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After Privatization, Latin American Consumers Stand up for Their Rights

Sybil Rhodes
Department of Political Science
Stanford University
December 2001

Before the mid 1980s, most people in Latin American countries had never heard of consumer advocacy or a consumer protection movement. My research shows that the privatization of public utilities like telecommunications or electricity-owned and operated by governments instead of the private sector until the 1980s and 1990s-led Latin American consumers to organize to protect their rights for the first time.

Most people who study privatization and economic regulation are economists, who sometimes miss the importance of politics. As a political scientist, my work focuses on the role of consumer movements in the politics of regulating privatized public utility companies in Latin America. In fact, I argue that it was the privatization of public utility companies that caused consumer protection movements to emerge in Latin America for the first time. I also argue that consumer protections movements are good for the co-development of economic markets and democracy.

There are several reasons why consumer movements happened after privatization. First, despite frequent governments' claims that privatization would benefit consumers, often the practical result was private monopolies that provided problematic services. Second, economic reforms like privatization often coincided with transitions from dictatorship to democracy. Whereas governments in the past repressed many types of political organization, democracy extended people's rights and liberties. For example, a new legal code in Argentina permitted many more types of class action lawsuits than had previously been allowed. Also, a transition to democracy produces a need for politicians and activists to find issues upon which to build support. The combination of unfulfilled promises to consumers about privatization and politicians looking for new issues results in consumer movements.

The economic effects of globalization that we have seen all over the world are the third reason consumer movements emerged when they did. For example, economic changes have resulted in a decline in the power of organized labor. This decline created a kind of political vacuum in which politicians were looking for new issues upon which to build their careers. Greater exposure to the consumption habits of wealthier countries led some members of the middle class and some of the upper working class to be more conscious of their identity as consumers.

I focus in particular on consumer movements and the telecommunications sector. Privatization of telecommunications brought increased investment, but that came with a number of problems. Under the previous system of state ownership, relatively few people had telephones, but those 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 reversed them so that residential consumers were subsidizing the corporate sector. People who were accustomed to receiving subsidies did not care to lose them, and when political entrepreneurs gave them the chance, they protested. Many other consumers were subject to incorrect overcharging, poor service, and unclear pricing structures and complaint procedures. They, too, responded to the invitation to support organized consumer movements. To give you an idea, telecommunications generated greater numbers of official consumer complaints than any other sector in Argentina in 1997.

Consumer mobilization took a variety of forms, including mass protests such as the refusal to pay telephone bills or coordinated boycotts (known as colgazos, or "great hang-ups"), membership in grass roots consumer protection associations, complaints filed with government agencies or reported to the media, class action lawsuits, and support of politicians campaigning 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 consumers had the power to claim a voice in the policy process.

In contrast to the arguments made by some economists and political scientists, I have found that there is neither a clear negative nor a clear positive relationship between consumer mobilization and economic development within a particular sector. In some of the instances of mobilization I describe, consumer demands would have resulted in greater economic efficiency; in other instances they would not have done so. Consumer mobilization is neither all good nor all bad for markets; rather, it is essential for the joint development of democracy and market economies in the current global environment.