social movements and free-market capitalism in latin america

7/31/2019 Social Movements and Free-Market Capitalism in Latin America

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Sybil Rhodes

Telecommunications Privatization

and the Rise of Consumer Protest

Social Movements andFree-Market Capitalism

in Latin America


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in Latin America


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in Latin America

Telecommunications Privatizationand the Rise of Consumer Protest

Sybil Rhodes

STATE UNIVERSITY OF NEW YORK PRESS


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Published byState 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 systemor transmitted in any form or by any means includingelectronic, electrostatic, magnetic tape, mechanical,photocopying, recording, or otherwise without the priorpermission 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, 1969Social movements and free-market capitalism in Latin America : telecom-

munications 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 protectionLatin AmericaHistory20th century.

2. Protest movementsLatin AmericaHistory20th century. 3. Privatiza-tionLatin AmericaHistory20th century. 4. TelecommunicationLatin

AmericaHistory20th century. I. Title.

HC130.C63R48 2005384'.041dc22

2004029611

10 9 8 7 6 5 4 3 2 1


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Contents

List of Illustrations ix

Acknowledgments xi

CHAPTER ONEConsumer Movements: New Social and Political Actorsin Latin America 1

CHAPTER TWOExplaining the Emergence of Consumer Movements:The Crossed Wires Effect of Democratizationand Privatization 9

CHAPTER THREEAuthoritarian Privatization and Delayed ConsumerMobilization in Chile 45

CHAPTER FOUR

The Original Sin of Privatization in Argentina 67CHAPTER FIVE

Contentious Consumer Mobilization in Argentina 81

CHAPTER SIXThe Gradual and Contested Privatization ofBrazils Telessauro 105

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CHAPTER SEVENPost-Jurassic Regulation and Contained Consumer

Response 137CHAPTER EIGHT

Democratizing Free-Market Capitalism: Consumersand the Codevelopment of Voice and Exit 167

Notes 173

Bibliography 193

Index 215

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Illustrations

Figures

2.1. Repertoire of Contention of Latin AmericanConsumer Movements: Scale of Contentiousnessand Institutionalization 21

2.2. The Opportunity Structure Leading to LatinAmerican Consumer Movements 38

2.3. Arguments Explaining Variation in Latin AmericanConsumer Movements 41

Tables

3.1. Telecommunications Services in Chile 58

3.2. Telecommunications Growth Indicators in Chile 595.1. Regional Comparison of Public Support for

Privatization and a Market Economy:Have Privatizations Benefited the Country? 95

5.2. Regional Comparison of Public Support forPrivatization and a Market Economy: Support for aMarket Economy in Latin America and Argentina 95

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6.1. Comparison of Brazilian and World TelephoneTariffs in 1995 110

6.2. The Trajectory of Telecommunications Reform inthe Brazilian Congress 118

6.3. Issues Debated in the Brazilian Congress 122

6.4. Rebalancing of Tariffs in Brazil, with InternationalComparisons 131

7.1. Growth and Projected Growth of Fixed-LineTelephone Density in Brazil 144

7.2. Some Legal Actions Regarding BrazilianTelephone Service 156

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Acknowledgments

The country case studies in this book are the product of twoyears of research in Argentina, Brazil, and Chile, during which Ibenefited from the assistance of a great many people and institu-tions. Thanks are due to all the scholars, government officials,activists, legal professionals, and business people who agreed tobe interviewed. Special thanks to Josu Rios in So Paulo and toClaudia Collado and Antonino Serra of Consumers Interna-

tional in Santiago.For institutional support, I am grateful to the departmentof political science at the University of Braslia, especially DavidFleischer, and to the Getlio Vargas Foundation of So Paulo,especially George Avelino. I also must thank the staff at theoffice of the Fulbright Commission in Braslia.

Funding for the field research was provided by the Ful-bright Commission, the Social Science Research Council, andthe Institute for International Studies and the Center for LatinAmerican Studies at Stanford University.

Sections of the manuscript benefited from the advice ofLeslie Elliott Armijo, Lesley Bartlett, John Barton, Miguel Cen-tellas, Larry Diamond, Carlos Gervasoni, Terry Karl, AnuKulkarni, Victoria Murillo, Philippe Schmitter, Eduardo Silva,Barry Weingast, and Leslie Wirpsa.

Finally, I would like to thank Carlos Gervasoni not only foronce suggesting that the regulation of privatized businesses

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might make an interesting dissertation topic but most of all forproviding me with a far nicer incentive than academic research

to spend a lot of time in Buenos Aires.

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CHAPTER ONE

Consumer Movements

New Social and Political Actorsin Latin America

CONSUMER GROUPS SUE TELEFONICA OVER PUBLICTELEPHONES

BUSINESS AND USERS POLARIZED

CONSUMERS COMPLAIN MORE AND GET MORE

RESULTSGOVERNMENT AND TELEPHONE COMPANIES

PREPARE FOR DECISIVE BATTLE

PLAN TO GRANT TELEPHONE LICENSES TO BEDEBATED AT PUBLIC HEARING

PRIVATIZED BUSINESSES FEAR CONGRESS WILL GIVEITSELF PRICE-SETTING POWERS

Several years before the Argentine economy collapsed and pro-duced a political crisis in December 2001, newspaper headlineslike the ones above already had begun to reflect peoples dissatis-faction with the outcome of economic reforms enacted duringthe 1990s.1 Among such reforms, the privatization of state-owned public services such as the national telephone companyresulted in especially angry and organized protest under thebanner of consumer protection. Political mobilization aroundeconomic policy issues certainly was not a new phenomenon inArgentina, but consumer protection was a novel mobilizing

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principle in a country where political debates historically havebeen organized around production rather than consumption.

The growth of Argentinas consumer movements was not anisolated phenomenon. Indeed, not just in Argentina butthroughout Latin America, in the 1990s consumer movementsemerged as one of the most visible new forms of political mobi-lization countries had seen since the movements against militaryrule. While analysts from in and outside the region noted thedeclining power of many traditional class-based organizations inthis era of globalization, some innovative Latin American politi-cians and political parties, along with grassroots organizations

and other civil society leaders, increasingly were using consumerprotection issues to build political capital and influence publicpolicy.2 As a result of their activities, economic regulation, for-merly the exclusive turf of technocrats in the executive branch ofgovernment, became an arena where presidents, bureaucrats,and businesses scuffled, at least occasionally, with activists work-ing for nongovernmental organizations (NGOs), legislators, andother nontraditional actors.3

In this book I explain that the privatization of state-ownedpublic services such as telecommunications was a primary impe-tus for the wave of consumer mobilization that began in the1990s. I do not argue that privatization was consistently a failureacross the region; to the contrary, it injected much-neededinvestment into the service sector. 4 Despite frequent rhetoricalclaims that privatization and the promise of eventual economiccompetition would benefit consumers, however, often theimmediate practical result was private monopolies that providedproblematic service at higher prices than the former state-owned companies had charged. Their monopoly status legit-

imized peoples complaints against the new private operators ofpublic services. The higher prices for certain services, poorquality of services, and other abusive treatment of captive usersaffected large groups of people uniformly, making collectivegrievances easy to identify and collective action relatively easy tocoordinate. Thus, the specific characteristics of public utilitiesincluding the mass nature of services essential to everyday lifeand the regulatory problems associated with the transition from

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state-owned monopoly to operation by the private sectorpro-voked and facilitated the new consumer movements.

The relationship between privatization and consumer mobi-lization occurred because it was embedded in the political con-text of democratization.5 The confluence of democratictransitions with the economic reforms such as privatizationaltered what scholars of social movements refer to as theopportunity structure of legal professionals and politicalactivists.6 Most crucially, the deepening of democracy codifiedpolitical and legal rights and led to a greater political role fordemocratic institutions such as legislatures and courts as well as

civil society organizations. At the same time, globally driveneconomic and technological changes resulted in a decline in thepower of organized labor, greater exposure to the consumptionhabits of wealthier countries, and increased importance oftelecommunications services. Against this backdrop of largerchanges, the new consumer consciousness was forged by LatinAmerican politicians, lawyers, and activists, whose organizationof consumer movements contributed, very tentatively, to chang-ing the substance of democratic politics in the region from aclass base to a consumer base.

Local activists in the region received support from globalcivil society. While economic policies such as privatizationopenly favored global business, improved communications tech-nology and changing norms during the 1980s and 1990s alsomade it easier for NGOs to operate on an international scale.7The latter half of the 1990s saw the development of transna-tional Latin American consumer advocacy networks thatreceived technical and financial aid from abroad. Internationalactivism had a snowball effect on locally initiated consumer

movements and in some countries, including Chile, served as acatalyst for consumer mobilization where little or none hadexisted previously.

Consumer mobilization took a variety of forms, includingmass protests such as the refusal to pay telephone bills or coor-dinated boycotts of telephone service (called colgazos, or greathang-ups by some advocates and reporters), expandingmembership in grass roots consumer protection associations,

Consumer Movements 3


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complaints filed with NGOs or government agencies orreported to the media, individual lawsuits, class action lawsuits,

and support for politicians who campaigned under the banner ofconsumer rights. Different acts of mobilization yielded wins andlosses for the participants, but the overall result was formal andinformal recognition on the part of government and businessthat Latin American consumer movements had the power toclaim a voice in the policy process. By the end of the 1990s, inquite a few Latin American countries economic regulation hadlost at least some of the technocratic mystique it held at theonset 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 Amer-ican countries, but at different rates and intensities, in differentforms, and with different consequences. The speed andsequence of different types of economic reforms and their syn-chronization with democratic reforms, as well as the ideologies

and interests of political parties, affected both the economic andpolitical structure of industries after privatization.9 Rapid andearly privatization of the telecommunications industry oftenproduced private monopolies and weak regulatory regimes. Thecase of Argentina is emblematic of the category of fast and earlyprivatizers. In 1991 the government divided its state-ownedcompany in two and sold the halves as guaranteed regionalmonopolies for seven years with the possibility of an extensionfor three additional years. In contrast to its neighbor Argentina,

Brazil privatized telecommunications more gradually and latercompared to other sectors. Brazil promoted partial competitionin the telecommunications market almost immediately after itsold off the state-owned monopolies, and its new telecommuni-cations regulatory agency was stronger and more respected thanthat of Argentina.

Institutional factors such as the nature of political partiesand the level of prior state organization of consumers largelydetermined the repertoires of contention available to consumer



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movements after privatization.10 Under the leadership of politi-cians and activists, Argentine consumers engaged in highly con-

tentious collective action. Some of them refused to paytelephone bills in protest of higher tariffs and organized boy-cotts of telephone service. The Argentine Congress threatenedto give itself the power to set the prices of public utilities.Brazilian consumers also mobilized to protest tariff increasesand service problems, but they did so through existing channelssuch as the court system and state consumer-protection agen-cies. The disputes were not as confrontational as in Argentinaand were less central to presidential and congressional political

campaigns. The reasons for the more muted mobilization inBrazil included the relatively gradual privatization process, theexistence of surprisingly respected state governmental con-sumer-protection bureaus that dated from the 1970s, a moredeveloped consumer advocacy network, and the class-based ide-ology of the principal political party that opposed privatization.

Chile was the first Latin American country to privatize itstelecommunications sector but one of the last to experience con-sumer mobilization. The military government of GeneralAugusto Pinochet sold the state company in a gradual processthat began in the late 1970s and was completed a decade later.In addition to being first, Chile was unique in Latin America inthat it carried out privatization under an authoritarian regimethat repressed any political mobilization. By the time democracyreturned, Chilean consumers already had born the brunt of thetransition costs of privatization, making the same type of con-tentious protests seen in Argentina and Brazil less likely. Thecombination of the return of civil liberties and growing interna-tional consumer activism led to an incipient consumer move-

ment in Chile by the end of the twentieth century, however.

Consumers as the Missing Link BetweenEconomic Reform and Democracy

The advocates of privatization generally have ignored the impor-tance of a political voice for consumer advocacy in Latin Ameri-can countries. Economic studies that do mention consumer



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involvement warn that any changes in policy might result inaccusations that the government was reneging on its commit-

ments to business.11 Many political economists and businessspecialists seem to view the participation of consumers and con-sumer advocates in regulatory decisions as unnecessary politiciza-tion of technical policy arenas. Some political scientists evenconsider the expression of discontent through social movementsto be disruptive and undesirable in new democracies generally.Others view political protest generally as a positive thing, butdistrust the idea of consumer protection, or consumerism, as amobilizing factor.

Most political scientists and economists, as well as politi-cians and policy activists, agree that new stakeholders in eco-nomic reforms must be created for such reforms to be sustainedpolitically.12 Yet while consumers would appear to be amongthe most obvious potential beneficiaries of reform, most analy-sis of privatization in the developing world rarely identifiesconsumers explicitly as political actors. Given their agreementabout the importance of stakeholders, the widespread igno-rance and even outright rejection of consumer-based politics onthe part of policy specialists is a puzzling contradiction. In the1990s scholars were aware of political mobilization aroundpostmaterial issues such as the environment and humanrights (as well as traditional causes such as unemployment andaccess to land), but real existing consumer movements wereassumed away in much of the analysis of Latin Americas exper-iments with market-oriented (or the more critical neo-liberalI use both terms interchangeably throughout thebook) reforms.13 Evaluating the outcome of reforms from thestandpoint of consumers improves our understanding of the

mixed record of market reforms as well as the growing rejectionof neoliberalism in much of the region.A recent book about global financial policy poses the ques-

tion whats democracy got to do with it?14The author arguesthat political questions about who participates and how policydecisions are made are becoming as important as technical ques-tions even in the highly sophisticated arena of internationalfinance. This book about telecommunications regulation pro-



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vides additional evidence in favor of the argument that democ-racy matters a great deal for the regulation and development of

market capitalism. As democratization deepens throughout theworld, and particularly in Latin America, formerly arcane areasof policy become subject to citizen pressure. Where public serv-ices are involved, much of that citizen involvement concernspeoples interest as consumers. It would be premature to claimthat much of Latin America has undergone a full and irre-versible swing toward consumer-based politics, but I do contendthat when members of the middle class and some of the workingclass as well begin to find it feasible and worthwhile to exercise

their rights as consumers as well as workers, this is a trend thatbodes well for the codevelopment of pluralist democracy andregulated markets in the region.

The Salience of Telecommunications

Telecommunications is a good starting point for an analysis ofconsumer mobilization because it is emblematic of the issues thenew Latin American consumer movements addressed. Unlike in

previous eras when only the wealthy could contemplate payingfor telephone service, in the 1990s telecommunications policyaffected members of nearly all social groups in some way. Tech-nological advances and private sector investment reduced theinitial cost of and waiting period for basic telephone service,which meant that a larger segment of the population couldafford to have telephones.15 The information revolution meantthat basic service, whether through a private line or a publictelephone, and also more advanced services such as the Internet,

increasingly were necessary for active participation in social andeconomic life.Privatization led to greater investment in telecommunica-

tions, but also to a number of problems. Under state ownership,relatively few people had telephones, but those members of themiddle classes who did benefited from a system of cross subsi-dies from business and long-distance customers. Privatizationmeant the end of these subsidies, and indeed sometimes



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reversed them so that residential consumers were subsidizingthe corporate sector. People who were accustomed to receiving

subsidies naturally did not care to lose them, and when activistsand politicians gave them the chance to voice their ire, theyprotested against the changes. Many other consumers were sub-jected to overcharging, poor service, and unclear pricing struc-tures and complaint procedures. They, too, began to respond tothe invitation to support organized consumer movements.Indeed, telecommunications generated greater numbers of offi-cial consumer complaints than any other sector in some LatinAmerican countries in the 1990s; however, the mass nature of

services and the regulatory problems associated with the transi-tion from state-owned monopoly to private sector provokedsimilar consumer responses to the privatization of all public util-ities, including electricity, water, and mass transit services.

Chapter Outline

Chapter 2 of this book summarizes what is known about con-sumer mobilization in the United States and parts of Western

Europe and lays out my theoretical argument explaining theemergence of consumer movements in Latin America in the1990s. Chapter 3 shows how authoritarianism preempted therise of consumer movements after telecommunications privati-zation in Chile, and then explains how activists slowly began tobuild consumer movements after the transition to democracy.Chapters 4 and 5 analyze the emergence of a contentious con-sumer movement after the privatization of telecommunicationsservices in democratic Argentina. Chapters 6 and 7 explain how

milder consumer mobilization occurred after privatization indemocratic Brazil. Chapter 8 discusses the relationship betweenprivatization, regulation, and consumer mobilization through-out the Latin American region, and concludes that consumermobilization is essential for democratic development to accom-pany market development.



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CHAPTER TWO

Explaining the Emergenceof Consumer Movements

The Crossed Wires Effect of

Democratization and Privatization

Most analyses of privatization and economic regulation in LatinAmerica have left consumers out of the story. Although the

politicians and technocrats who implement economic policy andtheir economic advisers from in and outside the region almostalways believe consumer welfare should be the ultimate goal ofthe regulation of privatized industries, they assume, implicitly orexplicitly, that Latin American consumers have not developedand will not develop a political voice to protect their collectiveinterests. The assumption of consumer passivity is not surpris-ing. Advocates of privatization and their economic advisors usu-ally apply assumptions about the rational behavior of individualsto the study of economic policy making. The rational choice

theory of collective action considers consumers the quintessen-tial example of a large group with diffuse interests and littleincentive to mobilize. Thus, a simple version of the rationalchoice approach is very useful for explaining why consumers donot organize easily, in Latin America or elsewhere.

Consumer movements do occur, however. In the UnitedStates, consumer advocates claim credit for the creation of theUnited States Food and Drug Administration in the beginning of

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the twentieth century. Fueled by social mobilization, legislativebattles over automobile safety and numerous other consumer-

protection bills raged in the early 1970s. Although less visiblepolitically, in the 1980s consumer protection groups remainedamong the most active public interest lobbies in the UnitedStates.1 Consumer organizations developed throughout Europeand in Japan in the 1960s and 1970s, and in the 1990s consumermobilization shaped the trade policies of the European Union.2Influential consumer movements traditionally have been con-fined to the wealthy countries of the developed world, but strik-ingly, the subsequent chapters of this book demonstrate that in

some Latin American countries in the 1990s consumer move-ments developed a voice in economic regulatory policy.What accounts for Latin American consumers increasing

propensity to mobilize the way their European and North Amer-ican counterparts more often do? To answer this question, thischapter first seeks a general answer to the puzzles of when, how,and why consumer movements may emerge anywhere. Thearguments previously used to explain consumer movements inthe wealthier countries of Europe and North America often havebeen drawn from the broader political theories of rational choice,pluralism, and corporatism. I ask what each of these theoreticaltraditions would predict regarding the outcome of privatizationin Latin America in the 1990s, and find that individually each isinadequate to explain the reality of consumer movements in theregion. I conclude that all three approaches provide some ideasor concepts that are useful if, and only if, inserted into a broaderhistorical and institutional context. To develop an explanation forLatin Americas new consumer movements, I follow the traditionof the rich scholarship addressing social movements and con-

tentious politics, focusing on historical context and borrowingideas from broader theoretical traditions without necessarilyaccepting all of their assumptions.

The Rational Choice Paradigm

Also known as public choice, the new institutional economics, orthe new positive political economy, the rational choice approach



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views consumers as rational, self-interested individuals forwhom political organization is a cost.3 As I stated above, the

rational choice paradigm is better at explaining why consumersdo not mobilize than why they do. Because of their large num-bers and because their joint interests are diffuse and usually of alow intensity, rational choice theory argues, individual con-sumers have little incentive to engage in collective action.4Their interests therefore remain latent and underrepresented inthe policy process.

The simple logic that collective action is costly undoubt-edly explains much about the world. Many policy decisions

probably would be different were it not for the lack of incentivesfor latent interests to organize. Yet numerous studies of socialmovements have revealed that people sometimes do mobilizeeven when it might not outwardly appear rational for them todo so. Furthermore, most wealthy countries do have formal andinformal consumer advocates who have the ability to mobilizelarger groups of people and who influence policy formation atleast some of the time.

There are several possible explanations for consumermovements that do not violate strict rational choice assump-tions. For example, collective action may occur when one largeor wealthy member has an incentive to absorb the costs oforganizing. Indeed, large corporate consumers of public serv-ices often do organize in order to affect public policy and tonegotiate directly with public utilities. In most cases, small orindividual consumers do not benefit from free-riding on suchefforts, however, because services are not pure public goods;smaller consumers are excludable from benefits such as bulkdiscounts.5

Debates grounded in rational choice also focus on howgroups may use side payments to induce their members to par-ticipate in activities. For instance, consumers might join a con-sumer group in order to receive a subscription to itsproduct-rating magazine. Indeed, a few of Latin Americas newconsumer organizations do offer magazines and similar induce-ments to membership, but not all of them do so. Side paymentshardly seem to matter when it comes to other acts of mobiliza-tion such as participation in consumer boycotts. Certainly side

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payments cannot explain the timing and content of consumermovements.

Another line of argument consistent with rational choiceassumptions would contend that so-called consumer advocacyusually is a sham linked to different, narrower, interests. Exam-ples of activity that fulfill the criteria for this rather cynical viewof consumer movements may be found in many countries. In2001 two New York Timesreporters found that a so-called con-sumer advocacy group was a front for a pharmaceutical companythat hoped to convince the United States Food and DrugAdministration to enact regulations that would hurt its competi-

tors.6

While carrying out the research for this book, I found thattelecommunications firms and their unions occasionally haveclaimed to be (in some cases their critics might say posed as)consumer advocates in order to influence policy makers andpublic opinion in Brazil and Argentina. The purely cynicalapproach explains only a small fraction of all activity in therealm of consumer protection in Latin America as well as in theUnited States and Europe, however. At the cusp of the twentyfirst century, consumer advocates demanded and achieved apresence in important debates about nuclear power, electricalpower deregulation, and genetically modified foodstuffs in thewealthy countries of the world.7 Real mobilization of consumersseems to occur more often than bogus mobilization does, and tohave more of an impact on policy.

The most compelling rational choice-grounded explanationfor consumer mobilization rests on the concept of politicalentrepreneurship.8 According to this line of reasoning, politi-cians and activists are willing to absorb the costs of advocatingfor consumer protection because they win votes or other forms

of political capital for doing so. The rational choice school israrely sanguine about the impact of political entrepreneurshipon policy, however. Some analysts use the political entrepre-neurship approach to argue that consumer mobilization is cycli-cal. Short-lived consumer coalitions emerge when an issuebecomes politically prominent. These coalitions create regula-tory regimes that supposedly protect consumers interests, butwhen the public attention fades later the lobbyists for industry



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succeed at modifying the regulatory institutions after corporateinterests. In this view, people may develop the idea that con-

sumer protection exists, but really it is just a kind of myth, orsymbolic politics.9Consumer protection in the United States (and other coun-

tries) is not entirely a myth, however. Indeed, business lost polit-ical power in the 1960s and 1970s because of the increasedpower of consumer groups.10 Consumer-protection advocatesexisted before the 1960s and remained active in the UnitedStates long after the highly publicized movement spearheadedby Ralph Nader. The consumer-protection movement weath-

ered the Reagan years, economic deregulation, and the shift ofpolitical power back toward business. Nutrition labeling andcable reregulation were two victories for consumer advocates inthe United States in the 1990s.11 In the early years of thetwenty-first century, consumer advocates led debates about theimportation of pharmaceutical drugs from foreign countries.

The argument that cycles of consumer activism make realconsumer protection a myth reflects an important truth. Peopletend to organize to protect their interests in productionaslaborers or capitalistswith greater vigilance than they do toprotect their interests in consumption.12 This pattern has beenespecially true in Latin America for most of its history. The dis-missal of political entrepreneurship as a fleeting phenomenondoes not do justice to the intricacies of the policy process, how-ever. Nor does the symbolic politics argument explain why anissue becomes politically prominent at a particular time. Byitself, the concept of political entrepreneurship merely tells usthat mobilization is possible in a world of rational, self-inter-ested 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 fromthe difficulty of defining an objective consumer interest. Oneinteresting argument moves away from pure economic rational-ity, holding that consumers tend to be content if nominal pricesare constant or falling, especially in an economy where theaverage price level rises over time, but that nominal priceincreases lead to mobilization: Consumers and public interest



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groups, politicians, etc. become active when nominal pricesrise, service quality deteriorates or of late, when environmental

damage is inflicted.13 Regulatory agencies, in this view, havean interest in keeping conflict and criticism to a minimum. Inthe United States, for example, rising consumer advocacy over-whelmed the regulatory system in the 1960s and 1970s becauseof money illusion caused by inflation. Consumers believedthey were paying more for the same service because nominalprices rose, while real prices decreased or remained the same.The main point here is that the regulatory agencies, accus-tomed to acting incrementally to keep consumers happy, were

ill prepared to cope with demands for radical change. A strictrational choice paradigm is less capable of explaining the ori-gins of those demands.

The main reason the rational choice approach fares rela-tively poorly (or at least, is insufficient) at predicting consumermobilization, I argue, is that it employs a narrow economic defi-nition of the consumer interest that is isolated from complexreality.14 The basic assumption that consumers prefer to paylower prices often seems to work very well in economic pricetheory, but it works less well for predicting outcomes in politicsor public policy.15 Even the more sophisticated assumption thatconsumers may mobilize when they mistakenly believe they arebeing charged higher real prices is overly simplistic. As a group,consumers have an interest in overall lower prices, but they mayalso have an interest in the regulation of advertising, informa-tion about health risks, and the right to sue, among others. Anarrow rational utility assumption does not explain when con-sumers perceive that they are being treated unfairly or whenthey opt to voice their discontent politically. Given the myriad

of factors that affect them, it may be that consumers often arenot even sure what their real interest is, but as an explanationfor political action, consumer ignorance is as unsatisfactory asthe Marxist concept of false consciousness.

The assumption that mobilization is always a cost isanother problem with the rational choice approach. On occa-sion, individuals may view mobilization as a benefit.16They mayderive satisfaction from the venting of frustration even if no



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tangible benefits ensue, or they may enjoy achieving benefits forothers 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 activistsappeal to peoples motivations and calculations. I was told byseveral of ther persons I interviewed while researching this bookthat some consumer advocates in the 1990s had engaged inother forms of political activism in the past. Several of them hadbeen involved in struggles to protect human rights and end dic-tatorships in the region.17They actively sought new issues oncedemocracy returned and severe human rights abuses for political

reasons ended. The context of economic reforms associated withglobalization had much to do with their selection of consumerprotection as a new source of activism. Overall, my researchshows, an analysis based solely on rational choice theory wouldmake too light of the importance of historical, political, and eco-nomic context on how individuals and groups define their inter-ests and strategies for defending them.

In keeping with the emphasis on material individual incen-tives, rational choice approaches to privatization in LatinAmerica tend to assume away the possibility of consumer mobi-lization. If we were to try to develop a rational choice-basedexplanation of the consumer movements that occurred in theregion in the 1990s, we might borrow from the argument aboutrising nominal prices, as even the real price of local telephonecalls increased in many countries that experienced privatiza-tion.18 The price of local service increased in Chile also, how-ever, and no consumer movement emerged there. Thisdiscrepancy, while unsurprising in some ways, establishes theneed to incorporate democratization into studies of privatiza-

tion, as the chapter on Chile argues. Another argumentthatconsumers complain more when quality declineswould havepredicted Latin American consumers would mobilize moreprior to the onset of economic reforms such as privatizationrather than afterward because of the deterioration of servicesthat most countries experienced in the 1980s, but most con-sumer mobilization occurred only after privatization alreadyhad been implemented.



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In sum, the rational choice paradigm proves very useful inits differentiation between latent and organized interests, its def-

inition of the concept of political entrepreneurship, and also, Ibelieve, in its strict emphasis on logical consistency. I rely exten-sively on concepts developed by rational choice scholars in thisstudy, while arguing that rational choice strictly defined is notsufficient to explain the emergence of Latin Americas new con-sumer movements. I further contend that when the advocates ofmarket-oriented reform assume away consumer movementsthey may sabotage their own understanding of the political sus-tainability of reforms and the regulation of privatized industries

in developing democracies.

Pluralism and Corporatism

A simple explanation of consumer mobilization traditionallycomes from the pluralist tradition of politics in the UnitedStates. Pluralism holds that because consumers have a collectiveinterest, they naturally organize to protect it, just like any othergroup in society.19 Founding father James Madison saw the ten-dency to protect self-interest as innate in the nature ofhumankind; his solution to the problem of factions was toallow all interests to organize.20 In the 1950s and 1960s, Ameri-can pluralists argued that such bargaining among interest groupswas beneficial for all. As society becomes more complex, thepluralist argument goes, interests become more differentiatedand numerous. Because in the pluralist world membership ingroups is overlapping, in this view class conflict and all its per-ceived dangers for democracy does not define politics in plural-

ist democracies such as the United States.The rational choice paradigm dealt a severe blow to thepluralism school in the late 1960s by showing that individualconsumers do not necessarily have the incentive to mobilizeeven if they perceive that they have a shared interest. In a simi-lar vein, other critics of pluralism argued that a class bias taintsthe pluralist system. According to the class bias critique, interestgroups, notably business but also other upper-class groups in



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general, tend to preserve privileges for elites, making desirableradical change difficult to implement. John Kenneth Galbraith,

for example, argued that producers maintain their power overpolicy in spite of consumer protection movements.21 In the areaof public utility regulation, the privileged elite argument agreeswith the economistic rational choice view (in spite of likelybroad ideological disagreements between some contemporaryproponents of the two schools of thought) that governmentagencies are likely to be captured by industry and pay littleattention to the perspective of consumers.22

A European critique of pluralism is found in the develop-

ment of the corporatism school. Corporatism is considered tobe a system of subgovernments in which interest groups holdreal power.23 The difference between corporatism and plural-ism, in brief, is that pluralism involves consulting with manygroups, while corporatism involves sharing power with them.Corporatists contend that pluralist theories do not explain howinterest groups in some European and Latin American countrieshave morphed into governing institutions.24 Like pluralism, cor-poratism has been applied much more frequently to capital andlabor than to consumers. Out of concern that unorganizedinterests, such as that of consumers, are at risk under corpo-ratism, countries such as Great Britain have financed nationalconsumer councils in an attempt to incorporate consumer inter-ests into bargaining arrangements between the state and pro-ducer groups. In the 1990s some Latin American countriesconsidered implementing similar arrangements in response todemands by consumer advocates.

Pluralism and corporatism are useful concepts for describ-ing the institutional mechanisms through which movements

attempt to influence or formulate public policy. They also incor-porate a material explanation for the development of an objec-tive consumer interest. The idea that a more complex societyproduces differentiated interests is useful for explaining whyconsumer movements do not emerge in traditional agriculturalsocieties. This argument does not explain the difference intiming between the emergence of consumer movements in theUnited States and their emergence in Europe or Latin America,



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however. A strict pluralist approach to privatization in LatinAmerica would suffer from the opposite problem of a rational

choice approach: that is, it would assume that consumers alreadywere organized prior to privatization (at least in the more eco-nomically advanced countries of the region) and would remainorganized afterward. A corporatist approach might predict thatthe state would co-opt any consumer movements that emerge,but alone it also would fare less well at explaining why theyemerged at a particular time or stage of modernization.

Consumer Movements as Contentious Politics

Analysts of a broad array of social movements have developedwhat might be called a meso-level theoretical paradigm toexplain collective political mobilization. As defined by SidneyTarrow, the irreducible act that lies at the base of all socialmovements, protests, and revolutions is contentious collectiveaction.25Tarrow argues that the term contentious politics doesnot imply that mobilization is necessarily violent. Rather, collec-tive mobilization becomes contentious when it is used bypeople who lack regular access to institutions, who act in thename of new or unaccepted claims, and who behave in ways thatfundamentally challenge others or authorities.

The contentious politics, or social movements, paradigmdiffers from pure rational choice, pluralist, and corporatistapproaches as well as their critics in its specific substantive con-sensus that context affects peoples motives and interests andalso in its embrace of interdisciplinary methods. This approachborrows the concept of political entrepreneurship from

rational choice, but makes the concept travel farther by theoriz-ing how activists seize opportunities and frame issues to winsupport as well as the organizational tools they use to advancegroup goals. Social movement theory does not necessarily relyon a narrow definition of individual self-interest, but neitherdoes it necessarily violate the assumption of individual rational-ity. Social movement theory also may incorporate and explainboth pluralist and corporatist structures of interest representa-



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tion without necessarily assuming that all interests are weightedequally in political systems.

Three principal ideas from the social movements schoolopportunity structures, issue-framing, and repertoires of con-tentionare valuable for analyzing Latin Americas newconsumer movements. The first two concepts are especiallyuseful for understanding when mobilization will emerge. Achange in opportunity structure implies changes in state struc-tures and political cleavages that may lower the costs of collec-tive action, reveal potential allies, show where elites andauthorities are most vulnerable, and trigger social networks and

collective identities into action around common themes.26

Inthe Latin American countries discussed in this book, the conflu-ence of democratization with broad economic reforms reshuf-fled the mix of grievances and created new possibilities forpolitical organization.

The concept of issue-framing is useful for explaining howpolitical entrepreneurs use the raw material of grievances tobuild political support.27 For example, they may find thatpotential loss is often more conducive to collective action thanpotential gain. Mobilization also may be more probable whenpeople are threatened with costs that violate their sense of jus-tice.28 Yet another reason people may become outraged andmobilize is that they feel an unwritten, or written, contract ornorm has been broken.29As I explain in the country case chap-ters, applying these insights from the social movement schoolto the price restructuring associated with public utility privati-zation predicts that consumers who stand to pay higher pricesafter privatization are likely to mobilize to prevent their poten-tial loss. Consumer advocates, or political entrepreneurs in

the rational choice parlance, in Latin America often capitalizedupon this grievance to build the foundation for a longer lastingmovement organization. My argument here is consistent withRussell Hardins game theoretic explanation of how socialmovements are able to endure despite the unwillingness ofindividuals to pay the cost of mobilization for more than a shorttime. Using the language of game theory, we may view socialmovements as the product of cooperation in a one-shot game.



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The initial cooperation creates a contractual relationship ofrepresentation between constituents, whose participation may

be fleeting, and movement leaders who are in the struggle forthe long haul.30The idea of repertoires of contention describes the forms of

collective action movements may take and the tools they mayuse.31 In Figure 2.1, I list the repertoire of contention utilizedby Latin American consumer movements and rank each tool ormechanism 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 anddisputes are processed through pre-established organizations ina bureaucratically routine way, such that the conflict is overpolicy content rather than process.

One salient form of unchanneled and contentious mobiliza-tion involves mass actions such as the refusal to pay bills, largegroups of people taking their phones off the hook simultane-ously, or traditional forms of mass action such as taking to thestreets. Individual actions such as complaining directly to priva-tized businesses or to regulatory agencies, other governmentaldepartments, or nongovernmental organizations may increase;depending on which organization receives them (and whether ithas an existing policy of receiving them), they may be institu-tionalized or uninstitutionalized. Complaints also may take theform of class action lawsuits in the regular courts or sometimesnewly created consumer courts: again, the degree of institution-alization depends on whether courts accept the lawsuits orwhether there is a dispute over process. Legislative committeesmay assert that they have the right to oversee regulatory agen-

cies or to protect consumers in other ways, and individual politi-cians and parties may campaign on platforms of consumerprotection. If legislators and politicians have not previouslytaken on this role, these actions are relatively uninstitutional-ized. Promoting media coverage of all these forms of mobiliza-tion as well as investigative journalism uncovering abuses ofconsumers was also a tactic used by the new consumer move-ments in the 1990s and later.



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Figure 2.1.Repertoire of Contention of Latin American Consumer Movements:

Scale of Contentiousness and InstitutionalizationCONTENTIOUSNESS OF TACTIChigh

lowlow high

INSTITUTIONALIZATION OF TACTIC

Mass protests such asrefusal to pay bills orcoordinated boycotts

Lawsuits challengingconstitutionality ofregulatory proce-dures

Use of consumerprotection issues inelectoral campaigns

Public demonstra-tions againstbusinesses and gov-ernment agencies

Attempt to file classaction lawsuits

Class action lawsuitsroutinely filed onbehalf of residentialtelephone users

Attempts by legisla-tors to establish rightto intervene in regu-latory policy

Following estab-lished procedures forcongressional over-sight of regulatoryagencies

Collective and indi-vidual complaints tothe media

Collective and indi-vidual complaints tobusinesses and gov-ernment agencies

Routine use of com-plaint procedures ofbusiness and regula-tory agencies

Issuing of newslet-

ters and pamphletsto consumers, spon-soring radio and tel-evision programsabout regulatoryissues

Attempts to file law-

suits on behalf ofindividuals

Lawsuits routinely

filed on behalf ofindividuals

Advertising generalgrassroots consumerprotection servicessuch as legal aid

Attempts by con-sumer advocates toparticipate in publicaudiences and other

administrative proce-dures

Routine participationby consumer advo-cates in public audi-ences and other

administrative proce-dures


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From Class to Consumer-Based Mobilization

Political mobilization in Latin America since the regions inde-pendence has been predominantly class-based. Business andlabor (andin some countriespeasants) have been the majorgroups to which politicians specifically appeal for political capi-tal. In countries where mass democracy emerged with industri-alization, the bulk of appeals to the masses have been framed inMarxist terms, and these appeals have been made to workers,represented by unions. Indeed, some scholars have argued thatthe incorporation of labor into political systems was the most

important determinant of the nature of political regimes in thetwentieth century.32The political power of labor has ebbed and flowed, or, very

frequently, been violently repressed. Many military regimes inthe region have been founded largely on antilabor policies. Insome cases, labor unions and workers parties returned to theforefront of politics by playing an important role in transitionsto democracy. Organized labors political importance declined inthe 1990s in most countries, though, as it has been unable toblock liberal economic reforms.33 The regional average union-ization rate in the 1980s was close to 23%; by the 1990s, it haddeclined to below 15%.34

The decline of labor did not mean the end of popularmobilization in Latin America, however. New movements basedon issues such as unemployment, human rights, and issues ofidentity such as race and gender emerged in the 1980s and1990s, and many of them achieved important victories in publicpolicy.35 With the exception of the unemployed, such move-ments, while important, do not directly relate to the economic

arena in the way that organized labor does. Of the new socialmovements, the consumer movements most frequently demandto participate in the arcane and technocratic arena of economicregulatory policy.

Prior to the emergence of consumer movements, onlywomens groups and popular neighborhood organizations pro-vided a modicum of representation of consumers in Latin Amer-ican policy processes. Low-income womens groups often



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negotiated with governments to acquire electricity, water, orsanitation services in peripheral areas. Middle class housewives

organizations kept track of the prices of basic goods and serv-ices, and occasionally even negotiated the price of public serv-ices with politicians and managers of state-owned enterprises.These groups did not identify themselves as primarily consumeradvocates, however; rarely, if ever, did they refer to their con-stituents as consumers at all. The focus of their discourse wasthe states duty to fulfill basic needs. The terms consumer move-ments have used to make claims upon the state reflect a shiftfrom 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 appealingto constituents on the basis of the price of public services, but aswith womens and neighborhood groups until the 1980s or1990s these appeals rarely were framed in terms of consumerprotection. When utilities were state-owned, it was not in politi-cians interest to encourage people to think of themselves asconsumers with rights, such as the right to choose among com-peting products and services. The opportunity structure of thestate ownership era favored a more paternalistic style of appealto the state to take better care of people. For this reason, advo-cates of privatization criticize public utilities for promotingpaternalistic politics. Critics of state ownership also point outthat public utilities provided plenty of opportunities for clien-telistic, or patronage-based, politics to develop.37 Jobs in thestate-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 theaverage person, a telephone line was an excellent incentive for

votes or other forms of support.Critics further argue that Latin American states tradition-ally have rewarded rent-seeking behavior rather than produc-tion, and provided favors to special interests rather thanpromoting policies to benefit the public good.38 In keeping withthe rational choice predictions of the outcome of most govern-ment regulation, state-owned companies, in particular, are saidto have served the interests of the bureaucracy or the unions,



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but never the consumers. [In Argentina] the actors are notconsumers, but employees, proclaims an Argentine economist,

in a critique of what he terms a corporatist, or special inter-est, society.39 In spite of these criticisms of rent-seeking and thepaternal state, the implications for Latin American consumersof the end of the protectionist policies that encouraged rent-seeking along with the decline of labor and the rising power ofbusiness rarely are addressed explicitly in most political eco-nomic analysis.

A few disclaimers are in order about the scope of my argu-ments in this book. None of the new social movements men-

tioned above, including consumer movements, has filled thevacuum left by the demise of unions. Nor is the relationshipbetween the growth of consumer movements and that of organ-ized labor necessarily negative. (Indeed, in both the wealthiestcountries of the world as well as in Latin America, some of thetime unions themselves have undertaken legal and politicalactions on behalf of consumers.) Consumer movements arelargely, if not exclusively, middle-class, and still relatively small.Reliable data to construct a chart comparing participation inconsumer mobilization across countries in the Latin Americanregion are not available, but the numbers undoubtedly would befar smaller than the unionization rates I quoted earlier. Becauseof these limitations, it might be argued that in some cases itwould be more accurate to apply another labelperhaps self-appointed consumer advocacy networks or interest groupstowhat I call consumer movements. I choose to use the term con-sumer movements because consumer advocates at least some-times have been capable of mobilizing large groups of people.The privatization of public services is one of the chief explana-

tions for their ability to build political support.

Critiques of Consumption in Latin America

Advocates of the dependency school of development were thefirst scholars to pay attention to the concepts of consumptionand consumerism in Latin America. This attention generally



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consisted of critiques of elites taste for luxury and conspicuousconsumption, which appeared obscene when compared to the

conditions under which many poor people lived. According tosome variants of dependency theory, the demonstration effect ofconsumption in the elite countries promotes spending on luxuryimports rather than local production. Badly needed foreignexchange thus satisfies the cravings of the rich instead of invest-ing in improving the lot of the masses.40

A few studies of new Latin American social movements,such as movements for environmental protection or humanrights, argue that the demonstration effect of consumers in

wealthy countries continues to have negative effects on theLatin American region, and some even view the suggestion ofconsumer protection with suspicion, believing it to be a poorsubstitute for the deepening of citizenship rights.41 The advo-cates for some social movements are concerned with improvingdemocracy and often contend that civil society in general, andNGOs in particular, should play a far more important role inpolicy decisions, which are too important to be left to the tech-nocrats.42 In spite of the calls for a more important role for civilsociety in policy making, however, often analysts of civil societyand social movements ignore consumer issues. The index ofAlvarez, Dagnino, and Escobars important volume, for example,lists only one reference to consumers, which turns out to be acitation of a book about popular culture in Mexico.43

Some scholars of civil society also argue that while NGOshave become increasingly visible on the world stage their capac-ity to promote radical change has been weakened by the forcesof globalization or neoliberalism. The latter are notoriouslycomplex 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 iden-tify the causes and effects of particular types of economicreforms such as the privatization of the telecommunicationssector rather than to make sweeping generalizations about fairlynebulous forces. From Latin American social movement advo-cates, I derive the very useful insight that the strength of theconsumer protection movement may be in part due to its basic



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acceptance of neoliberal or market values such as economiccompetition. Critics of neoliberalism (and of the use of the label

free-market capitalism in the title of this book) may argue thatthe global phenomenon of neoliberalism is more about oligop-oly than fair competition, but the defenders of such policies usethe language of markets, as do most of Latin Americas new con-sumer movements. In the 1980s and 1990s, for good and forbad, Latin America was more similar in its consumption pat-terns and political values to the United States than it had beenin the past. The growing success of consumer movements is anexample of increasing similarities between the regions.

The Privatization of Public Services

Complex variables such as globalization may be the ultimatecause of the increasing homogeneity of countries and regions ofthe world, but the emergence of social movements anywhereusually has causes that are more direct and immediate. In thecase of consumer movements in Latin America, that cause wasthe privatization of public utilities, which provided politiciansand activists with a ready-made set of issues, constituents, rheto-ric, and legitimacy. According to the privatizers rhetoric, theprivatization of public services would transform Latin Americancitizens, who formerly had been captive users, into sovereignconsumers with the right to protection of their contracts withprivate businesses and the power to vote with the purse.

Economic studies of privatization have not noted the rise ofconsumer movements, but they do help explain the causal rela-tionship between these two variables by analyzing the challenges

associated with regulating privatized companies. The problemthey highlight most frequently is that of regulatory capture, orthe control of regulatory agencies by special interests, normallythose of industry.44 Some political economists have shown thathasty privatizations, characterized by the failure to create regu-latory agencies prior to sale of the state-owned enterprise, weremore likely to result in the phenomenon of regulatory capturethan were more gradual privatization processes.45 Others have



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demonstrated the importance of independent judiciaries andother checks and balances on the regulatory body to avoid cap-

ture and otherwise achieve effective regulation.46 Still othershave shown that party politics and other political variables affectthe rules governing investment and competition after privatiza-tion.47 When privatized businesses capture regulatory agenciesand competition is curtailed, prices and quality do not improveas promised and consumers pay the difference. Some advocatesof privatization have recognized the cost to consumers, but,sometimes openly and usually implicitly, they assume consumerswill do nothing about it.

Public services contain features especially conducive toconsumer mobilization, however. If they are monopolies or oli-gopolies, they provide a legitimate target for government regu-lation even in a pro-business economic context. The mass,homogenous nature of the services makes it relatively easy forlarge numbers of people to figure out they all have been dupedor mistreated. Consumers also can make the case to their gov-ernments 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 resemblesthe trajectory of other public services such as electricity andtransportation in that the ownership structure of the sectorvaried from private ownership with some competition (approxi-mately 18601940), to state-owned monopoly (approximately19401985), to private ownership and some competition

(approximately 19852000).49 Unlike the other utilities, how-ever, policy makers and opinion leaders did not consider accessto telecommunications essential for ordinary citizens until thelatter period. During the period 18601940, telephone servicewas limited to large companies, government offices, and thewealthy in capitals and major cities. Foreign investors ownedalmost all telephone companies, and cities were covered with theoverlapping wires of competing and unconnected networks.



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Acquisitions and mergers ended most real competition beforethe turn of the twentieth century. The companies that remained

therefore often were private monopolies, and were unregulatedor loosely controlled through franchise contracts.National governments took over the telecommunications

sector in the 19401985 period, in part out of security concernsand because of ideological changes regarding the role of thestate in development, but also in an attempt to improve inade-quate services, which often did improve after nationalization. Inaddition to expanding telephone service, however, governmentsalso funneled revenues from state-owned companies into other

sectors. This kind of behavior caused inefficiencies in state-owned firms, as they were unable to devote revenues to mainte-nance and expansion. Some countries even siphoned foreignexchange revenues from international service for the generaltreasury. Most countries developed national monopolies,although there were some variations in the structure of thesector, 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 fromoutdated equipment, long waits for installation, lack of capitalfor investment, and poor maintenance. In spite of these prob-lems, however, the reasons for the privatization of utilities weremostly fiscal rather than performance-related. Telecommunica-tions privatization signaled commitment to neoliberal reformsand thereby attracted foreign capital, filled state coffers, andpropped up incipient stock markets. That state-owned compa-nies really were inefficient and unpopular with citizens was apolitical convenience.50 Privatization was less painful for gov-ernments than other ways (such as tax reform) of reducing debt

and controlling the fiscal deficits that contributed to hyperinfla-tion and other economic problems. Furthermore, lending insti-tutions often linked international loans to privatization.Politicians thus tended to focus on obtaining the best possibleprice rather than on benefiting consumers. One way to beassured of a high price was to guarantee the purchasers a privatemonopoly, called an exclusion or exclusivity period, for a certainperiod of time after the sale.



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Latin American countries privatized and otherwise restruc-tured their telecommunications industries to a more radical

degree than any other region during the 1980s and 1990s. Chilewas the pioneer; its two state-owned companies were completelyprivatized by the late 1980s. Other countries followed Chilesexample, and by the end of 1999, of the 89 telecommunicationscompanies privatized worldwide during the two decades, 25%were in Latin America. Monopoly phone companies were thesingle most profitable sector privatized in the region, earningmore than $40 billion for Latin America as a whole.51

Privatization and Technological Advancesin Telecommunications

While the direct causes of privatization had little to do withconsumer protection, they coincided both with changes in thedominant economic ideas regarding telecommunications regula-tion in the wealthier countries and great advances in telecom-munications technology. During much of the twentieth century,economists regarded telecommunications as a natural monopolyto be regulated or even owned by the state. According to thisview, it made economic sense for one company to control thelines connecting customers to its network as well as the linkswithin that network, because of the high level of sunk costs,such as telephone poles and underground cables, associated withconstructing the network initially and the diminishing cost ofadding more customers (or the marginal cost). Network exter-nalitiesthe idea that the value of the network for everyone isaffected when one customer is addedwere another justifica-

tion for the natural monopoly idea. Most people only demandedone type of service, the voice-grade telephone circuit (or plaintelephone service). Local calls were much more frequent thanlong-distance and international services.

Telecommunications increased in importance around thesame time that most Latin American political leaders were aban-doning nationalist ideas about the role of the state in the econ-omy in favor of liberal economic reforms such as reopening



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their economies to foreign capital. Technological progress andincreasing demand for telecommunications services helped

weaken the natural monopoly idea in the 1980s. Not only hadeconomies of scale been reduced, there also were great declinesin the cost per unit output in every component of the industry.Fiber optic cables and digital technology allowed for muchgreater carrying capacity, for example. Digital technology alsoreduced the cost of mechanical switching. As technological pos-sibilities advanced, business customers demanded differentiatedservices such as mobility, data transmission, and greater speed.The heterogeneous demand provided an incentive for the entry

of specialized, niche service providers. The traditional pricingstructure in telecommunications was based on distance andtime, but the new advances made distance and time of day prac-tically irrelevant to the cost of transmitting calls.52

The differentiation of demand upset the principal means ofachieving universal service that had existed in both wealthy anddeveloping countries. As installing and maintaining local net-works was (and remains) far more expensive than establishing along-distance network, under the old model telecommunica-tions monopolies subsidized basic local services with revenuesfrom other services. As defined by the International Telecom-munications Union, the cross-subsidies were broken into threecategories:

different services (e.g., from national long distanceand international to local communication services);

different user groups (e.g., from commercial to resi-dential users)

different geographical areas (e.g., from urban to

rural areas)53

Developing a liberalized telecommunications market thus meantthe demise of the traditional system of cross-subsidies, as cross-subsidization by existing monopoly telecommunicationproviders is a significant barrier to competition. New marketentrants would be unable to match the incumbent providersprices if these were supported by extensive subsidies. This prob-



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lem would be aggravated when the incumbent provider contin-ued to operate as a monopoly in certain sectors, using the result-

ing profits to compete unfairly in other sectors. A new efficiententrant might have an immediate advantage in any service sectorin which the incumbent provider had priced services far abovecosts, such as long distance.

The principal policy implication of the end of cross-subsi-dization was the need to implement tariff rebalancing programs.Tariff rebalancing refers to the realignment of telephonecharges to reflect more closely the cost of supplying them. Localcalling becomes more expensive, as carriers rebalance their tar-

iffs to cover more of their costs from access to the local loop andlocal calling. In other words, rebalancing meant that the pricescharged to users of plain local residential telephone service mustincrease. As one specialist puts it, Rebalancing in most marketsgoes hand in hand with a rise in the cost of residential services.Given that, in most of the Americas, residential services wereheavily subsidized, there is a good chance that the progressmade in the provision of universal service might suffer asetback. . . .54

The need for rebalancing is not the only cause of higherprices for the local calls that residential consumers primarilymake. In the 1980s the United States Federal CommunicationsCommission implemented benchmarks on international settle-ment rates. The United States is the largest traffic partner forvirtually every Latin American country, and in the past theaccounting rates system caused it to make net settlements inLatin Americas favor that were significant both in terms of theabsolute amount and the relative value. (In 1998 net settlementsto Mexico totaled more than $850 million, and settlements to

Haiti totaled more than half of the total telecommunicationsrevenue in that country.)55 Latin American countries formerlyused these settlements to keep prices for residential users low,but the new benchmarks capped the settlement rate, makingsuch redistribution infeasible.

When competition was introduced, another type of cross-subsidy, from noncompetitive to competitive service, became aproblem. It was feasible for companies to use cross-subsidies to



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drive competitors out of the market. Thus, it was possible (andprobable) that residential users of local services would end up

being charged a subsidy used by a firm to compete unfairly inlong distance and other lucrative services.

The Mixed Effects of Privatizationon Residential Consumers

The privatization of telecommunications benefited many LatinAmericans to a very large degree. In most countries where it

occurred, within a year or two after the date of sale there nolonger was unmet demand, meaning the end of horror storiesabout ten-year waits for line installation or advertising of apart-ments for sale as walls around a telephone. The introductionof technological advances such as wireless service enabled manypeople living in rural areas or urban slums to leapfrog over theold wire line systems.56

Not everyone found the benefits worth the costs, however.While the cost of telephone installation normally went downafter privatization, the monthly charges for local access increasedand became unaffordable for many people. The rebalancing ofthe tariff structure benefited corporate consumers and wealthyusers of long-distance services at the expense of residential usersof mainly local services. Special groups, such as the elderly, alsostood to lose subsidized lines that they used for little more than alocal call in an emergency but that greatly enhanced their inde-pendence and security. It may be argued, and governments havedone so, that overall the tariff rebalancing was necessary forgreater competition, which resulted in overall more choice for

consumers including low-income users who did not benefit fromthe cross-subsidization under the old system. Thus, we mightexpect those who stood to gain from more rapid liberalization ofthe market to mobilize under the banner of consumer protectionand lobby in favor of rebalancing policies.

As I discussed earlier in this chapter, however, research onsocial movements tells us that potential loss is often more con-ducive to collective action than potential gain. It was middle-



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class Latin American consumers who stood to lose in the rebal-ancing of tariffs who organized the first salient consumer move-

ments after privatization. Once created, consumer movementstook on a number of causes that affected the middle class andalso some members of the lower classes, including numberportability, itemization of bills, the right to not pay disputedcharges, waiting periods for installation and repairs, call comple-tion rates, and others. In the language of game theoretic modelsof representation contracts in social movements, the struggleagainst rebalancing was a one-shot game establishing a contractof representation between consumers and movement leaders.

Consumer advocates remained in the regulatory game even afterrebalancing began to lose its prominence as a comsumer protec-tion issue.

Democratization

The privatization of public utilities such as telecommunicationsimposed costs on residential consumers in all countries, but con-sumers only protested those costs in democracies. It was theconfluence of democratization with economic reforms such asprivatization that made the emergence of consumer movementsextremely likely. Democracy permitted political mobilization,while reforms such as privatization weakened the power oflabor. Some progressive scholars and policy makers (and alsosome conservatives and neoliberals) came to see civil societyorganizations and social movements as the regions greatesthope for improving democracy and social justice. Democracyalso meant that individual politicians and political institutions

such as parties and legislatures needed to seek for issues aroundwhich to appeal to constituents.Economic policy has been the most pressing issue for

politicians in emerging Latin American democracies. New civil-ian governments often tried to keep economic policy makinginsulated from social pressures by granting autonomy to smallgroups of technocrats. In most scholarly analyses, the struggleover economic policy generally is viewed as another elite game,



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carried out among the domestic business class, the politicalclass, and the cadre of technocrats.57 Separating economic policy

from democracy is more difficult than many technocrats andeconomic analysts would like, however. As two political scien-tists argue, Economic policy was marked not just by conflictover the content of policies: it involved a deeper struggle overboth the procedures, mechanisms, and style of governmentaldecision making and also the whole tenor of state-society rela-tions.58 Democratization thus meant that new actors begin todemand 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 soci-ety 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 protec-tion became an important issue. Given their nonexistence orlack of real authority under authoritarian rule, legislatures havenot traditionally received much attention from Latin Americanscholars or foreign social scientists studying Latin America. Thewave of democratization in the region in the middle and late1980s was also an impetus for change in social science studies ofthe region. At first, scholarly attention focused on the politicalalliances that helped bring democracy about, including socialmovements and human rights organizations, but it then turnedtoward the formal institutions of the new democracies: politicalparties, electoral systems, federalism, judiciaries, and legisla-tures. At the same time, the neoinstitutionalist school was reviv-

ing political sciences interest in formal political institutions ingeneral. There now are a variety of scholarly studies of demo-cratic institutions all over the world, including Latin America.

Some analysts have criticized Latin American political sys-tems for weak legislatures and excessive use of decrees by execu-tives.59 In fact, however, legislative salience in policy making hasvaried widely from country to country and sector to sector.60The privatization of telecommunications, for example, varied



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from a purely authoritarian, executive decision in Chile underGeneral Pinochet, to an executive decree (overriding congres-

sional participation) issued by Argentinas President Menem, tothe passage of a constitutional amendment and two separatecongressional bills in Brazil during the administration of Presi-dent Cardoso.

The country case studies in this book reveal that the issueof legislative participation is more complex than a simple cate-gorical ordering of the single policy decision of privatization. Inaddition to passing executive-sponsored bills, as in Brazil, LatinAmerican legislatures may amend the bills substantially, discuss

alternative policies that may or may not be implemented, orrequire legislative consent for future policy changes. Individuallegislators may try to put alternative bills forward, winningpolitical capital in the process. The main effects of legislativeparticipation on telecommunications policy that I identify in thecountry cases are an overall increase in universal access require-ments for telecommunications companies, as well as clearermechanisms for the resolution of disputes between government,consumers, and the private sector.

Groups in civil society are another important new actor inthe economic policy process. Governments and political partieson occasion have assisted new consumer organizations or evencreated them. In other cases, consumer groups have won posi-tions on the boards of directors of regulatory agencies. The riseof consumer movements would seem to contradict a predictionof the well-known argument that democratic transitions neces-sarily provoke a quick upsurge in civil society followed by disil-lusionment and decline.61 In truth, civil society adapted to thenew economic environment, and found in consumer protection

a new cause that resonated with constituents.

The Relationship Between Democracy andPolitical Mobilization

When public utilities were state-owned there were few rhe-torical appeals to consumers interests, formal channels for



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consumer participation, or other opportunities for people toorganize around their interests as consumers. The confluence of

democratization and privatization was an unprecedented oppor-tunity for political activists to build consumer movements.Analysts of both economic policy and social movements

have been slow to notice that consumer protection became partof the substance of democracy through the actions of politiciansand other political entrepreneurs. It is true that earlier economicreforms were dominated by a technocratic policy-making style,and that early neoliberal reformers did not reveal their inten-tions to voters in electoral campaigns. In the 1990s, however,

incumbent presidential candidates such as Brazils Cardoso andArgentinas Menem directly appealed to voters as consumers andlinked an increase in consumers choices with their economicpackages.62 Numerous lesser politicians and civil society leadersalso began to build substantial political capital around the issueof consumer protection.

Globalization

The term globalization is shorthand for the confluence of spe-cific economic, social, and political changes, including capitalmobility and the resulting power shift to business from labor,advances in communications technology and the resultingincreased demonstration effect, and increased transnational tiesamong civil society groups. While Latin Americas new con-sumer movements mostly were domestic in origin, in the 1990sthey began to develop ties with activists from other countries

within the region and all over the world. A transnational con-sumer nongovernmental coalition then began a coordinatedeffort to promote consumer protection legislation in countriesthat lacked it and to measure the effects of the privatization ofpublic services on consumers. One of their most importantcountries on their list was the one where the privatization trendstarted, Chile, now democratic and with its own emergingdomestic consumer movement.



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Summarizing the Argument

To sum up the general argument of this book: the confluence ofdemocratization and economic reforms, along with increasedlinkages with activists from neighboring and wealthy countries,changed the opportunity structure and promoted innovativethinking on the part of activists and politicians in the developingworld in response to the declining power of labor, their tradi-tional base of support. Latin Americas new consumer move-ments are a product of these political entrepreneurs framing ofthese larger changes

social movements and free-market capitalism in latin america

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