At first, scholarly attention focused on the political alliances that helped bring democracy about, including social movements and human rights organizations, but it then turned toward the formal institutions of the new democracies: political parties, electoral systems, federalism, judiciaries, and legislatures. At the same time, the neoinstitutionalist school was reviving political science’s interest in formal political institutions in general. There now are a variety of scholarly studies of democratic institutions all over the world, including Latin America. Some analysts have criticized Latin American political systems for weak legislatures and excessive use of decrees by executives.59 In fact, however, legislative salience in policy making has varied widely from country to country and sector to sector.60 The privatization of telecommunications, for example, varied


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from a purely authoritarian, executive decision in Chile under General Pinochet, to an executive decree (overriding congressional participation) issued by Argentina’s President Menem, to the passage of a constitutional amendment and two separate congressional bills in Brazil during the administration of President Cardoso. The country case studies in this book reveal that the issue of legislative participation is more complex than a simple categorical ordering of the single policy decision of privatization. In addition to passing executive-sponsored bills, as in Brazil, Latin American legislatures may amend the bills substantially, discuss alternative policies that may or may not be implemented, or require legislative consent for future policy changes. Individual legislators may try to put alternative bills forward, winning political capital in the process. The main effects of legislative participation on telecommunications policy that I identify in the country cases are an overall increase in universal access requirements for telecommunications companies, as well as clearer mechanisms for the resolution of disputes between government, consumers, and the private sector. Groups in civil society are another important new actor in the economic policy process. Governments and political parties on occasion have assisted new consumer organizations or even created them. In other cases, consumer groups have won positions on the boards of directors of regulatory agencies. The rise of consumer movements would seem to contradict a prediction of the well-known argument that democratic transitions necessarily provoke a quick upsurge in civil society followed by disillusionment and decline.61 In truth, civil society adapted to the new economic environment, and found in consumer protection a new cause that resonated with constituents.

The Relationship Between Democracy and Political Mobilization When public utilities were state-owned there were few rhetorical appeals to consumers’ interests, formal channels for

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consumer participation, or other opportunities for people to organize around their interests as consumers. The confluence of democratization and privatization was an unprecedented opportunity for political activists to build consumer movements. Analysts of both economic policy and social movements have been slow to notice that consumer protection became part of the substance of democracy through the actions of politicians and other political entrepreneurs. It is true that earlier economic reforms were dominated by a technocratic policy-making style, and that early neoliberal reformers did not reveal their intentions to voters in electoral campaigns. In the 1990s, however, incumbent presidential candidates such as Brazil’s Cardoso and Argentina’s Menem directly appealed to voters as consumers and linked an increase in consumers’ choices with their economic packages.62 Numerous lesser politicians and civil society leaders also began to build substantial political capital around the issue of consumer protection.

Globalization The term globalization is shorthand for the confluence of specific economic, social, and political changes, including capital mobility and the resulting power shift to business from labor, advances in communications technology and the resulting increased demonstration effect, and increased transnational ties among civil society groups. While Latin America’s new consumer movements mostly were domestic in origin, in the 1990s they began to develop ties with activists from other countries within the region and all over the world. A transnational consumer nongovernmental coalition then began a coordinated effort to promote consumer protection legislation in countries that lacked it and to measure the effects of the privatization of public services on consumers. One of their most important countries on their list was the one where the privatization trend started, Chile, now democratic and with its own emerging domestic consumer movement.


37

Summarizing the Argument To sum up the general argument of this book: the confluence of democratization and economic reforms, along with increased linkages with activists from neighboring and wealthy countries, changed the opportunity structure and promoted innovative thinking on the part of activists and politicians in the developing world in response to the declining power of labor, their traditional base of support. Latin America’s new consumer movements are a product of these political entrepreneurs’ framing of these larger changes in economic and political structures. Figure 2.2 sums up the argument in pictorial form.

Variation in Consumer Movements Four common trends across Latin America in the late 1980s and 1990s support the validity of the main argument of this book. First, consumer movements emerged in the Latin American countries that privatized their public services under democratic regimes. Second, these consumer movements very often focused their attention on telecommunications policy. Third, the middle-class residential consumers of telecommunications services were especially likely to mobilize around the price increases associated with the end of cross-subsidies. Fourth, transnational consumer activism began to influence states’ domestic constituencies (in other words, consumers and their advocates). The new consumer movements differed in the levels of contentiousness and institutionalization of their protests, however. By linking insights from theories of democratization and economic reform with the economic literature on privatization and regulation of the telecommunications industry, I develop five arguments to explain variation within the common trend of consumer mobilization across Latin American democracies. The case studies in the book illustrate the causation at work in these arguments and provide some support as to their validity. The first and second arguments concern the relationship between consumer movements and political parties. In theory,

Figure 2.2. The Opportunity Structure Leading to Latin American Consumer Movements Economic globalization

=

• Decline in power of labor • Increase in power of domestic and multinational corporations • Increase in importance of telecommunications to citizens • Increase in awareness of consumer desires and consumer rights • Increase in transnational NGO activism

+ Democratization

=

• New constitutional rights and freedoms • Freedom of the press • Return of dissidents/progressives to political life • Ideology and rhetoric of democratic participation/civil society • Need for politicians to build political capital

=

• Rhetoric of consumer protection • End of cross-subsidies/increased prices • Foreign ownership • Capture of regulatory regimes • Confusion and conflict among companies over technical issues (e.g., numbering and interconnection)

=

• Political activists frame issues of justice in terms of consumer protection • Consumer movements recruit consumers for mobilization and develop repertoires of contention

+ Privatization of public utilities

= Consumer movements


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the abstract idea of consumer protection is noncontroversial, making it a valence issue that many different political parties— especially those in opposition to parties that privatized public services—find attractive. In the context of privatization in Latin America, however, the interests of consumers sometimes have conflicted with the interests of workers in privatized industries, implying that labor-based parties have a difficult time embracing consumer movements. Thus, I argue first that the opponents of governments that implemented privatization were especially likely to create and participate in consumer movements, but second that political parties that defined themselves as representing organized labor were relatively slow to participate actively in consumer movements. Two additional arguments address the relationship between the political process of privatization and consumer protection. Both the speed and sequence of privatization of public services had important effects on both the economic and political structure of the regulation of telecommunications and other privatized utility companies. Under democratic regimes, rapid and relatively early privatization of the telecommunications industry (compared with other countries and other sectors within the same county) produced private monopolies and weak regulatory regimes, and led to high levels of contentious and uninstitutionalized consumer mobilization. The arguments about speed and sequence are drawn from political studies of democratization as well as economic studies of privatization and regulation. The argument about sequence also implies that politicians learn from the experiences of other countries as well as earlier privatizations in their own countries. My final argument addresses the debates over presidential decrees, the separation of powers, and the importance of civil society in democracy. I contend that countries that privatized telecommunications through more inclusive political processes experienced less contentious and more institutionalized consumer mobilization than countries that privatized through exclusive processes such as presidential decree. This argument implies that more inclusive processes incorporate the concerns of consumers into regulatory regimes to a greater extent, leading to fewer grievances

40


and establishing clearer channels for resolving disputes that do arise. Eventually, however, countries that experienced more contentious consumer movements were forced to implement consumer-friendly regulation as a belated form of damage control. Political economists have not carried out much research on the relationship between different economic reform strategies and the level of political support for reforms. We know even less about which factors affect the sustainability of reforms. Some advocates of privatization have argued that groups with stakes in the old system, such as subsidized industries and their workers, might prevent reforms that would benefit the public good, i.e., consumers. Arguments in this vein often favor speedy, and exclusive, or “big-bang,” approaches to the reform process as a strategy for overcoming interest group opposition. The politically most convenient strategy for implementing reforms (such as the “big-bang” method) may not be the one that causes less social pain, however; therefore, there is a great possibility of a backlash against neoliberal reforms.63 Consumers may engage in backlash, but they also may decide instead to embrace the rhetoric of globalization and the real benefits of privatization. As self-interested citizens and consumers, however, they will protest arrangements in which they pay all of the costs when political entrepreneurs provide them with the opportunity to do so. Such a reaction is possible only under democracies where the right to political and legal mobilization is protected, but is stronger where the reform process was carried out in an authoritarian manner. The logic behind this argument is that democratic constitutions and laws usually assert that the rights of consumers need to be taken into account in privatization and therefore encourage activists to make new demands on the state and on the private owners of former stateowned businesses. My arguments about the variation among Latin American consumer movements’ reactions to privatization are illustrated in diagram form in Figure 2.3, which also presents the country cases discussed in the following chapters.

41

Explaining the Emergence of Consumer Movements Figure 2.3. Arguments Explaining Variation in Latin American Consumer Movements SPEED OF PRIVATIZATION high

low

Argentina (1991) (opposition not labor-based)

Unlikely combination/empty set

Contentious, un-institutionalized conflict

Contentious, institutionalized conflict

No mobilization

Less contentious, institutionalized conflict

Chile (1985) (dictatorship, no opposition)

Brazil (1998) (labor-based opposition)

LEVEL OF INCLUSION OF PRIVATIZATION

high

The Economic and Political Importance of Consumer Mobilization Researching and writing this book has convinced me that there is neither a clear negative nor a clear positive relationship between consumer mobilization and the health of any particular economic sector. In some of the instances of mobilization I

42


describe in the forthcoming chapters, consumer demands would have resulted in greater economic efficiency; in other instances they would not have done so. Future studies that incorporate more cases may be necessary for statistical proof, but I argue that the case studies presented in this book are solid evidence that consumer mobilization is neither all good (as some radical democratic theorists might argue), nor all bad (as critics of all politicization seem to suggest) for markets. Rather, it is essential for the joint development of democracy and market economies in the current global environment. Consumer mobilization thus should be viewed as an aspect of the tension between democracy and the market. The justification for privatization and general market reforms in developing countries is almost always to benefit consumers, allowing them more opportunities to use the “exit option,” in economist Albert Hirschman’s famous lexicon. The logic of democracy, however, is to allow citizens more options to use “voice.”64 The codevelopment of democracy and capitalism, this book argues, requires the exercise of both options.65 Broad debates about the relationship between democracy and economic growth long have been salient in the study of economics and politics.66 Classical (and neoliberal) economic theory views markets as far preferable to mobilization, since in markets consumers have the efficient mechanism of choice over what to buy to express their preferences. Under monopoly or oligopoly (clearly the case in many Latin American telecommunications sectors), analysts tend to be silent on the subject of mobilization. Others argue that the ability to decide what to buy may be effective, but that political involvement may be equally necessary for economic efficiency in some situations.67 There is growing consensus that democracy may help create such positive market conditions as transparency, rule of law, and policy “veto players” to block the reversal of reforms.68 The telecommunications sector is especially prone to expropriation and other political threats to investments because it requires what economists call “sunk assets.” Economic studies of privatization and democracy therefore have focused on the ability of democratic regimes to make credible


43

commitments to private investors.69 Only a few analysts have begun, very tentatively, to analyze the commitment problem from the consumer angle. As a Chilean author with experience in government notes: For a market system to work it is required that both producers and consumers exercise their rights. In many economies, however, consumers are weak agents, not used to perform their economic role and not protected by law or tradition in case their rights were violated by suppliers. This is most likely to be the case in countries use to rely in [sic] state monopolies to provide infrastructure services. In such cases, privatization and market reform could be at risk if society believes that consumers are at a great disadvantage vis-à-vis the private suppliers of infrastructure services.70 In order for countries to develop, their economic policies should be credible to investors. This book makes the case that credible commitments to consumers and citizens are just as important as those to business, however, and that policy analysts need to stop leaving consumers out of their accounts of and prescriptions for economic reform. There is no real consensus on the conditions that make for the political sustainability of reforms. The closest we have are calls for exactly the kind of pluralism that much economic literature criticizes in the United States.71 Those who might block reform often are bought off or compensated, but it probably is better to provide them with a long-term stake in a well-regulated market economy.72 Political entrepreneurs sometimes can organize broader coalitions of interests to promote reform. Giving consumers a voice follows the basic pluralist prescription. Within the historical context of Latin America at the turn of the twenty-first century, I argue, consumer protection is a key element for the sustainability of market reforms under democratic systems. Challenges of any status quo by one group provoke uncertainty for other groups.73 In the case of consumer movements,

44


multinational corporations and governments are generally the threatened actors. A recent book about business organization in evolving Latin American democracies argues that, in order to build consolidated democracies conducive to economic development, business leaders must begin to believe that many social groups have legitimate stakes in policy making in market economies.74 Political economists and policy makers should do the same. In recent decades in the wealthier countries, business and political leaders have accepted the mediation of potentially contentious behavior through pluralistic participation in institutions. This book shows that Latin American consumer movements are beginning to teach their authorities similar lessons, at different paces and with varying degrees of success.

CHAPTER THREE

Authoritarian Privatization and Delayed Consumer Mobilization in Chile

Chile was the first country in Latin America, and one of the first countries in the world, to privatize its state-owned telecommunications sector. The government of General Augusto Pinochet initiated the privatization policy in 1982. By the early 1990s, Chile permitted nearly full competition in its rapidly growing telecommunications sector, receiving praise from economic analysts and international financial institutions. The privatization of telecommunications was part of the pioneering program of neoliberal reforms imposed in Chile during the Pinochet dictatorship.1 Because of its many economic successes in the late 1980s and 1990s, some economists and political scientists view the case of authoritarian Chile as a model of neoliberal engineering. Yet neither the outcome of neoliberal reforms in general nor Chile’s telecommunications regulatory policy is without its critics.2 As Chilean economists Leiva and Radrigán suggest regarding Chile’s experiment, “Chile clearly is a model. What needs to be clarified is model of what?”3 Within the context of this book, what is clear is that the circumstances under which Chile privatized its telecommunications sector were unique in Latin America and could not be imitated by the democratic countries that privatized later. The 45

46


authoritarian government in Chile eliminated cross-subsidies that benefited middle-income urban users prior to privatization in order to make its two state-owned companies more attractive to investors. Unlike what later happened in democratic countries such as Argentina (in 1991) and Brazil (in 1998), no budding consumer-protection movement protested the elimination of the cross-subsidies before privatization or put any other pressure on the new regulatory regime afterward. As a result of privatization and the regulatory policies that followed, access and service quality in Chile increased in subsequent years, but residential telephone prices remained high. The first half of this chapter gives a brief history of how the typical Latin American cycle of telecommunications (from private competition to state-owned monopoly to privatization and liberalization) played out in Chile. Woven into the story of telecommunications development is the history of popular mobilization and its repression under the authoritarian government in the 1970s and 1980s: authoritarianism thus preempted consumer protest of the results of privatization under Pinochet. The latter part of the chapter explains how democratization and diffusion from other Latin American countries finally brought about an incipient Chilean consumer protection movement in the 1990s.

Politics and Telecommunications Policy in Chile before Pinochet For much of the twentieth century, Chileans could be proud they lived in one of the more stable and pluralist democracies in Latin America. The country also had a strong tradition of political mobilization of the traditional categories of business and labor, especially urban workers.4 From the 1920s the growing political influence of organized white-collar and blue-collar labor had resulted in expanded social services. The middle class and the best organized among the working class benefited the most from social policies. Economic policy under the Import Substitution Industrialization (ISI) economic development model also favored an alliance of business, the middle class, and bureaucrats.

Authoritarian Privatization and Delayed Consumer Mobilization

47

As most historians explain it, the 1960s saw the introduction of urban slum dwellers and peasants into the political game. The Frei government of the 1960s implemented mild land reform and other social policies, but not enough to stave off increasing demands for political representation and economic benefits. Rural unions grew from 24 legal unions with fewer than 2,000 members to 476 unions with more than 130,000 members between 1964 and 1970. In 1964 there were 632 industrial unions with 143,000 members, and in 1970 there were 1,440 unions with 198,000 members, or 19.4% of the work force.5 The political climate of the Cold War probably led elites to view mass organizations with even more suspicion than they might have otherwise. The percentage of the work force that was unionized apparently was about the same in the 1950s, but the threat of union power as perceived by traditional elites appears to have been greater.6 Thus, the crisis of the early 1970s often is attributed to the growth of “mobilization politics” and “problems created by the rise of interest politics among what previously was an undifferentiated mass.” Competition between politicians and activists (the “political entrepreneurs” of rational choice theory explained in Chapter Two) resulted in “a greater commitment to mobilize the excluded populace.”7 Eventually it was the threat that the mobilization of rural and urban poor posed to elite interests that led to the breakdown of the relatively longstanding Chilean democracy. As is well known, the election of Salvador Allende to the presidency in 1970 frightened business interests, the United States, and officers in the Chilean army. Allende’s attempt to implement socialism was cut short by Pinochet’s coup. Under Pinochet, the mobilized opposition groups—labor and middleclass public sector workers—experienced a loss of credibility because of the chaos that had engulfed the country under Allende. These groups also suffered severe repression by the military regime. Furthermore, much of the middle class continued to remain dependent on the state and therefore was unlikely to challenge any changes in economic policy. By 1985 Chile had one of the lowest unionization rates (12%) in South

48


America; however, the rate increased after redemocratization in the 1990s.8 The Pinochet regime favored openness to foreign investment and the reduction of state intervention in the economy. Throughout the rest of the 1970s and 1980s, Pinochet’s United States–educated economic advisors, known as the Chicago Boys, had close to free reign to implement neoliberal experiments, including the privatization of national public services. These technocrats eventually built close relationships with organized business interests and incorporated business preferences in policy.9 Had the privatization of public utilities been contemplated under the old system, competing elites might have seized the opportunity to build political capital through defending consumers. This kind of exercise in pluralism was not to be, however, because of the ultimate power of Pinochet’s authoritarian regime.

Telecommunications Development in Chile As it was a leader in democratic development and political organization, Chile also was an early Latin American leader in telecommunications, starting with the telegraph, which it acquired very soon after it was invented in the mid-nineteenth century. Although a private company built the first line, connecting the two prominent cities of Santiago and Valparaíso, the government began investing in service by the mid-1850s. The 1879–1884 war with Peru and Bolivia led to still more government involvement, as lines were constructed to reach the battle regions in the north of the country. Telegraph service continued to expand through the beginning of the twentieth century along with Chile’s economy as a whole. The state-owned Telégrafo del Estado began to face competition even as other services had begun replacing telegraphy in the 1950s, but a 1959 law declared a monopoly in domestic service for the government company. Like telegraphy, plain voice telephone service in Chile began relatively early and under private ownership. In 1879, three years after Bell invented the telephone, the government


49

granted a patent for telephone service to the Compañía de Teléfonos de Edison. Within ten years, the company had established local service in several cities and long-distance service between Santiago and San Fernando. Compañía de Teléfonos de Edison was acquired by another company and became Compañía de Teléfonos de Chile (CTC) in 1889. A second company, Valdivia National Telephone, formed in 1893 in the city of Valdivia. During next thirty years, many more small companies formed, predominantly in the more urban areas and mining and agricultural centers. CTC purchased many of these companies, but it was slow to build long-distance capability connecting the local networks. The American International Telephone and Telegraph Company (ITT), which was already active in Spain, Brazil, Argentina, Peru, Cuba, and Mexico, acquired CTC in 1927. The Chilean government was slower to attempt to regulate telephone service than it was with telegraph service. One reason for the delayed regulation is that no war spurred a security need for communications. An additional explanation is that there was no organized, nonmilitary constituency lobbying for improved telephone service until later in the twentieth century. Some within the government obviously considered the sector important, however: a clause in the 1925 General Electric Services Law stated that electrical and telecommunications services “demanded significant attention of the public authorities.” The government also signed a special agreement with ITT (CTC) in 1930, which was formally enacted as law, a very rare occurrence for any industry. ITT (CTC) received a 50–year concession, with no specific obligations other than “to provide the public with a modern and efficient system.” Additionally, the government permitted the company to set its own tariffs and design its own accounting system. In the early 1960s, an ad-hoc committee recommended the nationalization of the telecommunications sector for the purpose of connecting all points within Chile. One cause for the shift toward greater government involvement was the inability of investment to keep up with demand and political pressure from the middle classes, who still were often unable to acquire telephone service and now demanded it. It still took

50


a severe earthquake that revealed the need for better long-distance communications to catalyze the creation of the National Telecommunications Company (Entel) in 1964, however. In 1967 the government also went into partnership with the shareholders of CTC. In spite of the interventionist policies, though, by the end of the 1960s, only about 6% of Chilean households had a telephone.10 Political economists and sector specialists attribute the relative lack of telecommunications development (compared with wealthy countries; Chile’s level of telecommunications development was not unusual for Latin America) of the 1930–1970 period to problems of contracts that resulted from a lack of concern with telecommunications on the part of governments and business people as well as the politically “populist” policies that dominated the period.11 Until the 1980s, this line of argument explains, demand for telecommunications came almost exclusively from the wealthy, while politics catered to low- and middle-income classes. Also, telecommunications service was not as necessary for conducting business as it would become in later years. Therefore, under the influence of populism, the government paid more attention to the elements needed to build national industry under the ISI economic model—electricity, fertilizer, and steel—as well as social polices such as education and health and sanitation services than to telecommunications. By the term “populist,” analysts usually mean that politics catered to the desires of the less wealthy for different services, including sanitation and electricity. Alternatively, they use the concept of populism to refer to subsidies, unfair benefits to some companies, and burdensome requirements on others, although there are not many examples of this kind of behavior cited in existing studies (and scholarly proof of it is probably difficult to compile). The laws governing plain telephone service do not appear to have imposed many obvious requirements on the companies. Perhaps “populist” is not the correct word; the only evidence of real non-market-enforcing behavior provided in the literature on telecommunications is the mention that government bureaucracies often shirked on their payments for service and people with political strings (generally upper and


51

upper-middle class, presumably) were able to obtain service out of turn. This kind of clientelistic operation was a standard feature of telephone service, as well as other public services, in most of Latin America. Such criticisms are not limited to Chile; they formed part of the rationale for privatization across the region in the 1980s and 1990s. The politically turbulent 1960s culminated with the election of the socialist (or populist) Salvador Allende to the presidency in 1970. Allende’s openly socialist agenda was frightening to many upper- and middle-class Chileans and to the United States. Along with many other businesses, ITT (CTC) publicly opposed the implementation of socialism in Chile. Indeed, it was one of the most important multinational companies involved in the campaign to destabilize the Allende government.12 Such tactics further encouraged the Allende government’s rationale for nationalization of the telecommunications sector. Accusing ITT of sedition and technical problems (and not, apparently, for failing to meet the needs of ordinary consumers), the Allende government “intervened,” or took over, CTC in 1971. The Allende government also acquired the various other smaller telephone companies in the country. Allende and his advisors planned to concentrate all strategic planning for the country’s infrastructure in the state holding company, the Industrial Development Corporation (Corporación de Fomento de la Producción, or CORFO). One piece of the plan was the promotion of a domestic telecommunications equipment manufacturing sector, but, like the rest of Allende’s plan to build socialism and promote national industry in Chile, this idea was cut short by the military coup.

Telecommunications Under Authoritarian Rule The military coup that installed Augusto Pinochet as president in 1973 dramatically changed the direction of Chilean telecommunications policy, along with broad changes in economic policy in general. The reason the Pinochet regime was able to implement a sweeping experimental package of market-oriented

52


reforms, including large-scale privatizations, was that it quashed any potential opposition. The lack of open political debate and the contrast with Chile’s past led some analysts to refer to the Allende period as one of extreme politicization and the Pinochet era as one of an insulated, technocratic state.13 Surprisingly, though, the military regime carried out the nationalization of the telecommunication sector that Allende had started in the 1970s; it only opted for privatization in the next decade. The reasons for the apparent irony of the early policy under Pinochet lie in the general economic situation and the military’s concern about the strategic nature of the telecommunications sector. The new government’s chief economic priority immediately following the coup was not better services but rather fiscal deficit reduction. As was the case in other Latin American countries in later years, a severe fiscal crisis provided the impetus for the privatization of numerous companies in the early years of the regime. Following the turbulent years under Allende, the fiscal deficit reached 25% of gross domestic product, and the inflation rate was 500%. Most of the firms privatized in the mid-1970s were those that had always been privately owned and had been intervened recently by the Allende government. The public utilities were not in this group. Many military officers favored keeping the utilities state-owned for sovereignty and, in the case of telecommunications, possibly for intelligence reasons. The government holding company CORFO therefore purchased CTC from ITT rather than return it as the Pinochet government did with most of the companies that had been seized. One of the main effects of the privatizations of the 1970s was concentration in industrial conglomerates.14 When the debt crisis hit Chile along with the rest of Latin America in 1982, the newly privatized conglomerates made the situation worse because banks did not put restrictions on loans, leading to the phenomenon economists refer to as moral hazard. Around 70% of the businesses that were privatized became insolvent. Meanwhile the government could not afford the investment needed in the public services it still owned, including the telecommunica-


53

tions sector. As a result of the failures of the new conglomerates, the government ended up renationalizing a number of banks it had privatized just a few years earlier. Analysts now say that Pinochet’s technocrats learned from the mistakes of the first wave of privatization, particularly as regards the importance of establishing regulatory frameworks prior to privatization and the avoidance of ownership concentration. In keeping with this last point, the government also developed the policy of “popular capitalism”—the issuance of stocks to workers—to overcome the resistance of labor unions to privatization. As the popular capitalism schemes reached only 2.1% of the adult population, and 1% of salaried workers, “popular” was probably a misnomer. By several economic accounts, these schemes appear to have been socially regressive. Their purpose was to mobilize political support for privatization, as similar policies had been used in the United Kingdom under Margaret Thatcher’s privatization program. In the words of one economist, “They constituted the narrow edge of the wedge that would permit increasingly ambitious transfers as the 1980s progressed. Allowing the privatized pension funds to purchase shares in the transferred parastatals through indirect popular capitalism raised the returns on retirement savings and, it has been argued, created a broad constituency against renationalization.”15 Another innovation of the technocrats was permitting the pension fund management companies to purchase the stocks of privatized companies in order to build up the country’s capital markets. Like the pensioners and other new “popular” capitalists, consumers were a potential constituency for improving public utilities through privatization, but the government made no specific appeals to them. Given the importance the Chicago Boys and others in the Pinochet regime attached to classical economic theory, that while conducting fieldwork I found an almost complete lack of references to consumers in government documents from the period is, on the surface, somewhat bewildering. That “consumption is the sole end and purpose of all production” was declared by no less than Adam Smith, who generally is acknowledged as the founding father of free-market economics.16

54


Margaret Thatcher’s government, which implemented pioneering privatization programs similar to those of Pinochet, waved the banner of consumer protection in democratic Britain in the 1980s. It seems, however, that the Chicago Boys considered developing a private telecommunications market to be important because they believed it would stimulate other business development, and not so much because expanded access to telephone service for ordinary Chileans was a goal in itself. A second round of privatizations, this time including telecommunications, occurred in the 1980s. Pinochet’s finance minister provided five specific justifications for the restructuring and sale of state-owned firms: 1) the importance of private property as the foundation of a free society and of a market economy; 2) the gain in efficiency that was going to occur in these enterprises under private control; 3) the reprivatization and recapitalization of the banks and enterprises affected by the financial crisis; 4) the stabilizing effect that a deepening of the stock market would have on the capital market; and 5) the spreading of shareholding. Notably, the finance minister, who would later become the presidential candidate for Pinochet’s party when democracy returned in 1989, did not mention any possible benefits to consumers in his list. A decade later, no Latin American politician would attempt to justify privatization without specific appeals to the users of public services. Thus, telecommunications remained wholly state-owned in Chile in the 1970s, with Entel providing long-distance service and CTC holding the local service monopoly.17 Technocrats were preparing the sector for privatization during this whole period, however. One of the most important steps the military government took toward this ultimate goal was to increase prices and eliminate so-called political features such as the exemption of the public sector from rules of service suspension for unpaid bills. Another step included some attention to regulation. During the middle of the 1970s, the government created the Undersecretariat of Telecommunications (Subtel) to coordinate telecommunications policy and set some basic rules for liberalization. In 1978 it announced a plan calling for a competitive telecommunications sector, with high levels of private sector


55

participation. The interconnection of networks would be obligatory, and legal monopolies and exclusivity periods were prohibited. A 1982 telecommunications law formalized the policy principles delineated in 1978, and the privatization of CTC and Entel occurred from 1985 through 1988. The state holding company CORFO announced the pending sale of CTC’s stock in 1986. CTC employees purchased 6.6% of the shares, pension funds purchased 7.6%, and various others bought 11% of the total. The Australian Bond Corporation won a bid to acquire 50% of ownership of the company in 1988. Public sector workers and the armed forces acquired the remaining shares in 1989. The Bond Corporation sold its participation to the Spanish state-owned company Telefónica de España in 1990. The long-distance company Entel was privatized differently, in that no controlling share was sold. Purchasers included pension funds, Banco Santander, and Telefónica de España. The military received 10% of the shares, which it sold to Telefónica de España in 1990.18 Why did Chile privatize its telecommunications sector at a time when practically no other country in Latin America or the world was contemplating doing so? In addition to fiscal considerations, the reasons include the neoliberal ideology of the regime and the demand of the transnational business class, not a specific concern for average consumers. During the 1970s the expansion of telephone service had continued to increase, but at a rate far behind demand. As in most Latin American countries, it usually took years to get a telephone line, and people relied on political connections for installation and service. The policies of the Pinochet government created and catered to a new class of business entrepreneurs who demanded better telecommunications services. The state did not attempt to make the needed investments while it held the companies, however, because Chile was already undergoing its ideological shift toward market economies by the time nationalization occurred, and government technocrats planned from the beginning to reprivatize the sector. To repeat, the Pinochet government privatized the country’s two state-owned telecommunications firms in keeping with

56


its neoliberal ideological commitments epitomized by the Chicago Boys, in response to fiscal pressures, and in answer to pressure to the new entrepreneurial class, or business consumers. The decision to privatize was made once military concerns about security and sovereignty risks were reduced. Although the process was carefully developed and in some ways technically exemplary, rhetoric appealing to the mass of consumers did not accompany privatization in authoritarian Chile, and specific provisions to protect ordinary consumers were not part of the plan.

Regulation and the Economic Outcome of Privatization Under Authoritarianism The ostensible aim of privatization was to create a thriving telecommunications sector in which prices would be reduced through economic competition. In the realm of economics, this idea was somewhat revolutionary, as the idea that competition was even a possibility in former “natural monopolies” still was a new concept in economic and regulatory theory. The 1982 Chilean law specifically left tariffs up to the market, unless the Anti-Trust Commission were to determine there was not enough competition in the sector. The commission determined that long-distance and local services companies would present proposals for tariffs to the regulator, the Subtel. If the Subtel did not agree with the companies’ proposals, it would require them to submit the plans to review by outside experts. By some accounts, in hindsight the implementation of this pioneering plan was not revolutionary enough. Some barriers to new entrants remained, and Subtel appeared slow to remove them and to grant new licenses. Indeed, some analysts now criticize the agency for failing consumers by failing to promote market competition. As Piñera argues, “this, together with inappropriate rate-setting schemes, has maintained prices significantly above marginal cost, with negative welfare consequences for consumers.”19 Critics also argue that the regulatory agency lacked necessary resources: “In practice, the Subtel has been


57

compelled to accept the proposals received, due to a lack of technical and economic capacity to contest such proposals. In addition, the Subtel does not have the budgetary resources to afford the payment of experts.”20 Until 1988 the regulator routinely approved the companies’ plans without change. Of more immediate visibility and concern to ordinary consumers than the Subtel’s budget, however, were the increased prices of many telephone calls after privatization brought about by rebalancing, or the end of cross-subsidy. Under public ownership in Chile, as nearly everywhere else in the world, there was a definite pattern of cross-subsidy from long distance to local service. The 1987 law eliminated this pattern incrementally. Rebalancing was achieved by adjusting the relative price increases, so that long-distance and commercial rates increased at lesser rates than local and residential tariffs. A 1987 amendment modified the tariff regulation. It set a detailed formula for five-year tariff determination plans for each region, service, and operator. The plans were based on a hypothetical ideal company operating efficiently and earning a predetermined rate of return. All cross-subsidies were to be completely eliminated within the first five-year period. Thus, between 1979 and 1988 tariffs increased by 1% annually; during the period 1988–1992, the real yearly rate of increase was 11%.21 Several years after privatization Chile boasted competitive markets in cellular, long-distance, data transmission, and other services. Local service was the exception; although theoretically the market was completely open, CTC enjoyed a virtual monopoly. Also by the 1990s, the old pattern of cross-subsidization from long-distance and commercial users to residential users had ended, and a new one had taken its place. In practice, local telephony now subsidized long-distance and other competitive services.22 Indicators of progress in telephone expansion include investment, number of telephones, lines in service, density, automatization, and digitalization. By all these measures, telecommunications service increased markedly in Chile after privatization. One economist’s counterfactual study addresses what might have happened had CTC not been privatized; the

58

Social Movements and Free-Market Capitalism in Latin America Table 3.1. Telecommunications Services in Chile: Lines per 100 Inhabitants in Chile 1991

1992

1993

1994

1995

1996

1997

1998

Fixed telephony (land lines)

7.9

9.4

11.0

11.6

13.2

15.6

18.3

20.4

Mobile telephony

0.3

0.5

0.6

0.8

1.4

2.2

2.8

6.5

Source: Theoduloz Enero (2000)

study finds that expansion and therefore benefits to consumers would have been substantially less.23 In part, the success of the period must be attributed to technological advances, but the regulatory environment was also very important. In spite of the problems with regulation mentioned earlier, political economists often argue that Chile’s legal and business environment has long been the most credible in Latin America.24 They mean that the environment is credible to investors. Tables 3.1 and 3.2 depict the increases in telecommunications penetration and growth in other telecommunications indicators in Chile in the period 1991–1998. The rates of growth during this period were higher than in any other decade. As I mentioned earlier, in spite of its economic successes, Chilean privatization was not without its critics. According to Paredes-Molina, there were three problems associated with Chilean privatization. First, decrees and regulations governing privatization were not sufficiently clear. Second, not enough attention was paid to regulation prior to privatization. Third, privatized firms retained too much power.25 Paredes-Molina evaluates claims that telecommunications privatization in Chile resulted in wasteful duplication, as CTC and Entel tried to enter each other’s markets. It took four years of legal action to resolve the dispute over market integration. This was a cost of not having a perfectly defined rate structure prior to privatization. But, like Galal, Paredes-Molina also concludes that the gains from privatization outweighed the costs, and that “there is neither expropriation nor post contractual opportunistic behavior when, after a period, rates are reduced on the grounds that

36,136 n.d.

8.4% 8.0%

Growth rate

Growth rate of telecommunications and transportation sectors

GDP growth rate

Source: Theoduloz Enero (2000) *Provisional data from the Central Bank

21.5%

22.3%

Growth rate

Number of mobile subscribers

5.8% 7.0%

12.3%

32.2%

85,186

18.4%

1,520,685

1993

17.3%

78.3%

64,438

1,283,876

1992

1,056,781

Number of fixed lines

1991

5.7%

5.4%

35.8%

115,691

7.5%

1,634,393

1994

10.6%

14.7%

14.7%

197,314

15.7%

1,891,163

1995

Table 3.2. Telecommunications Growth Indicators in Chile

13.9%* 7.6%*

7.4%

28.3%

409,740

18.9%

2,693,286

1997

10.2%

61.9%

319,474

19.7%

2,264,342

1996

3.4*

11.2%*

135.3%

964,248

13.1%

3,046,217

1998

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the previously existing ones were not set according to the spirit of the law.”26 What were the implications for consumers? According to Melo, “In Chile, low-income individuals had particularly benefited from low rates. Tariffs based on marginal costs have eliminated much of the subsidy, a result acceptable for economic efficiency but not necessarily good social policy. This leads to an important negative result of liberalization: the limited capacity of the government to promote projects that are beneficial socioeconomically unless they also are profitable. Rural telephone service is one of many examples in telecommunications. The telcos are not interested in it, so it has been left to the government to develop it. But liberalization has left the government without effective tools for promotion of such projects.”27 Thus, however exemplary Chilean privatization had been technically, the redemocratization of Chile and the return of a political emphasis on equity as well as efficiency demanded changes in Chilean regulatory policy. Political opposition to Pinochet grew stronger toward the end of the 1980s, and in 1988 the government lost the plebiscite that would have extended its rule. Patricio Aylwin of the Christian Democratic Party (PDC) was elected president in 1989 in an alliance, called the Concertación, with other members of the opposition. Many members of the Concertación government had opposed policies such as privatization under authoritarian rule, but they left the majority of them in place, while giving a higher priority to issues such as poverty alleviation and equity as well as democracy and transparency. Chile’s institutions retained more authoritarian vestiges than its neighbors.28 The electoral system, the “bionic” senators, and the powers granted to the military all helped preserve the policy preferences of the regime’s supporters. Yet, as political scientists have argued, in practice the Chilean president negotiates with the legislature. Authoritarian-style decrees are less prevalent than in many other new democracies in the region. Also, the economic legacy of authoritarianism in Chile was better than in most Latin American countries. For all of these reasons, the new democratic government did not attempt to


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undo Pinochet’s neoliberal reforms or to implement Europeanstyle social democratic policies, in spite of the center-left leanings of the Concertación. It did, however, take some steps to respond to those who had not been helped by privatization.

Democratic Regulation of Privatized Utilities Bringing social issues to the fore implied the politicization of technical economic policies over which technocrats and their supporters in the business community previously had exercised unchallenged control. Telecommunications regulatory policy, as well as consumer protection in general, fell into this category. The public utilities privatized in the 1980s had become the most profitable private businesses in the country in the 1990s. Under democracy, some political leaders perceived that telecommunications privatization in Chile had resulted in competition in lucrative niches and essentially private monopoly services for ordinary users. Other politicians protested against perceived weaknesses of Chilean antimonopoly law, which was based not on ownership but on behavior in the market, and suspected that businesses were using money from Chilean consumers to finance expansion in other sectors and other countries.29 In addition to the political voices of the Concertación, actors in civil society began, slowly, to organize around issues of consumer protection during the 1990s. Later in the decade, the international NGO Consumers International, whose Latin American representative was based in Santiago, hired several lawyers from Argentina to build a greater civil society voice for Chilean consumers. Accustomed to a more contentious climate in Argentina, one of these activists stated that: “Chileans don’t have a culture of complaining. Now [under democratic rule] supposedly there is participation, but it is more of fantasy, a sham, than real.”30 Consumers International focused its efforts on lobbying for legislation and providing grants to other advocacy groups. Thus, in the 1990s Chilean consumers began to develop a political voice through their legislators and, to a more limited

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degree, through civil society organizations and regulatory agencies. Disputes in telecommunications were muted compared to those in other countries, however, because by the time the possibility of democratic action existed, there was less of a threat to loss-averse middle-income users of plain telephone service. These consumers already had experienced the loss associated with price rebalancing. As was previously mentioned, Subtel did not even attempt to play an active role in tariff restructuring (which it had left to the companies) until 1988. Even then, most citizens did not know the restructuring was happening, and it was clear the companies dominated the process. When a second tariff negotiation took place in 1993–1994, CTC was hoping for even more advantageous prices than it had gained with the previous negotiations in 1988. Although the company apparently did not break the law, it had more power and knowledge at its disposal than the regulators did. The Subtel and the Economics Ministry had a limited capacity to oppose it. It appears that the government was forced to negotiate the tariffs with CTC and other companies, although that was not what was called for by the law. In spite of the telephone companies’ opposition, however, the democratic government eventually decreed that the price charged for fixed service, regardless of usage, be lowered by 21%. CTC complained publicly about the price negotiation process and threatened judicial action and international financial repercussions. The president of CTC stated that political discussion and debate over prices affected the value of the company on Wall Street: “. . . there has been an attempt to transform the tariff question, which was a technical discussion, into an element of political agitation, resulting in the loss of the image of a technical, transparent, legal, non-discretional process. This kind of action represents an enormous loss for the country abroad, given that often people think they are speaking only to the national media when the entire discussion is carefully monitored by the international markets minute by minute.”31 CTC also appealed to the justice system, arguing that the decree was unconstitutional, but the courts supported the government’s position. Thus, under democratic rule the


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regulation of privatized utilities became a little more stringent, in spite of companies’ protest that it constituted unnecessary, antimarket “politicization.” Under democracy, regulation also began to include more specific attention to the specific social category of ordinary consumers. In 1994 the Subtel conducted a survey to determine whether there was a need for a separate department for “users” and decided to create one. In interviews several of its employees agreed that since the return of democracy greater attention was paid to issues of competition and service for the entire population. As a result of increased consumer awareness and congressional action, other public utility regulators also acquired consumer protection units, and consumer protection mechanisms were included in legislation regarding privatization of sectors such as water. Furthermore, the Chilean Congress passed a consumer protection law in 1991. The 1991 code was weaker than that of many other Latin American countries. Consumer protection advocates protested the lack of class action lawsuits as a major defect in the law. One of these organizations, the Asociación de Consumidores de Chillán, cited monopolies in telecommunications and other public utilities as evidence that consumers required further protection. There was discussion about whether public utilities were covered by the bill. The International Organization of Consumers’ Unions (IOCU) argued that Chile ought to follow the example of Brazil, which incorporated a consumer-protection code in its Constitution. A public opinion survey was carried out by Cep-Adimark, which found that a majority believed consumers were insufficiently protected.32 Public debate led to more explicit appeals to ordinary consumers, even by supporters of Pinochet’s policies, than had occurred under authoritarian rule. Criticizing the 1991 bill, a conservative deputy argued that any state intervention would hurt rather than help consumers: “If we were to ask Chilean consumers which goods and services have been perfected lately and better satisfy their needs, they would surely respond that domestic electric appliances, interurban transportation, supermarkets, shopping centers, pension funds, health services, etc. If

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at the same time we asked them which products and services have fallen behind, they would surely list those in which the state intervened more, such as the railroads.”33 The deputy added that he was concerned that these regulations would hurt those who already were complying with the formal laws, and would be ignored by participants in the informal economy. Another deputy stated that when the State attempts to protect consumers it ends up benefiting smaller groups such as labor or producers.34 The law passed, however, with some important modifications to the executive’s bill. Initially included in the legislation the Concertación proposed was the corporatist-style incorporation of consumer protection associations within the State. The executive removed this chapter after criticisms from the opposition as well as some internal voices. The Christian Democrats then decided to hand over this function to the neighborhood associations. The legislation did establish a kind of consumer dispute resolution process. By the turn of the millennium, the institutional mechanisms for consumer protection still were weaker in Chile than in Argentina or Brazil, however, and the Chilean legislature once again began debating whether to further strengthen the consumer protection law. In 2002, the New York Times reported that a consumer lawsuit against McDonald’s was challenging the previously corporate-friendly climate in the country.35 When a consumer sued the company for alleged poisoning, it countered with a $1.25 million lawsuit for libel. The Chilean municipal health agency fined the fast food chain $650 for above-normal levels of bacteria. McDonald’s challenged the fine. Luís Jérez, legal director of the National Consumer Service, said that “The business class in this country put up enormous resistance to the 1996 consumer protection law, and even now has a backward conception of what consumer rights are. We are pioneers here in many areas of social and economics policy, but in the area of defending the consumer, far from being in the vanguard, we lag behind places like Paraguay and Ecuador.” The same New York Times article reported that a man burned himself alive in front of the presidential palace to protest inadequate regulation of asbestos. His


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suicide note chastised the government for deceiving asbestos victims and ignoring consumer-protection groups. The article also quoted Ernesto Medina, director of the Citizens’ Movement Against Abuses: “Our idea is to educate ordinary Chileans to better defend their rights but it is an uphill struggle, because the companies have all the lawyers and all the money.” Chile was indeed a pioneer in the economic arena of regulation, but it has been a laggard in consumer protection. When the military government repressed the mobilization of labor, it also preempted consumer mobilization (cutting short the real possibility of making legitimate political arguments to rally consumers to support neoliberal policies, as was occurring in Britain under Thatcher, and would occur later in Argentina under Menem, and Brazil under Cardoso). Even after democracy returned, consumer mobilization was relatively muted. In the words of another analyst, after the neoliberal reforms in Chile, “passivity took the place of social mobilization, and participation in the market replaced political participation.”36 Because the development of pluralistic civil society was cut short, in Chile, it was the legislature, rather than grass roots consumer protection groups, that eventually made the first move to lower the tariffs of privatized utilities when democracy first returned. Participation by civil society groups in the regulatory process remains infrequent and uninstitutionalized.37 Chile’s past history of strident social mobilization based upon traditional categories such as class might have suggested that it would develop a grassroots consumer movement. It was the especially long-lasting legacies of authoritarian rule that delayed this development. The Chilean case is evidence that the consumer movements diffuse along with models of privatization and regulation, however. The globalization of civil society and of ideas spurred the creation of consumer awareness. There exists the possibility that Chile may eventually become known as a model of Latin American political pluralism, a working market democracy, rather than just a depoliticized laboratory for neoliberal experiments. As Chilean analyst Manuel Antonio Garretón argues, debates about the irreversibility of neoliberal reforms and the primacy of markets, are old and tired: “The alternative model, which is

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different for each country, consists of giving to the state, on the levels of national and supranational blocs, a leading role in development; establishing regulatory and normative frameworks on market forces; and guaranteeing citizen control over those frameworks and forces.”38 Until this happens, he contends, democracy in Chile, and the rest of Latin America, will remain incomplete. Bringing consumers into the governing of markets in Chile is one way to follow his advice. At the turn of the twenty-first century, Chilean politicians and new leaders in civil society were contributing, however slowly, to achieving this goal.

CHAPTER FOUR

The “Original Sin” of Privatization in Argentina

In Chile, the price of calls is based on supply and demand, but in Argentina people would never accept that: they would kill the president first if companies tried to do that. —Argentine telecommunications executive, August 17, 2000

The telecommunications executive quoted above believed that the different propensity of Chileans and Argentine consumers to complain was based on cultural and ideological factors.1 He was unaware that the same year he and I spoke, Argentine consumer advocates were busy attempting to foment the incipient consumer movement in Chile described in chapter 3. A comparison of privatization in these neighboring countries shows that different politics had a determining effect on the timing and intensity of consumer mobilization. Although the process of telecommunications privatization in Argentina in 1990–1991 was highly concentrated in the executive, as in Chile in the early 1980s, the similarity between the two cases ends there. In spite of the high degree of authority the executive had to privatize, Argentina in 1990 was a democracy in which citizens’ rights were codified in the constitution and other laws and in which politicians and activists were searching for issues around which they could 67

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appeal to many constituents and build political careers. In this democratic context, the rapid and exclusionary privatization process created an opportunity structure with incentives for politicians and activists to rally consumers to engage in outright consumer rebellion against tariff restructuring. The consumer movement’s response to telecommunications privatization in Argentina was highly contentious, and existing institutional channels for protest could not contain it.

The “Original Sin”: Hasty, Early Privatization by Emergency Decree The “user-consumer,” a category that still seems like one from the First World in many cases, is beginning to ask himself if the benefits of getting rid of an elephantine state will always imply the tradeoff of subjection to the abuse of leonine contracts. Inevitably, this theme will have an electoral impact that the opposition will try to maximize to its benefit.2 As the newspaper article quoted above went on to discuss, the administration of President Carlos Menem did not sell Argentina’s state-owned telephone company, Entel, in 1991 to benefit consumers. Rather, the Menem government used the privatization as a quick fix for its dwindling coffers and to send a signal to foreign investors that it was serious about neoliberal economic reform. As a democratically elected government dependent on popular support, however, the administration justified its decision in part by telling citizens they would benefit from privatization. Indeed, the claim that consumers stood to gain from the change in policy was quite credible, as Entel’s service at that time was so bad it was hard to imagine anything that would make it worse. Yet the speed of the privatization and the fact that telecommunications was the first major public service to be privatized in the country meant there was virtually no input from democratic actors in the policy process and little immediate attention to issues of consumer protection in the


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subsequent regulatory regime. The exclusionary style of privatization eventually legitimated subsequent attempts by actors in the congress and civil society to alter the terms of the privatization contract.

The Context of Telecommunications Privatization by Decree: The Decretazo in Argentina When Argentinas’s last authoritarian regime (1976–1982) ended with the military’s defeat in the Falkland Islands/Malvinas fiasco, the departing junta left a wounded polity and chaotic economic situation for the new democratic president, Raúl Alfonsín of the centrist Radical Party.3 Alfonsín largely succeeded at managing the first problem, consolidating democracy and beginning to heal the country after seven years of brutal human rights abuses. Alfonsín failed to heal the economy, however. For political reasons, his administration was unable to implement an economic restructuring plan; the Peronist-controlled congress defeated nearly all of his proposals to privatize various state-owned companies, including telecommunications.4 The administration also failed to tame mounting hyperinflation in the latter third of his presidency, causing Alfonsín to remove himself from office five months early after his electoral defeat to the Peronist candidate Carlos Menem in 1989. Under President Menem, Argentina became a case of what some political scientists call hyper-presidentialism.5 The main elements contributing to hyper-presidentialism were presidential co-optation of the judicial branch and the reliance on government by decree. Whereas between 1853 and July 1989, constitutionally legitimate Argentine presidents issued a total of 25 emergency decrees, between July 1989 and August 1994 Menem issued 336 such decrees. Argentines refer to Menem’s reliance upon decrees as a policy-making device as the decretazo, roughly translatable as “the big decree.” The economic crisis Alfonsín had left behind and the strong Peronist majority in both houses of congress were the principle impetus for Menem’s concentrated authority in the

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beginning of his first term. During the lame duck period between Menem’s inauguration and the inauguration of the newly elected legislators, the congress agreed to pass bills the new administration believed necessary to deal with the emergency. The most important of these emergency bills granted the president sweeping powers to privatize state-owned industries. The opposition Radical Party did not oppose the emergency bill. Executive-legislative relations still deteriorated, however, because Menem implemented additional policy decrees, arguing that the legislative process would be too slow. Menem also appropriated the line item veto right by partially vetoing bills, an action some argued was unconstitutional.6 Rather than the leftist-populist policies that many had feared, Menem used his extraordinary powers to implement a neoliberal economic program that broke dramatically with the Peronist tradition of nationalistic, ISI-inspired economic policies.7 The major pillars of his program included the 1991 Convertibility Law, which pegged the peso to the U.S. dollar, and the 1989 Economic Emergency Act, which permitted the largescale privatization of state owned enterprises. Thus, in a single brush the congress allowed him to privatize a long list of the country’s most important state-owned industries. Telecommunications and the airlines were the first large state companies put on the auction block. Menem continued to expand his decree power after most of the state companies had been sold and the emergency had subsided. Once the terms of the Economic Emergency Act expired, he issued a decree extending it for another year. A special Bicameral Committee to Follow Up Privatizations was a mere legislative figurehead; the president notified the committee about his decrees after the fact. Menem further extended his concentrated powers beyond the period of dire economic necessity by manipulating other political institutions such as the Supreme Court. The senate already was highly favorable to the Peronists because of a combination of the overrepresentation of many sparsely populated and relatively poor provinces in which


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Peronists typically do well and a majoritarian electoral system in which both senators were elected by the provincial assemblies. In September 1989 the Senate easily passed legislation enabling Menem to pack the Supreme Court. The president appointed five out of nine members of the Supreme Court in April 1990, and one more in August of the same year. Because of the court-packing, the Supreme Court virtually always supported the administration, particularly in the matter of executive decrees. Often, the court based its ruling on the argument that there existed an implicit congressional consent through silence. Economic emergency was a second basis for many rulings, although some research shows that often there was no emergency.8 In 1994 a constitutional reform embodied a political deal between Menem and former President Alfonsín that further concentrated authority in the executive branch. The Pact of Olivos, as it was called, stated the initial agreements on changes to the Constitution. The congress granted the constitutional assembly the power only to accept or reject the core of the pact, which included the reelection clause as well as the decree regulation. After the constitutional reforms, the decrees acquired the status of constitutional initiatives. Thus, the reform codified Menem’s decree power. The 1994 Constitution also contained a number of new protections of citizen rights, however, including consumer protection slauses, which political entrepreneurs eventually would use to challenge policies extablished by decree. Political analysts have argued that reactions against presidential decree authority have usually come from specific political and economic interests.9 These included consumer issues, as I show in chapter 5. Consumer movements responded to problems created by the privatization of telecommunications by decree with lawsuits, mass protests, and direct political challenges. Some of their myriad grievances may have been unavoidable, but many of them were direct byproducts of a privatization process that did not take consumer interests into account.

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Telecommunications Privatization by Decree President Menem was not the first politician to attempt to privatize Argentina’s telecommunications sector. President Alfonsín had announced he would try to sell the state monopoly Entel in 1989 and made arrangements with the Spanish national company Telefónica de España to purchase it.10 The agreement with Telefónica de España would have given that company a twenty-five year monopoly over all telecommunications services except cellular and telegraphs (including cable TV) with potential for an additional ten-year extension. (Although one may prove nothing with counterfactuals, it seems reasonable to conclude that a twenty-five year monopoly might have been an even worse outcome of privatization than what eventually happened.) Under pressure from unions and equipment manufacturers, the Peronist-controlled legislature refused to approve the sale. One Peronist senator even attempted to link the sale of Entel with anti-British sentiment still lingering from the Falkland (Malvinas) Islands War, citing a recent joint venture between Telefónica de España and British Telecom. The Argentine Chamber of Telecommunications, the association of local manufacturers, filed a civil suit against the administration for attempting to create a private monopoly in violation of national anti-trust laws.11 Within a year and a half of Alfonsín’s ill-fated privatization attempt, the new Peronist-controlled congress supported Menem’s massive privatization program. Menem, who had not campaigned on a platform of structural reforms, declared his administration would privatize Entel two weeks before he began his presidency. He appointed an engineer from a wellknown conservative family, María Julia Alsogaray, to oversee the privatization process and to make sure it was completed within 180 days.12 Several additional decrees prepared Entel for privatization. Alsogaray’s assignment was to place higher priority on getting a high price for the company than on criteria like competition and efficiency. Her team wanted to break the company into


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seven units (to better create a kind of benchmark competition) before the sale, but consultants from the U.S. investment bank Morgan Stanley recommended it be divided into just two regions in order to achieve the twin goals of attracting investors and achieving the possibility of competition by comparison.13 The accounting company Price Waterhouse declared the value of Entel to be $3.2 billion, a good bit less than the figure favored by the Alfonsín administration. Price Waterhouse also recommended the government assume the company’s debt and that the rebalancing of the tariff structure be completed before the sale was attempted. (Recall that rebalancing refers to the elimination of subsidies from corporate to residential users. It means that many ordinary telephone customers would see their monthly bills increase.) The Menem government opted not to increase tariffs before the sale, however. Instead, to increase the auction price, the government decided to permit the winning bidder in each region a seven-year exclusivity period with the potential for an additional three years. In other words, the form of privatization in Argentina meant that people who already had telephone service—mainly the urban middle-income sectors—were going to see their phone bills increase dramatically after privatization rather than benefit. This indignity would take place not in a context of free-and-open competition but rather in one of foreign-owned monopolies. Consumers did not protest the plan to privatize, however. At the time, Argentina had only one important organized consumer group, known as Adelco (Acción del Consumidor or Consumer Action), with a few thousand middle-class members. Begun in 1980 as an offshoot of a small conservative party, Adelco was no friend to the state-owned company, which provided notoriously poor service. Adelco had no time to review the terms of privatization in any case. The Menem administration did not publicize the planned future price increases, preferring to leave the privatization contract purposefully vague on that score. Labor was the most important group that opposed Menem’s attempt to privatize Entel. The state-owned company

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was 98% unionized. Union leaders had loudly protested Alfonsín’s attempt to sell the company. These protests were part of a more general open conflict between the Radical government and the traditionally Peronist unions, however. Labor’s response to privatization by a Peronist in the Casa Rosada (the presidential palace) had less of an impact.14 As is well known, Argentina already had a long history of political mobilization around labor issues. During Menem’s presidency, the power of labor declined significantly, however, while business elites also increased their power. Another alliance between labor and the national equipment manufacturing companies was unfeasible because the government made certain the latter held a stake in the privatization. Factions of the union staged a strike in August 1990, which resulted in Argentina’s being cut off from all international long distance service, but Menem sent the army in to replace the striking workers and dismissed 400 of them.15 To the surprise of economic observers who did not trust a Peronist-led government’s ability to implement neoliberal reforms, the auction was held as scheduled. Fourteen consortia purchased the bidding documents, seven of which applied and qualified to submit bids. Only three consortia actually submitted bids for Entel, however. A consortium led by the Spanish national company Telefónica de España won the bidding process for both regional monopolies, but was allowed to purchase only one. Telefónica de España chose the more profitable southern half of the country which included a substantial portion of Buenos Aires and other metropolitan areas. A group headed by Bell Atlantic came in second, but at the last minute it had trouble coming up with the necessary funds, and the northern region ended up being awarded to a consortium between the Italian STET and France Telecom. In total, 35 corporations, 83% of which were financial institutions, were part of the winning consortia.16 That the heads of each consortium were state-owned companies from Europe seemed more than a little ironic to a citizenry that had been told private ownership was the key to consumer benefits. In the foreign


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business community, rumors abounded that Argentina’s traditionally cozy relationship with Spain and less cordial relations with the United States had led to discrimination against North American companies.17 Argentines soon would learn that in addition to the lack of competitive mechanisms to protect them, they also lacked a real regulatory regime. Alsogaray’s team had issued a document called Terms and Conditions, which called for the establishment of basic rules and of an independent regulator and assigned responsibility for the regulator to the Secretariat of Communications in the Ministry of Public Works. This secretariat did not believe privatization would really happen, however, and therefore proceeded very slowly, only creating the new telecommunications regulator, the National Telecommunications Commission (Comisión Nacional de Telecomunicaciones, or CNT), after privatization had occurred. The CNT was not very active for the year following the privatization, which resulted in various problems for the new investors and consumers. Its lack of investigative capability prevented it from discouraging fraud by the new companies. By 1991 the message that other potential foreign investors as well as consumers were receiving was clear: Argentina did not have a fair and transparent regulatory regime. The bolder analysts and competitors stated flatly that the regulator was a corrupt institution that had been captured by the incumbent companies.18

Regulatory Capture and Regulation in Argentina The failure of a strong and independent regulatory structure is one of the principal reasons why the privatization process in Argentina failed to achieve the main objectives of reform. Thus while the concentration of power within the executive branch may be an important element in introducing reforms, the stability of reforms may well depend on an effective balance of power between the executive and the legislature.19

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The Argentine telecommunications regulator was Argentina’s first regulatory agency, charged with the crucial task of verifying that providers with exclusivity contracts met their goals. The CNT did not have the technical expertise or political support from the executive to carry out this task, however. Through 1998 the agency had not effectively collected on any of the fines it issued. The firms refused to return to users the money they received as compensation for overpaying taxes between 1991 and 1994. The telecommunications regulator suffered more than any other regulatory agency from executive intervention in its formal operations, pressures from the regulated firms, changes in its structure and in the regulation policy. When it came to the tricky question of tariff rebalancing, the agency was unprepared to do its job technically. The CNT was even less prepared to carry out its work politically, in spite of the good will of at least some of the staff. Responding to the concerns of consumers, some of the directors proposed to create a complaint processing center in cooperation with the consumer association Adelco. The two parties signed an agreement, and the center began operating in September 1992. There was no actual body of regulations protecting consumers, however, and so the CNT created a committee to write one. Members of this committee included representatives from the two telephone companies, the World Bank (which gave it a grant), CNT, and the consumer protection organization Adelco. These were tough negotiations, and because they were carried out after the privatization contracts were signed, the companies always argued that they should not be forced to fulfill more obligations. The Argentine government responded to the companies’ displeasure by censuring the CNT. In 1993 Menem fired the agency’s directors because they refused to endorse a rebalancing plan written by the companies that would have increased the telephone bill of the average Argentine consumer by 200%. The executive branch further removed the authority of the regulator to determine rebalancing and granted this power to the Secretary of Communications (in other words, to itself). Concomi-


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tantly with the move the agency’s name was changed to the Comisión Nacional de Comunicaciones, or CNC.20 Privatization in Argentina and Theories of Economic Reform As I discuss in chapter 2, rational choice theories address the question of how privatization may occur at all in a democratic context. Argentina under Menem epitomizes this literature’s familiar economic reform story of how a small and (to supporters of market economies) seemingly heroic cadre of dedicated technocrats may overcome the entrenched rent-seeking interests to achieve reforms.21 The answer is not that they necessarily make policy to benefit the public good, but rather that politicians build ties with firms that benefit from privatization. As analysts have begun to point out, the outcome of privatization often is new opportunities for rent-seeking through mechanisms such as regulatory capture, however. In other words, getting the government out of the economy by privatizing thus does not necessarily reduce rent-seeking behavior. In general, concentrated banking sectors and business groups enjoy windfall profits from reforms such as privatization: “Public utilities privatized as vertically integrated monopolies consolidate disproportionate economic power in a few private firms, setting incentives for collusion between those firms and policymakers without tangible benefits for consumers.”22 “What was lost on the way to the promised land by the privatizers? Simply put, the State’s responsibility to look after the public interest.”23 Thus was the situation in Argentine telecommunications summed up by the country’s public defender, the ombudsman, in 1997. An opposition deputy stated that “the best economic and social benefits were not the objective [in the privatization of telecommunications]; rather, it was just the most money at the time of the auction. Now those who lost out in the bidding process by a matter of a few cents see that the price increases and subsidies would have compensated them well for a higher bid. This is not juridical security.”24

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The privatization of telecommunications in Argentina led to a decade-long monopolistic market structure and a broad perception that the two multinational companies had captured the regulatory body. There is consensus among economic analysts that this happened because Menem privatized quickly in order to obtain relative quick debt relief, send a signal to foreign investors, take advantage of his honeymoon period, and prevent his own party from developing firm opposition to his policies. The result was that Argentina could not improve the company before selling it. The major “improvement” analysts refer to in this context is tariff rebalancing. Menem’s team left the rebalancing for later. They could not, or, rather, did not, predict that consumer advocates would take advantage of new democratic rights to demand a voice in the future negotiations over the price of telephone calls.

Democratization and Constitutional Changes Argentine citizens and civil society organizations won a number of expanded rights and protections after the transition to democracy in the mid-1980s. Except for basic human rights, few issue areas received more attention than consumer rights.25 In 1992 for example, the government incorporated the first national Consumer Protection Department. In 1993 the congress passed a comprehensive Consumer Protection Code. This law, which was ten years in the making, was drafted by legal advocates working for Argentina’s lone consumer protection association at the time. Originally the bill called for free legal representation to consumers, but Menem vetoed this portion and other aspects of the bill. A separate development did provide for the needs of poor consumers, however. In 1993 the congress created the Office of the Public Defender (Defensor del Pueblo Nacional), an office modeled after the national ombudsman of Sweden. The legislature authorized this office to take on individual and collective legal cases on behalf of consumers.


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Recall that Argentina acquired a new constitution in 1994 as a result of the political deal between President Menem and former President Alfonsín. The new document, among other expansions of political and legal rights for citizens, codified new rights for consumers and users of public services. Article 42 required that regulatory agencies be created through legislative stature rather than decree: Consumers and users of goods and services have the right, in relation to consumption, to the protection of their health, safety, and economic interests; true, accurate information, the freedom to choose, and to conditions of equal and dignified treatment. The authorities will provide for the protection of these rights, for education regarding consumption, for the protection of competition against all forms of market distortion, for control of natural and legal monopolies, for quality and efficiency of public services, and the constitution of associations of consumers and users. The legislation will establish effective procedures for the prevention and resolution of conflicts, and for the regulation of national public services, providing for the necessary participation of associations of consumers and users and the interested provinces, in the organisms of control. Article 43 of the new document permitted consumers the right to file an “acción de amparo,” a kind of injunction, in the case of violation of their constitutional rights. It also specifically allowed consumer protection associations the right to file injunctions in the case of violation of “rights of a collective nature”: Any person may file an expeditious and swift “acción de amparo,” whenever no other more appropriate judicial means exists, against any act or omission by public

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authorities or by private individuals, that presently or imminently harms, restricts, alters or threatens, in an arbitrary or manifestly illegal manner, the rights and guarantees recognized by this Constitution, by a treaty, or by a law. As appropriate, the judge may declare the norm upon which the harmful act or omission is founded unconstitutional. [When] this action complains of any form of discrimination, or regards the rights that protect the environment, competition, the user, the consumer, or rights of a collective nature in general, it may be brought by the affected party, the Defender of the People, and the associations that support these ends that are registered as required by a law that shall determine the requirements and forms of their organization. Lawyers and the consumer advocacy group Adelco had been among those who pushed for the new consumer rights protection to be included in the Constitution. The initial legislation (1993) went into effect the same year the government and the privatized telecommunications companies began negotiating the tariff rebalancing plans. The lack of both a regulatory statute for telecommunications and mechanisms for consumer participation in telecommunications policy were major sources of legitimacy for Argentine consumer advocates to protest the rebalancing. In fact, as I show in chapter 5, between 1994 and 1996 a consumer movement in response to tariff rebalancing placed all of Argentine telecommunications policy on hold.

CHAPTER FIVE

Contentious Consumer Mobilization in Argentina

The State completely fails to confront the monopolies; it even rewards them by condoning their fines of consumers. In practice, the ways of Entel (the former state-owned telephone company) continue. . . . —Argentine consumer advocate, 1998 Before the privatizations, consumers had no protection. Since 1989, there has been a great change. What is happening is that consumers are becoming selective as they are able to complain more. —Argentine consumer advocate, 1998

These statements by consumer advocates reveal the paradoxes of privatization in Argentina.1 The replacement of an inefficient state-owned monopoly with private monopolies with suspected corrupt ties to the state led to at best a mixed improvement in the quality and price of basic residential services. Under the system of state ownership, dissatisfied consumers had had little recourse to voice their complaints, but concomitantly with the problems of transition to private-owned services came expanded democratic opportunities to exercise voice. In this way, democracy and privatization crossed to produce contentious consumer protest. 81

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Certain aspects of telephone service definitely improved in Argentina after the privatization of Entel. Whereas previously the wait for a telephone could be ten years or more, within a year or so the new private companies had reduced it to a matter of days. Shiny new phone booths lined the streets of provincial capitals and other urban areas. The call completion rate substantially improved. Telephone density, the most important indicator of access to service, increased from just 9 to 20 lines per 100 inhabitants in twelve years.2 Privatization did not immediately reduce the prices of most public utilities, however. In fact, between 1991 and 1997 the real prices of the majority of public services increased markedly. It was reported in the media that the average household spent 14% of its income on telecommunications and transportation. According to some studies, the average telephone bill increased by 41%, and the average gas bill increased by 43%.3 Privatization benefited Argentine consumers in some ways, but clearly failed to deliver the lower prices its advocates had promised. The negative impact of privatization on the politically important middle class in urban areas was especially strong. Not only were services often more expensive; the incomes of state employees, teachers, and small business owners had declined. Among this group it was said in the Argentine media that a revolution of rising expectations occurred after the Menem government’s macroeconomic reforms conquered hyperinflation in the early 1990s. The subsequent letdown probably was one reason for relatively disappointing results for the Peronists in the 1997 elections. The rhetoric of consumer benefits from privatization caused expectations to rise. The high cost of services in the aftermath of privatization thus provoked disappointment. In 1998, when respondents in the Buenos Aires metropolitan area were asked to assign grades on a scale of one to ten to the value of various public services, telephone service received the second lowest overall score, surpassing in popularity only municipally provided services such as trash collection. The upper- and upper-middle income sectors ranked telephone service especially low.4


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One of the most obvious manifestations of consumer discontent was the unprecedented proliferation of consumer associations in the mid- to late-1990s. Before the mid 1990s only one consumer protection organization had a real national presence in the country. The Association for Consumer Defense (known as Adelco) had carried out its mission of providing legal services for individual members and publishing the results of its product testing since about 1980, but it made its debut as a powerful national player in 1997 by challenging the privatized telephone companies in one of Argentina’s first consumer-protection lawsuits. This action inspired the creation of other organizations over the next few years. By the year 2000 there were close to a dozen consumer associations with national presence in the country. Among the most visible at the national political level were the previously mentioned Adelco, the Association for the Defense of Consumers and Users (Adecua), the Association of the Users of Public Services (Ausp), and the League of Free Consumers (Liga de Consumidores Libres). Consumer-protection organizations had greater avenues for representing their constituents than the lone Adelco had had in the past, because privatization ushered in some new rules and policies favoring consumers that state-owned companies had avoided. As one advocate put it, when the companies were state-owned, people had to stand in line and “no one paid attention either to our complaints or those of individuals. Today the firms have offices to attend complaints, and are required to have toll-free service lines.”5 The failures of the regulatory regimes of privatized industries, particularly the telecommunications sector, directly corresponded with the proliferation of groups and took up a tremendous fraction of their workload. Telecommunications constituted 70% of the complaints received at the group Adecua, for example, and 41% of complaints to Adelco in 1997.6 A Socialist deputy who created his own consumer-protection association claimed to receive 200 calls daily about telephone service problems.7 After telecommunications, the major offenders were other privatized utilities such as electricity and gas.

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Consumers complained to government bodies as well as to consumer-protection organizations. Between 1994 and 1997 the Argentine Public Defender received 46,000 complaints, 35% of which concerned privatized public services. There was 213% growth in the number of complaints received at the Public Defender’s office between 1995 and 1996. The telecommunications regulator received on average 1200 complaints per month in 1997.8 Indeed some analysts argued that a new culture of complaint was emerging in Argentina.9 Public opinion polls reported in the newspaper La Nación showed that “people always have something to complain about.”10 In democracies, citizens often hold politicians accountable for promises they do not keep, especially if they feel they are being cheated. The lack of effective regulation, the appearance of regulatory capture, and suggestions of corruption infuriated citizens as they struggled to pay their bills. Politicians and activists tapped this anger to build one of the strongest consumer movements in Latin America. The increase in telephone prices was the spark that ignited the fire. The demands of consumers in a democratic country crossed with the problematic delay of rebalancing prior to privatization and led to massive uproar and confusion.

Tariff Rebalancing Sparks a Consumer Rebellion For the first decade of its existence, before the massive privatizations of public services during Menem’s first term in office, Adelco was primarily a provider of individual legal services and consumer product information to its members. In the early 1990s several energetic young lawyers joined its staff, believing that consumer protection would be a promising area for the legal profession in the years to come. They would not be disappointed. Adelco began to develop a working relationship with the telecommunications regulator during the period 1992–1994. In addition to the complaint-processing center and the develop-


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ment of consumer-protection legislation, Adelco’s lawyers followed with interest the development of plans for the eventual tariff rebalancing called for in the privatization contract. The new (1994) Constitution specifically called for public hearings to be held before shifts in tariff policy could occur, and the lawyers planned to participate in the decision. On September 24, 1994, Adelco’s legal coordinator arrived at the office and picked up the financial newspaper Ambito Financero. Opening the pages he happened to glance at a small article reporting that the Secretary of Communications had reached an agreement with the telephone companies and approved an increase in telecommunications prices by up to 200% in order to complete the tariff rebalancing process.11 Along with the tariff increase, the Secretary announced the end of the “social tariff,” a subsidy to the elderly for emergency telephone use. The legal director and his staff at Adelco felt betrayed by the lack of a public hearing. They called to express their displeasure to the Subsecretary of Communications but were denied a meeting. The consumer advocates then asked for an explanation, which also was refused. The Adelco lawyers’ response was to use two legal measures provided by the new Constitution: Article 42, which allowed consumer protection associations to participate in public audiences, and Article 43, which allowed them to file an acción de amparo, a measure similar to an injunction, to halt unconstitutional regulations. If a judge decided in favor of the injunction, the government would be prohibited from signing the contract with the telephone companies until it held a public hearing. The attorneys filed their injunction that same afternoon. The presiding judge granted a preliminary injunction to give himself time to study the case, and Adelco then called the Ministry of Economics and the press. The judge’s decision made nearly all the newspaper headlines the next day. The previously unsung heroes of Adelco then received a call from Economic Minister Domingo Cavallo, Telecommunications Secretary Kammerath’s superior. Cavallo’s intervention eventually resulted in the holding of the first public hearing in telecommunications.

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What followed was a political and legal drama that affected Argentine juridical doctrine, political party platforms, corporate profits, and the pocketbooks and opinions of Argentine consumers. The most spectacular effect was that the consumer movement in Argentina snowballed. First, the Socialist Party created its own consumer protection group and filed a similar injunction in another jurisdiction. Then the Radical Party and Frepaso created their own consumer groups. Regional branches of the Peronist party also started consumer associations. Provincial governors and public defenders filed similar injunctions, as did the Colegio de Abogados, the Argentine Bar Association. The jumble of injunctions resulted in unclear pricing rules for the companies and confusion for consumers. As the companies insisted that the contracts the government had signed guaranteed their right to the rebalancing, they did increase prices in some provinces and for some services. Some of the consumer groups and the National Public Defender’s office encouraged customers to refuse to pay their telephone bills while the rebalancing dispute was being settled. This appeal to mass protest was a point of contention among the various political entrepreneurs vying for leadership positions in the new consumer movement. Some of the more moderate leaders, including most at Adelco, believed that it was not in the best interest of individuals not to pay their bills, while others believed mass actions would put greater pressure on the government to pay attention to consumer interests. From the perspective of consumer advocates, the initial public hearing about telephone tariffs was largely for show. The government and the telephone companies insisted the rebalancing was part of the contract, and that they had fulfilled their constitutional obligations merely by holding the hearing and making their previously negotiated agreement public. Consumer advocates’ complaints that the proposed price changes would hurt consumers were listened to and then ignored. The consumer associations subsequently filed new injunctions in different provinces, and judges continued to uphold that the government could not permit the tariff increases.


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The Secretary of Communications held a second public hearing in January 1996. This time, the telecommunications companies and the government proposed price increases to residential consumers of up to 60% rather than the original 200%.12 Deputies from the Radical Party again filed a judicial complaint to hold up the tariff restructuring, however. The courts ordered the Secretary of Communications to come up with a new proposal, which it presented in a third hearing in March 1996. The courts again held up the decision, and ordered the government to send the Public Defender and the consumerprotection associations a consulting document addressing the rebalancing issue. Meanwhile the government worried about elections as well as fulfilling the privatization contract and private promises it had made to the telephone companies. President Menem again fired the directors of the CNT for being too sympathetic to the consumer groups and too hostile toward the rebalancing. The Secretary of Communications asserted that rebalancing had “the full support” of the Argentine people, who understood, he said, that the tariffs for local calls were priced below cost.13 The government tried to appeal to consumers based upon the service improvements that had occurred after privatization. “Remember when it took ten years to get a telephone?” asked ubiquitous campaign posters in the congressional elections of 1997. The Peronists suffered losses in the elections, however. The congress entered the struggle in 1997. Socialist deputies introduced a bill calling on the executive branch to suspend the rebalancing until the Supreme Court decision. At the same time, the Municipality of the City of Buenos Aires (which was headed by Fernando de la Rua of the opposition Radical Party) made it known that it would act as a damaged party in the lawsuit, and the main opposition parties (Radical and Frepaso) then also filed a protest in the congress. Some Radical and Frepaso deputies created consumer-protection organizations and filed their own injunctions in provincial courts in Mendoza and Córdoba. The governor of the province of Salta, a Peronist, presented an injunction in support of rebalancing, which also

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was upheld by a judge. Two members of the Bicameral Committee on Privatizations filed a protest before the Supreme Court asking it to suspend the decision until it could be brought before the congress. In a surprise move, the Secretary of Communications announced a separate reduction in telephone prices in October 1997, claiming the decrease was in no way related to the rebalancing issue. From a political point of view, however, it was evident the decision had reduced the impact of the rebalancing decree on residential customers. A reporter’s source in Telecom asserted that the government did this to soften the criticism against the rebalancing, and that the Secretary of Communications was favoring the city of Buenos Aires with the new package, because there were more complaints there than in other areas.14 The exclusivity (or monopoly) extension was to be determined by October 31, eight days before the new pricing rules went into effect. It was apparent and openly stated in newspapers that the government traded the extension of the exclusivity period for a rebalancing plan less favorable to the telephone companies. Every day telephone users became more confused by the aggregation of decisions and complaints. Some refused to pay, others filed complaints, and others paid in quotas (although the majority continued to pay their bills on time). In spite of the politically motivated price reductions announced in 1997, it seems clear many people believed that the national executive had been captured by the telecom companies. Some critics charged that the regulatory environment in Argentina was unstable and unfavorable to investors and that politicization by consumer groups only made things worse. “If people only understood the process, the eventual benefits that they will have when competition comes . . .” bemoaned a telecommunications consultant in an interview.15 Other critics charged that the struggle against rebalancing was really just a matter of federalism that was remedying an historic bias in favor of politically active middle classes in the Buenos Aires area. Consumer advocates disagreed. To quote a group from the province of Santa Fe: “In reality, those who live in the interior


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of the country are not subsidizing the inhabitants of the federal capital; rather, all users (in the capital and in the interior)” are subsidizing the telephone companies.”16

Consumer Protection Reaches the Supreme Court The case of the constitutionality of the original rebalancing plan reached the Supreme Court in 1997, but the Court did not issue a decision until 1998. The cause of the postponement clearly appears to have been the government’s wish not to provoke consumers’ ire before the legislative elections of November 1997. All nine justices of the court voted in favor of the rebalancing plan, but with differing justifications. The five Menemist justices argued that consumers had no right to use the court system to protest the way in which the Secretary of Communications issued the decree. The remaining justices argued that the complainants had not demonstrated that the rebalancing was harmful, not that they had no right to file suit against the decree. Consumer advocates and the political opposition decried the Court’s lack of independence from the executive and also accused it of nepotism, as the son of the chief justice (Julio Nazareno) worked for the Secretary of Communications and had helped write the decree. The day following the Supreme Court decision, Radical and Frepaso deputies (now cooperating in an alliance known as the Alianza ) proposed to debate several bills that would annul the rebalancing decree altogether. Chacho Alvarez of Frepaso, who soon would become the Alianza’s vice presidential candidate, held a press conference and declared that the debate would give Peronists a chance to oppose the “tarifazo” (roughly, the “big tariff increases”). Menem’s supporters backed the court’s decision, but Peronists in the Duhalde (the challenger for the Peronist presidential nomination) camp joined the Alianza in opposing it. (According to the 1994 Constitution, Menem was not allowed to run again in 1999, but he was trying to find a way around that institutional barrier.)

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The Secretary of Communications appeared before the Chamber of Deputies on June 4, 1998, and was met with deputies’ criticism of the government’s failure to produce the study of how the rebalancing had affected the telephone companies’ earnings. The Secretary appeared to be deliberately vague about this matter. Frepaso deputies asked him several times if the companies had benefited before he finally answered that the effect appeared to be “at least neutral.” A group of Peronist legislators won the approval of a bill that would suspend the rebalancing for ninety days. The executive was to use this time to complete the study of whether the companies gained or lost money from the changes, as the study, it contended, was still being conducted by the National Auditor (Auditoría General de la Nación).17 In addition to debates in Congress, the day after the Supreme Court announced its decision, nearly 200,000 consumers awoke to find their telephone service cut off. Of these, about five thousand lost their service even though they had continued to pay their bills during the controversy (apparently because of mistakes made by the companies which in general claimed the legal right to cut off services to delinquent clients). Consumer associations’ attention turned toward the form in which the telephone companies would collect payments from those who had refused to pay or not received their telephone bills during the controversy. They negotiated directly with the CNC on this matter. The CNC gave both telephone companies three days to come up with a plan for financing the debt of the people who did not pay their phone bills while the rebalancing was being debated. Until a plan was developed, the companies had to continue to provide service, and they had to provide at least six months for people to pay, and were not allowed to charge interest. The majority of the people with bills past due were clients of Telefónica, which did not send bills for two or even three billing periods in Buenos Aires and Mendoza. According to the newspaper La Nación, Telecom had about 25,000 customers who had not paid. Most of these bills were for between 800 and 1,000 pesos (US $800–$1,000).


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Repercussions of the Rebalancing Controversy People feel deserted by the State as much in the protection of users and consumers as in education, health, and safety.18 —Graciela Fernandez Meijide, Leader of the alliance of parties in opposition to President Menem (The Alianza) In addition to sparking consumer movements, the rebalancing controversy had repercussions in the larger political and economic realms in Argentina. The issue helped defeat the Peronists in the 1997 congressional elections. The opposition Radical and Frepaso parties capitalized on the boom in consumer consciousness and mobilization. The Alianza, the coalition of the two opposition parties whose nominee Fernando de la Rua won the presidency in 1999, made consumer protection and effective regulation of privatized companies a key part of its platform. The new Minister of Economics specifically mentioned consumer protection as part of the new economic program of the Alianza.19 All parties seemed to recognize that access to telecomunications was an important issue for voters. For the Peronists’ part, the Secretary of Communications announced that the government would spend 22 million pesos to bring 500 telecenters (centros tecnológicos comunitarios) to provide telephone and Internet services to places with fewer than 2,000 people over the next five months. (Part of the funding would come from interest from the International Telecommunications Satellite Consortium, which Argentina had belonged to since 1965, and the International Telecommunications Union would administer the funds.) Incidentally, the Secretary (Germán Kammerath) was preparing for his own electoral campaign in 1999; he was elected mayor of the provincial capital of Córdoba. As the Peronists contemplated a future in which they would not control the presidency, they began to support a decrease in the power of the executive office. The Senate considered a bill that would tie the hands of the new executive in 1999 and

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prevent it from reneging on privatization contracts. The plan would give more power to the Bicameral Committee of Follow Up on Privatizations and State Reform, making its recommendations obligatory. This change would have given Peronists on the committee power over a future Alianza government, but the reform did not obtain the approval of the Constitutional Committee and was abandoned. The telephone companies, especially Telefónica, suffered terrible blows to their public image as a result of the rebalancing dispute. A survey of 254 executives by the newspaper Clarín revealed that nine out of ten considered the prices of privatized public services high or very high, and that 60% were very worried by the conflicts of the privatized companies.20 Telefónica president Luís Bustamente admitted to the company’s poor reputation, blaming the damage on what he called the “unfair political strategies” of the public defender’s office and a few deputies. He argued that Telefónica had helped modernize Argentina’s infrastructure as the density of telephone lines in Argentina was 11 lines per 100 inhabitants when it arrived and in 1998 it had reached 24, the highest in Latin America. He also protested that the company did not earn money from the rebalancing.21 Bustamente did not criticize consumer associations by name, perhaps because his company was at that very moment attempting to improve relations with some of the more moderate groups. I was present at the first meeting between representatives of consumer associations and the External Relations director for Telefónica in 1998. All present agreed that excessive “politicization” and use of the courts was a bad thing and stated a willingness to develop a more cordial relationship. A few years later, Telefónica sponsored a regionwide seminar for Latin American consumer advocates in Venezuela. Some of the Argentine groups accepted this form of “cooperation” (which included monetary compensation from the company), while others, including Adelco, did not. The dispute complicated matters for the telecommunications sector in Argentina. On the one hand, the two regional monopolies were hurt in that it was unclear how much they were


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allowed to charge. As a result of the confusion, Telefónica did not send bills to thousands of customers in the Federal Capital and Mendoza between February and October 1998. Two judges later imposed fines on both companies for failing to comply with these judicial decisions. On the other hand, the companies benefited from the hesitation of potential competitors to invest in long-distance and other services where the state did not protect their monopoly. The companies were not supposed to earn any profits from the rebalancing. They claimed actually to have lost money on it because the problems with the legal problems confused people and the elasticity of demand was not as high as was predicted. Telecom, for example, claimed to have lost $120 million. A CNC representative assured reporters that the telephone companies did not earn money with the rebalancing because demand elasticity had been hardened by the confusion. As for the profitability of the telephone companies, in the last trimester of the year, Telefónica’s profits were $140 million and Telecom’s were over $90 million. In December 1998, the consulting firm Prince and Cooke ranked basic telephony as the most profitable sector in Argentina.22 The CNC responded to public criticism by publishing an ad where it declared itself an advocate of consumer rights.23 It also created a new version of the old complaint-processing center, which it called the Customer’s or Client’s House (Casa del Cliente). It printed beautiful hardcover brochures that credited privatization with improving the rights of consumers: In Argentina, the customer of public services was born with the privatization of state-owned enterprises. Before that process, we were all “users” of Entel; the very idea of “customer” was foreign to the entire structure and functioning of state monopoly. Prisoners of that monopoly, we Argentines lacked the right to demand efficient and effective service.25 The consumer rebellion against tariff rebalancing was not a backlash against privatization. Rather, the controversy signified

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a growing dissatisfaction with corruption and the lack of effective regulation of the market and a growing desire to reap the benefits of economic competition. Although upon his election De la Rua announced that Argentina had the highest telephone tariffs in the world,26 his platform specifically declared it would respect privatization contracts. An advisor said the Alianza favored sanctioning problematic regulatory regimes but that congressional participation in tariffs was “dangerous.” In the aftermath of the controversy, a Socialist deputy filed an injunction requesting the full liberalization of the telecommunications market. When even Socialists emphasize the benefits of market competition rather than calling for (re)nationalization, it seems clear that consumers have learned some kind of lesson. Not that Argentines had developed an unmistakable or irreversible taste for private ownership and a capitalist economy: as shown in Table 5.1, in 1999 48% of Argentines answered the question “Have privatizations benefited the country” in the negative, a higher percentage than almost any other Latin American country surveyed. Table 5.2 shows that 53% of Argentines supported a market economy system. This figure was 85% in the United States, and 65% for Latin America as a region. Argentine support for the determination of prices by free competition rather than government regulation was higher than the figure for Latin America, however. This attitude is not surprising given their relatively poor experience with monopoly and government-regulated prices. The trend toward consumer protection still frightened the staunchest market advocates, who warned in 1997 that 121 initiatives to modify privatization contracts loomed before the congress. Many of these analysts had opposed the role of the consumer movement in the rebalancing because they feared it would hurt the investment climate in the country. Andrés Pitchon, in charge of research for Merchant Bankers Associados, the representative of Salomon Brothers in Argentina, stated in 1997 that: “We think the rebalancing is just, positive, and necessary. We don’t understand why it’s taking so long to ratify it. . . .The investors are fed up with all the contradictory decisions. This has a negative effect on the credibility of the

Table 5.1. Regional Comparison of Public Support for Privatization and a Market Economy Have privatizations benefited the country? Country

Agree (%)

Argentina Bolivia Brazil Chile Colombia Costa Rica Ecuador Guatemala Mexico Panama Paraguay Peru Uruguay Venezuela

Disagree (%)

40 52 49 51 39 60 52 62 49 20 46 44 29 51

48 39 44 41 51 27 39 36 39 77 36 48 55 36

Source: Latinobarometer in La Nación, 03.17.99, Section: the Wall Street Journal Americas (Survey in November–December 1998). Table 5.2. Regional Comparison of Public Support for Privatization and a Market Economy Support for a Market Economy in Latin America and Argentina Latin America Agree

Disagree

A market economy is the most convenient

65%

The State should leave productive activity to the private sector

Argentina Agree

Disagree

21%

53%

22%

51

40

51

36

Prices should be regulated by free competition

58

33

69

18

Foreign investment should be promoted

69

23

59

29

Privatizations have benefited the country

—

—

40

48

Source: Latinobarometer in La Nación, 03.17.99, Section: the Wall Street Journal Americas (Survey in November–December 1998).

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country.”27 Pitchon and his colleagues still recommended that investors buy stocks in both telephone companies, however. Another investment bank, ING Barings stated that the consumer response to rebalancing (presumably a reduction in the number of calls) would hurt the companies’ profits.28 The obvious connections between the rebalancing, the decision to extend the monopoly period, and the congressional elections of 1997 demonstrated to investors and consumers alike that telecommunications regulation in Argentina was intricately related to politics. The simplified interpretation was that because the elections of 1999 were approaching, legislators were rushing to regulate the earnings of businesses, and parties were knocking each other down to do it first. Máximo Fonrouge, a representative from a law firm that assists foreign companies, stated that: “The best banner for politicians is to pit the users against the businesses. But this can only be done to the point where the company can bear it no more and decides to take the issue to court. Investors worry, however, that the legal decision will be made for political reasons.”29 The threat that the telephone incumbents and privatized companies in general feared the most came from the Argentine Congress. In 1996 consumer advocates called on the Commerce Committee in the Chamber of Deputies to consolidate the regulation of privatized services in one regulatory agency. The advocates argued that the following issues should be uniform across economic sectors: periods for requesting the service and for complaining and receiving responses, applicable sanctions, form and frequency of billing, conditions for services to be cut off, the impossibility of cutting services under certain conditions, and the obligation to allow persons in difficulties time to pay their debts, fines, and interest rates. In November 1997, Peronist Senator Jorge Yoma proposed to unify three initiatives that called for removing the control of the regulatory agencies from the executive branch. Yoma claimed that the agencies lacked effective discretion, and further argued that government employees were receiving payments from the companies. His bill would have created a new “super


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agency” through the initiative of the Senate. Yoma added a provision that required that the senate ratify all nominees to head the regulatory agencies. The major opponents of the super agency were the executive, especially the economics ministry, and private companies. The Association of Public Service Businesses (Asociación de Empresas de Servicios Públicos), including the telephone companies, Aguas Argentinas, Gas Natural, Edenor, Edesur, Metrovías, and Metrogas, protested loudly. Spokesmen for the Peronist bloc in the Senate argued that businesses’ fears were unfounded because the entity would analyze only the general bases for regulation. Business leaders disagreed, and openly called on Menem to veto the law if it passed. They feared the super agency’s responsibilities would “politicize regulation” and extend to cover everything under the heading “public interest” including petroleum and transport, and they specifically feared the creation of public audiences. Eduardo Baglietto, executive vice president of the corporate conglomerate Techint (with interests in steel, oil, and also telecommunications) said that “public audiences, although they may have served to give transparency to the functioning of the agencies, also were used to construct circuses against the privatization process.”30 Certainly critics were correct that Argentina needed to improve its juridical security rankings. A report by the World Economic Forum placed Argentina in the lowest 10% of countries in the world for juridical instability. The problem of juridical security and the rule of law was not just one for multinational companies, however. It also affected consumers, as a political cartoon published in Adelco’s magazine in 1997 illustrated. The cartoon depicted a dialogue between two men, Gorosito and Teósforo. The former is reading the General Rules and Regulations for Consumers of Basic Telephone Service in the front of his telephone book. Teósforo asks why he is reading something so boring, and his friend says the rules are fun to read because they are like fictional stories.31 The tariff rebalancing case was a leading case in many respects. It established the right of consumer associations to

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participate in regulatory policy through public audiences as well as to file constitutional injunctions. After the struggles with the CNC, consumer groups found other regulatory agencies, notably those in charge of water and electricity, much more willing to negotiate with them. The principal debates continued to center around opening the administrative procedure for regulation through mechanisms such as public hearings, the regulation of tariffs, and dispute-settlement. Reform proposals to promote consumer participation began circulating in the Congress, the Ministry of Justice, the Buenos Aires City Council, and provincial governments. In February 1999 an event even more dramatic than the rebalancing controversy galvanized the consumer movement. Thousands of consumers in the city of Buenos Aires suffered a ten-day-long electricity blackout. In response to consumer demands, the electricity regulator (ENRE) held a public audience that lasted two days. Congress issued summonses to the executives of the responsible company. In another precedentsetting legal action, the national public defender’s office filed a class action lawsuit on behalf of affected consumers. This action established that Edesur was at fault, so that individual consumers only had to show that they had experienced blackouts rather than demonstrate the fault of the company. Out of concern for its image with consumers, the company responsible (Edesur) decided not to protest the regulator’s ruling that it had to compensate consumers affected by the blackout. Consumers thus received 90 pesos (US $90) for each day passed without electricity.32 Another effect of consumer movements was the provision of greater information to consumers. For example, the group Adelco began to produce its own television show in the late 1990s. Other groups frequently appeared on the radio. Universities and other educational institutions began to offer consumer education programs. At least one telecommunications executive even admitted in an interview that it might be good for his business to have consumer associations that could communicate with the company about its mistakes and relay its clients’ com-


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plaints. In sum, consumer movements improved information, transparency, and accountability in Argentine politics and economics.

The Rebalancing Controversy: Act II The consumer movement did not abandon the rebalancing issue after the Supreme Court allowed the telephone companies to implement the price restructuring plan. In November 2001, nine consumer-protection associations accused the companies of profiting from the measure and argued that the extra profits should be returned to consumers. The illegal profits summed up to 27.5 million pesos (US $27.5 million) for the period 1997–1999, they alleged. When the Secretary of Communications did not respond to their demands, the Public Services Regulator of the City of Buenos Aires (Ente Unico Regulador de los Servicios Públicos de la Capital) called on it to make the companies return the money to consumers, citing a study performed by the University of Buenos Aires that revealed the companies had profited illegally. Numerous scandals later emerged about the relationship between Telefónica de Argentina and the Menem government. In July 1998 a news magazine accused the government of hiding twelve resolutions produced by the CNC in November 1997, which showed the companies had not met the requirements for receiving the extension of their monopoly (granted by decree in March 1998).33 The magazine produced copies of reports detailing the unmet goals. It also alleged that the Bicameral Commission on Privatizations had thrown away a resolution condemning Telefónica and Telecom. The missing documents were alleged to have been signed by all seven directors of the CNC. These documents listed the twelve areas in which the privatization contract required the companies to reach goals and judged them to have performed inadequately. The documents were not published anywhere. Executives at Telefónica and Telecom denied having seen them.

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The magazine quoted a source as saying the companies had paid a bribe of 50 million pesos each to the government in exchange for the extension of exclusivity, and that the documents had been used to pressure the companies into doing so. Furthermore, a month prior to the extension, the Bicameral Committee on Privatizations produced its own document recommending against the extension, but this document was never signed or distributed. At the time the extension was granted, the newspaper La Nación reported that Telefónica met fewer requirements than Telecom, although there were also indications that Telecom did not meet all of them. Two aspects of service were evaluated: penetration of the network and quality of service. Both companies met the penetration requirements, but Telefónica failed in many of the service goals and did not qualify for the extension. It also was revealed that the international stockholders of Telecom informed the Chancellery they would resort to international arbitration if the company were not granted the extension. A Spanish newspaper picked up the story of bribes in March 2001. El Mundo accused the Argentine branch of Telefónica of depositing $10 million in Argentine banker Raúl Moneta’s account in the Federal Bank of the Bahamas in the period 1997–1998. Moneta was alleged to be very close to President Menem. The company decided to make the payment, it was alleged, out of concern that consumer protest would lead to the defeat of the rebalancing case before the Supreme Court.

Crossed Wires: The Result of Authoritarian-Style Privatization in a Democracy The privatization of Argentina’s Entel was one of the most rapid cases of telecommunications privatization in the world. As the previous chapter argued, the pace of privatization implied a disregard for building an effective regulatory regime prior to the sale and subsequent problems for consumers. This disregard implied that residential consumers would bear all the costs of


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transition, particularly as related to tariff rebalancing, after privatization. As the political justification for privatization had been that consumers would benefit, people were angered by the subsequent price increases. Their anger was not just a matter of the timing of transition costs, however. The lack of regulation in Argentina and the suspiciously close relationship between the executive office and the private telephone companies meant that telephone prices in the country really were exceptionally high. That telecommunications was the first major public service to be privatized meant that problems of regulation affecting consumers were likely to arise. Argentina subsequently privatized nearly all public services, including electricity, water, social security, natural gas, and the mail, among others. In 1998 the editorial page of the leading Buenos Aires newspaper La Nación classified the regulatory agencies as more or less suspect. The gas, pensions, and electricity regulators, which were among the last sectors privatized, were grouped in the more positive category. Only these three Argentine regulatory agencies were created by congressional statute rather than executive decree. They were commonly considered to be more effective—and produced far fewer consumer complaints—than the telecommunications and other regulators.34 Every significant party opposed to Menem’s coalition (of the Peronists and a few small right and center parties) helped build the consumer movement in response to the problems of privatization. Within Peronism, factions opposed to Menem (including the group supporting the candidacy of Eduardo Duhalde for president in 1999) eventually joined the consumerprotection bandwagon as well. There was no conflict between the main opposition parties and a labor-dominated constituency because in Argentina labor has traditionally favored the Peronists. The Radicals’ and Frepaso’s political capitalization of the issue of consumer protection was possible because the relevant parties were not beholden to the telecommunications workers unions or nationalist ideas about the state ownership of industry. The Alianza

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acknowledged that certain aspects of neoliberalism, such as the idea of economic competition, were good for consumers, and did not threaten to undo privatization. Consumer protection and better regulation of privatized industries were excellent issues to use to build support, and differentiate the Alianza from the Peronists without suggesting a threat that economic reforms would be reversed. President Menem also tried to appeal to consumers for political capital, but he did so based on the benefits of privatization. This was a logical strategy, as Menem’s policy of privatization did result in some benefits to consumers, mainly because private companies had money to invest in service expansion which the government had lacked. The obvious surfeit of economic competition, the shortcomings of the regulatory regime, and hints of corruption weakened the strategy, however.

Conclusions As a telephone is practically essential for the exercise of a profession, its privation provokes, without a doubt, an alteration so serious that it is natural to consider it a damage.35 —A judge’s pronouncement upon ruling in favor of an Argentine consumer in 1996 The reaction to telecommunications policy in Argentina in the 1990s reflected the increasing importance of access to telecommunications services. It also reflected the increasing importance of pluralism and interest group politics in Argentine democracy. The rebalancing controversy birthed the Argentine consumer movement and had a political impact comparable in its drama to that of the publication of Ralph Nader’s Unsafe at Any Speed in the United States in the early 1970s. The effects of the Argentine consumer movement on economic outcomes were both positive and negative, but the positive long-run impact on the rule of law appears to outweigh the


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short-term costs to stability in the telecommunications sector. The political outcome also appears mainly positive for democracy. The lack of institutionalization produced economic and political costs that could have been avoided, however. The dramatic consumer protest in Argentina had an impact on several lawyers and activists who would build on their experiences to play leadership roles in the Latin American region as a whole. In 1997 the international NGO Consumers International produced a model law for consumer issues that was used by several Latin American countries. This law was written by a team of attorneys that included the Argentine lawyers who obtained a court order blocking the telephone tariff rebalancing. The highly contentious nature of the Argentine consumer movement and its uninstitutionalized nature were linked to the way privatization was implemented. The opposition parties had no chance to review the terms of the sale or to earn political capital by amendments or public criticisms prior to privatization. That they had been left out before strengthened their arguments against the rebalancing plan in the aftermath of privatization. The fact that the phone company was now two private monopolies owned by foreigners further helped their cause. To sum up, the contentiousness of the Argentine consumer movement was a direct reaction to the original sin of hasty privatization by decree. Chapters 6 and 7 show how Brazil managed to avoid some of those sins.


CHAPTER SIX

The Gradual and Contested Privatization of Brazil’s “Telessauro” Even believing in neoliberalism, in the communications sector we have to think twice. —Hugo Napoleão, Minister of Communications, 1992

In sharp contrast with its neighbor Argentina, Brazil followed Minister Napoleão’s advice and thought long and hard before privatizing its telecommunications sector. The sale of the Brazilian government-owned company Telebrás in July 1998 was one of the last privatizations of a major Latin American telephone company. Among the most important reasons Brazil was slower to privatize were institutional constraints and the power of interest groups, including unions, domestic manufacturers, the military, academics, and business groups.1 The leadership skills, ideas, biases, and ideologies of individual politicians and political parties also played a role in developing the Brazilian model of privatization.2 Vociferous critics in and outside the country argued that Brazil was making a mistake in taking its time to privatize, likening its telecommunications sector (and the associated interest groups) to a telessauro, or teledinosaur, out of touch with the neoliberal consensus. Often, critical analysts pointed to the democratic institutional obstacles to privatization 105

106


and the power of interest groups in South America’s largest country as evidence of the mismatch between democratization and economic reform. Several years later it would become clear that the gradual and later process of privatization in Brazil produced a relatively stable regulatory regime that proved to be more attractive to investors and consumers alike. The need to overcome institutional obstacles resulted in a slower privatization process, which in turn led to a relatively institutionalized opportunity structure of incentives for activists to rally consumers in the post-privatization period. Thus, rather than engage in outright consumer rebellion against the new regulatory regime, the Brazilian consumer movement operated within existing institutional structures and consumer protection was not as contentious a political issue as it had been in Argentina. In this chapter, I explain how Brazil’s relatively slow and steady approach to privatization contributed to institutional and economic consequences that channeled protest through the legal arena and muted the political impact of the consumer movement.

Telecommunications Before the Military Coup of 1964 The history of telecommunications development in Brazil followed the common Latin American cycle of private foreign ownership in the late nineteenth and early twentieth centuries, nationalization in the mid-century period, and reprivatization in the 1990s.3 South America’s largest country was not a late starter; the first telephone arrived while Brazil still was a monarchy. Emperor Dom Pedro II, a science and technology enthusiast, granted the country’s first telephone concession to a representative of the Bell Company in 1879; in fact, the first line connected the two imperial palaces. The development of telecommunications was sporadic and uncoordinated throughout the remainder of the empire (1891), the First Republic (1891–1930), the Vargas era (1930–1946), and the Second Republic (1946–1864), however. Brazil long has been one of the

The Gradual and Contested Privatization of Brazil’s “Telessauro”

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most unequal countries in the world, and its disenfranchised masses have been unlikely to make political demands on the state for public services, particularly less crucial ones like telephone service. Along with the country’s great regional and societal inequalities, the major reasons Brazilian telecommunications expansion fell behind that of the United States and Western Europe were related to the political structure of Brazilian federalism and the system of private ownership. Brazilian scholarship amply demonstrates how patron-client relations historically dominated politics at all levels.4 The telecommunications sector was a major source of the patronage that fed the political system, as it was in other Latin American countries. Municipalities, states, and the federal government each used their regulatory power to grant clientelistic favors, in the process undermining efficiency and the legal environment of the sector. Even without the negative effects of clientelism on investment, the private sector lacked the incentives to develop an extensive national telecommunications network in Brazil. By the early 1960s, 1,000 companies were operating in the country, but almost none of them were interconnected, which meant that many cities were unable to communicate with one another. As the first period of private foreign ownership produced a hodgepodge of incompatible systems, low levels of penetration, and unreliable service, it was not surprising that civilian politicians across the political spectrum as well as the military began to favor government ownership of the system. In 1962, under democratically elected President João Goulart, the congress approved a new telecommunications code that granted the executive sweeping powers to reform the sector.

Telecommunications Under the Military Dictatorship (1964–1985) The most dramatic expression of frustration with the system of private ownership in the early 1960s was left-leaning populist

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governor of the state of Rio Grande do Sul Leonel Brizola’s expropriation of that state’s telephone company, the Companhia Riograndense de Telecomunicações. This move was one of many steps toward “communism” that frightened the country’s right wing and led to the military coup of 1964.5 In light of the importance the incident in Rio Grande do Sul had for the coup, it was somewhat ironic that the military itself nationalized the entire telecommunications sector soon after taking power. As the legal backdrop for nationalization, the generals utilized the Brazilian Telecommunications Code that had been promulgated by the democratic government they had overthrown. Among other provisions, the code empowered the government to create a national company for long-distance services. The first step the generals took was to create this company, which they named Embratel, in 1965. Two years later, they decreed that the sole right to provide telecommunications service rested with the national government. Another 1967 decree law created the Ministry of Communications. In the late 1960s and early 1970s the military government took many other measures to nationalize the sector, acquiring or absorbing most the nearly of 1,000 concessionaries who were still operating in the country, although a few of these were allowed to remain independent, or were acquired by states or municipalities. In 1973 the national government consolidated the Telebrás System into a “holding company” (Telebrás), 27 local companies (known as the teles), and a long-distance operator (Embratel). After nationalization, Brazilians of all ideological stripes agreed that telecommunications performance had improved. Better coordination and centralized planning were the principle causes of the turnaround. National security and economic theory (telecommunications still was believed to be a natural monopoly) provided justifications of the move for the regime’s technocrats. The military set up a national regulatory agency, the National Telecommunications Council (Contel), and granted it the power to set tariffs and standards. The military also succeeded at using Embratel to accomplish its strategic goal of national unification.6 By the early 1970s Embratel had estab-


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lished linkages among all the major cities and had begun to develop satellite communications. In 1976 the government established the Center for Research and Development (CPqD). The CPqD went on to create fiber optic projects, digitalization centers, and satellites, making Brazil the clear Latin American leader in telecommunications technology development. This regional leadership role did not extend to the population’s access to telecommunications access, however. Telephone density increased, but it remained far below universal penetration levels and indeed below the levels found in neighboring countries such as Argentina, Chile, and Uruguay. The technological progress ground to a practical halt in the 1980s. The major reasons for the reversal were the general economic crisis7 and, critics alleged, political abuses of the stateowned company, which many argued had increased with the return of political democracy. These abuses were the common ones cited in Latin American countries, such as the use of company jobs for patronage, appropriation of company funds for the general treasury, tariffs that were kept artificially low through cross subsidies, and the use of public service companies as macroeconomic policy instruments. Investments in Telebrás had to be proposed by the Planning Ministry and also were subject to approval by the congress (which the military government had permitted to operate, under restrictions) in its review of the annual budget. Politicians and officials faced many an incentive to spend telecommunications money on other priorities. In 1984, for example, the congress appropriated US $10 billion (1998 dollars) from the National Telecommunications Fund for the national treasury. Although it remained Brazil’s most profitable company, Telebrás took in less revenue than it would have without the political constraints. For example, as a result of cross-subsidies that favored residential users, by the early 1990s Telebrás had the lowest residential rates in the world except for a few former Soviet countries.8 The price of local service was a primary instrument of inflation control. Further cross-subsidies benefited the poorer regional companies, as wealthier areas were

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Social Movements and Free-Market Capitalism in Latin America Table 6.1. Comparison of Brazilian and World Telephone Tariffs in 1995 Telebrás

World

Residential subscription (US$ per month)

0.63

6.0–8.0

Commercial subscription (US$ per month)

7.43

12.0–28.0

Local metered unit (3 minutes, US$ per month)

0.029

0.10

Domestic long distance minute (US$)

0.26

0.20–0.50

International minute to USA (US$)

1.94

1.12

Source: Telebrás, ITU, compiled by Novaes (1999) p. 118.

required to pay a higher percentage of their revenues to the long-distance company Embratel. Table 6.1 depicts the relatively low cost of residential service and the relatively high long distance prices in Brazil and the rest of the world in 1995. Politics may have kept tariffs artificially low, but the price of a new phone line still was affordable only for a very select group of Brazilians. In order to expand, in 1990 the company began to rely upon the pay-as-you-go method. Often used in Europe as well as Latin America, this kind of payment scheme involves selling the potential clients shares in the telephone company with the promise that their line will be installed in the future. In practice it meant that those who could afford to purchase a telephone line had to wait years for its installation. Five million Brazilians invested between US $1,000 and $2,000 according to an expansion plan, and in turn received nonvoting shares.9 The autofinancing policy was necessary because of the company’s lack of autonomy to determine indebtedness and the political control over tariffs. This policy also was the main reason the government’s share fell to 21% of total capital of Telebrás by the late 1990s, although it maintained control of the voting shares. Meanwhile, technological advancements in the sector acted in concert with economic globalization to augment the demand for telecommunications services in Brazil as elsewhere. The increasing importance of telecommunications in economic and social life increased demand for lines at the same time that Telebrás’ capacity for expansion diminished.


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Democratization While the telecommunications sector remained stagnant during the 1980s, overall the period was a politically and economically tumultuous decade for Brazil. Most importantly, the country underwent a slow and gradual transition to democracy that began with liberalization of the political system in the late 1970s and culminated with democratic elections for president in 1985.10 In a fateful incident of bad luck, the newly elected president Tancredo Neves died just days before his inauguration. The office therefore passed to the vice-presidential candidate, José Sarney, who had been allied with the military during the period of authoritarian rule. Sarney was unable to tame the economic downturn that afflicted Brazil along with much of the rest of Latin America. The next few years saw continual economic crisis, including the plague of hyperinflation, and eventually another political crisis that resulted in the impeachment of President Fernando Collor and the assumption of his vice-president, Itamar Franco. The economic situation did not stabilize until 1992 when President Franco’s Finance Minister, Fernando Henrique Cardoso, implemented a stabilization program that finally tamed the country’s chronic inflation. Largely because of this success, Cardoso won the presidential elections in 1994, but he did so through a center-right coalition that hampered his party’s preference for European style social democracy. Between the official transition to democracy in 1985 and Cardoso’s election in 1994, Brazilian governments did not conduct any large-scale privatizations. In part the reason Brazil bucked the Latin American trend toward privatization during this period was the high level of economic and political instability. Institutional factors, a number of them associated with the democratic transition, also were important, however. In 1988 a Constituent Assembly ratified a new constitution for the country. The new document embodied what some might call the best and others call the worst of democratic politics. It guaranteed a plethora of freedoms and new rights, including economic rights, to citizens. Article 21 of the document also specifically

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stated that Telebrás should remain a monopoly company controlled by the state. This requirement formalized the 1962 Code and the Law of 1972, creating an additional institutional hurdle to privatization. Meanwhile, the quality of telephone service continued to decline. Political abuse of the state-owned companies remained unchecked, and Telebrás lacked the funds to make necessary investments. The government quietly began to allow some private sector participation—creating a large number of minority shareholders—without letting go of state control. By the early 1990s, some business leaders and politicians were calling for fullscale privatization. As had been the case in Chile, national and international corporations were the major lobbyists for changes in the telecommunications sector; indeed, these lobbyists cited the successes of privatization in Chile to support their cause. Nationalist sentiment remained strong in Brazil, however, as did memories of the improvements nationalization of the sector had wrought in the 1960s and 1970s. Several months after the impeachment of President Collor, in April 1994, Deputy Aparício Carvalho (Brazilian Social Democratic PartyRondônia) argued that a lobby composed of six powerful national and international companies, united under the name Brazilian Institute for Telecommunications Development (IBDT), was attempting to change the Constitution in order to make money in the telecommunications sector.11 The deputy compared the IBDT to the six international companies that had controlled telephone services in the major Brazilian cities in the early 1960s and urged the Congress to resist their lobbying as well as the general neoliberal push to privatize.

The Cardoso Administration and the Privatization of Telebrás Under President Cardoso (1994–2002), Brazil underwent its most dramatic policy changes since the early years of the military coup. The drama and contradictions of the country’s shift


113

toward the neoliberal paradigm that already had gained strength in much of Latin America were embodied in the president himself. A sociologist who had passed much of the period of military rule in exile, Cardoso made his early name as a leader of the dependency school and a proponent of socialism.12 As president, however, he did more than any leader in recent Brazilian history to open the country to foreign investment. The privatization of Telebrás would be one of the hallmarks of his administration. Cardoso appointed his old friend and fellow opponent of military rule, businessman Sérgio Motta, as Communications Minister.13 Motta faced seemingly insurmountable obstacles to his assigned task of privatization of the company. A constitutional amendment would be required to overcome the prohibition against foreign ownership and the fragmentation of the monopoly. Opposition from unions, industry, and nationalist politicians, not to mention those politicians accustomed to using the telephone companies as vote-getting machines, would be formidable. Finally, while the military lacked the political clout of the previous decade, its opinion mattered, and it was not clear that its leadership would approve of privatizing a strategically key sector like telecommunications. A large and passionate man whose zeal for his job earned him the sobriquet “the tractor,” Motta proved equal to the task. A former member of Catholic Action, engineer, and businessman (praised by his authorized biographers for employing leftist political activists during the time that no one else would), Motta constantly emphasized the inequalities of access to telecommunications services and his belief that a competitive, privately owned and operated system, regulated by a competent government agency, was the best way to alleviate that injustice. Becoming one of the first Brazilian government officials to appeal directly to consumers, he accused the system of state ownership for being socially regressive and referred to the notorious service offered by the state company of Rio de Janeiro (Telerj) as “a Greek tragedy.” He promised that privatization combined with effective regulation would benefit Brazilian consumers, especially the poorest. Motta also hoped to make the regulatory

114


positions used as political favors akin to the position of the “queen of England,” that is, merely decorative, with no real power. His stated dream was to create a “new independent regulator. . . . Society, that is, the consumer, can’t be at the mercy of the paralysis of the State—nor, worse, of the oligopolies.”14 Lured by the prospect of the privatization of the largest telecommunications market in Latin America and one of the largest in the world, ambassadors, business people, and communications ministries from all over the world began to court Motta. Most of these suitors urged Brazil to privatize rapidly. Well-known Brazilian liberals such as economist Roberto Campos also favored the rapid approach. The United States government applied pressure, complaining to the World Trade Organization that Brazil was moving slowly with privatization, telecommunications included, in December 1996 at the meeting in Singapore. Within Cardoso’s administration, also, whether to privatize rapidly was controversial. The conservative faction of the presidential coalition (the Partido do Frente Liberal, or PFL) under the leadership of Antônio Carlos Magalhaes favored a rapid sale while members of Cardoso’s party (the Partido Social Democrático Brasileiro, or PSDB) preferred a slower, more deliberate process. Motta himself appeared determined not to hurry, declaring that “This liberal fervor to accelerate the privatizations signifies the dilapidation of our public patrimony. This government will not participate in a dilapidation.”15 Motta and the PSDB had their way. The privatization of Telebrás took four years. Apart from the preferences of Cardoso’s team, institutional barriers such as the constitutional prohibition against privatization and the opposition of interest groups also slowed down the process, which Motta’s team began working to push through almost immediately after the inauguration. A few days after the ceremony, the government introduced a constitutional amendment to permit the breaking of the Telebrás monopoly and its privatization in congress. This amendment was the administration’s first concrete privatization proposal. The congress passed the bill as Constitutional Amend-


115

ment Number 8 eight months later, in August 1998, but preserved a voice for itself in the process of privatization. Specifically, the congress required additional congressional approval of a specific law to govern the telecommunications sector before privatization could be carried out, and it also forbade the president from using presidential decrees to privatize. Because of the new institutional hurdles, before taking on the effort to privatize the entire sector Motta and his colleagues decided to push through a small bill (called the Minimum Telecommunications Law) that separated the wire and cellular divisions of all Telebrás companies and permitted the privatization of cellular services only. After the cellular auctions took place in 1996, Brazilians had a taste of the benefits that private investment could bring. Although a wireless telephone remained a privilege out of reach for the vast majority of Brazilians, penetration rates among the middle class increased markedly. The specific law required to privatize the entire Telebrás System was far more significant politically and economically than the cellular bill, however. The Maximum Law, or General Telecommunications Law, as it came to be called, went into effect on July 16, 1997. This law provided for the creation of a regulatory agency with administrative flexibility and financial independence, to be called the National Telecommunications Agency (Anatel). Unlike other government bodies, Anatel did not have to follow regular civil service procedures for hiring personnel or funding its operations. It was supposed to replace the Ministry of Communications, which eventually was to be eliminated. The new agency’s directors would be named by the president and subject to congressional approval. Its first assignments were to develop a General Concessions Plan (the rules to govern the sector under privatization) and a General Universalization Plan (the goals set for new private companies). As Anatel began to plan for privatization, Sérgio Motta began to suffer ill health. He died of a respiratory infection in São Paulo in April of 1998. President Cardoso designated Brazilian Development Bank President Luiz Carlos Mendonça de Barros to replace his old friend as Communications Minister.

116


Mendonça de Barros became know as Serginho (Little Sérgio) within the administration because of his similar tendency not to mince words when expressing his views. By the time of Motta’s death, his team had overcome most of the institutional hurdles to the sale of Telebrás, but the interest groups opposed to privatization still had a few strategies left to play.

Organized Opposition to the Privatization of Telebrás Institutional requirements were not the only obstacle to the privatization of Telebrás. As expected, interest group opposition to the sale of Telebrás was fierce. The leftist coalition of parties led by the Workers’ Party (Partido dos Trabalhadores, or PT) and the telecommunications unions (under the leadership of the Federação de Trabalhadores em Telecomunicações, or Fittel) took the most active roles. These opponents focused their energies on issues such as foreign participation and labor protection rather than consumer protection. Organized consumer groups played a minor part in the process; however, the debates over privatization revealed the increasing consciousness on the part of politicians on varying points of the political spectrum that with privatization consumers might become a force to which they could appeal for support. In contrast to the other countries in this study, in Brazil opponents of privatization had the opportunity to express contestation through congressional debates, in the media, and in the judicial arena.

Party Politics and Opposition in the Congress “The executive acts and the legislature reacts.”16 This phrase pithily sums up one political scientist’s analysis of the role of the Brazilian Congress in the policy process. The Congress participated in the privatization of Telebrás in the usual way, by debating and approving the executive-sponsored bills. Unlike the Argentine Congress, however, the Brazilian Congress did not


117

grant the president a blank check to privatize telecommunications as he saw fit. Even after it overturned the constitutional amendment prohibiting the sale and division of Telebrás in 1995, the legislature required congressional passage of separate bills in order to privatize cellular and fixed-line services in the country. The overall trajectory of telecommunications privatization in the Congress, as compiled by a Brazilian political scientist, is presented in Table 6.2. As the table reveals, the House of Deputies spent considerable time debating both telecommunications bills and attached numerous amendments to each. As to be expected, opposition deputies were less successful at attaching amendments than those in the government coalition, and mostly voted against the government bills. In the congress, most of the opposition to President Cardoso’s privatization policies came from the leftist Workers’ Party (PT), the Communist Party, and factions of the catch-all Party of the Brazilian Democratic Movement (PMDB). Motta’s biographers state that PT Deputy Irma Passoni (São Paulo state), another old friend of Motta’s from their old anti-authoritarian days, promised the minister that he could count on the PT for a democratic debate. Motta appointed Passoni advisor to the Ministry of Communications. This step apparently was going too far for the PT leadership, which then dismissed her from the party. On December 20, 1994, Passoni made a farewell speech to the Chamber (as she had lost her bid for reelection) calling for an “independent regulator” for the telecommunications sector.17 The government bloc emphasized the issue of consumer rights in the debates far more than the opposition did. On the right, Deputy Paulo Borhnausen (PFL-Santa Catarina) called the current policy an idiocy and stated that consumers cared not a whit who owned the telephone company. The government also seized the banner of inequality of telephone access, frequently referring to remote indigenous villages and the supposed benefits privatization would bring to them. In response to the rhetoric of consumer benefit, the opposition accused the government block of overconfidence. Some leftist legislators

17 days

Senate 23.6.97

22 months

House 17.08.95 of Deputies

Source: Almeida (2000)

Lei Geral das Telecomunicações

2 months

Senate 16.05.96

5 months

House 15.12.96 of Deputies

Lei Mínima das telecomunicações

Total Duration

House

Date submitted

Bill name and number

CAE, CI, CCJ

CCTCI, CTAS, CFT, CCJR

Committees

(com) 52/0 (plen) 64/0

(com) 322/(CEsp) 218/37+37 (plen) 79/19

(com) 23/3 (plen) 5/2

(com) 44/31 (subst) 85/8 (plen) 9/2

Amendments (presented incorporated)

Passed Yes-58 No-13

Passed Yes-312 No-90 Abst-3

Passed Yes-54 No-7

Passed Yes-315 No-101 Abs-7

Result of final

Partial

Veto

Table 6.2. The Trajectory of Telecomunications Reform in the Brazilian Congress

Lei Geral das Telecomunicações 9472/97

Lei Mínima das Telecomunicações 9295/96

Law name and number


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rejected the idea that consumers were the primary reason for privatization. Others criticized the very idea of appealing to cnsumer interests. For example, PT Deputy Milton Temer accused government supporters of becoming “the apostles of consumers, forgetting citizens.”18 For the opposition, the major concerns were the dismissal of employees that restructuring would bring and the worry that Brazil was losing the chance to build its own “national champion,” one of the few Brazilian businesses with a real chance at becoming a “global player” (with these phrases generally voiced in English). One member of the President’s party, Deputy Domingos Leonelli (PSDB-Bahia), voiced agreement on this point. Leonelli called the proposal to divide Telebrás into pieces a “mortal sin.” Leonelli did not oppose privatization, but he wished to maintain Telebrás as a single company. Communist Deputy Sérgio Miranda (Bloco PCdoB-Minas Gerais) argued he also was open to the idea of privatization if the state were to maintain control over the sector.19 Citing the examples of Japan and France, he argued that the world trend was to allow state companies greater flexibility, not to privatize completely. In the cases of Britain and Spain, he praised the maintenance of British Telecom and Telefónica de España as national champions with privatization. The Brazilian government was abandoning any attempt at a national development plan, he complained. The opposition also opposed parts of the government’s plans to create a regulatory agency. Deputy Sérgio Miranda further argued that the bill would create regulatory agency that was a juridical “monster” and “administrative aberration.” He was objecting to the agency’s exemption from ordinary personnel and budget requirements. Miranda further asserted that the bill effectively would remove all congressional control over telecommunications services in the country: . . . We are creating a regulatory body that is a juridical monster (monstrengo) and an administrative aberration. An agency that has the privilege of making unrefusable demands of the personnel of other admin-

120


istrative bodies. An agency that has the privilege of a budget that differs from all the bodies of the Union can not be countenanced. . . . Mr. President, Deputies, it is most grave, the juridical monster and administrative aberration that is this independent agency, this agency that will define telecommunications policy for the private sector, without even the interference of the Executive Branch in the private realm, wounds the very concept of regulatory body. Even graver, in relation to privatization, you, Sirs and Madams, are delegating to Minister Sérgio Motta the entire process of privatization of the telcos. This bill gets rid of the National De-Statization Commission, in which six Ministers participate. This bill nullifies the Privatization Law, the Law of Concessions, Law no 8.666. This bill gives the Minister of Communications the definition of how the telcos will be regrouped. . . . I close with a commentary: if this bill is approved, who will be the victorious, who will be the defeated? The Opposition will be defeated, but it won’t be the only loser. The Legislative Branch will be defeated, my dear Deputies. . . .”20 Some of the government supporters agreed with Miranda on the last point, and inserted amendments requiring greater accountability of the agency to congress. Both sides of the debate attempted to capitalize on the issue of access. The leader of the opposition in the Chamber of Deputies, Walter Pinheiro (Bloco PT-Bahia) argued that the government proposal made minimal provisions for universal service. The northeast and other poor regions would not be profitable to private investors, leading to a greater regional disparity in services after privatization, he contended. The government bill stated that states, municipalities, and the federal government would provide subsidies to fulfill universal service goals. Pinheiro scoffed at the idea that poor northeastern


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municipalities would opt to spend their meager resources on telecommunications services. He presented an amendment that would require all universal service funds to be taken from the companies’ revenues and interconnection fees rather than from government funds. This amendment was rejected. Miranda also complained that the “mirror” companies would not be required to participate in universal service plans, and would end up in niche markets serving only the wealthy.21 Miranda further accused the government of privatizing only to maintain investor confidence and therefore economic stability. Linking the issue of access with rebalancing, Deputy Milton Temer (PT-Rio de Janeiro) argued that the end of crosssubsidies made doing business cheaper but citizen-to-citizen communication more expensive.22 Rebalancing was already mostly a fait accompli, however, making his argument less effective against privatization. Interestingly, the lone member of the Green Party in congress, Deputy Fernando Gabeira of Rio de Janeiro, declared in a debate that he did not care who owned the telephone company as long as the telephones worked and there were enough public telephones in poor neighborhoods. Gabeira, a former leftist guerrilla leader (who had played a role in the kidnapping of the United States ambassador to Brazil in the early 1970s), commented that what was really up for sale was repressed demand: if the government were to offer concessions for installing tin cans connected with string, there would be a great response, he added. Gabeira voted in favor of dividing the company, but also in favor of many of the amendments presented by the opposition. He called for others to join him in creating a “middle road,” but without much success. Table 6.3 sums up the major issues discussed in congress as well as whether and how congressional concern altered the executive-sponsored legislation. It must be said that President Cardoso’s opponents surely would not agree with my claim in this book that the process of privatization in Brazil was relatively slow and democratic. Indeed, in congressional debates as well as interviews, some legislators specifically complained that the government was not

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Social Movements and Free-Market Capitalism in Latin America Table 6.3. Issues Debated in the Brazilian Congress Government or opposition

Expression in legislation

Possibility of a Brazilian national champion

Both sides

Not expressed

Inequality of access among social classes

Both sides

Universal service legislation

Inequality of access among geographic regions

Opposition

Universal service legislation

Consumers’ right to choose service provider

Government

Plans for competition

Minimum price of Telebrás

Opposition

Price increased

Participation of foreign capital

Opposition

Permitted

Example of other countries: Argentina,Chile, Great Britain, USA

Both sides

Anatel created

New role of the state

Both sides

Anatel created

Role of Congress in regulation

Opposition

Various powers; not as many as U.S., more than rest of Latin America

National capacity for technology creation (CNqD)

Opposition

Not expressed

Democracy/possibility of popular referendum

Opposition

Not expressed

Issue

Source: Compiled by author from reports in the congressional record Diário Oficial.

permitting a democratic debate about the issue and that the process was occurring too fast. Often they were frustrated that individual members of the government bloc voted for the bills despite their personal reservations. Tilden Santos (PT) brought up the matter of political honesty and representation, rhetorically asking which deputies were elected by proclaiming they would vote to privatize Telebrás, the Vale do Rio Doce, or Petrobrás. (The answer, of course, most likely would be not one.)23 In further protest, the PT submitted a separate bill, “a voto em separado,” to the Senate Record. The PT’s substitute bill


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included a regulatory body answerable to the legislature, limits on the participation of foreign capital, and support for telecommunications research. The tone of the bill was a “we know it’s hopeless” criticism of the Cardoso administration’s determination to open the sector up to foreign capital as quickly as possible. Senator José Eduardo Dutra, leader of the PT, commented that “as may be noted, the disastrous example of our neighbor and partner in Mercosul, Argentina, in privatizing the telecommunications sector without criteria, doesn’t seem to have taught anything significant to the government of President Fernando Henrique Cardoso. . . .”24 The PT further argued that the amendments it presented in the spirit of opening up a democratic debate in the country were glossed over by the government in its attempt to open the sector quickly. On the other hand, critics charged that the congressional hindrance was depriving Brazil of the benefits of rapid privatization. In 1995 the Folha de São Paulo published an editorial calling for the limitation of congressional participation. The paper accused the legislature of having caved in to the pressure of big business in the vote to overturn some of the congressional amendments. The specific lobby in question was the IBDT, the organization of the main businesses that would benefit from privatization that a PSDB deputy had criticized the previous year. In spite or because of the protests for and against it, in Brazil congressional participation in the privatization debate increased public awareness of telecommunications policy and consumer issues. Congressional participation also increased the attention to universal service issues and accountable regulation in post-privatization policy. Finally, at least some of the congressional provisions decreased the likelihood of corruption and regulatory capture.

Privatization in the Media Another clear effect of congressional participation was that individual legislators were able to use the media to build personal political capital. In June 1998 the sponsor of the General

124


Telecommunications law, PSDB Deputy Alberto Goldman of São Paulo state and former Transport Minister in the Franco government published an editorial arguing that Brazil’s new telecommunications model was more advanced than the traditional European state monopoly and the United States–style private monopoly.25 Goldman lashed out at critics and suggested that one reason for opposition to privatization was the loss of the “second chest” of political resources. Presidential candidates also used the media to air their opinions. For example, PT leader Luiz Inácio Lula da Silva, better known as Lula, (who would be elected president in 2002) said privatization was “an insane act that hurts national sovereignty” and that Communications Minister Mendonça de Barros did not deserve respect. The newspaper Correio Brasiliense reported that Leonel Brizola had argued in favor of a military coup to prevent the privatization of state monopolies in petroleum and telecommunications.26 (Brizola later argued he had been misinterpreted.) Center-left presidential candidate Ciro Gomes issued an open letter to President Cardoso requesting a postponement of the auction. Gomes also criticized Lula and Brizola, saying their public statements had helped foreign consortia devalue the price of Telebrás. Both proponents and opponents of privatization found public opinion polls to support their views in the media. Cardoso’s team sponsored polls that showed high levels of support for privatization of Telebrás in the young and the middle class. Yet a majority of the residents of the city of São Paulo opposed the privatization of Telebrás, a Datafolha poll showed.27 According to Datafolha, around 68% of São Paulo residents disapproved of Cardoso’s decision to privatize such an important company in an election year, and 25% supported the president’s legal action against Lula for calumny. The same poll showed that 36% of the city’s population admitted to not knowing Telebrás was in the telecommunications sector as opposed to some other activity. Paradoxically, 46% of those interviewed believed telecommunications services in the country would improve after privatization.28 Only 25% of the city’s


125

population believed there would be no change in the quality of service. Around 42% believed prices would increase with privatization. The mainstream press generally was positive toward privatization and played a major role in increasing consumers’ expectations regarding price and service. Certainly there was greater coverage of the decision to privatize as well as to consumer issues than had been the case for Argentina. Editorial writers often claimed privatization would result in “First World” style communications services.29 The press found plenty of material in the shortcomings of the state-owned system. For example, a columnist for the Estado de São Paulo called Telebrás a “Sovietstyle company” with a prosperous “Moscow-style” parallel market. In certain areas of São Paulo, he claimed, a telephone line on the black market could cost as much as a car. This statistic, he said, was cited in the Guinness Book of World Records.30 A member of the consortium that prepared the privatization wrote that anyone who had seen the Oscar-nominated movie “Central Station” (Central do Brasil), in which one of the protagonists earns her living writing letters for the illiterate, ought to recognize the pent-up demand for communications services in the country.31 A fair amount of media coverage was given to the oft-considered failures of privatization in Argentina and Mexico and the successes of Chile. Supporters of privatization offered the favorable contrast of Brazil’s plan to avoid the creation of private monopolies by not including exclusivity contracts in the privatization package. Many editorials criticized the delays of privatization, blaming both the government and the opposition. Other editorials criticized Lula and Brizola for making “irresponsible” remarks (such as Lula’s accusations of disrespect for sovereignty and Brizola’s suggestion that President Cardoso be shot), but did not always spare the government. In particular, the media accused Communications Minister Mendonça de Barros of playing dirty by casting doubt on privatizations conducted by the PT instead of responding directly to the criticism of the asking price for Telebrás.32 Much of the press coverage was also critical of what

126


it called the demogogic use of the privatization of Telebrás during the presidential campaign season. Media coverage also provided some support that the privatization of Telebrás was a legitimately democratic decision. The president of the national federation of unions (CUT), Vicente Paulo da Silva (known as Vicentinho), argued in favor of a national champion at the vespers of the auction. He added that “it is inconceivable that the government is in such a hurry to privatize Telebrás, without ample, detailed, democratic discussion with the Brazilian nation.”33 The same week, however, the Jornal do Brasil wrote “There is no turning back. The privatization of Telebrás is a democratic and irrevocable decision.” Union and PT opponents such as Lula, Brizola, and Vicentinho were protecting corporatist interests and disregarding the rights of consumers, the paper argued.34 The Estado de São Paulo argued that tremendous effort by a small number of actors had failed to convince the Brazilian public to mobilize against privatization, and this process in itself was a convincing signal to investors that the country supported the government’s actions.35

The Juridical “Soap Opera” The most important vehicle for opposition to the sale of Telebrás, and the one that probably caused the most headaches for members of Cardoso’s government, was the legal arena. Referred to in the media as a “juridical soap opera,” the battles involved a government team of close to 400 lawyers, and some 500 more for the PT and the national and state telecommunications unions (the Federação Interestadual dos Trabalhadores em Telecomunicações, or Fittel).36 Lawyers for the opposition filed a plethora of legal actions in courts across the country against the fragmentation of the Telebrás monopoly and its privatization. The asking price for Telebrás became the point of much of the legal contention, as the opposition accused the consulting firms hired by the government of estimating lower prices because they had clients interested in the purchase of the com-


127

pany. In total, Fittel filed 30 actions, and other groups filed 70. Fittel had filed 15 actions in São Paulo, 15 in Rio de Janeiro, 15 in Minas Gerais, 11 in Pernambuco, 5 in Para, and 1 in Rio Grande do Norte. The government’s response was to ask the courts to consolidate the cases against privatization in one location. In June 1998 the president of the Supreme Court, Minister Pádua Ribeiro requested that all civil actions to suspend the auction be decided by a federal district court in Brasília. Centralizing the decision process meant the government could not by surprised by court rulings in far-off places. Communications Minister Mendonça de Barros estimated at that point that 90% of the battle was won. On June 26, 1998, the Supreme Court unanimously rejected the PT’s petition for the suspension of the Telebrás auction. Another potential juridical obstacle to privatization was the National Accounting Courts (Tribunal de Contas, or TCU).37 The TCU maintained a permanent auditing group of twelve persons to oversee privatizations. In June 1996, TCU Minister Bento José Bugarin questioned the government’s “haste” to privatize, citing his concern with issues of shareholder control. The TCU decided to approve privatization after the government increased the minimum overall price set for Telebrás by 20%, and issued a statement praising Cardoso’ government for not just “blindly following” the recommendations of consulting firms.38 Mendonça de Barros announced that the government was asking lower price in order to assure lower prices to consumers. Cardoso’s government condemned the opposition for taking the battle to the courts. The chief lawyer for the nation, Geraldo Quintão, accused those promoting the legal battle of “process disloyalty:” “They want to transform the privatization of Telebrás into an election campaign.” Government spokesperson Sérgio Amaral said the president regretted that “groups and syndicates” have used the justice system as a resource for doing political action. The end result, however, was that each branch of the Brazilian government confirmed the legality of the privatization of Telebrás.

128


Mass Demonstrations and Other Unchanneled Protest The opposition’s provocation of mass demonstrations against privatization had less effect than the institutionally channeled protests. PT and union leaders warned there would be tens of thousands of people protesting outside the auction site at the Rio de Janeiro Stock Exchange on July 30. The actual day of privatization was marked by protests, but, according to most reports, only by about 1,000 rather than the 10,000 the opposition had predicted. The protestors distributed 3,000 bananas to the public, representing the “preço de banana” the government was asking for Telebrás, explained Vicentinho. The military police responded with tear gas and water jets, and around twenty people were taken to the hospital. Fittel and its member unions also held demonstrations in front of the offices of Telebrás and the Brazilian Development Bank. The day before the auction, the Landless Workers’ Movement (MST) invaded the headquarters of the Development Bank to protest its financing of potential foreign buyers. Most of the MST protestors remained in the bank’s lobby singing the national anthem while its leaders went upstairs to speak with the administrative superintendent. The MST also attacked seven government-owned trucks (carrying food aid) in the state of Pernambuco. The most violent act was bombing of a telephone tower in Rio Grande do Sul, which put the lights out in the whole state.39 Embratel’s Rio de Janeiro office reported receiving a bomb threat. In response to the MST’s action, the conservative newspaper O Estado de São Paulo suggested that they take advantage of their initials to create the Telephone-less Movement (Movimento dos Sem Telefone). Then they would know that only with privatization would they have a chance at getting a line. Associating the fall of communism with the triumph of consumers, the editorial argued that: The only mute voice in the shouting match over the privatization of Telebrás is exactly the one who ought to shout the loudest and impose its will—the Move-


129

ment of the Telephone-less. These are the 17 million Brazilians, people and businesses, who are on the waiting list for a simple telephone line. . . . More potential members are the 7 million Brazilians in the snowballing line for cellular service. ... Telebras worked here like a Soviet company. That is, with its back to the market, the nation, the world, and the future. Even today, in Grand Russia, hapless consumers are waiting for cars they paid for 10 years ago. And the car is a Lada. It was this economic anorexia that destroyed the USSR and its satellites. It was not necessary to fire a shot, stage a revolt, a strike, or a demonstration. ... Competition guarantees the transfer of funds from shareholders to consumers. When the consumer wins, nobody loses. In Brazilian telecommunications, the consumer of the state monopoly is a resigned loser, in quantity and quality of product. Enough already.40

The Institutional and Economic Components of the Privatization of Telebrás While the political and legal protests were going on, the government implemented reforms of the sector in preparation for privatization. Motta’s team was especially aware of the political problems that postprivatization rebalancing of tariffs and private monopolies had produced in Argentina, as well as Mexico and Peru. The Brazilian strategy of rebalancing prior to privatization generated some public criticism, but far less than would have occurred had it left rebalancing for after privatization. Likewise, the plans for implementing limited competition simultaneously with privatization created some confusion but was a less politically contentious strategy (for consumers) than the direct transfer of government monopolies to the private sector.

130


Tariff Rebalancing Correcting tariff distortions entailed increasing the price of local service and decreasing the price of long distance as well as changing the system of sharing long-distance revenue between Embratel and the local companies. Early in the game, Motta called the local service subsidy a “lie” and said its elimination was essential. In 1995 his ministry increased the monthly bill for basic residential service by a factor of five and the price of local calls by 80%. The cost of long-distance service also increased, but by a far lesser magnitude. By 1998 local service produced nearly 40% of total revenue in the sector as compared with 21% in 1994. In a few years Brazil went from a “Soviet-style” tariff structure to one that was very attractive to private investors. The average revenue per line increased by 19% during this period, and revenue levels were among the highest in the world. In terms of the market attractiveness of Telebrás, the fact that rebalancing had already been completed and tariff levels were known may have been as important as the actual price levels. Table 6.4 depicts data compiled by a Brazilian economist and compares the Brazilian tariff structure before and after rebalancing with that of Argentina, Chile, and the United States. The concept of rebalancing implies a trade-off. That is, while some prices (mainly local calls) increase, others (long distance, especially international) decrease. Brazil only carried out the politically difficult step of increasing local charges.41 The system of regional cross-subsidies (the sharing scheme between Embratel and its subsidiaries) remained untouched until the months following privatization, when it was replaced by a system of access charges that permitted consumers to choose their long-distance provider.

Competition Greater consumer choice through competition was another major pillar of Brazil’s privatization strategy. Rather than allow a single foreign operator to control telephone service in all or

7.45 0.03

Commercial—monthly charge

3-minute local call (peak time)

0.38

12

n.a.

-32

22

79

80

513

-16

n.a.

-48

-34

34

33

209

Change (%) (C)/(B)

n.a.

250.00

1.40

0.28

0.09

36.16

12.75

Argentina

n.a.

183.00

1.35

0.21

0.04

19.48

19.48

Chile

n.a.

50.00

0.69

0.23

0.08

17.31

12.50

USA

Source: Brazil: Telesp and Telebrás; Other countries: Caspian Securities, Dresdner Kleinwort Benson Research. Compiled by Novaes (1999) p. 119.

**Rates in effect at the time of privatization (July 1998).

*The 32% reduction in international tariffs at the end of 1995 was a result of a reduction in the rate of the ICMS tax charged for international service. (ICMS is a VAT tax on goods and services charged by the states.) For Brazil, the long-distance rate shown is from the city of São Paulo to Rio de Janeiro; for Argentina, it is for distances of 110–240 kilometers; for Chile and the United States the figure shown is the average tariff. All long-distance tariffs are for peak time.

0.32

43.10

n.a.

n.a.

Wireline installation charge

Mobile cellular service (1 minute, local) 0.34

0.21

0.07

17.87

11.91

May Change 1997** (%) (C) (B)/(A)

0.93

2.61

International service (1 minute)

0.31

0.05

13.45

3.86

November 1995 (B)

1.78

0.26

Domestic long distance service (1 minute)

Long distance

0.63

Residential—monthly charge

July 1994 (A)

Brazil

Table 6.4. Rebalancing of Tariffs in Brazil, with International Comparisons (in US$)*

132


much of the country, the Cardoso government opted to break the company into regional blocs and to allow at least one additional company to compete with the newly privatized firms in each region. Telebrás’s 27 local operators were grouped and sold in three regional blocks, along with the long-distance company Embratel and nine Band A cellular operators. The government’s plan to select at least one new competitor in each area immediately was called the mirror strategy. Within a matter of days after the sale of Telebrás, Anatel held a public audience to review the rules of the auction for concessions to operate mirror companies. These rules weighted technical criteria more heavily than price, in order to benefit consumers, the government claimed. The mirror companies would not face the same universal service goals required of the winners of the Telebrás auction. The auction for the right to operate as mirror companies was fraught with more difficulties, because it followed the Asian economic crisis and the devaluation of the Brazilian currency in December 1998. Government officials conceded that the mirror system was a duopoly, but argued that some competition was better than none, and that after 2001 all restrictions against possible entrants to the market would be dropped.

Minority Shareholders and the Telebrás Strategy A third area in which the Brazilian process differed substantially from privatization in other Latin American countries was in its protection of minority shareholders. In contrast to Argentina, Mexico, and Peru, where the government sold one company of which it maintained 100% control, Telebrás consisted of 27 companies, all of which all had minority shareholders whose rights had to be assured. The Brazilian government owned slightly more than 50% of the voting shares but only 19% of the total capitalization of Telebrás. In large part, the minority shareholders existed because of the previous pay-as-you-go scheme of selling new telephone lines. They also were a consequence of


133

the government’s strategy of quietly permitting some private investment in telecommunications since the 1980s. Part of the protection of minority shareholders involved the currency of privatization. Other Latin American governments had privatized in exchange for government junk bonds, which would deprive shareholders of their assets, giving them only low yield government securities in exchange. The General Telecommunications Law required that the companies be sold for cash, thereby alleviating shareholders’ fears and increasing the value of Telebrás shares.

The Terms of the Sale The overall premium for the sale of Telebrás was 237% over the minimum price, exceeding market expectations. The day following privatization, the government was euphoric. President Cardoso called the sale the “biggest privatization in the history of capitalism.”42 The “Big Bang” of Telecoms was another common superlative. Other analysts, commenting on the dominance of European firms, particularly Spain’s Telefonica, variously pronounced the event the “rediscovery of Brazil,” the “Spanish invasion,” and the “new Treaty of Tordesillas.” Telefonica won the auction for fixed line service in the coveted state of São Paulo.43 In Argentina Telefonica had paid $2,400 per line; in Sao Paulo, it paid $1,000 per line. The only major participation by a United States–based firm was MCI’s purchase of the long-distance company Embratel.

Problems with the Privatization Process In spite of the euphoria of Cardoso’s supporters, the privatization process suffered from some problems and embarrassments, including scandals and suggestions of illegality. The most important of these involved the consortium that won the bid for the Northeastern region of the country, Telemar. This consortium,

134


the only winner consisting solely of Brazilian companies, was formed in a hurry by groups who were rejected by other consortia in the frenzy of bargaining before the auction. None of the new groups had any experience as a telecommunications operator. The scandal lay in government officials’ encouragement of Telemar to participate, as they wished to avoid the embarrassment of lacking a bidder for one of the regional companies. Communications Minister Mendonça de Barro and Brazilian Development Bank (BNDES) president André Lara had to resign when secret tapes of their conversations with businessmen were made public. Five days after the auction, however, when Telemar was unable to meet even the first payment, the Brazilian Development Bank repurchased 24% of the shares on behalf of the government. The National Accounting Court (TCU) concluded that the privatization team acted with “administrative improbity” and “abuse of power” by promising BNDES financing to certain groups. Later, however, the Supreme Court would clear the names of everyone involved. There were other hints of scandal as well, but none attracted much public notice. For example, Workers’ Party analyst Aloysio Biondi commented that Anatel allowed Telefonica a 120-day postponement for installing 400,000 fixed lines that had been paid for two years earlier without consulting the “consumer-purchaser or organs who represent him” and added that Telefónica had known it would be permitted this postponement prior to purchasing Telesp.44

No Longer a Telessauro In spite of the Telemar scandal, the privatization of Telebrás was largely a political and economic success for Cardoso’s government. The auction was held as scheduled, a regulatory structure was in place, rebalancing was completed, and investor interest was strong. One week after the sale, the widely read national magazine Veja proclaimed that as a result of privatization, a telephone would soon no longer be a luxury.45 The teledinosaur was


135

no more. On the eve of the October 1998 presidential elections, the cheerleaders of privatization proclaimed that a new day had dawned for Brazilian consumers. As chapter 7 shows, many Brazilian consumers did benefit in some ways, but they also found a greater need than ever for the services of consumer advocates.


CHAPTER SEVEN

“Post-Jurassic” Regulation and Contained Consumer Response Without the drag of the government monopoly, Brazilian telecommunications takes its most important step towards the democratization of goods and services. —Network World Telecom, Rio de Janiero, Premier Issue 2000 The synthesis of privatization is increased access, disputable quality, and abusive tariffs. —Report by the Minas Gerais state consumer protection agency, 2000

The previous chapter showed that, as in Argentina, the Brazilian government promised consumers they would benefit from lower prices after privatization. Also as in Argentina, after privatization the government emphasized how much easier and cheaper it had become to acquire telephone service. In 2000, Anatel announced that: Telephone users are paying less today for a service of better quality, which assures the less privileged the possibility of acquiring a telephone at prices that vary from R$50.00 to R$80.00 (about US $50 to $80 at the time) and even less, as in the state of Paraná, where the 137

138


cost of hook-up (minus tax) is R$8.40. . . . prior to privatization, just two years ago, a telephone was a privilege for those few who could pay the R$1,117.00 or more that it cost to acquire a line.1 Anatel President Renato Guerreiro further contended that “Anatel has the obligation to assure quality of service and guarantee the citizen the right to choose a provider. . . . Since 1994, in the total of expenses associated with a telephone, the bills of residential users decreased by 21%. . . . The average user will pay 13% less by 2005. . . .2 Yet another similarity to Argentina was not as comfortable for Cardoso’s government, however. A clause in most of the privatization contracts permitted price increases above inflation of up to 9% annually through 2005 in local service and related services. (A consumer-protection association later would challenge this clause as a violation of the Brazilian Constitution as well as the General Telecommunications Law and the Consumer Protection Code.) Because of these clauses and the previous tariff rebalancing carried out in the mid-1990s, many of the middle-class Brazilians who previously were customers of the state-owned companies gained nothing and even lost from privatization. In 1999 the consumer-protection bureau of the state of Minas Gerais published a study showing that the monthly charge for basic residential service in one area increased by 44% while general inflation in the same period was only 14.4%. A study by a think tank associated with the labor unions showed that in the period 1995–1999, the average monthly service charge increased by 2,235% and the overall average bill by 369%.3 The same study showed that lowerincome families in São Paulo were spending 20%–30% of their income on basic services. It is fair to conclude that the price of initial access decreased substantially but that at a very minimum the price of local calls remained the same and in most cases increased. Close to 25% of revenue in the telecommunications sector was in local service. The link between the higher prices for residential service and privatization was more tenuous than in Argentina because

“Post-Jurassic” Regulation and Contained Consumer Response

139

of the timing of rebalancing, but it was there. Brazilian residential consumers already had endured rebalancing and other policies designed to transform Telebrás into a more modern company prior to privatization. Given the euphoric rhetoric surrounding the privatization in 1998, they had reason not to expect to have to make further sacrifices after the sale, but in many cases such sacrifice was demanded, as the privatization contracts permitted the new companies to continue to raise residential prices. The additional tariff increases as well as the confusion generated by a new system of interconnection angered Brazilian consumers. When a reporter asked about consumer complaints over price, Anatel president Renato Guerreiro replied that “the confusion in the head of the citizen over the tariff problems is natural. It is a natural discomfort because the monopoly did not permit him to worry about such things; he had no option.” Confronted with the fact that there were some differences of up to 2,000% in prices, Guerreiro explained that the old (stateowned) system also was very complicated, but the lack of choice meant no one bothered to learn about it. Guerreiro further argued that the previous monthly payment of a ridiculously low 0.44 cents prevented poorer families from being able to afford a phone at all.4 The nominal cost of the basic basket of service costs less in 1998 than in 1994, he contended. Guerreiro’s explanations illustrated a genuine dilemma for the government, as the reporter interviewing him explained in an article in the Folha de São Paulo. The prohibitive cost of acquiring a telephone in the past surely had perpetuated poverty and inequality in Brazil. After privatization, rather than the rich, it was the middle groups were squeezed in order to reduce (partially) the price of access. As stating this fact openly would be politically disastrous, the government hoped that eventually the promises of liberalization and competition would compensate the middle-class consumers who previously had benefited from cross-subsidies. No one could be sure this would happen, but if it were to happen anywhere in Latin America it would be in Brazil, the country that had privatized slowly and carefully and followed the latest economic regulatory advice, which held that

140


competition in local telecommunications service would be both beneficial to consumers and economically feasible.

Liberalization and Competition The market structure of the telecommunications sector after privatization in Brazil, while certainly not a perfect free market, was more competitive than in other Latin American countries. The “mirror system” meant that all companies would face one competitor almost immediately, and by 2002 the entire sector was to become completely open. Because of the care taken to ensure some competition in the sector, Brazilian commentators and the public as a whole were somewhat less likely than Argentines had been to view the new private owners of the telephone system as evil foreign monopolists. Brazil’s system of competition produced problems of its own, however. By all accounts, the transition to long-distance competition through the mirror system, which began in June 1999, was especially disastrous. Under the old system of regional cross-subsidies, less well-off companies transferred less to Embratel. As this system did not correct inefficiencies (not providing an incentive to less profitable companies to reduce their costs), the privatization contract included a plan to eliminate the subsidies through an access charge system (a payment per minute for use of the network of another operator). The new system required consumers to dial operator codes in order to place long-distance calls, a mechanism that allowed for greater choice but also produced tremendous confusion. Because the old form of direct long-distance dialing stopped working, many people who were unaware of the new system were surprised when they no longer were able to make calls in the usual way. Former Communications Minister Mendonça de Barros acknowledged the confusion, but suggested that time would sway public opinion in favor of the changes: “It [the confusion] is the price we are paying for the implementation of a system that doesn’t exist anywhere else in the world and requires a com-


141

plicated and advanced technological transition.” Brazil’s way of allowing interurban competition would allow greater choice for the consumer, he added. “In the United States, it’s not that way. The citizen can choose [his carrier], but he ends up tied to his choice by a contract. Only here can the user decide what’s most convenient for him at the moment he makes a call.”5 The exminister agreed that injured parties had the right to appeal to the justice system, but contended that critics were confusing the benefits of privatization with “problems inherent to a sophisticated technological transition in a country of backward people.”

Perceptions of Service Quality Even for nonbackward, sophisticated urban Brazilians, telephone service entered a period of absolute chaos in the immediate aftermath of the sale of Telebrás. The word several Brazilian experts used to describe the problems of consumers in the postprivatization period was “exotic”: . . . the result has been disastrous, with several exotic situations occurring: telephones, once in operation, stop working; public telephones being connected to residential lines, and vice-versa; changes in the list number; the same list number associated with more than one piece of equipment; telephone bills reporting connections not associated with the line; and many others.6 Call completion rates dropped, billing errors increased, and long-distance calls to some areas were impossible. A consumer advocate in São Paulo stated that the state company Telesp (now owned by Telefonica) had such little control over its billing that it simply took advocates’ word whenever they alleged customers were being over-charged.7 In general, fixed line service was so bad that many people substituted wireless telephones, although there were service problems with wireless

142


as well.8 Consumers also were confused by the new companies’ closing of former Telebrás client service centers. The rationale for the closings was to modernize by handling all complaints over the telephone, but in the short term it appeared the new companies were less attentive to customers than their stateowned predecessors. The chaos in service quality was relatively short-lived in some areas, however. Telefonica’s slogan was “the inconvenience is temporary, but the benefits are permanent,” and it largely proved to be right in the state of São Paulo, where it held its fixed line concession. By the year 2000, most of the negative trends had been reversed in that important region. Call completion rates were up, billing errors were down (if still high), and consumers better understood the new system for long distance. In other areas, however, especially the concession granted to Telemar to serve the state of Rio de Janeiro and the Northeast, service problems were still rampant by 2002.

Universal Access Goals and the Expansion of Service In addition to liberalization and competition, the privatization of Telebrás contained relatively clear goals for the expansion of service, including public telephones and service to previous unconnected areas. This expansion came at some cost to competition. As Anatel President Guerreiro argued, the “mirror system” of competition involved some obligations to provide service that would not have been provided if the entire market had been opened immediately.9 Overall, in spite of the many problems that accompanied it, the expansion of telecommunications service after privatization was a political boon for Cardoso’s government. Within a year, Communications Minister Pimenta da Veiga was announcing that 6 million fixed lines had been installed, and that the number of cellular phones in the country had reached the 10 million mark. Pimenta da Veiga also stated that the government would


143

attempt to pressure the companies into accepting that the deadline for meeting their universal service goals be moved up from 2003 to 2001.10 Table 7.1 shows Anatel’s official increases and projected increases in telecommunications density in Brazil. The growth and projected growth is notable but not extremely impressive, indeed, not more impressive than the growth that immediately followed the nationalization of the system in the 1960s. The projections through 2005 come nowhere near the levels that wealthier countries had reached by the middle of the twentieth century. Two years after privatization, the newspaper Folha de São Paulo reported that there were “entire cities isolated from the world, hospitals schools and police stations without service, and entirely mute regions.” The same article reported that the Communications Minister Pimenta de Veiga’s home city (population 6,000) had its first telephone installed (because of his political influence) two weeks previously. The principle problem with regulation, the newspaper argued, was that Anatel lacked the power to oversee the companies, which had the incentive to exaggerate their progress in their monthly reports to the agency. “This is like having students fill out their own report cards,” the journalist commented. While Anatel’s records showed that most of the companies had met the majority of the goals set for them, the paper was suspicious. Anatel chief Renato Guerreiro assured the reporter that the situation would improve when Anatel was authorized to hire independent auditors. In spite of journalists’ suspicion, information about the performance of the new private companies was much more available and transparent in Brazil than in Argentina, where, it will be recalled, the government auditor never published its report about the outcome of tariff rebalancing. Consumers could check the progress of the sector on Anatel’s Web site, whereas this information had not been made available in Argentina. Economic studies generally acknowledge that the privatization of Telebrás produced better economic results than the sale of other Latin American telephone companies, and regulatory experts

4.4

3.9

12.1

North region

Northeast region

Southeast region 12.1

Center-west region 10.3

Source: Anatel (2000) pp. 65–66.

9.7

12.9

4.4

5.0

9.3

1995

8.8

South region

8.6

Brazil

1994

13.6

11.0

14.0

5.2

5.5

10.4

1996

14.9

12.8

15.5

6.1

6.0

11.7

1997

16.3

15.7

18.1

6.7

6.9

13.6

1998

19.5

18.5

23.1

7.9

9.1

16.8

1999

23.3

21.6

28.4

11.0

12.7

20.9

2000

26.4

24.6

32.0

13.2

15.2

23.9

2001

29.1

27.5

34.8

14.9

16.8

26.3

2002

31.4

30.4

37.4

16.5

17.9

28.5

2003

Table 7.1. Growth and Projected Growth of Fixed-Line Telephone Density in Brazil (Fixed telephone lines per 100 inhabitants)

33.6

33.2

39.9

18.0

18.9

30.6

2004

35.5

36.0

42.3

19.4

19.6

32.6

2005


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have praised the system of regulation. The truest measure would be the assessment of Brazilian consumers, however.

Less Contentious and More Institutionalized Consumer Complaints If consumers stand to gain immediate benefits from the opening of markets, they are still vulnerable before the power of business. We now have what may be called a globalized vulnerability. Consumers in the less developed countries are even more vulnerable, as they now have to deal with powerful business interests from the advanced countries, when consumer defense in the poorer countries is still in initial stages of organization.11 —Dr. Josué Rios, Brazilian scholar and consumer advocate While they might agree with the quote above, the Latin American consumer advocates I interviewed consider the legal protection of consumers in Brazil to be the most advanced in the region, and the most prominent Brazilian consumer protection association, the Idec (Institute for Defense of the Consumer), the most effective nongovernmental organization. Brazil also has relatively more thorough scholarly documentation of consumer activity: of the three countries analyzed in this book, only Brazil can boast a real existing history of its efforts to protect consumers. The scholar quoted above, law professor Dr. Josué Rios, wrote a case study of the movement for the creation and implementation of the Consumer Defense Code. Rios was a protagonist in the movement as well as a scholar, regularly writing a newspaper column on consumer protection, and devoting much of his time trying to persuade Brazilian progressive intellectuals to join his effort. Much of my discussion of the institutional background of consumer protection in Brazil is drawn from his scholarly work, public writings, and my own personal interviews with him.

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The privatization of Telebrás was carried out in an environment in which consumer protection was relatively more established. The new regulatory agency Anatel was charged specifically with the protection of consumers. The companies that purchased the former state-owned firms had every reason to understand that the existing consumer protection legislation would apply to the telecommunications sector and that existing institutions would provide a forum in which consumers could complain. Along with Anatel, the most important components of the consumer protection system were the Consumer Protection Code and the government consumer protection agencies, known as Procons. In this chapter, I discuss the background of the Procons and the Code first, and then turn to Anatel. In the latter part of the chapter, I explain how developments in Brazilian civil society and the nature of political parties and their alliances affected the consumer response to privatization.

Procons and the Consumer Protection Code In contrast to Argentines and Chileans, at the time of the privatization of Telebrás Brazilian consumers of telecommunications services were protected by the most comprehensive consumer protection law in Latin America and a network of government associations. These institutions were the product of years of quiet work by Brazil’s professional law association and a handful of lawyers, journalists, and legislators, dating back to the early 1970s. In 1971 the Brazilian Press Association organized the first National Communication Congress, which then recommended the creation of a Special Committee for Consumer Protection as part of the Ministry of Industry and Commerce. In response, Deputy Nina Ribeiro of Rio de Janiero introduced the bill to create a national Consumer Protection Council (Conselho de Defesa do Consumidor). (The military government, it will be recalled, permitted the congress to operate under restrictions.) The Committee of Constitution and Justice judged Ribeiro’s bill to be unconstitutional as only the executive could initiate laws


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that would increase public spending. There was little other activity at the national level on behalf of consumer protection in the early 1970s, but lawyers began to create consumer protection associations in the wealthier and more progressive cities of Rio de Janeiro, Porto Alegre, and Curitiba. In addition to civic spirit, professional and economic interest motivated Brazilian lawyers to work for consumer protection.12 Some of the new associations were mere fronts for private law firms, which used free initial consultations to lure potential clients. By the turn of the twenty-first century, the telephone guides were full of listings for these law firms that called themselves consumer protection associations. Yet the civic pressure resulted in more than an economic bonanza for lawyers. In response to a group lobbying effort that also included the São Paulo Advertising Association, the Coordinating Council of the Friends of Neighborhoods Societies, the Inter-Syndicate Department of Statistics and Socioeconomic Studies, commercial and industrial federations, and the Professional Journalists’ Syndicate, São Paulo State Governor Paulo Egydio Martins issued a decree creating a State System of Consumer Protection in 1976. In 1978 the state assembly converted the decree into law, with the addition of a provision for the “attendance” of individual consumers and legal assistance. The first Procon thus became the consumer protection agency known to the population. It earned legitimacy in public opinion, and influenced other states and municipalities to create their own associations, which generally had the same name. As Josué Rios reports, by 1989 only three Brazilian states did not have Procons. The same year, there were 144 municipal Procons in São Paulo state. The Procons’ principle function is to arrange mediation between consumers and businesses. In a political system plagued by clientelism and mistrust, Brazil’s Procons are surprisingly respected by the population. These agencies have the power to fine, giving them credibility with consumers as well as businesses. If mediation fails, the consumer must go to the legal system for individual compensation, however.

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The pressure for greater consumer protection slowly accumulated over the next few decades after the first Procons were established. In 1976, a special investigating committee on consumer protection in the House of Deputies recommended the creation of a consumer courts system. In the field of law, studies began to appear about how to protect rights in mass consumer societies. The transition to democracy heightened political activists’ push for greater consumer protection. In 1987 at the VII National Meeting of Consumer Protection Organizations in Brasília, the participants collected 45,000 signatures in five days in favor of including a consumer protection clause in the new constitution. The same conference saw the creation of the Carta de Brasília, which contained 26 specific proposals for consumer protection. The 1988 Constitution contained a clause calling upon congress to pass a Consumer Protection Code. In August 1990 the law passed, with some unimportant partial vetos. With the passage of the Code, the use of the justice system in cases of consumer protection gradually increased in the 1990s. Thus, unlike in Argentina, Brazil’s constitutional protections for consumer rights were well tested prior to the privatization of the state telephone companies.

Nongovernmental Organizations Like Adelco in Argentina, a single nongovernmental consumer protection group had a national presence in Brazil prior to the wave of public service privatizations. In 1987 a group of people affiliated with Procon, under the leadership of lawyer Marilena Lazzarini, created the Idec (or Institute for the Defense of the Consumer). A long list of other well-known persons, mainly scholars and activists from the center-left politically, such as the anthropologist and future first lady Ruth Cardoso, economist and Workers Party leader Paul Singer, and the future education minister of the Cardoso government Paulo Renato de Souza, lent their support to the initiative.


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Idec began to provide seminars for lawyers on consumer protection law, represent consumers in groups in their disputes with companies and to test the quality of products, divulging the results in its news magazine, Consumidor, S.A. Between 1989 and 1995 Idec performed 50 tests of products. It joined some standard-setting bodies, such as the Brazilian Food Code and the advisory committee on medicine to the Minister of Health. Between 1992 and 1995 its membership increased from 5,700 to 30,000 persons, and by 1995, Consumidor, S.A., had a circulation of 35,000. Idec’s example showed political entrepreneurs, or public leaders, that consumer protection was a viable issue for activism and service and inspired the creation of additional organizations. In the state of São Paulo alone, ten new organizations formed during the period 1991–1994.

Public Awareness of Consumer Protection Even before the wave of privatization in the 1990s, Brazilian consumers were accustomed to taking their complaints to the media. Josué Rios has done research showing that media attention to consumer issues increased after the passage of the Consumer Protection Code. Of the nine newspapers he investigated, seven created the consumer section after the Code was passed, and all of them said that demand for consumer services had increased. The implementation of the Consumer Protection Code was well publicized. A public opinion survey in the city of Salvador in 1995, with 400 respondents, showed that 56% had heard of the Consumer Protection Code and 43% had heard of consumer defense organizations in Salvador. Close to 75% of the respondents said they complained when their consumer rights were violated. Thus, the institutional safeguards for the rights of Brazilian consumers in general as well as the specific arena of public utility regulation were in place before the privatization of Telebrás in 1998. In the words of the Coordinator of a Procon in the state of Minas Gerais:

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The growth in the level of consciousness of consumers in Brazil is the most palpable example of how our democracy is becoming more consolidated day by day. The Consumer Protection Code and Decree 2,181 are invoked every day all over the country. Few Brazilian laws have proven to be so efficient and popular.13

Complaints About Telephone Service As had happened in Argentina, the newly privatized telecommunications service dominated government and NGO consumer complaint lists in Brazil. As of 2002 there was no centralized data bank of consumer complaints, but reports from across the country told the same story. In the first nine months of 2001 consumers in the city of São Paulo filed 12,000 complaints about fixed-line telephone service. In 2001 the number of complaints in the state of Amazônas reached 20,000. In Brasília, public services received the highest number of complaints. In the state of Pará, 90% of the people who went to the state Procon requested help with problems with their telephone service.14 Complaints were especially prominent in Rio de Janeiro, where the state company Telerj had been infamous for its poor service. The telecommunications sector was responsible for 30% of complaints to Procon in 1998.15 After privatization, in 1999, the newly privatized telecommunications sector accounted for 43% of the complaints.16 The famous I hate Telerj! Web site was succeeded by a site known as I hate Telemar! This site became a part of modern Rio culture. After privatization, the page announced that “my name has changed (to Telemar)” but “my service has remained the same.” Visitors to the page were greeted with a busy signal. “Certainly this year the company will maintain its position as complaint champion,” said Jorge Alves, director of Procon, of Telemar in 2001. The Justice Department of the State of Rio de Janeiro opened up its own complaint center expressly for clients of Telemar. Luiz Francisco Tenório Perrone, vice-president of


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Anatel, said Telemar was the undisputed champion in numbers of complaints received by Anatel. In October 1999 the agency received 1.02 complaints for every 1,000 telephone calls made. Next in line in numbers of complaints to Anatel were Telefônica Cellular (also in the Rio de Janeiro area) and Telesp. The number and intensity of complaints began to vary by region a year or so after privatization. The Telemar concession area remained especially problematic, while the situation became a bit calmer in other areas. A decline in the number of complaints about telephone service was reported only in a few cities in the southern region, however. The telecommunications sector still led consumer complaint lists across the country in early 2002. The most common complaints concerned charges for unmade calls, followed by undelivered services and poor service quality. Calls to “Tele-Sex” services made up a significant percentage of the disputed charges. Some of the Procons held advertising campaigns to inform consumers they did not have to pay for disputed charges until the matter was settled.

Consumer Organizations and Legal Action In addition to assisting individuals and providing consumer education, consumer protection organizations represented consumers as a class in legal matters. For example, the confusion over unmade calls prompted consumer associations to demand that companies provide detailed bills for local service. The associations argued that the Consumer Protection Code guaranteed this right. (In Brazil, most consumers pay for local service based on use rather than a flat fee as in the United States.) Idec filed a lawsuit on this matter in the state of Minas Gerais, and won. In response to the pressure, Anatel also passed a resolution requiring companies to provide detailed bills if requested by the consumer. The agency argued that the digitalization of the network made bill itemization financially viable for the companies.

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The most important issue in class action lawsuits, and the one companies found the most worrisome, was tariff rebalancing. Tariff adjustments were the leading cause of suits brought by consumer protection associations and public defenders. Idec, especially, developed a plan to stop readjustments in the price of local calls, monthly fees, and calls made on public telephones. Its legal arguments were based on a clause in the Consumer Protection Code that prevented companies from exploiting consumers with “abusive” tariffs as well as wording in the privatization contracts that linked tariff increases with meeting service goals. The readjustment formula permitted the application of an index of 9% over the value of existing tariffs, in addition to inflation. Although, on average, the cost of telephone service was not permitted to vary above inflation, some items in the basket of tariffs did.17 As local fixed service was the area in which companies faced the least competition, they usually opted to increase those prices rather than long-distance or value-added services. “Access to service became cheaper with the decrease in the connection fee, but the service itself increased at a rate higher than inflation.”18 Thus an Idec lawyer summed up the impact of privatization on prices. Idec considered the contractual formula illegal because it “generates abusive prices and impedes the access of consumers to an essential public service.” The lawyer summed up her own analysis of telecommunications policy as “the objective of the government is to have 50 million Brazilians who are active consumers of telecom services, and forget (the actual verb she used was a little more colorful) the rest.” One of Idec’s legal briefs accused the company Telesp of wanting to remain in the market without any kind of social control. Idec’s complaints were: 1. The number of complaints exceeded what was permitted by the Quality Goals Plan (Plano de Metas de Qualidade). 2. Telesp was charging an excessive amount for monthly service


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3. Answering machines were installed without clients’ permission, resulting in other clients being charged every time they call someone 4. Telesp showed disrespect for client complaints 5. Announcement about termination of service in 30 days is illegal, as Anatel’s resolution allowed 90 days The organization requested that: 1. Anatel present a report showing it is enforcing its rules 2. Procon-SP and other municipalities inform the public about number of complaints In 2000 a judge ordered Anatel and the São Paulo Procon to “inform the court about whether Telesp has met the requirements.” Eventually it was found that the company had met its requirements and it was permitted to go ahead with a price increase. Other consumer protection organizations followed Idec’s example and used the court system to protest additional rebalancing. The Public Defender’s Office of the state of Santa Catarina filed a similar suit against Brasil Telecom (formerly Telesc). The court in Florianópolis impeded the company from implementing the increase of up to 17.6% in June 1999. In Minas Gerais the lawsuit was filed by the “Housewives and Consumers of Minas Gerais.” In 2001 Idec began working on filing a similar action for the Brasília area. The Brazilian lawsuits against rebalancing were examples of collective action coordinated by political and legal activists. For various reasons, however, they were less contentious and more contained than the struggles against rebalancing in Argentina. First, previous tariff restructuring meant that the amount of the increases associated with privatization was less. Second, in Brazil the juridical channels for dispute resolution were clearer. Anatel and the telephone companies did not dispute the legitimacy of consumer protection legislation or its applicability to telephone

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service. The actions were confined to the respective regional courts; there was no unified national case that reached the Brazilian Supreme Court as the rebalancing case had in Argentina, and as had happened with the opposition to the privatization of Telebrás. Third, in Brazil, as the previous chapter showed, greater contestation over privatization had forced the government to develop a better regulatory regime. In addition to tariff rebalancing, consumer organizations used the legal system to protest service-related problems. Service problems generated a series of legal actions against Anatel as well as against the companies. In Rio de Janeiro, an association filed a suit against Embratel over whether the company could report delinquent customers to the state credit agency. In 1998 a court in São Paulo ordered Embratel and Telefonica to pay 30 million Brazilian reais to consumers for problems associated with the switch in long-distance services. The unions also attempted to capitalize on consumer discontent. The national telecommunications union (Fittel) encouraged all the state level unions to file legal actions against companies for not meeting their service goals. Union President Luiz Antonio Silva said the reason was not just a union concern, but a social one, that poor areas were not being served. In particular, Fittel questioned why service posts were closed in many cities in the interior. In most states, complaints now had to be sent by fax to the capital city. In Sergipe, even the post in the capital city Aracaju was closed. The unions, of course, had a particular interest in maintaining the service centers: according to Fittel’s president, 40% of the former 90 thousand Telebrás employees were fired in the years following privatization. Anatel audited the firm to determine whether the dismissal of employees was a cause of the decline in service quality. Anatel president Renato Guerreiro condemned Fittel and the state unions for their legal actions in the Ministry of Justice charging companies had not met their goals, but in the case of Telemar, Anatel eventually required it to reopen customer service centers. This may have been a case in which the interests of consumers and labor converged; at least, labor claimed they did.


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Indeed, unions were one of the major actors on behalf of consumers in the legal arena, as Table 7.2 shows. Consumer protection groups of all sorts filed actions all over the country, and Anatel itself had 35 processes in motion against the companies.

Anatel and Consumer Protection We will be the eye of the consumer, against inefficiency, abuse of economic power, and the lack of respect for consumer rights.19 —Renato Guerreiro, President of Anatel With “the eye of the consumer” as its slogan, the regulatory agency Anatel began functioning on November 5, 1997. Along with the justice system and specific consumer protection agencies, Anatel formed an institutional background that was better able to absorb and process consumer disappointment after privatization than was found in other Latin American countries. Anatel was modeled in part on the Federal Communications Commission of the United States (for example, in its accountability to congress) and in part after European regulatory commissions (in its independence from the executive branch). The agency’s first official responsibility was to implement privatization in a way that would be superior to the rest of Latin America and to previous sectors privatized in Brazil. Anatel’s leadership assured reporters that the agency planned to conduct field work, audits, and listen to consumer complaints. “We don’t want the problems associated with the privatization of other public services to repeat themselves,” said Director Antonio Carlos Valente, referencing the blackouts associated with electricity privatization in Rio de Janeiro the previous summer.20 The agency’s president, Renato Guerreiro, said that other Latin American countries had ridiculous obligations as well as interference in choice of providers, which had led to renegotiation of contracts. In Brazil, he said, the government had avoided these mistakes by creating Anatel and setting good terms prior to privatization.

Plaintiff Union

Procon

Union

Union Union and Consumer Rights Committee of the Legislative Assembly

Region

Brazil total

São Paulo

Pará

Minas Gerais

Maranhão Telemar and Anatel

Telemar failure to pay indemnizations

Closure of service Anatel

Telefonica and Embratel between July 3, and 12

Anatel, Telemar, Tele Centro Sul, Telefonica

Defendant

Closure of service centers, failure to meet goals, declining quality

Excessive layoffs,

centers, service quality, failure to meet goals, layoffs

1999, when many calls . were not completed.

Wants compensation for consumers’ problems

Failure to meet quality goals; wants Justice to require Anatel to make companies meet goals

Complaint

Table 7.2. Some Legal Actions Regarding Brazilian Telephone Service

Procon Group of petitioners, Consumer Protection Committee of the Legislative Assembly

Bahia

Sergipe

Source: Anatel, quoted in Folha de São Paulo, 04.30.2000.

Plaintiff

Region

Telemar and Anatel

Telemar

Defendant

Table 7.2. (continued)

Errors in billing, closure of service centers, declining quality, failure to meet goals

Decline in quality, failure to maintain telephone network

Complaint

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The view abroad, however, was that Brazil would be like the rest of the region: immediately after privatization there were some protests that the goals set were too high, with companies wanting to renegotiate them. Anatel immediately rejected any possibility of renegotiation of the goals, stated Guerreiro. Guerreiro also said that Anatel was different in its power to hire independent auditors and then punish based on their findings. The Brazilians I interviewed often were critical of Anatel, but its transparency and accountability were definitely higher than its Argentine counterpart. For the first six months after privatization, the agency mainly worked on concession contracts. In the following months, on at least some occasions, it held companies accountable when they did not meet their goals and required them to compensate consumers. Furthermore, Anatel was more accessible to citizens than Argentina’s National Communications Commission. The agency developed a consumer help line, and provided comparison shopping for long-distance providers on its Web site. It opened “Citizens’ Halls” in diverse locations (although certainly not everywhere they were needed) to provide Web service to the majority of Brazilians who lacked Internet access at home or work. The agency hired the University of São Paulo to conduct regular public opinion surveys. Similarly, the relationship between Anatel and the Brazilian Congress was better developed than in most Latin American countries, if less than in the United States. Most important from the pro-business point of view, the Brazilian Congress did not attempt to grant itself price-setting powers. It was the threat of congressional interference in pricing that had panicked investors in Argentina several years earlier. Relations between Anatel and the congress were not exactly harmonious, however. A dispute developed over whether the congress had the right to become involved in a decision regarding the frequency to be used for PCS wireless service. Brazil’s role in the international system was involved, as the dispute was between a frequency favored by the United States and one used in Europe. One of the PT (Workers Party)


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leaders who had opposed privatization, Deputy Walter Pinheiro, declared that “deciding the frequency for PCS is a development policy for the country in the telecommunications sector, and the Brazilian Congress must not and desires not to stay outside of the discussion.”21 Pinheiro further argued that the General Telecommunications Law in no way prohibited congressional involvement in policy decisions. Anatel did not want the congress involved in the PCS decision or others, such as the regulation of digital television. A scandal further damaged relations between Anatel and the congress. President Guerreiro was photographed standing beside the fetching female model employed by Intelig (Telefônica) in the Telefônica stand at the Formula 1. A news editorial complained that “It is unacceptable that economic regulatory agencies be converted to simple auditing programs or that authorities of those bodies expose themselves to ridiculous and compromising situations like that of the president of Anatel, caught by the side of a propaganda girl as a guest at a party sponsored by one of the telephone operators.”22 Following the scandal, another opponent of privatization, Communist Deputy Sérgio Miranda proposed to alter the personnel rules, impeding Guerreiro from another term. One of the outcomes of the legislative debate over regulation was consumer representation on a “consultative committee” of the regulatory agency. Neither the Procons nor the most prominent consumer protection association (Idec) were invited to participate, however. Indeed, one Idec lawyer considered Anatel to be “shamefully undemocratic” and its policies “totally schizophrenic.”23 Idec won a contract with the Inter-American Development Bank to monitor privatized public services, namely telephony, electricity, and water and sanitation. The initiative for this project came from the international NGO Consumers International. Anatel was supposed to have a partnership with Procons, but it did not advance because of the role of the latter in the tariff rebalancing question. Eventually Idec decided not to pursue a more formal relationship with Anatel, opting instead for partnerships with universities, syndicates, and other

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organizations it deemed to be “qualified” (and independent) representatives of consumers.

The Alternative Regulatory Agency The Rio de Janeiro state telecommunications union (Sinttel) formed a parallel regulatory agency, the Intel (Institute of Telecommunications of Rio). Intel was modeled after the Inter Syndicate Department of Statistics and Social Economic Studies (widely known as the Diesse), which unions created in the 1980s as an alternative to official economic analysis. The new group planned to create comparable-quality indexes rating the companies, and hoped to develop relationships with the universities. The general coordinator of Fittel, Luiz Antonio Souza, justified the new organizations thus: “Anatel is not independent. It was formed in a hurry and the leadership seats are all filled for political reasons. The consultative council, where there are representatives from all sectors, was instituted without the presence of society.” The Intel was not as successful politically as the Diesse had been, however. It remained in the background of debates over consumer protection and the outcome of privatization.

Consumers and the Political Realm President Cardoso’s opposition on the left criticized privatization itself and scandals associated with it more than it demanded regulatory changes that would favor consumers. Workers Party presidential hopeful Luiz Inácio Lula da Silva (Lula) declared that if he won (the 1998 election) he would require “an audit of privatized companies, because I believe there were some irregularities and I want to prove it.”24 Lula added, however, that “the idea is not to undo what has already been done. The privatizations were approved through passage of law by the Congress, and that must be respected.”25 Lula’s campaign posted the following letter to consumers on the PT’s website:


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As a presidential candidate, I publicly assume some promises to Brazilian consumers. I promise to value and support the civic organizations of consumer protection, which are important for the construction of citizenship in our country. I promise to respect and enforce the Consumer Protection Code as well as to fight to make it more effective. I promise to insist on and guarantee transparency in the installation, functioning and decision-making process of matters of interest to consumers, either by way of public audiences or the presence of consumers or their representatives. I promise to propose and approve laws to defend consumers such as the modernization of the mechanisms of control against fraud, dangerous practices and abuses committed by companies. I promise to implement a National Consumer Protection System and create a National Consumer Protection Council, guaranteeing civic associations the right to participate. I promise to propose and approve laws to improve the Small Claims Court System, which are a rapid and inexpensive way to provide justice for consumers, as well as to propose and approve laws that improve the access consumers have to the justice system. I promise to fight for consumer education in the schools or the media, as well as more information about consumer protection.26 In July 1999, PT Deputy Walter Pinheiro (PT-Bahia), one of the leading telessauros who had favored maintaining state ownership of the sector (and was proud of the label), wrote a newspaper column deploring what he called reduced quality in telephone service all over the country. The regulatory agency Anatel claimed not to know about the problems, he wrote.27 Maria da Conceição Tavares (economist, professor, and former PT deputy) criticized Anatel’s passivity before the companies. Telemar and Telefonica were only fined after the Procons and the Ministry of Justice intervened, she argued. Tavares also

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wrote that “the treatment of users after a year of privatization of the Telebras system is calamitous.”28 Offhandedly acknowledging the reduced waiting time for telephones, she stated that “the complaint line is longer than the waiting line was before!” and that having to deal with many companies instead of one was a problem for consumers. Another PT deputy (José Genoino, São Paulo state) alleged that Anatel was discriminating against the residential user in favor of big corporate users, and cited Idec’s case against Telesp in his state.27 On the right, Antônio Delfim Neto, former economics minister for the military government during the 1970s, argued that privatization had not benefited Brazil the way it should have: “The deficiency is obvious when we look at the case of the poor users of telecommunications services. Whoever manages to have a call completed at the first try deserves a prize for being ‘communicator of the month.’”30 Some deputies called for a special congressional committee to investigate irregularities associated with the privatization of Telebrás, but the political prominence of these faded after the government was cleared by the Supreme Court.

Brazil’s Evolving Institutional Climate I have argued that Brazil possessed a more institutionalized climate for consumer protest after privatization than Chile and Argentina. This is not to say that the institutional climate was static afterward. In the period 2001–2002, consumer product scandals became hot political issues. Idec, various Procons, and other consumer advocates reported that the manufacturers of such common items as cookies and toilet paper were reducing quantities without a corresponding reduction in price. In response the Cardoso government began to push for a new Agency of Consumer Protection and Competition. If created, this agency would affect telecommunications insofar as it would be in charge of anti-trust regulation. By the year 2002, the movement appeared to have lost momentum, in part because of


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pressure from existing regulatory agencies such as Anatel. Other important political issues in the next few years, including controversies over the price of drugs and whether Brazil should accept genetically modified agricultural products, were directly related to consumer protection. Consumer protection was becoming increasing integral to political discourse in Brazil. Consumer protection organizations played a major role in keeping consumer protection on the agenda. Electricity blackouts were another reason for changes in the institutional environment. In 1995 Brazil had opened its electricity markets to foreign capital. In March 1999 a blackout affected half the country. Blackouts and serious shortages continued over the next few years. Idec released studies showing how low-income consumers who previously benefited from social tariffs were hurt by privatization of electricity.31 The economics of tariff rebalancing were at work again. To deal with the electricity crisis, the government created a separate “Ministry of Blackouts,” overriding the existing electricity regulator. In early 2002 the “Blackout Ministry” predicted there would be three readjustments of the average electricity bill. The case of the privatization of Telebrás supports the general argument that the confluence of democratization and liberal reforms like privatization provoke consumer mobilization. The Brazilian case also supports arguments that variables such as the political processes and institutions shape the outcome of privatization in important ways. The privatization of Telebrás was carried out more slowly and carefully than the privatization of other Latin American telephone companies. The slower and later process allowed Brazil to learn from the mistakes of its neighbors. Legislators specifically tried to avoid the lack of transparency of service goals and the suggestion of regulatory capture by foreign monopolies that were seen in Argentina. As a result, there were mechanisms for consumer representation in Anatel. There was a relatively well-developed competition strategy. The Brazilian Congress insisted on a clear plan for universal service and an accountable regulatory agency. In contrast to Argentina, the progress of the companies toward meeting their

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service goals was relatively transparent. They also came closer to meeting their goals. While some critics have called Brazil a plodding dinosaur, its slow privatization process produced a relatively modern and democratic regulatory regime that included channels for consumer complaints and dispute resolution. The nature of political parties was another important explanation for the relatively muted consumer reaction to privatization in Brazil. The coalition that opposed the privatization policies of Cardoso’s government drew its support primarily from organized labor and followed a strict anti-liberal ideology. When service problems followed privatization, the opposition was only too happy to draw attention to them, but the political parties did not attempt to build political capital directly based on the consumer-rights movement the way the Argentine parties did. It was lawyers, academics, journalists and other civil society activists who built the consumer movement in Brazil. Had the PT attempted to build a consumer movement based on the failures of privatization, the government coalition might have responded by building consumer support based on privatization’s successes. Legislation and judicial institutions also mattered for the outcome in Brazil. Brazilian consumer advocates and the critics of privatization were primed for protest, but the legal and political arena was also better equipped to deal with their actions. Crucially, procedures for class action lawsuits already were in place. Thus, there was far less of a threat that privatizations would be undone by legal actions attacking the constitutionality of contracts. The Procons allowed individual consumers a mechanism to resolve disputes with telephone companies. Prominent lawsuits challenged the regulatory apparatus to develop a tariff structure that did not penalize residential consumers so heavily. The consumer movement also succeeded at compensating people who lost money because of specific service problems like the confusion created by the changes in long-distance service. It was able to do so because institutional mechanisms for dispute resolution already existed.


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As the uneven benefits of privatization became evident, the Brazilian consumer movement demanded even greater voice for citizens, consumers, and civil society in decisions concerning economic regulation. Many in Brazilian society supported these demands for expanded democracy. An editorial in the Folha de São Paulo called on the Cardoso government to “let go of the generally technocratic perspective with which it treats public questions.”33 As Brazil entered the twenty-first century, it was clear that the consolidation of neoliberal reforms such as privatized utilities would occur only in tandem with the deepening of democracy and the protection of ordinary consumers, and that all of Brazil’s political parties would compete to represent them.


CHAPTER EIGHT

Democratizing Free-Market Capitalism Consumers and the Codevelopment of “Voice” and “Exit”

Economic and political reforms produced many changes in Latin American countries in the last two decades, but one of the most important effects of the combination of these very different lines of reform has not been understood or even noticed by most scholarly analysts. The evidence presented in this book showed that the privatization of public utilities coincided with a dramatic increase in rhetoric about consumer rights and a distinct trend toward constitutional and legislative protection of those rights. Individual consumers took advantage of the new protections and began to express complaints about the real problems associated with privatization to government bodies, private businesses, and NGOs with increasing frequency. Politicians and activists seized the opportunity to organize consumer movements that were strong enough to influence electoral politics and achieve a voice in regulatory policy. Thus, in the 1990s, Latin American consumers emerged as important social and political actors in the region for the first time. In addition to documenting the rise of organized and unorganized consumer protest following the privatization of public 167

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utilities, this book has argued that different styles of privatization produced varying levels of contentiousness and institutionalization of protest. Where privatization was rapid and accompanied by little or no public debate, consumers were especially likely to engage in highly contentious and disruptive behavior in the postprivatization period and demand changes in regulatory policy that investors found threatening. Rather than considering consumer movements a mere thorn in the side of market reforms, as some critics have argued, however, I have concluded that they are an essential component of the codevelopment of market economies and democracy. I also have argued that legislatures are more important for policy in Latin America than many people think. Congressional participation in the privatization process in Brazil led to a more transparent regulatory regime that was more responsive to the needs of consumers than the regulators created by executive decree in Argentina and Chile. Congressional legislation did not just benefit consumers in a populist sense; the Brazilian regulatory regime also was better regarded by business actors and international economic institutions. The specific effects of legislative participation on policy may not always be positive, however, be it from the point of view of consumers or business. The main point is that legislative participation in policymaking is necessary and unavoidable as democracy develops. The ideological histories of different political parties affected how they began to appeal to consumers as constituents. Parties that initiated neoliberal reforms such as privatization appealed to consumers on the basis of the benefits of the increased investment brought about by private ownership and partial market competition. Opposing parties built political capital by pointing to regulatory failures and the end of subsidies to middle-class consumers who made mostly local calls. After failing to prevent privatization, even parties that traditionally focused on protecting workers from the vagaries of capitalism began to point out the glaring deficiencies of supposed competition in the telecommunications sector as well as the continued need for state intervention to promote justice for consumers.

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Finally, I have shown that the use of courts to govern consumer disputes is crucial for making credible policy commitments to citizens and consumers as well as to business. As Alexis de Tocqueville noted of the United States—that there is hardly a political question that does not eventually turn into a juridical one—courts in Latin America were important arbitrators of regulatory decisions.1 Where consumers had clear access to appropriate juridical channels, they were less likely to engage in acts of highly contentious politics through uninstitutional channels. In the past two decades, consumer protection has become an integral issue in the political and legal systems of most Latin American countries, not just the three country cases presented in this book. By 2002, eleven countries in the region recognized consumer rights explicitly in their constitutions, and only four— Guatemala, Cuba, Bolivia, and the Dominican Republic—had no specific consumer-protection law. Some countries, including Argentina, Peru, and El Salvador, followed the example of European countries by developing public interest ombudsmen, or public defenders. The original justification for creating an ombudsman was to protect human rights, but in the 1990s, like legislators, legal activists, and other consumer advocates, political ombudsmen took on the task of consumer protection. According to Consumer International’s Robin Simpson, “The responsibility for public utilities came later in response to public demand and they form a major step forward in consumer rights in the region, one from which the rest of the world could learn.”2 The Argentine case study revealed how powerful the ombudsman’s role can be in pushing forward the concept of public interest or class action lawsuits. The emergence of consumers and consumer advocates as social and political actors poses challenging questions for politics and economics in the region. For example, how significant will Latin America’s new consumer movements be in the long term? Are they best characterized as a new form of social movement or simply a new kind of interest group? Will Latin American countries develop some of the more negative effects of the so-called “litigation society” in the United States?

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One Argentine scholar offers a relatively pessimistic view of the potential of the trend toward consumer protection, arguing that the new institutional configuration gives the appearance of attending to complaints (for example, she mentions that every company now has its consumer attention center), but discourages citizens’ attempts to establish real accountability.3 She concludes that the increased number of offices, in governments and companies, gives the appearance that things are changing, but that the proliferation of agencies and laws may actually make consumer action more difficult. In her view, “judicialization” attracts media attention but achieves little in matters of policy. It certainly would be premature to conclude that Latin American consumers have achieved full legal protection. Although I have emphasized their triumphs in this book, in many cases consumer movements remain less powerful politically than privatized firms. There also is some evidence in favor of the hypothesis that consumer protection is a large boon for litigators. Latin American bar associations are interested in developing new clientele and there definitely is an interest on the part of attorneys in increasing consumer litigation. In some cases there is competition between those who consider themselves advocates or activists and commercially oriented lawyers. The same discussion about whether litigation and activism should be considered promotion of the public good or self-serving activities by political entrepreneurs occurs in more developed countries. It is a problem inherent in pluralist democracy, and perhaps a relatively desirable problem to have. As I argued in chapter 2, the codevelopment of markets and democracy implies the expansion of the option of exit and voice. In Latin America, both options expanded during the period 1985–2000, albeit in uneven and sometimes problematic ways. At the turn of the millennium, the Latin American region more closely resembled the market democracies of North America and Europe in policy and process. Class-based organizations still played weightier roles than a model of pure pluralism suggests, but groups based around other interests, notably that of consumers, were growing in influence. Politicians and activists cast

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wider nets, appealing to voters based on identities other than labor or capital. Some traditional class-based parties and unions also began to emphasize the importance of consumer protection. Many hopeful liberals (and neoliberals) believe that when expanding markets and augmenting political freedoms coincide, there is every reason to be optimistic that growth and development will occur. The high levels of poverty and inequality in Latin America, along with the ongoing danger of economic crises such as the one that hit Argentina in 2001–2002, make the balance of voice and exit options that developed in the latter two decades a fragile one, however. As with the crossed wires mentioned metaphorically in the title of Chapter Two, depending on the context, democracy and economic reform may combine to produce sparks of conflict in uneven and unpredictable ways. In addition to provoking consumer consciousness, privatization produced higher levels of economic concentration and in some cases contributed to increased social tension. I have argued throughout this book that in some ways consumers are natural stakeholders in the expanded markets and increased investment globalization has wrought. I also have insisted that, in democracies, if they do not believe their rights have received adequate attention or protection, contentious consumers may have the power to call the bluff on market reforms.


Notes

1. Consumer Movements: New Social and Political Actors in Latin America 1. Headlines from Argentine newspapers: La Nación, 10.08.98; La Nación, 12.12.98; La Nación, 03.13.98; La Nación, 10.19.97; La Nación, 12.07.99; Clarín, 11.30.97. 2. On the relationships among organized labor, democracy, and civil society, see Oxhorn and Ducatenzeiler (1999). Collier (1999a) argues that while labor played an important role in the transition to democracy in most Latin American countries, it subsequently was unable to block economic reforms in the new democracies. Murillo (2001) identifies the conditions under which labor sometimes was able to obtain concessions. On labor and democracy, see also Collier (199a); Collier and Collier (1991); Huber, Rueschmeyer et al. (1997); Rueschemeyer, Huber-Stephens et al. (1992); Campero and Cuevas (1991); Bergquist (1986); Buchanan (1995); and Drake (1996). On labor and political parties, see Murillo (2001); Collier (1999b); Bruhn (1997); and Keck (1989). 3. Historically, Latin American governments have been characterized by the concentration of power in the executive branch. For a strong argument that executive dominance continued in the latest democratic period, see O’Donnell (1994). On the problems associated with Latin America’s presidentialist 173

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systems, see Linz and Valenzuela (1994) and Mainwaring and Shugart (1997). On legislative and judicial branches’ gains and relations between and among the branches of government, see the collections of essays in Shugart and Carey (1992); Haggard and McCubbins (2000); and Lijphart and Waisman (1996). 4. On privatization and regulation in Latin America, see Kingstone (2003); Murillo (2002); Armijo (1999); Ruffin and Romero (2001); Bresser-Pereira, Maraval et al. (1993); Galal, Jones et al. (1994); Graham (1998); Molano (1998); Banco Mundial (2000); Noll (2000); Vickers and Yarrow (1988); Tornell (2000); Waterbury (1992); Guasch and Spiller (1999); Levy and Spiller (1994; 1996); The World Bank (1995); Galal and Nauriyal (1995); Joscow (1998); Melo (1997); OECD (1998); Paredes-Molina (1995); Petrazzini (1995); Ramamurti (1996); (Rosenblut (1998); Sáez and Bitran (1994); Wellenius (1998); Parodi (1995); Heller and McCubbins (2001); Haggard and Noble (2001); Bitran, Estache et al. (1998); Williamson (1994); and Vial (1992). Consumer protest and organized consumer movements are ignored in virtually all this literature. 5. On democratization in Latin America, see, among others, O’Donnell and Schmitter (1986); Karl (1990); Karl and Schmitter (1991); Huntington (1991); Diamond (1992); Haggard and Kaufman (1995); Linz (1990); Mainwaring (1992); Munck (1994); Malloy and Seligson (1987); and Przeworski (1992). 6. The concept of opportunity structure, discussed in Chapter Two, is borrowed from social movements theory. For a summary, see Tarrow (1998). 7. On globalization and the power of multinational investors see, among others, Friedan and Rogowski (1996); Friedan (1991); Ffrench-Davis and Griffith-Jones (1995); and Maxfield (1990). On the development of transnational activist networks, see Keck and Sikkink (1998); Wapner (1996); Smith, Chatfield et al. (1997); Cerny (1995); and Cowell (2000). 8. On technocratic styles of policymaking, see Dominguez (1997); Centeno (1996); Valdés (1995); and Conaghan and Malloy (1994).

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9. Analysts disagree as to how speed and the political style of implementation affect the outcome of economic reform percentages. The defenders of speedy reforms include Sachs (1993); Aslund (1995); Rodrik (1996); and Martinelli and Tommasi (1997). Those favoring gradualism include Wei (1998) and Dewatripont and Roland (1992). For a critique of the “authoritarian advantage” thesis see Maraval (1995). See also Greskovits (1998). Murillo (2002) argues that “political biases” had a significant effect on openness to foreign investment and levels of state intervention in both telecommunications and electricity sectors after privatization. 10. The concept “repertoire of contention” is from Tilly (1978; 1984). See also Tarrow (1998) and Hill and Rothchild (1992). 11. See, for example, FIEL (1991). Governments’ capacity to make credible commitments to the private sector is one of the key variables economists identify as conducive to investment and growth. Credible commitments thus are the dominant focus in most studies of privatization and economic reform. See Weingast (1995); North and Weingast (1989); North (1990); and Levy and Spiller (1994; 1996). 12. See, for example, Armijo and Faucher (2002); Graham (1998); Przeworski (1991; 1994); Nelson (1994); Haggard and Kaufman (1992); Haggard and Webb (1994); and Smith, Acuña et al. (1994). 13. On other forms of social mobilization, see García Canclini (2001); Alvarez, Dagnino et al. (1998); Escobar and Alvarez (1992); Fitzsimmons (1995); Keck (1995); Eckstein (2001); and Munck (1995). 14. See Armijo (2002). 15. Under state ownership, waiting periods of ten years or more were not uncommon. Privatization generally resulted in the end of the pent-up demand that was the cause of the long waits. In spite of the increases, at the turn of the twenty-first century telecommunications density in the region lagged far behind that of the United States and Western Europe. See ITU (2000b).

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2. Explaining the Emergence of Consumer Movements: The “Crossed Wires” Effect of Democratization and Privatization 1. See Maney and Bykerk (1994); and Nadel (1971). 2. See MacLachlan (2002); and OECD (1983). 3. I use the name rational choice because it is the most common shorthand used in political science. For a discussion of the applicability of this paradigm to politics and policy making in developing countries, see Meier (1991). 4. The classic presentation of the rational choice framework is Olson (1965). 5. See Stigler (1974). 6. See Gerth and Stolberg (2000). 7. See, for example, Feder (1997); Sterngold (2001); Holson (2000); Eichenwald (2001); Pollack (2000); McNeil (2000); and Flaherty (2000). 8. See, for example, Wagner (1966); and Frohlich, Oppenheimer et al. (1971). Hardin (1982) argues that a contractual relationship exists between political entrepreneurs and individuals who share latent interests. See his book for an interesting critique of Olson’s theory. Hardin uses the empirical examples of the women’s movement, the antiwar movement, the civil rights movement, and the environmental movement to show that collective action does occur, and that the impact of organized activity is frequently more intense than the number of actual participants would lead us to expect. 9. On symbolic politics, see Edelman (1964). 10. See Vogel (1989). 11. Maney and Bykerk (1994) document the survival of the United States consumer protection movement in the 1980s. For earlier histories, see Nadel (1971) and Morse and Snyder (1993). 12. See Downs (1957). 13. See Joscow and Noll (1981). 14. Hirschman (1970) makes this argument. He also remarks that neoclassical economic theory explains “wanton” preferences, but not real changes in preferences. Also see James

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(1993) on consumer theory and modernization in the developing world. 15. Modern economics almost always employs a purely materialistic definition of the consumer interest. Recently, attention has returned to behavioralist approaches, implying, perhaps, re-recognition of Veblen’s (1899) ideas about conspicuous consumption. 16. This idea is also from Hirschman (1970). 17. Author’s interview, Ombudmsan’s Office of the City of Buenos Aires, August 2000. 18. See Hudson (1997). 19. The most simplistic pluralist argument is surprisingly close to the Marxist idea of grievance theory, which basically says that groups that feel aggrieved will organize to improve their situation. 20. See Madison (1961). 21. See Galbraith (1993). 22. According to Berry (1997), the telecommunications industry in the United States resembled this situation for most of the twentieth century. By the late 1980s, however, the once monolithic AT&T lobby gave way to more pluralist issue networks, which may include some consumer interests. 23. Cawson (1985) defines corporatism as “. . . a process of interest intermediation which involves the negotiation of policy between state agencies and interest organizations arising from the division of labour in society, where the policy agreements are implemented through the collaboration of the interest organizations and their willingness and ability to secure the compliance of their members. The elements of negotiation and implementation are both essential. . . .” 24. For the European critique, see Middlemas (1979). On the role of state corporatism in the developing world, see Schmitter (1971). 25. Tarrow (1996), p. 3. 26. As Tarrow explains, political opportunity theory is the social movement school’s elaboration of the concept of political entrepreneurship. See Tarrow (1996).

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27. Frames, including discourse, ideology and appeals to collective identity, are key components of social movement theory. The emphasis on framing and collective identity is derived from Gramsci (1971). Gamson (1988; 1992) applies Foucalt’s (1972) theories of discourse to the study of social movements. 28. See Berejikian (1992). Quattrone and Tversky (1988) first described the different approaches people tend to take toward potential risk and gain. The idea is gaining ground in political economy. For example, Kurt Weyland (2002) uses prospect theory to explain how normally risk-averse politicians may decide to implement market-oriented reforms. 29. This argument comes from the moral economy school of social action. See, for example, Scott (1976). Frajman (2004) makes an interesting argument about the protest against privatization of both electricity and telecommunications in Costa Rica that incorporates a sense of broken trust. 30. See Hardin (1982). 31. On the idea of repertoires of contention, see Tilly (1978; 1984). 32. See Collier and Collier (1991); and Collier (1999a). 33. See, among others cited in Chapter One, Collier and Mahoney (1997). 34. This percentage is an unweighted average calculated by Madrid (1999), p. 81. 35. See, among others cited in Chapter One, Alvarez, Dagnino et al. (1998). 36. On women and popular movements, see Tarrés, Sánchez, and Selva (1988) and Tarrés (1989). I am grateful to Leslie Wirpsa for pointing out the shift in rights discourse. 37. This type of criticism is found in many economic studies of state-owned companies in Latin America. For example, see Levy and Spiller (1996). 38. The classic statement of the rent-seeking thesis is Krueger (1974). 39. See Bustamente (1988) p. 37. 40. Mahon (1996) discusses the effects of consumption habits on capital flight. See also Encina (1978 [1911]); Felix

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(1982; 1989); Needell (1995). Cardoso and Faletto (1979) argue that while the demonstration effect of consumption in wealthier countries may have caused Latin American elites to spend their money on luxury imports rather than locally produced goods and services, the more important linkages for explaining the patterns of development in Latin America were those between the local bourgeoisie, the state, and multinational corporations. 41. For a critique of the relationship between consumption and citizenship, see García Canclini (2001). On social movements and civil society, see, among others cited earlier, Oxhorn and Ducatenzeiler (1999); Alvarez, Dagnino et al. (1998); Eckstein (2001); Stokes (1995); Pagnucco (1996); Foweraker and Landman (1997); and Munck (1995). It is not the case that all of these authors criticize the idea of consumer movements: it is much more frequent that organized consumer movements simply are not mentioned. Anthropologists and historians have studied consumption as an expression of middle class identity, however. See O’Dougherty (2002) and Owensby (1999). 42. For a critique of the civil society thesis, see Encarnación (2001). 43. See Alvarez, Dagnino et al. (1998). 44. On regulatory capture, see Stigler (1971); Peltzman (1976); Joscow and Noll (1981); and Estache, Helou et al. (1995). 45. See Hill and Abdala (1996). 46. See Levy and Spiller (1996). 47. See Murillo (2002). 48. For varying views on the necessity of telecommunications, see Saunders, Warford et al. (1994/1983); Lerner (1958); Schramm (1964); Mcluhan and Powers (1989); Mueller (1993); Singh (1999); and Mowlana and Wilson (1990). 49. This breakdown is from Noll (2000), as is much of my explanation of the history of Latin American telecommunications. See also Noam (1998). 50. Those who argue that privatization occurred as part of a package to eliminate fiscal deficits include, among others, Guasch and Spiller (1990); and Noll (2000). For an argument about the political conditions conducive to privatization, see

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Armijo (1999). Political opponents of privatization occasionally even argue that the poor performance of state-owned firms was deliberately contrived in order to win support for neoliberal policies. 51. See ITU (2000a, 2000b). 52. Hudson (1997) contrasts the price structure of traditional calls with that of the Internet: “But now that enormous growth in network capacity has drastically reduced the cost of carrying traffic, distance-sensitive pricing is becoming harder to justify. In contrast, the computer communications industry uses different models, charging by the volume of data transmitted, or setting fixed prices for unlimited access—the approach used by many Internet service providers.” 53. See ITU (2000a, 2000b). 54. See ITU (2000b) p. 62. 55. See ITU (2000a, 2000b). 56. On the possibility of technological leapfrogging, see Singh (1999). 57. See, among others, Centeno (1996); Smith, Acuña et al. (1994); Conaghan and Malloy (1994); O’Donnell (1994); O’Donnell (1996). 58. Conaghan and Malloy (1994) p. 13. 59. See Shugart and Carey (1998). These two authors’ intention is to show that the arguments about excessive decree issuing, concentrated executive power, and delegative democracy have been overblown. They speculate that legislatures might sometimes actually prefer for presidents to take the responsibility for reforms. The latter does not invalidate criticism that excessive decree issuing undermines democracy, however. 60. See, among others, Haggard and McCubbins (2000). 61. See O’Donnell and Schmitter (1986). 62. See García Canclini (2001). See also Armijo and Faucher (2002). 63. See Przeworski (1991); and Armijo and Faucher (2002). 64. See Hirschman (1970). 65. I find additional support for this contention in Ekiert and Kubik’s (1998) study of different forms of collective action

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in Poland, Slovakia, and Hungary, which shows that the better economy, Poland, experienced higher levels of protest. 66. See Przeworksi and Limongi (1993). 67. See Hirschman (1970). 68. Of course, veto players also may make reforms difficult to implement in the first place. Gradual change is thus characteristic of democratic political systems. On the theory of veto points, see Tsebelis (1995). 69. See Goldberg (1976); Spiller (1993); Henisz and Zelner (2001); Antonelli (1993); Greenstein, McMaster et al. (1995); and Roller and Waverman (2000). 70. See Jadresic and Fuentes (2001). 71. See Haggard and Kaufman (1992); and Armijo and Faucher (2002). 72. See Armijo and Faucher (2002); and Graham (1998) pp. 18–19. 73. See Tarrow (1998) and Hardin (1982) for discussions of strategy in collective action. 74. See Durand and Silva (1998).

3. Authoritarian Privatization and Delayed Consumer Mobilization in Chile 1. Specifically on telecommunications in Chile, see Melo (1998); Moguillansky (1998); Rosenblut (1998); Galal (1996); and Paredes-Molina (1995). On privatization generally, see Muñoz (1993); Hachette and Luders (1993); and Sigmund (1990). 2. See Schamis (1999); and Ffrench-Davis (2002). 3. See Leiva and Radrigán (1998) p. 2. 4. On political mobilization and class conflict in Chile, see Stallings (1978); and Petras (1969). See Foxley (1981) on the middle class and the state. See Drake (1978); Angell (1972); and Garretón (1989) on labor. 5. Velasco (1994). 6. See Valenzuela (1993). 7. Petras (1969) p. 4.

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8. Madrid (2000) p. 81. 9. On the influence of business under Pinochet and limitations on the reign of the Chicago Boys, see Silva (1996). 10. Paredes-Molina (1995) argues that high levels of government regulation prevented the sector from expanding. He discusses electricity, telecoms, and airlines, and argues that it was pervasive regulation, not poor private management, that reduced incentives to invest and develop telecoms and electricity. Therefore, in his view, the state takeover should not be attributed to bad management. 11. See Melo (1998); Galal (1996); and Paredes-Molina (1995). “Populist” policies included a larger state role in the economy generally, and the expropriation os large land-holdings for redistribution. 12. On the role of ITT in the coup, see Sampson (1973) and Bock (1974; 1975). 13. For an in-depth study of the rise of technocratic rule by the Chicago Boys see Valdés (1995). 14. See Silva (1996) for an explanation of the changing nature of business organization and its relationship with the state. 15. See Piñera (1991). 16. See Smith (1993 [1776]). 17. CTC did provide the long-distance connection between Santiago and Valparaíso, home to nearly 50% of the Chilean population. Two small companies entered some local markets in 1981, but never acquired more than a 4% market share. 18. See Paredes-Molina (1995). 19. See Piñera (1991) p. 363. 20. Beca (1991) quoted in Paredes-Molina (1995) p. 79. 21. Paredes-Molina (1995) p. 81. 22. Rosenblut (1998). In order to build market share in cellular, CTC subsidized calls its local users transferred from their fixed to cellular lines. The Anti-Trust commission ordered CTC to offer the same terms to its competitors, but the decision came two years after the problem began, and CTC Celular already had acquired a substantial market lead.


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23. Galal (1996). 24. Galal (1996) argues this; so does Molano (1996). 25. See Paredes-Molina (1995). Numerous lawsuits characterized the telecommunications sector in the 1990s. The suits centered around interconnection costs and the boundaries between competitive and noncompetitive businesses. Verdicts often favored the complainants. These lawsuits undoubtedly slowed down growth, but as Galal (1996) argues, the technology was changing in such a way that establishing those boundaries might also have been costly. 26. Paredes-Molina (1995) p. 140. 27. See Melo (1998). 28. See Mainwaring (1995). 29. See Leiva and Radrigán (1998). 30. Author’s interview, Santiago, August 28, 2000. 31. Leiva and Radrigán (1998) p. 128. 32. Cámara de Diputados, Sesión 34, p. 3025. 33. Don Juan Alberto Pérez, Deputy, speaking before the congress, quoted in Cámara de Diputados, Sesión 33, p. 2933. 34. Cámara de Diputados, Sesión 34, p. 2935. 35. Rohter (2002). The 1996 law referenced may refer to a privacy protection statute. 36. Barrera (1999) p. 89. 37. Stark (1996) p. 132. 38. Garretón (2003), p. 173.

4. The “Original Sin” of Privatization in Argentina 1. I borrow the application of the phrase “original sin” to the privatization process in Argentina in the title of this chapter from a special section in La Nación, 03.29.98, Section 7. My August 17, 2000 interview with the executive at telefonica de Argentina who is quoted was conducted in Buenos Aires. 2. La Nación, 03.29.98, Section 7, p. 1. 3. On the transition to democratic rule in Argentina, see, among others, Peralta Ramos and Waisman (1987); Mainwaring (1992); McSherry (1997).

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4. For a discussion of unsuccessful attempts at telecommunications privatization in Argentina and elsewhere in South America, see Molano (1997). 5. See Ferreira Rubio and Goretti (1998) for a treatment of menem’s reliance on decrees. 6. For example, Menem used the partial veto to weaken Argentina’s new consumer protection code in 1993. 7. On the politics of Menem’s economic program, see Levitsky (2003); McGuire (1997); Murillo (2001); Margheritis (1999); Teichman (2001). 8. Ferreira Rubio and Goretti (1998). 9. Ferreira Rubio and Goretti (1998). 10. The Argentine branch of Telefónica de España was known as Telefónica de Argentina. In 1998 the company dropped the accent mark and national identifiers, becoming known worldwide as Telefonica. 11. See Molano (1997) for an account of Alfonsín’s unsuccessful privatization attempt. 12. In 1999 Alsogaray was charged with corruption on the basis of her role in the telecommunications privatization. 13. See Molano (1997). 14. On labor under Menem, see Levitsky (2003); McGuire (1997; and Murillo (2001). 15. Molano (1997). 16. Molano (1997). 17. Author’s interviews, Buenos Aires, June–August, 2000. 18. See Azpiazu (2002); Munck (1994); Hill and Abdala (1996); Margheritis (1999); and Vispo (1999). On telecommunications in Argentina, also see Gerchunoff, Greco et al. (2003); Spiller (1998 and 1999); Abdala and Spiller (1999); and Cenzon, Galperín et al. (1999). 19. Sinha (1995) p. 295. 20. Decrees 205/93 and 2160/93. Much of my account of the negotiations between the CNT and Adelco comes from interviews with former Adleco employees, conducted in Santiago in August 2000. 21. See, for example, Schamis (1999). 22. Schamis (1999).


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23. Jorge Maiorano, quoted in La Nación, 03.29.98, Section 7, p. 1. 24. Marcelo Vensentini, quoted in La Nación, 03.29.98, Section 7, p. 1. 25. On the development of consumer rights legislation in Argentina, see Cincunegui (1993a, 1993b; 1995).

5. Contentious Consumer Mobilization in Argentina 1. Sandra González of Adecua, quoted in La Nación, 03.29.98, Section 7, p. 2; Claudia Collado of Adelco, quoted in La Nación, 03.29.98, Section 7, p. 2. 2. Cenzon, Galperín et al. (1999). 3. The price of electricity did decrease. Study by Flacso, in La Nación, 09.20.98, Section 2, p. 1. 4. Study by Total Research, cited in La Nación, 03.08.98, Section 2, p. 9. 5. Claudia Collado of Adelco, quoted in La Nación, 03.13.98, Section 2, p. 3. 6. La Nación, 09.10.98, Section 2, p. 1. 7. Author’s interview, Buenos Aires, August 16, 2000. 8. La Nación, 03.13.99, Section 2, p. 38. 9. Luís Perazo, President of Telecom, had a negative view of this new complaint culture: “In Argentina there are 7 million accounts for telephone service and we are speaking about complaints numbering in the thousands . . . what happens is that the rebalancing damaged our image because it was politicized and its effects were exaggerated. We do three polls per year (with Gallup), and they show that even in the segment of the population where the cost of long distance calls decreased the people believe they have increased, and do not believe in the reduction.” Quoted in La Nación, 09.20.98, Section 2, p. 1. 10. La Nación, 03.13.99, Section 2, p. 38. 11. Author’s interview, Santiago, August 28, 2000. 12. NERA (1995); Argentina, Comunicaciones et al. (N.D.); Argentina (N.D.).

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13. Germán Kammerath, quoted in La Nación, 05.08.98, Section 2, p. 1. 14. La Nación, 10.23.97, Section 2, p. 1. 15. Author’s interview, Buenos Aires, September 8, 1998. 16. Mimeo, Fundación Santa Fe. This group devotes its energies to promoting market economics. 17. This report never materialized in full. 18. Graciela Fernández Meijide, quoted in La Nación, 07.09.98, Section 2, p. 1. 19. José Luís Machinea, quoted in in La Nación, 04.25.99. 20. Clarín, 08.13.00. 21. Luís Bustamente, quoted in La Nación, 1998. 22. Author’s interview, Buenos Aires, August 17, 2000. 23. La Nación, 12.21.98, Section 5, page 21. The high profits of privatized utilities in general led some analysts to argue that privatization had produced unprecedented concentration of wealth and social exclusion in Argentina. See Azpiazu (2002). 24. Clarín, 11.16.94. 25. CNC, Casa del Cliente, 1997. 26. Fernando de la Rua, quoted in La Nación, 07.20.00, Section 2, p. 3. 27. La Nación, 10.19.97, Section 2, p. 4. 28. La Nación, 10.19.97, Section 2, p. 4. 29. Máximo Fonrouge, quoted in La Nación, 07.13.98, Section 2, p. 1. See Azpiazu (2002) for a critique of arguments about juridical security in Argentina. He argues that privatized firms came to expect not mere juridical security but rather the right to guaranteed profits and zero risk. 30. Eduardo Baglietto, quoted in La Nación, 06.03.98, Section 2, p. 1. 31. El Ojo del Consumidor (1997). 32. El Ojo del Consumidor (1997). 33. Veintiuno, 07.23.98, Year 1, No. 2. 34. La Nación, 06.03.98. See also Gerchunoff, Greco et al. (2003). 35. C. Nac. Civ. Y Com. Fed. Sala 2a, 15/8/95—Carpentieri de Charlín, Mónica L. v. Telefónica de Argentina S.A. LL 1996–B–199.

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6. The Gradual and Contested Privatization of Brazil’s “Telessauro” 1. For an explanation of why Brazil was slower to implement market reforms in general, see Weyland (2002). 2. For an explanation emphasizing the quality of leadership in the privatization of Telebrás, see Kingstone (2003). 3. My account of the history of telecommunications in Brazil draws from Siqueira (1999); Noam (1998); Noll (2000); Carneiro and Rocha (1999); and Straubhaar and Horak (1997). 4. The classic work on clientelism is Leal (1977). 5. For analysis in English of the coup and the politics of military rule in Brazil, see Skidmore (1988); O’Donnell (1979); and Stepan (1988). 6. See Straubhaar and Horak (1997). 7. Along with most of Latin America, Brazil experienced a “lost decade” economically in the 1980s. The debt crisis and the exhaustion of the import substitution model of development reduced overall growth to zero or even negative rates. For work in English on the economic crisis in Brazil, see Sallum Jr. and Kugelmas (1991); Bresser Pereira (1996); Treuherz (2000); and Frieden (1987). 8. See Novaes (1999). 9. See Veja, 22 July 1998. Estimates of the number of shareholders of this type vary. In 1998 the newspaper Estado de São Paulo (30.7.98, p. B2) estimated the figure at 3.5 million. 10. For work in English on democratization in Brazil, see O’Donnell and Schmitter (1986); Weyland (1996); Smith (1986–1987); Mainwaring (1986 and 1994); Ames (2001); and Keck (1989). 11. See Jornal do Brasil, 20.04.94, p. 2. 12. See Goertzel (1999) for a biography of Cardoso. 13. Motta and President Cardoso’s friendship dated back to their Catholic Action days. Motta was the campaign manager for Cardoso in his run for mayor of São Paulo in 1985 and for Senate in 1986, and held leadership positions within the PSDB for most of two decades. For the authorized biography of Motta, see Prata (1999).

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14. Prata (1999) p. 118, p. 119, and p. 131. 15. Prata (1999) p. 127. 16. Power (1998) p. 222. A bone of contention between Cardoso and the legislature was the president’s use of his decree power. President Cardoso issued hundreds of decrees, although most were merely renovations of previously issued initiatives that reached a 30-day limit with no response from congress. 17. Prata (1999) p. 83. 18. Diário Oficial, Junho de 1995, p. 12315. 19. Diário da Câmara, Junho de 1997. 20. Diário da Câmara, Junho de 1997, p. 16675–76. 21. Correio Brasiliense, 18.5.98, p. 12. 22. Diário da Câmara, Junho de 1997. 23. Diário Oficial, Junho de 1995, p. 12314. 24. Diário do Senado Federal, Julho de 1996, p. 18. 25. Folha de São Paulo, 20.6.98, p. 1–3. 26. Correio Brasiliense, 05.19.98. 27. Folha de São Paulo, 21.06.98, p. 14. 28. This result may indicate that Brazilians value national sovereignty over better service. See Frajman (2004) for a similar argument about opposition to privatization in Costa Rica. A government-sponsored poll showing a favorable public opinion toward privatization is cited in Novaes (1999). 29. See, for example, Jornal do Brasil, 28.9.98, p. 8. 30. Estado de São Paulo, 30.7.98, p. B2. I was unable to find such a listing in the Guiness records. 31. Correio Brasiliense, 04.07.98, p. 18. 32. In the southern part of the country, local governments run by the PT had privatized municipal telephone companies. 33. Estado de São Paulo, 27.07.98, p. 1–3. 34. Jornal do Brasil, 22.7.98, p. 8. 35. Estado de São Paulo, 28.7.98, p. A-3. 36. Correio Brasiliense, 26.07.98, p. 29. The most common tactic they employed was an injunction known as the Adin (Direct Action of Unconstitutionality). This strategy fueled many proponents of judicial reform to criticize the ability of any “first instance judges” to rule on matters of constitutionality anywhere in the country.


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37. A high-ranking employee of the government accounting court system (Tribunal de Contas) confided in an interview that internal reports revealed errors in the formula used to come up with the asking price recommended by the consulting firms McKinsey and Lehman Brothers. As both companies erred on the same side (i.e., making the price lower), he believed the errors in the formula had to be intentional. Author’s interview, Brasília, Nuvember 19, 1999. 38. Jornal do Brasil, 18.6.98, p. 2. 39. See La Nación (Buenos Aires), 7–30–98, Section 2 p. 1. It is not entirely clear that this last act of sabotage was committed by opponents of the sale of Telebrás, as the government alleged. 40. O Estado de São Paulo, 07.29.98, p. B–2. 41. Novaes (1999) comments that “the only obstacle” to rebalancing was the “inflationary impact of this step.” She does not mention the possibility of consumer protest. 42. Quoted in La Nación (Buenos Aires), 07.30.98, p. 1 Section 2. 43. In March 1998 President Juan Villalonga of Telefónica de España announced his company’s strategy to its shareholders: “1st Brazil, 2nd, Brazil, 3rd, Brazil.” Villalonga also announced that the company was dropping the “de España” from its name in order to reflect its global presence. Quoted in La Nación (Buenos Aires), 03.18.98, Section 2, p. 4, and 03.17.98, Section 2, p. 4. 44. Folha de São Paulo, 17–12–98, p. 22. 45. Veja, 8–5–98, p. 1.

7. “Post-Jurassic” Regulation and Contained Consumer Response 1. Anatel Daily News Online. 2000. 2. Diario Catarinense. 07.26.98. 3. Jornal da Tarde, 07.01.00, p. 2A. 4. Folha de São Paulo, 09.10.99. 5. Jornal do Brasil, 08.07.99, p. 2.

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6. Yacoub, Waldman et al. (1999). 7. Author’s interview, IDEC, São Paulo, May 24, 2000. 8. A survey found that 50% of new phone service purchasers in Rio acquired a cellular phone as a substitute for a fixed line. Gazeta Mercantil, 04.10.00, p. 2. 9. Interview in Conjuntura Econômica, March 2000. 10. Jornal do Brasil, 07.08.99, p. 2. 11. Rios (1998) p. 38. 12. I am grateful to a private sector attorney for this point. Author’s interview, São Paulo, May 16, 2000. 13. Rodrigo Botelho Campos, Coordinator of the PROCON-PBH/PROCON, State of Minas Gerais, on the agency Web site. Rios (1998) reports that a study by Price Waterhouse showed that the biggest 1,000 companies in Brazil demonstrated an improvement in quality after the passage of the 1990 Consumer Protection Code. Many businesses also placed more emphasis on good consumer relations, creating consumer relations offices and ombudsmen. 14. For data on consumer complaints, see Folha de São Paulo, 4.30.2000. 15. Author’s Interview, Procon, Rio de Janeiro, April 2000. Also cited in Folha de São Paulo, 8-8-98. 16. Jornal do Brasil, 02.01.00, p. 17. 17. Author’s interview, IDEC, São Paulo, May 24, 2000. 18. Author’s interview, IDEC, São Paulo, May 24, 2000. 19. Quoted in Gazeta Mercantil, 7.27.98. 20. Quoted in the Jornal do Brasil, 07.26.98. 21. Carta Capital, 05.10.00. 22. Folha de São Paulo, 03.31.00, p. 2 23. Author’s interview, IDEC, São Paulo, May 24, 2000. 24. La Nación (Buenos Aires) 08.14.98, p. 3. 25. Veja, 08.12.98, p. 14. 26. See the home page of the Workers Party (PT). 27. O Globo, 07.27.99, p. 7. 28. Folha de São Paulo, 01.08.99. 29. Jornal da Tarde, 07.01.00, p. 2A. The deputy also conceded that the government appeared to have learned from its mistakes, citing different policies in electricity privatization.


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30. Folha de São Paulo, 08.10.98, p. 1. Delfim Neto added that Brazilian consumers didn’t realize the high prices they were paying, and concessionaries were not meeting their obligations. As long as this went on, he alleged, Brazil would continue to be a prisoner of the “neocolonialist worshippers of the free market God” and would not become a “global player.” 31. This was probably even truer for electricity than telephone service. 32. Folha de São Paulo, 04.02.00, p. 2.

8. Democratizing Free-Market Capitalism: Consumers and the Codevelopment of “Voice” and “Exit” 1. See de Tocqueville (1956). 2. Simpson (1999). 3. See Smulovitz (1997).


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Index

acción de amparo (Argentina). See injunctions activists in Chile, 47–49 motivations of, 15, 170 See also political entrepreneurs Adecua (Argentina). See Association for the Defense of Consumers and Users (Adecua)(Argentina) Adelco (Argentina). See Association for Consumer Defense (Adelco)(Argentina) Adin (Direct Act of Unconstitutionality) (Brazil). See injunctions Agency of Consumer Protection and Competition (Brazil), 162–163 Aguas Argentinas, 97 Alianza (Argentina) and consumer movement, 101–102 formation of, 89 and tariff rebalancing, 91 Alfonsín, Raúl administration of, 69 and Pact of Olivos, 71, 79 privatization attempts of, 72 Allende, Salvador, 47, 51 Alsogaray, María Julia, 72, 75 Álvarez, Chacho, 89

Alvarez, Sonia E., 25 Alves, Jorge, 150 Amaral, Sérgio, 127 Ámbito Financero (Buenos Aires), 85 American Telephone & Telegraph (AT&T), 177n22 Anatel (Brazil). See National Telecommunications Agency (Anatel) (Brazil) Anti-Trust Commission (Chile), 56 Argentine Bar Association, 86 Argentine Public Defender. See Office of the Public Defender (Ombudsman) (Argentina) Asociación de Consumidores de Chillán (Chile), 63 Association for Consumer Defense (Adelco)(Argentina) beginnings of, 73 compared with Idec, 148 and consumer education, 97–98 legal actions of, 83–90 and public hearings, 84–90 relationship with CNT, 76 relationship with Telefonica, 92 Association for the Defense of Consumers and Users (Adecua) (Argentina), 83

215

216


Association of Public Service Businesses (Argentina), 97 Association of the Users of Public Services (Ausp) (Argentina), 83 Ausp (Argentina). See Association of the Users of Public Services (Ausp) (Argentina) Aylwin, Patricio, 60 Baglietto, Eduardo, 97 Banco Santander, 55 Bell Atlantic, 74 Bell Company, 106 Bell, Alexander Graham, 48 Bicameral Committee on Privatizations (Argentina) as figurehead, 70 proposal to increase power of, 91–92 and service goals, 99–100 and tariff rebalancing, 88 Biondi, Aloysio, 134 Blackout Ministry (Brazil), 163 BNDES (Brazil). See Brazilian National Development Bank (BNDES) Bond Corporation, 55 Bornhausen, Paulo, 117 Botelho, Rodrigo, 190n13 boycotts, 3, 5 Brasil Telecom, 119 Brazilian Food Code, 149 Brazilian Institute for Telecommunications Development (IBDT), 112, 123 Brazilian National Development Bank (BNDES), 128, 134 Brazilian Press Organization, 146 Brazilian Social Democratic Party (PSDB), 114, 123 Brazilian Telecommunications (Telebrás) in 1998 constitution, 112 and cross subsidies, 109–110

creation of, 108 development of, 109 employees of, 154 financing of, 110, 112 price of, 126, 127, 133 privatization of, 105, 113–134, 141–142, 162, 163 and tariff rebalancing, 130, 139 Brazilian Telecommunications Code, 108 Brazilian Telephone Company (Embratel) creation of, 108 and cross subsidy, 110, 130, 140 expansion, 108–109 and legal actions, 154 and privatization, 133 report of bomb threat, 128 British Telecom, 72 Brizola, Leonel, 108, 124, 125, 126 Buenos Aires, Municipality of the City of, 87, 88 Buenos Aires City Council, 98 Bulgarin, Bento José, 127 business demand for telecommunications, 55 and democracy, 43–44 fears of politicization, 97 political power of, 13, 55, 170 privatized firms, 58, 61, 170 Bustamente, Luís, 92 Campos, Roberto, 114–115 capture. See regulatory capture Cardoso, Fernando Henrique and anti-trust regulation, 162–163 and appeals to consumers, 36, 65, 160, 162 and economic reforms, 112–113 and privatization, 35, 113–142 passim, 160, 164 and stabilization, 111 and technocratic policy style, 165 Cardoso, Ruth, 148

Index Carta de Brasília, 148 Carvalho, Aparício, 112 Catholic Action, 113 Cavallo, Domingo, 85 Center for Research and Development (CPqD) (Brazil), 109 Central do Brasil (Walter Salles). See Central Station (Walter Salles) Central Station (Walter Salles), 125 Central Workers’ Union (CUT) (Brazil), 126 CEP-Adimark (Chile), 63 Chamber of Deputies (Argentina). See Congress (Argentine) Chamber of Telecommunications (Argentina), 72 Chicago Boys, 48, 53, 54, 56 Christian Democratic Party (PDC) (Chile), 60, 64 Citizens’ Movement against Abuses (Chile), 65 citizenship, 6–7 civil society in Argentina, 78 in Brazil, 146–147, 164 in Chile, 61–66 and democratization, 2–3, 34–41 class action lawsuits, 63, 78–79, 164. See also injunctions clientelism in Brazil, 107, 109, 124 in Chile, 50–51 and state-owned companies, 23–24 CNC (Argentina). See National Communications Commission (CNC) (Argentina) CNT (Argentina). See National Communications Commission (CNC) (Argentina) Cold War, 47 collective action, 9–16 collective lawsuits. See class action lawsuits Collor, Fernando, 111, 112

217

Commerce Committee, Chamber of Deputies (Argentina), 96 Communist Party (PCdoB) (Brazil), 117 Companhia Riograndense de Telecomunicações, 108 Compañía de Teléfonos de Chile (CTC), 49, 54, 55, 58, 62–63 Compañía de Teléfonos de Edison (Chile), 49 Concertación (Chile), 60–61, 64 competition in telecommunications. See economic competition in telecommunications complaints, proliferation of, 83–84, 150–151. See also consumers: complaints of Congress (Argentine) and consumer participation, 98 and privatization, 69–72 and regulation, 5, 90–92, 94, 96–97, 98 and tariff rebalancing, 90 See also legislatures Congress (Brazilian) and Anatel, 158, 162 and Goulart, 107 and PCS frequency debate, 158–159 and privatization, 114–115, 116–126, 163, 168 See also legislatures Congress (Chilean), 61–65. See also legislatures Constituent Assembly (Brazil), 111–112 constitutional reforms in Argentina, 71, 79–80, 85 in Brazil, 111–112, 114–115 consumer advocates experience and motivations, 15. See also political entrepreneurs Consumer Protection Code (Argentina, 1993), 78

218


Consumer Protection Code (Brazil, 1990) alleged violations of, 138, 151, 152 history of, 145–148 improvements after, 190n13 and Lula, 161 and the media, 149 public awareness of, 149–150 Consumer Protection Councils (Procons) (Brazil) and Anatel, 159 and consumer product scandals, 162 and dispute resolution, 164 history of, 146–148 and legal actions, 153 in Amazônas, 150 in Minas Gerais, 138, 190n13, 149–150 in Pará, 150 public awareness of, 149–150 in Rio de Janeiro, 150 in São Paulo, 147, 153 Consumer Protection Department (Argentina), 78 consumer protection law (Chile, 1991), 63 consumer protection legislation (Latin America), 169 Consumers International, 61, 103, 159, 169 Consumidor, S.A. (São Paulo), 149 consumption conspicuous, 177n15 and dependency theory, 24–25 as a mobilizing factor, 1–2, 5–6, 9–21 and privatization, 5–6, 9 as a valence issue, 39 consumers complaints of, 8, 19–21. See also complaints, proliferation of criticized in literature, 5–6

ignored in literature, 5–6, 9, 24, 36 interests of, 14 low-income consumers, 60 mobilization of, 1–4, 9–21, 32–33 political power of, 170, 171 protest by, 5–6, 20–21 as stakeholders, 6, 40, 168 state organization of, 4–5 terms of claims on the state, 23 contentiousness of consumer protest in Argentina, 83–90, 102–103 in Brazil, 105–106, 153–154 in Chile, 61, 65 effects on economy, 41–44 explanation of, 18, 37–41 Convertibility Law (Argentina, 1991), 70 Coordinating Council of the Friends of Neighborhoods Societies (Brazil), 147 CORFO (Chile). See Industrial Development Corporation (CORFO) (Chile) corporatism considered in Chile, 64 referring to special interests, 24, 126 as a theoretical approach, 17–18 Correio Brasiliense (Brasília), 124 courts in Argentina, 71, 83–90 in Brazil, 5, 126–127, 151–155, 164 in Chile, 62, 64 and credible commitments, 169 and democratization, 3, 170 institutionalization of use, 20–21 CPqD (Brazil). See Center for Research and Development (CPqD) (Brazil) credible commitments in Chile, 58 and courts, 168 of governments to consumers, 43

Index of governments to investors, 42–43, 58, 175n11 See also juridical security cross subsidies. See pricing: cross subsidy CTC (Chile). See Compañía de Teléfonos de Chile (CTC) CUT (Brazil). See Central Workers’ Union (CUT) (Brazil) da Silva, Paulo. See Vicentinho Dagnino, Evelina, 25 Datafolha, 124 de la Rua, Fernando, 87, 91, 94 Defender of the People (Argentina). See Office of the Public Defender (Ombudsman) (Argentina) democracy in Chile, 46–48 See also democratization democratization in Argentina, 78 in Brazil, 111 in Chile, 60–61 and civil society, 34–41 and economic reforms, 6–7, 16, 33–36, 170–171 and legislatures, 34–41 as opportunity structure, 3, 33–36 and policy styles, 6–7 See also democracy demonstration effect, 25, 179n40 dependency theory, 24–25 de Souza, Renato, 148 Diesse (Brazil). See Inter-Syndicate Department of Statistics and Socioeconomic Studies (Diesse) (Brazil) digital technology, 30 digitalization. See digital technology Duhalde, Eduardo, 89, 101

219

duopoly, 132 Dutra, José Eduardo, 123 economic competition in telecommunications in Argentina, 88 in Brazil, 4, 130–132, 140–141 in Chile, 45, 54–55, 56–57 in Latin America, 28 as promise of privatization, 2, 129 and rebalancing, 31–32 economic reforms consumers as stakeholders, 40 and democracy, 6–7, 16, 33–36, 170–171 support for, 94 sustainability of, 40–44 See also neoliberalism economic regulation in the United States, 12–14 style of, 2, 4, 6–7 theory of, 29–30, 56 Economic Emergency Act (Argentina, 1991), 70 Economics Ministry (Chile), 62 Edenor (Argentina), 97 Edesur (Argentina), 97, 98 Embratel (Brazil). See Brazilian Telephone Company (Embratel) ENRE (Argentina). See National Regulatory Body for Electricity (ENRE) (Argentina) Entel (Argentina). See National Telecommunications Company (Entel, Argentina) Entel (Chile). See National Telecommunications Company (Entel, Chile) Escobar, Arturo, 25 Estado de São Paulo, 125, 126, 128 European Union, 10 exclusivity period. See monopoly

220


executive decrees in Argentina, 69–71, 101, 168 in Chile, 60, 168 and economic reforms, 34 and privatization, 39 expropriation, 42. Also see nationalization. Falkland Islands (Malvinas) War, 69, 72 Federal Communications Commission (United States) compared with Anatel, 155 and international settlement rates, 31 federalism in Argentina, 88–89 in Brazil, 107 Fernández Meijide, Graciela, 91 Food and Drug Administration (United States), 9–10, 12 fiscal deficits in Argentina, 68 in Chile, 52 and privatization, 28 Fittel (Brazil), 116, 126–127, 154, 160 Folha de São Paulo, 123, 139, 143, 165 Fonrouge, Máximo, 96 Formula I, 159 France Telecom, 74. See also Telecom Franco, Itamar, 111, 124 free-market capitalism and consumers, 53 use of term, 26 Frei Montalva, Eduardo, 47 Frepaso (Argentina) and consumer groups, 86, 87 and consumer movement, 101 and the Alianza, 89. See also Alianza and tariff rebalancing, 87, 90, 91

Gabeira, Fernando, 121 Galal, Ahmed, 58 Galbraith, John Kenneth, 17 game theory and consumer mobilization, 19, 33 and democracy, 34 Garretón, Manuel Antonio, 65 Gas Natural (Argentina), 97 General Electric Services Law (Chile, 1925), 49 General Rules and Regulations for Consumers of Basic Telephone Service (Argentina), 97 General Telecommunications Law (Maximum Law) (Brazil, 1997), 115, 133, 138 Genoino, José, 162 globalization and consumer movements, 3, 36–37 definition, 25, 36 Goldman, Alberto, 124 Gomes, Ciro, 124 Goulart, João, 107 Guerreiro, Renato and benefits of privatization, 138 and consumers, 155 and Intelig scandal, 159 and legal actions, 154 and rebalancing, 139 and service obligations, 142, 143, 155, 158 Guinness Book of World Records, 125 Hardin, Russell, 19, 176n8 Hirschman, Albert, 42, 176n14 House of Deputies (Brazil). See Congress (Brazilian) Housewives and Consumers of Minas Gerais, 153 hyper-presidentialism, 69. See also executive decrees

Index IADB. See Inter-American Development Bank (IADB) IBDT (Brazil). See Brazilian Institute for Telecommunications Development (IBDT) Idec (Brazil). See Institute for Consumer Protection (Idec) (Brazil) I hate Telemar! website, 150 I hate Telerj! website (see I hate Telemar! website) Import Substitution Industrialization (ISI) in Argentina, 70 in Chile, 46, 50 industrial conglomerates, 52–53 Industrial Development Corporation (CORFO) (Chile), 51, 55 ING Barings, 96 injunctions in Argentina, 78–80, 85–87, 94, 98 in Brazil, 164, 188n36 weakness of in Chile, 63 Institute for Consumer Protection (Idec) (Brazil) and consumer product scandals, 162 creation of, 148–149 and electricity shortages, 163 legal actions of, 151–153 monitoring of privatized services, 159 relationship with Anatel, 159–160 reputation of, 145 Institute of Telecommunications of Rio de Janeiro (Intel), 160 institutionalization of consumer protest in Argentina, 102–103 in Brazil, 105–106, 153–154, 162–164 in Chile, 65 explanation of, 37–41 Intelig, 159 interconnection of networks, 27, 55, 107

221

Inter-American Development Bank (IADB), 159 Inter-State Federation of Telecommunications Workers (Fittel) (Brazil), 116, 126–127, 154, 160 Inter-Syndicate Department of Statistics and Socioeconomic Studies (Diesse) (Brazil), 138, 147, 160 interest groups versus social movements, 24, 169–170 IOCU. See International Organization of Consumer Unions (IOCU) International Organization of Consumer Unions (IOCU), 63 International Telecommunications Union (ITU), 30 International Telephone and Telegraph Company (ITT), 49, 51 Inter-Syndicate Department of Statistics and Socioeconomic Studies (Diesse), 147, 160 ISI. See Import Substitution Industrialization (ISI) issue framing, 37, 38, 19–20 ITT. See International Telephone and Telegraph Company (ITT) ITU. See International Telecommunications Union (ITU) Jérez, Luís, 64 Jornal do Brasil, 126 judicialization, 170 juridical security in Argentina, 77, 94–96, 97 in Chile, 58, 62–63 See also credible commitments Justicialist Party (Argentina). See Peronist Party (Argentina) Kammerath, Germán, 85, 91

222


labor in Argentina, 73–74, 171 in Brazil, 154–155, 116 in Chile, 46–48, 65 declining power of, 2, 22–24 and democratization, 22 mobilization, 22–24 opposition to privatization, 39, 73–74, 116–129 support of consumer movements, 24, 154–155 Lada, 129 Landless Workers’ Movement (MST) (Brazil), 128 Lara, André, 134 lawyers, 84, 170. See also Argentine Bar Association Lazzarini, Marilena, 148 legislatures and democratization, 2–3, 34–41 and privatization, 35, 168 See also Congress (Argentine); Congress (Brazilian); and Congress (Chilean) Leiva, Fernando, 45 Leonelli, Domingos, 119 liberalization. See economic competition in telecommunications litigation, 169–170. See also Association for Consumer Defense (Adelco) (Argentina): legal actions of, injunctions, Institute for Consumer Protection (Idec) (Brazil): legal actions of, and Office of the Public Defender (Ombudsman) (Argentina): and class action lawsuits local service. See residential users Lula (Luiz Inácio Lula da Silva) acceptance of privatization, 160 opposition to privatization, 124, 125, 126 promises to consumers, 160–161

Madison, James, 16 Magalhaes, Antônio Carlos, 114 Malvinas (Falkland Islands) War, 69, 72 market oriented economic reforms. See economic reforms. See also neoliberalism Martins, Egydio, 147 Marxism false consciousness, 14 grievance theory, 177n19 in Latin America, 22 Maximum Telecommunications Law (Brazil). See General Telecommunications Law (Brazil). MCI, 133 McDonald’s, 64 media in Argentina, 88, 98–99, 100 in Brazil, 123–126, 149 and consumer protest, 4, 20–21, 170 Medina, Ernesto, 65 Melo, José Ricardo, 60 Mendonça de Barros, Luiz Carlos appointment of, 115–116 and courts, 127 criticism of, 124, 125 and long distance service, 140–141 and Telemar, 134 Menem, Carlos and appeals to consumers, 36, 65, 102 and CNT/CNC, 75–77, 87 and Consumer Protection Code, 78 and executive decrees, 69–71 election of, 69 and Pact of Olivos, 71,79 and privatization, 35, 68–78 and regulation, 97 and Supreme Court, 70–71, 89 and tariff rebalancing, 84–87

Index Merchant Bankers Association, 94, 96 Metrogas (Argentina), 97 Metrovías (Argentina), 97 middle class in Argentina, 82 in Chile, 46–47, 49, 50, 62 military (Brazilian) and coup, 108 and privatization, 113 and Telebrás, 108–110 military (Chilean), 47, 51–52, 55, 56 Minimum Telecommunications Law (Brazil, 1996), 115 Ministry of Communications (Brazil) creation of, 108 and privatization, 117 Ministry of Health (Brazil), 149 Ministry of Industry and Commerce (Brazil), 146 Ministry of Justice (Argentina), 1997 Ministry of Justice (Brazil), 154, 161 Ministry of Public Works (Argentina), 75 minority shareholders, protection of, 132–133 Miranda, Sérgio, 119, 120, 159 Moneta, Raúl, 100 monopoly as political target, 27, 42 as result of privatization, 2–3 in Argentina, 73, 77–78, 81, 88, 99 in Brazil, 112, 139 in Chile, 57, 61 in telecommunications, 28 See also natural monopoly moral economy school, 178n29 moral hazard, 52 Morgan Stanley, 73 Motta, Sérgio, 113–114, 129, 130 MST (Brazil). See Landless Workers’ Movement (MST) (Brazil) Mundo, El (Madrid), 100

223

Nader, Ralph, 13, 102 Napoleão, Hugo, 105 Nación, La (Buenos Aires), 84, 100, 101 National Auditor (Argentina), 90 National Communications Commission (CNC) (Argentina) and consumers, 93, 97 compared with Anatel, 158 creation of, 75 image of, 101 name change of, 77 and regulatory capture, 75–77 relationship with Adelco, 76, 90 and service goals, 99 National Communications Congress (Brazil), 146 National Consumer Service (Chile), 64 nationalization in Brazil, 108 in Chile, 49–51, 53 Also see expropriation. National Regulatory Body for Electricity (ENRE) (Argentina), 98 National Telecommunications Agency (Anatel) (Brazil) and anti-trust regulation, 163 creation of, 115 and competition, 142 and consumer complaints, 151 and consumer protection, 155, 158–159, 163 criticism of, 161, 162 and legal actions, 153, 154, 155 and privatization, 132, 134, 137–138, 146 and rebalancing, 139 relationship with Congress, 158, 162 relationship with Idec, 159 relationship with Fittel, 160 and service obligations, 142–145, 153, 155, 158

224


National Telecommunications Company (Entel, Argentina), 68–75, 81, 93, 100 National Telecommunications Company (Entel, Chile), 50, 54, 55, 58 National Telecommunications Council (Contel) (Brazil), 108 National Telecommunications Fund (Brazil), 109 natural monopoly, 29–30, 56. See also monopoly Nazareno, Julio, 89 neoliberalism in Argentina, 70 in Brazil, 105, 112–113 in Chile, 45, 48, 51–52, 55–56, 65–66 and political opportunity structure, 24–25 use of term, 6 See also economic reforms Neto, Antônio Delfim, 162, 191n30 Network World Telecom (Rio de Janeiro), 137 Neves, Tancredo, 111 new social movements emergence of, 22–24 and consumer movements, 6, 25–26 New York Times, 12, 64 Office of the Public Defender (Ombudsman) (Argentina) and class action lawsuits, 80, 87, 98, 169 and consumer complaints, 84, 169 creation of, 78 and mass protests, 86 and privatization, 77 ombudsman, 169 See also Office of the Public Defender (Ombudsman) (Argentina) opportunity structure. See political opportunity structure.

Pact of Olivos, 71, 79 Paredes-Molina, Ricardo, 58 Party of the Brazilian Democratic Movement (PMDB) (Brazil), 117 Party of the Liberal Front (PFL) (Brazil), 114 Passoni, Irma, 117 patronage. See clientelism. pay-as-you-go method, 110, 132 (PCdoB) (Brazil). See Communist Party (PCdoB) (Brazil). PDC (Chile). See Christian Democratic Party (PDC) (Chile) Pedro II, Dom, 106 pension funds, 53 Perazo, Luís, 185n9 Peronist Party (PJ) (Argentina) and Alfonsín, 69 and consumer groups, 86 and consumer movement, 101 and elections, 87, 91 and Menem, 69–71, 72 and tariff rebalancing, 90, 92 Perrone, Luiz Francisco Tenório, 150–151 Personal Communications Services (PCS) wireless standard, 158 Petrobrás, 122 PFL (Brazil). See Party of the Liberal Front (PFL) (Brazil) Pimenta de Veiga, João, 142, 143 Piñera, José, 56 Pinheiro, Walter, 120, 158–159, 161 Pinochet, Augusto, 5, 35, 45–66 passim Pitchon, Andrés, 94, 96 PJ (Argentina). See Peronist Party (PJ) (Argentina) Planning Ministry (Brazil), 109 pluralism and democracy, 170 failure in Chile, 48, 65 as a policy prescription, 43–44, 65

Index as a theoretical approach, 16–18, 170–171 PMDB (Brazil). See Party of the Brazilian Democratic Movement (PMDB) (Brazil) political entrepreneurs in Chile, 47–49 and consumer movements, 3, 37, 38, 43 motivations of, 15, 170 in rational choice theory, 12 in social movements theory, 18–19 See also activists and politicians. political opportunity structure and democratization, 35–38 and globalization, 36–38 in social movements theory, 19–20 under state ownership of utilities, 23 political parties in Argentina, 86, 103 in Brazil, 5, 164 in Chile, 60 and consumers, 168, 171 ideology of, 5, 37–39 and labor, 39 and privatization, 4–5, 37–39 See also names of individual parties politicians in Chile, 47–48, 61–62 and public services, 23 See also political entrepreneurs politicization in Argentina, 88, 92, 97 criticism of, 6, 42 in Chile, 61, 62, 63 popular capitalism, 53, 54 populism in Brazil, 107–108 in Chile, 50–51 poverty in Argentina, 70 in Chile, 60 in Latin America, 171

225

pricing after privatization, 15 cross subsidy, 7–8, 30–32, 37 in Brazil, 109–110, 121, 130, 140 in Chile, 46, 57, 60 rebalancing, 31; in Argentina, 73, 76,78, 80, 84–90, 93–94, 99–100 in Brazil, 129–131, 138–139, 140 in Chile, 46, 57, 62 effects on low-income consumers, 60 effects on the middle-class, 32–33, 37–39, 62 and consumer mobilization, 37–39, 62 Price Waterhouse, 73, 190n13 Prince and Cooke, 93 privatization causes of, 28 and economic concentration, 171 effects on prices, 2, 7–8, 15, 32–33 effects on service, 2, 7–8, 15, 32–33 and fiscal deficits, 28 and monopoly, 2–3, 27–29 outcome in Argentina, 82 outcome in Brazil, 137–139 outcome in Chile, 56–61 political style of, 4–5, 26–27, 39–40, 41, 168 profits of privatized firms, 61 promises of, 26 results for low-income users, 32, 163 results for middle-income users, 138–139 results for residential users, 32, 37–39 results for rural users, 60 sequencing of, 4–5, 39, 41 speed of, 4–5, 25–26, 39, 40, 41, 168 and social tension, 171

226


Procons (Brazil). See Consumer Protection Councils (Procons) (Brazil) Professional Journalists’ Syndicate (Brazil), 147 prospect theory, 127n28 protest. See consumers: protest PSDB (Brazil). See Brazilian Social Democratic Party (PSDB) PT (Brazil). See Workers’ Party (PT) (Brazil) public audiences. See public hearings Public Defender’s Office (State of Santa Catarina, Brazil), 153 public hearings, 84–90, 97 Public Services Regulator of the City of Buenos Aires, 99 Quintão, Geraldo, 127 Radical Party (Argentina) and Alfonsín, 69 and consumer groups, 86, 87 and consumer movement, 101 and economic emergency, 70 and the Alianza, 89. See also Alianza and tariff rebalancing, 87, 91 Radrigán, Juan, 45 rational choice and consumer movements, 9–16 and privatization, 77 and rent-seeking, 23–24 Reagan, Ronald, 13 rebalancing. See pricing; rebalancing regulation. See economic regulation regulatory capture in Argentina, 75, 88 after privatization, 2–3, 26–27 rent seeking and privatization, 77 under state ownership of utilities, 23–24 repertoire of contention, 38

of consumer movements, 20–21 in social movements theory, 19–20 residential users in Brazil, 138 in Chile, 57 and rebalancing, 32 Ribeiro, Nina, 146 Ribeiro, Pádua, 127 Rio de Janeiro Stock Exchange, 128 Rios, Josué, 145, 147, 149 rising expectations, 82 rule of law. See juridical security. See also credible commitments Salomon Brothers, 94, 96 Santos, Tilden, 122 São Paulo Advertising Association, 147 Sarney, José, 111 Secretariat of Communications (Argentina) and privatization, 75 and public hearings, 85–90 and rebalancing, 90, 99 and regulation, 76 Senate (Argentine), 70–71, 91, 96–97 Silva, Luiz Antonio, 154 Simpson, Robin, 169 Singer, Paul, 148 Sinttel (Brazil), 160 small claims court system (Brazil), 161 Smith, Adam, 53 socialism, 51 social movements, theory of, 18–20. See also new social movements, interest groups, and political opportunity structure Socialist Party (Argentina), 83, 86, 87, 94 Souza, Luiz Antonio, 160 STET (Italy), 74. See also Telecom (Argentina) stock markets, 53–54, 62

Index Subtel (Chile). See Undersecretariat of Telecommunications (Subtel) (Chile) Supreme Court (Argentina) court-packing, 70–71 and tariff rebalancing, 87–90, 100 Supreme Court (Brazil) and privatization, 127 and tariff rebalancing, 154 and Telemar scandal, 134, 162 Syndicate of Telecommunications Workers (Sinttel) (Brazil), 160 tarifazo, 89 tariff rebalancing. See pricing: rebalancing Tarrow, Sidney, 18 Tavares, María da Conceição, 161–162 Tribunal de Contas (National Accounting Courts) (TCU) (Brazil), 127, 134, 189n37 Techint, 97 technocratic policy styles in international finance, 6 in Brazil, 165 in Chile, 48, 51, 54, 61 and elections, 36 and regulation, 2, 4, 6–7 Telebrás. See Brazilian Telecommunications. Telecom (Argentina) and privatization, 74 and service goals, 99–100 and tariff rebalancing, 88, 93 unpaid bills of, 90 telecommunications changing technology, 7, 29–30 and economic theory, 29–30 history in Brazil, 106–110 history in Chile, 48–58 history in Latin America, 27–29 interconnection of networks, 27, 55, 107

227

necessity of, 7 state ownership of, 28 See also pricing. Telefonica accusations of corruption of, 100 and Argentine consumers, 90, 93 and Brazilian consumers, 141, 142, 154 fines paid by, 154, 161 image of, 92, 99 name change of, 189n43 as national champion, 119 and privatization in Argentina, 72, 74 and service goals, 99–100 and tariff rebalancing, 93 and privatization in Brazil, 133, 134. See also Intelig, Telefônica Celular, and Telesp in Chile, 55 Telefônica Celular, 151. See also Telefonica Telefónica de España. See Telefonica Telégrafo del Estado (Chile), 48 Telemar, 133–134, 142, 151, 154, 161. See also Telerj and I hate Telemar! Telerj, 113, 150. See also Telemar and I hate Telerj! Telesc, 153 Telesp complaints about, 151 and consumers, 141 legal actions against, 152–153, 162 and privatization, 134 See also Telefonica Temer, Milton, 119, 121 Thatcher, Margaret, 53, 54, 65 Tocqueville, Alexis de, 169 transnational activism, 3, 36–37 Undersecretariat of Telecommunications (Subtel) (Chile), 54, 56–57, 62, 63

228


universal service, 21, 35, 120–121 University of Buenos Aires, 99 University of São Paulo, 158 Valdivia National Telephone (Chile), 49 Vale do Rio Doce (Brazil), 122 valence issue. See consumption as a valence issue, 39 Valente, Antonio Carlos, 155 Veja (Rio de Janeiro), 134 veto points, 42 Vicentinho, 126, 128 Villalonga, Juan, 189n43

Wall Street, 62 wireless telephony in Brazil, 115, 141–142 competition in, 57 frequency (for PCS), 158–159 as technological leapfrogging, 32 women’s movements, 22–23 Workers’ Party (PT) (Brazil), 116–129 World Bank, 76 World Economic Forum, 97 World Trade Organization, 114 Yoma, Jorge, 96–97

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