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Taxation To tax or not to tax - this question could have never been asked twenty years ago. Historically, income tax is a novel invention. Still, it became so widespread and so socially accepted that no one dared challenge it seriously. In the lunatic fringes there were those who refused to pay taxes and served prison sentences as a result. Some of them tried to translate their platforms into political power and established parties, which failed dismally in the polls. But some of what they said made sense. Originally, taxes were levied to pay for government expenses. But they underwent a malignant transformation. They began to be used to express social preferences. Tax revenues were diverted to pay for urban renewal, to encourage foreign investments through tax breaks and tax incentives, to enhance social equality by evenly redistributing income and so on. As Big Government became more derided - so were taxes perceived to be its instrument and the tide turned. Suddenly, the fashion was to downsize government, minimize its disruptive involvement in the marketplace and reduce the total tax burden as part of the GNP. Taxes are inherently unjust. They are enforced, using state coercion. They are an infringement of the human age old right to property. Money is transferred from one group of citizens (law abiding taxpayers) - to other groups. The recipients are less savoury: they either do not pay taxes legally (low income populations, children, the elderly) - or avoid paying taxes illegally. But there is no way of preventing a tax evader from enjoying tax money paid by others. Research demonstrated that most tax money benefited the middle classes and the rich, in short: those who need it least. Moreover, these strata of society were most likely to use tax planning to minimize their tax payments. They could afford to pay professionals to help them to pay less taxes because their income was augmented by transfers of tax money paid by the less affluent and by the less fortunate. The poor subsidized the tax planning of the rich, so that they could pay less taxes. No wonder that tax planning is regarded as the rich man's shot at tax evasion. The irony is that taxes were intended to lessen social polarity and friction - but they achieved exactly the opposite. In economies where taxes gobble up to 60% of the GDP (France, Germany, to name a few) - taxes became THE major economic disincentive. Why work for the taxman? Why finance the lavish lifestyle of numerous politicians and bloated bureaucracies through tax money? Why be a sucker when the rich and mighty play it safe? The results were socially and morally devastating: an avalanche of illegal activities, all intended to avoid paying taxes. Monstrous black economies were formed by entrepreneuring souls. These economic activities went unreported and totally deformed the processes of macroeconomic decision making, supposedly based on complete economic data. This apparent lack of macroeconomic control creates a second layer of mistrust between the citizen and his government (on top of the one related to the collection of taxes). Recent studies clearly indicate that a reverse relationship exists between the growth of the economy and the extent of public spending. Moreover, decades of progressive taxation did not reverse the trend of a growing gap between the rich and the poor. Income distribution has remained inequitable (ever more so all the time) - despite gigantic unilateral transfers of money from the state to the poorer socio - economic strata of society. Taxes are largely considered to be responsible for the following:
Thousands of laws, tax loopholes, breaks and incentives and seemingly arbitrary decision making, not open to judicial scrutiny eroded the trust that a member of the community should have in its institutions. This lack of transparency and even-handedness led to the frequent eruption of scandals which unseated governments more often than not. All these very dear prices might have been acceptable if taxes were to achieve their primary stated goals. That they failed to do so is what sparked the latest rebellious thinking. At first, the governments of the world tried a few simple recipes: They tried to widen the tax base by better collection, processing, amalgamation and crossing of information. This way, more tax payers were supposed to be caught in "the net". This failed dismally. People found ways around this relatively unsophisticated approach and frequent and successive tax campaigns were to no avail. So, governments tried the next trick in their bag: they shifted from progressive taxes to regressive ones. This was really a shift from taxes on income to taxes on consumption. This proved to be a much more efficient measure - albeit with grave social consequences. The same pattern was repeated: the powerful few were provided with legal loopholes. VAT rules around the world allow businesses to offset VAT that they paid from VAT that they were supposed to pay to the authorities. Many of them ended up receiving VAT funds paid the poorer population, to which these tax breaks were, obviously, not available. Moreover, VAT and other direct taxes on consumption were almost immediately reflected in higher inflation figures. As economic theory goes, inflation is a tax. It indirectly affects the purchasing power of those not knowledgeable enough, devoid of political clout, or not rich enough to protect themselves. The salaries of the lower strata of society are eroded by inflation and this has the exact same effect as a tax would. This is why inflation is called the poor man's tax. When the social consequences of levying regressive taxes became fully evident, governments went back to the drawing board. Regressive taxes were politically and socially costly. Progressive taxes resembled Swiss cheese: too many loopholes, not enough substances. The natural inclination was to try and plug the holes: disallow allowances, break tax breaks, abolish special preferences, eliminate loopholes, write-offs, reliefs and a host of other, special deductions. This entailed conflicts with special interest groups whose interests were duly reflected in the tax loopholes. Governments, being political creatures, did a half hearted job. They abolished on the one hand - and gave with the other. They wriggled their way around controversial subjects and the result was that every loophole cutting measure brought in its wake a growing host of others. The situation looked hopeless. Thus, governments were reduced to using the final, nuclear-like, weapon in their arsenal: the simplification of the tax system. The idea is aesthetically appealing: all tax concessions and loopholes will be eliminated, on the one hand. On the other, the number of tax rates and the magnitude of each rate will be pared down. Marginal tax rates will go down considerably and so will the number of tax rates. So, people will feel less like cheating and they will spend less resources on the preparation of their tax returns. The government, on its part, will no longer use the tax system to express its (political) preferences. It will propagate a simple, transparent, equitable, fair and non arbitrary system which will generate more income by virtue of these traits. Governments from Germany to the USA are working along the same lines. They are trying to stem what is in effect a tax rebellion, a major case of civil disobedience. If they fail, the very fabric of societies will be affected. If they succeed, we may all inherit a better world. Knowing the propensities of human beings, the safe bet is that people will still hate to see their money wasted in unaccounted for ways on bizarre, pork barrel, projects. As long as this is the case, the eternal chase of the citizen by his government will continue. Technology (and Development) In many countries in transition cellular phones are more ubiquitous than the fixed-line kind. Teledensity is vanishingly low throughout swathes of Central and Eastern Europe (CEE). Broadband and e-commerce are distant rumors (ISDN is available in theory but not so in practice - DSL and ADSL are not available at all). Rare phone lines - especially in urban centers - are still being multiplexed and shared by 4-8 subscribers, greatly reducing both quality and usability. Terrestrial television competes ferociously with satellite TV, though cable penetration is low. Internet access is prohibitively expensive and intermittent. Many technologies rely on network effects (i.e., a critical mass of users). CEE is far from reaching this elusive point. When communism imploded in 1989, pundits were quick to spot the silver lining. The countries in transition, they said, could now leapfrog whole stages of development by adopting novel technologies and through them the expensive Western research they embody. The East can learn from the West's mistakes and, by avoiding them, achieve a competitive edge. In his seminal book, "Leapfrogging Development - The Political Economy of Telecommunications Restructuring", J.P. Singh, examined the acceleration of development through the adoption of ready-made, off the shelf, technologies. His melancholy conclusion was that development preferences are the outcomes of an intricate inter-play between sectoral pressure groups and coalitions of interest groups - and not the result of progress ex machina. He distinguished three types of states - catalytic, near-catalytic, and dysfunctional. Though he deals exclusively with Asia and Latin America, his typology is applicable to post-Communist Europe. I. An Overview The Central and East European market will double itself (to $17 billion) by 2003, says IDC. Pyramid Research predicts a $60 billion communications market by 2005. "Information Society", ICT (Information and Communication Technologies), "leapfrogging", and "better online than in line" are buzzwords and slogans oft-used throughout the region. A horde of NGO's - local and international - collaborate with domestic government and local authorities, with foreign governments, multinationals, and international organizations to make the dream of a digital Europe come true. Russia pledged to attract $33 billion in investments in its telecommunications infrastructure and services by the year 2010 (the "Electronic Russia" initiative). The US Commercial Service, in the American Embassy in Moscow, predicts an annual growth rate of the Russian ICT sector of 15-20 percent through 2003. Conferences abound (an important one regarding municipal collaboration in constructing an information highway is to be held in the Czech Republic on March 26-27). Even devastated Armenia succeeded to export $20 million worth of IT goods in 2001 (its IT sector has grown by 30% last year). It hosts branches of Silicon Valley household names such as Credence, HPL, and Virage Logic. More than 4000 professionals are employed in 200 companies. Of 60 software development outfits - 26 were founded with American capital. LEDA, a prominent local IT firm, finances IT programs at the Armenian State Engineering University. All EU candidates strive to get incorporated in existing European networks (such as ELANET, Telecities, IDA, and ERISA) and new, candidate-only, initiatives (such as eEurope+). The EU has applied its "universal (i.e., also affordable) service" rule to Internet access. EU members adopted a variety of measures to increase Internet awareness and usage. Portugal, for instance, granted individuals with tax incentives coupled with free e-mail accounts and Web hosting services to encourage them to purchase PC's. The Dutch established public computer literacy centers for the disenfranchised (e.g., the unemployed) and provided them with discounted and subsidized hardware and connection time. In one of its more grandiose moments, the heads of governments of the EU countries have decided in Lisbon (2000) that "each citizen should have access to the Internet and the whole European Union should become computer-literate", in the words of the Czech conference organizers. This is an ambitious undertaking not only because Europe in general is behind the USA where Internet matters (with the exception of wireless Internet) are concerned - but because the countries which used to be behind the Iron Curtain, now lurch in the Digital Divide. According to Vasile Baltac from the Information Technology and Communications Association of Romania ("The Balkan and Eastern Europe - Digital Divide or Digital Opportunity"), Romania has invested $25 per capita in ICT in 1999 (compared to Greece's $567 and the EU's average of $1215). There were only 2.5 Internet users per 1000 inhabitants in Romania and Bulgaria - compared to 56.4 in Westward-looking Slovenia. New technologies are used mostly by the elites in CEE (as pointed out by Zassourski and Vartanova in "Transformation in the Context of Transition") - and perhaps advertently so. Still, Baltac fingers the managerial class as the main obstacle to leapfrogging (i.e., the rapid dissemination and assimilation of advanced technologies). They pay lip service to modernization but feel threatened and repelled by it. On the positive side, Baltac notes the annual yield of qualified professionals (who mostly find work in the West) and the emergence of telework and e-commerce. The technological vacuum makes the CEE countries receptive to state of the art technologies. GSM penetration in Romania surpassed the level of fixed line coverage in 1989. The number of cable TV subscribers in the region is projected to double (to 20 million) by 2005. But the true picture is often obscured by anecdotal evidence, wishful thinking, phobias (e.g., the West European fear of mass migration from East Europe), lack of reliable statistics, and absence of qualified analysts and investment bankers. Factors like hostile terrain and climate, cross-subsidies, lack of real competition, corruption, red tape, moribund financial systems, archaic legal ones, dearth of credit card holders, urban-rural gaps, and English language illiteracy - rarely appear in neat, colorful, presentations. Pyramid Research is bearish on broadband. "Internet access is and will remain for the foreseeable future a predominantly narrowband, dial-up affair, even in the most advanced countries (in Central Europe)". This despite plans by regional operators to offer DSL, FWA (Fixed Wireless Access), cable TV and leased-line broadband access (already offered in the Czech Republic by cable networks) and despite a regulatory welcome in all three CE candidates (Hungary, Poland, and the Czech Republic). Luckily, mobile telephony - the other pillar of the leapfrogging theory - is getting increasingly concentrated in the hands of fewer operators (though at least 3 per every major market). Pyramid projects that by 2006, 94 percent of Russia's cellular phone market will be in the hands of the five leading providers (compared to 85 percent at the end of 2001). Mobile penetration will increase (to c. 10 percent) and prepaid customers will account for the vast majority of users. Revenues from cellular networks exceed revenues from fixed line networks in certain markets. SMS is booming. Second and third mobile operator licenses are tendered by all cash strapped governments in the region (though a Polish attempt to sell an UMTS license ended in a fiasco). Poland introduced a wireless local loop service. Macedonia just handed a second mobile operator license to the Greek OTE. "By the end of 2005, the total number of mobile subscribers in CEE will exceed 50 million (compared to 30 million by end-2001) and mobile Internet accounts will constitute approximately 21 percent of total mobile accounts", projects Pyramid. The Czech Republic will have 78 mobile users per 100 population - and Hungary 66. In a second tier of countries - the likes of Bulgaria, Romania, Ukraine, and Russia - a mobile phone will remain a luxury and a status symbol. Hitherto domestic operators - from the Greek OTE to the Russian MTS - are becoming regional. Multinationals, such as the British Vodafone and the French Orange - have entered the regional fray. Some CEE markets are as saturated (and customers as savvy and demanding) as many advanced Western European ones. A host of value added services (VAS) is thrust upon the - sometimes reluctant - users, leading naturally to WAP (recently introduced throughout much of CEE), 2.5G, and 3G (wi-fi or wireless Internet) services. Moreover, Pyramid sees an intriguing opportunity in VoIP (Voice over IP) telephony. It says: "As the incumbents in the CEE markets continue to dominate long-distance circuit-switched telephony, VoIP offers a unique opportunity for new operators to gain a foothold in this traditional monopolistic stronghold." Internet Telephony Service Providers (ITSP's) have sprung up all over the region (an Israeli firm is now planning to offer VoIP services in Macedonia, Kosovo, and Albania). Even incumbents have been offering VoIP - as early as 1998 in the Czech Republic. In his keynote address to The Economist CEE Telecommunications Conference, in December 2001, Ofer Gneezy, President and CEO of iBasis (a global ITSP), cited industry analysts projecting VoIP average annual growth rates in CEE of 80 percent through 2006. This, coupled with a growing number of Internet users and access providers (spurred on by telecoms liberalization and growing incomes), may revolutionize the landscape in the next 5-10 years. Pyramid expects annual Internet adoption growth rates of 40 percent through 2005 (that's 30,000 new users a day!). Internet related revenues will reach $10 billion by 2005 (five times today's $1.8 billion - but only one seventh the Internet market in Western Europe). Internet penetration in Central Europe will reach 15 percent in 2005 (from 4 percent today and 3 percent in Russia) - and 40 percent in Western Europe (compared to 18 percent today). Mobile Internet accounts will constitute one third of the total in CEE - c. 20 million users. Harald Gruber of the European Investment Bank is even more optimistic, saying ("Competition and Innovation: The Diffusion of Telecommunications in CEE", March 2000): "About 20 percent of the population will adopt mobile telecommunications". II. The Future Leapfrogging is not a linear function of the ubiquity of hardware and software. Though not a homogeneous lot, some lessons common to all countries in transition are already evident. Technology is a social phenomenon with social implications. It fosters entrepreneurship and social mobility. By allowing the countries in transition to skip massive investments in outdated technologies - the cellular phone, the Internet, cable TV, and the satellite came to be perceived as shortcuts to prosperity, the generators of the dual ethoses of "rags to riches", and "creative destruction" (dizzying, constant, and disruptive innovation). They are the future, a youthful promise, and a landscape of opportunities. Software developers in CEE countries tried to establish local versions of "Silicon Valley", or the flourishing software industry in India. Russian entrepreneurs developed anti virus software, Yugoslavs offered web design services, electronic media flourished in the Czech Republic and so on. But, as hard reality set in, most of these talents left for Western Europe, the USA, Canada, and Australia - where technology firms snatched them eagerly. Central and Eastern Europe is a major net exporter of engineers, programmers, systems analysts, Web designers, and concepts analysts. Internet penetration in these countries - even in the most wired - is still very low by European standards, let alone American ones. The trauma of communism left them with decrepit and rarefied infrastructure, a prohibitive, extortionist, and skewed cost structure, computer illiteracy, inefficient competition, insufficient investment capital, and entrenched luddism (e.g., computer phobia). Foreign operators often exacerbate the situation. ArmenTel, the Greek owned monopoly in Armenia, keeps Internet access costs prohibitively high, ignoring court actions by the government and loud complaints by disgruntled customers. The Center for Democracy and Technology (in its report "Bridging the Digital Divide: Internet Access in Central and Eastern Europe") says that, as contrasted with India (or Malaysia), the countries of the CEE did not invest in computerizing their schools, public libraries, and higher education institutions, or in subsidizing private computer-training colleges. More crucially and less reversibly, decades of central (mis-)planning rendered the societies of Central and Eastern Europe inert and dependent, apart from their traditional conservatism. Many - especially older mid- and high-level managers and engineers - feel threatened by technology. Technology makes people redundant. To a few open minded (i.e., foreign owned) firms, computer networking stands for decentralized channels of distribution and marketing as well as potential global penetration. But even there, only a minuscule number of businesses took advantage of e-commerce (though the countries of Central Europe and the Baltic may be the global pioneers of m-commerce due to their wireless networks). E-commerce is leapfrogging's litmus test because it represents the culmination and confluence of hardware, software, and process engineering. To have e-commerce, a country needs rich computer infrastructure, a functioning telecommunications network, and cheap access to the Internet. Its citizens need to be reasonably computer literate, possess both a consumerist mentality (e.g., inability to postpone gratification), and a modicum of trust between the players in the economy - and hold credit cards. Alas, the countries in transition lack all of the above to varying degrees. The Economist Intelligence Unit ranked Russia 42nd (out of 60 countries) in its year 2000 "e-readiness survey". Other CEE countries fared little better. Penetration and coverage rates (the number of computers and phone lines per household), network reliability, and the absolute number of Internet users - are all dismally low. Access fees are prohibitively high. Budding Internet enterprises in the countries in transition are happy exceptions that prove the depressing rule. They usually respond to erratic local demand. Few have expanded internationally. Even fewer engage in research and development. Technology was supposed to be the great equalizer (with the rich, developed countries). It did not deliver on this promise. Unable to catch up with Western affluence and prosperity, the denizens of CEE are frustrated. They feel inferior, neglected, looked down upon, dictated to, and, in general, put down. New, ever-cheaper, technologies, thought the locals, would surely restore the rightful balance between impoverished East and filthy rich West. But the Internet - and even technologies such as cellular telephony - belong to those who can effectively deploy them (i.e., consumers in developed, infrastructure-rich, countries). The news get worse. The Internet is gradually permeated by commercial interests and going wireless. This convergence of content and business interests - means less access to the underprivileged. The digital divide is growing by the day. New technologies have done little to bridge this gap - on the contrary: they enhanced the productivity and economic growth (this is known as "The New Economy") of rich countries (mainly the United States) and left the have-nots in the dust. The countries in transition also lack the proper legislative and law enforcement infrastructure (backed by the right cultural background). Property rights, contracts, intellectual property - are all new, often indigestible, concepts, emblems of Western hegemony and monopolistic practices. Widespread copyright violation, software piracy, and hacking are both status symbols and political declarations of sorts. Admittedly, the dissemination of illicit intellectual products may have served to level the playing field. But now it is hindering entrepreneurship and holding back development. After Asia, the countries in transition are the second largest centre of piracy. Software, films, even books - are copied and distributed quite freely and openly. There are street vendors who deal in the counterfeit products - but most of it is sold through stores and OEMs. This despite massive efforts (e.g., in Russia, Bulgaria, Ukraine, and, lately, in Macedonia) by software developers, licensed film libraries, and distributors - to fight these phenomena. Intellectual property may go the way the pharmaceutical industry has. Content owners and distributors may team up with sponsors (multilateral institutions, private charities and donors). The latter will subsidize intellectual property and, thus, make it affordable to the denizens of poor countries. This is already happening in scholarly publishing. This is very promising. But it far from leapfrogging development. In hindsight, leapfrogging may have been nothing but another of those intellectual fads whose time has gone before it ever came. The Productive Hardware The world is debating the Solow Paradox. Named after the Nobel laureate in economics, it was stated by him thus: "You can see the computer age everywhere these days, except in the productivity statistics". The venerable economic magazine, "The Economist" in its issue dated July 24th, quotes the no less venerable Professor Robert Gordon ("one of America's leading authorities on productivity") - p.20: "...the productivity performance of the manufacturing sector of the United States economy since 1995 has been abysmal rather than admirable. Not only has productivity growth in non-durable manufacturing decelerated in 1995-9 compared to 1972-95, but productivity growth in durable manufacturing stripped of computers has decelerated even more." What should be held true - the hype or the dismal statistics? The answer to this question is of crucial importance to economies in transition. If investment in IT (information technology) actually RETARDS growth - then it should be avoided, at least until a functioning marketplace is there to counter its growth suppressing effects. The notion that IT retards growth is counter-intuitive. It would seem that, at the least, computers allow us to do more of the same things faster. Typing, order processing, inventory management, production processes, number crunching are all managed more efficiently by computers. Added efficiency should translate into enhanced productivity. Put simply, the same number of people can do more, faster, more cheaply with computers than they can without them. Yet reality begs to differ. Two elements are often neglected in considering the beneficial effects of IT. The first is that the concept of information technology comprises two very distinct economic activities: an all-purpose machine (the PC) and its enabling applications and a medium (the internet). Capital assets as distinct from media assets are governed by different economic principles, should be managed differently and be the subject of different philosophical points of view. Massive, double digit increases in productivity are feasible in the manufacturing of computer hardware. The inevitable outcome is an exponential explosion in computing and networking power. The dual rules which govern IT - Moore's (a doubling of chip capacity and computing prowess every 18 months) and Metcalf's (the exponential increase in a network's processing ability as more computers connect to it) - also dictate a breathtaking pace of increased productivity in the hardware cum software aspect of IT. This has been duly detected by Robert Gordon in his "Has the 'New Economy' rendered the productivity slowdown obsolete?" But for this increased productivity to trickle down to the rest of the economy a few conditions have to be met. The transition from old technologies to a new one (the computer renders many a technology obsolete) must not involve too much "creative destruction". The costs of getting rid of old hardware, software, of altering management techniques or adopting new ones, of shedding redundant manpower, of searching for new employees to replace the unqualified or unqualifiable, of installing new hardware, software and of training new people in all levels of the corporation are enormous. They must never exceed the added benefits of the newly introduced technology in the long run. Hence the crux of the debate. Is IT more expensive to introduce, run and maintain than the technologies that it so confidently aims to replace? Will new technologies be spun off the core IT in a pace sufficient to compensate for the disappearance of old ones? As the technology mature, will it overcome its childhood maladies (lack of operational reliability, bad design, non-specificity, immaturity of the first generation of computer users, absence of user friendliness and so on)? Moreover, is IT an evolution or a veritable revolution? Does it merely allow us to do more of the same only in a different way - or does it open up hitherto unheard of vistas for human imagination and creativity? The signals are mixed. IT did NOT succeed to do to human endeavour what electricity, the internal combustion engine or even the telegraph have done. It is also not clear at all that IT is a UNIVERSAL phenomenon suitable to all climes and mentalities. The penetration of both IT and the medium it gave rise to (the internet) is not uniform throughout the world even where the purchasing power is similar and even among the corporate class. Countries post communism should take all this into consideration. Their economies may be too obsolete and hidebound, poor and badly managed to absorb yet another critical change in the form of IT. The introduction of IT into an ill-prepared market or corporation can be and often is counter-productive and growth-retarding. The Cycle of the Internet Then, of course, there is the Internet. The internet runs on computers but it is related to them in the same way that a TV show is related to a TV set. To bundle to two, as is often done today, obscures the true picture and can often be very misleading. For instance: it is close to impossible to measure productivity in the services sector, let alone is something as wildly informal and dynamic as the internet. It is clear by now that the internet is a medium and, as such, is subject to the evolutionary cycle of its predecessors. Central and Eastern Europe has just entered this cycle while the USA is the most advanced. The internet is simply the latest in a series of networks which revolutionized our lives. A century before the internet, the telegraph and the telephone have been similarly heralded as "global" and transforming. So, what should the CEE countries expect to happen to the internet globally and, later, within their own territories? The issue here cannot be cast in terms of productivity. It is better to apply to it the imagery of the business cycle. As we said, every medium of communications goes through the same evolutionary cycle: It starts with Anarchy - or The Public Phase. At this stage, the medium and the resources attached to it are very cheap, accessible, under no regulatory constraints. The public sector steps in: higher education institutions, religious institutions, government, not for profit organizations, non governmental organizations (NGOs), trade unions, etc. Bedevilled by limited financial resources, they regard the new medium as a cost effective way of disseminating their messages. The Internet was not exempt from this phase which is at its death throes. It started with a complete computer anarchy manifested in ad hoc networks, local networks, networks of organizations (mainly universities and organs of the government such as DARPA, a part of the defence establishment, in the USA). Non commercial entities jumped on the bandwagon and started sewing these networks together (an activity fully subsidized by government funds). The result was a globe encompassing network of academic institutions. The American Pentagon established the network of all networks, the ARPANET. Other government departments joined the fray, headed by the National Science Foundation (NSF) which withdrew only lately from the Internet. The Internet (with a different name) became public property - with access granted to the chosen few. Radio took precisely this course. Radio transmissions started in the USA in 1920. Those were anarchic broadcasts with no discernible regularity. Non commercial organizations and not for profit organizations began their own broadcasts and even created radio broadcasting infrastructure (albeit of the cheap and local kind) dedicated to their audiences. Trade unions, certain educational institutions and religious groups commenced "public radio" broadcasts. This is followed by the Commercial Phase. When the users (e.g., listeners in the case of the radio, or owners of PCs and modems in the example of the Internet) reach a critical mass - the business sector is alerted. In the name of capitalist ideology (another religion, really) it demands "privatization" of the medium. This harps on very sensitive strings in every Western soul: the efficient allocation of resources which is the result of competition; corruption and inefficiency which are naturally associated with the public sector ("Other People’s Money" - OPM); the ulterior motives of members of the ruling political echelons (the infamous American Paranoia); a lack of variety and of catering to the tastes and interests of certain audiences; the equation private enterprise = democracy and more. The end result is the same: the private sector takes over the medium from "below" (makes offers to the owners or operators of the medium - that they cannot possibly refuse) - or from "above" (successful lobbying in the corridors of power leads to the appropriate legislation and the medium is "privatized"). Every privatization - especially that of a medium - provokes public opposition. There are (usually founded) suspicions that the interests of the public were compromised and sacrificed on the altar of commercialization and rating. Fears of monopolization and cartelization of the medium are evoked - and justified, in due time. Otherwise, there is fear of the concentration of control of the medium in a few hands. All these things do happen - but the pace is so slow that the initial fears are forgotten and public attention reverts to fresher issues. A new Communications Act was legislated in the USA in 1934. It was meant to transform radio frequencies into a national resource to be sold to the private sector which will use it to transmit radio signals to receivers. In other words: the radio was passed on to private and commercial hands. Public radio was doomed to be marginalized. The American administration withdrew from its last major involvement in the Internet in April 1995, when the NSF ceased to finance some of the networks and, thus, privatized its hitherto heavy involvement in the net. A new Communications Act was legislated in 1996. It permitted "organized anarchy". It allowed media operators to invade each other's territories. Phone companies will be allowed to transmit video and cable companies will be allowed to transmit telephony, for instance. This is all phased over a long period of time - still, it is a revolution whose magnitude is difficult to gauge and whose consequences defy imagination. It carries an equally momentous price tag - official censorship. "Voluntary censorship", to be sure, somewhat toothless standardization and enforcement authorities, to be sure - still, a censorship with its own institutions to boot. The private sector reacted by threatening litigation - but, beneath the surface it is caving in to pressure and temptation, constructing its own censorship codes both in the cable and in the internet media. The third phase is Institutionalization. It is characterized by enhanced activities of legislation. Legislators, on all levels, discover the medium and lurch at it passionately. Resources which were considered "free", suddenly are transformed to "national treasures not to be dispensed with cheaply, casually and with frivolity". It is conceivable that certain parts of the Internet will be "nationalized" (for instance, in the form of a licensing requirement) and tendered to the private sector. Legislation will be enacted which will deal with permitted and disallowed content (obscenity? incitement? racial or gender bias?). No medium in the USA (not to mention the wide world) has eschewed such legislation. There are sure to be demands to allocate time (or space, or software, or content, or hardware, or bandwidth) to "minorities", to "public affairs", to "community business". This is a tax that the business sector will have to pay to fend off the eager legislator and his nuisance value. All this is bound to lead to a monopolization of hosts and servers. The important broadcast channels will diminish in number and be subjected to severe content restrictions. Sites which will not succumb to these requirements - will be deleted or neutralized. Content guidelines (euphemism for censorship) exist, even as we write, in all major content providers (CompuServe, AOL, Prodigy). The last, determining, phase is The Bloodbath. This is the phase of consolidation. The number of players is severely reduced. The number of browser types will be limited to 2-3 (Netscape, Microsoft and which else?). Networks will merge to form privately owned mega-networks. Servers will merge to form hyper-servers run on supercomputers. The number of ISPs will be considerably diminished. 50 companies ruled the greater part of the media markets in the USA in 1983. The number in 1995 was 18. At the end of the century they will number 6. This is the stage when companies - fighting for financial survival - strive to acquire as many users/listeners/viewers as possible. The programming is shallowed to the lowest (and widest) common denominator. Shallow programming dominates as long as the bloodbath proceeds. In hindsight, 20 years hence, we might come to understand that computers improved our capacity to do things differently and more productively. But one thing is fast becoming clear. The added benefits of IT are highly sensitive to and dependent upon historical, psychosocial and economic parameters outside the perimeter of the technology itself. When it is introduced, how it is introduced, for which purposes is it put to use and even by who it was introduced - largely determine the costs of its introduction and, therefore, its feasibility and contribution to the enhancement of productivity. The CEE countries better take note. Telecoms Telecommunications is the most important physical infrastructure in the modern world. It is more important than roads because it can replace them. It is more important than office buildings because it allows for the formation of virtual offices. It is more crucial than legal and institutional systems because it surpasses national borders and undermines and subverts fossilized political structures. Telecommunications eliminates distance and allows for the transfer of voice and other forms of information (data) virtually at the speed of light. It is the foundation for the future industries and the industries of the future: information, knowledge and intelligent data processing industries. Telecommunications today is not limited to handsets, phone lines and telephony equipment. It incorporates computers and other media technologies. All these are an integral part of the new age of telecoms. Telecommunications was partly responsible to the geopolitical sea changes of the last decade. It is enough to recall the role of satellite telephones in the media coverage of the televised Gulf War - or the anti Ceaucesco revolution in Romania. These are precisely the reasons why regimes all over the world - in other words, politicians - strove to maintain unmitigated control of the PTT services in their countries and to block foreign and domestic competition. National telecommunication service providers and carriers became monopolistic monsters, operating highly inefficiently, charging exorbitant prices, employing far too many people at unreasonably high salaries and serving to boost the political fortunes of ministers and the like. But all this is changing. The new World Trade Organization (WTO) set of agreements will force governments throughout the world to privatize their telecoms giants and to deregulate this industry. The deadline is 2003 with a few exceptions (Latvia has until 2013 to do so). There is a new realizations that telecommunications is too important an industry to be left to the devices of politicians - or to the flawed management of state organs. A few privatization models have evolved over the last 20 years, or so. In the more developed countries (the West, South East Asia), some countries have chosen to introduce free for all competition. This entails the sale of part or all of the state owned telecoms provider to shareholders through stock exchanges. A small part is usually also allocated to the workers and management of the company at favourable prices. Concurrently the industry is deregulated and licensing requirements are gradually abolished. Initially, in this model, only certain services are open to competition, mainly the international calls segment and the mobile and wireless telephony (including paging). But, ultimately, all types of services are opened to competition - both domestic or foreign. The most extreme example is Finland, where competition is completely free, no licensing is required and 52 companies compete for the heart (and pocket) of the customers. They are all allowed to offer any kind of telecommunications service imaginable. Still, very much the same situation is developing in Israel, Britain, Australia, Hong Kong and - with the 1996 Telecommunications Act - in the USA. This 1996 Act allows providers and carriers of international phone calls and of local phone calls (until now separated by regulation) to enter each other markets and compete. The result was a major spate of mergers and acquisitions as companies scrambled to offer combined, international and local, services. The second alternative is to break up the national carriers into functional units, one dedicated to international calls and the other to local traffic. NTT in Japan is undergoing this surgical restructuring now. In the wake of this break-up, competition is allowed in certain services (again, mainly international calls and GSM and mobile telephony). The other - less efficient - option is to sell minority stakes in the national carrier to investors (domestic or foreign), or, through the stock exchanges - while effectively preserving the monopoly of state owned provider. This was the case in Israel, until lately and is the case in Greece. In Israel, when the British Cables and wireless tried to gain control of Bezeq (the Israeli phone services provider) - it encountered the staunch opposition of the Israeli government, replete with threats of legal action. Still, the benefits of privatization are enormous. Prices drop. That is the most evident and immediately visible effect. The prices charged for international phone calls in Israel dropped by 80% in real terms with the introduction of two additional competitors. In Britain, prices went down by 25%. There is a leap forward in the quality of service: waiting periods for new installations, second and third phone numbers, business dedicated lines, maintenance, fixing problems, times between faults, troubleshooting, hotlines, meter reading, detailed and allocated accounts and so on. The average wait for a new phone has been reduced in Israel and in Hungary, to take two notable examples, from months to days. Naturally, overall economic efficiency is improved by cost savings and by more productive allocation of time previously spent on tackling bureaucratic hassles. Last, but by no means least, is the marked improvement in technology, its upgrading and the introduction of novel, low cost alternatives. In the less developed and developing countries, privatization has been achieved mainly through the introduction of foreign strategic partners - usually other telecoms firms from more developed countries. This necessitates the temporary preservation of the monopolies. No profit minded foreign investor will invest in infrastructure - and let future competitors reap the benefits. An investor wants to be assured that he will continue to rule the market and overcharge the customers for a proscribed period of time. Foreign investors like monopoly situations because this way they have a captive market and thus they can force their clients to defray their development costs through overcharging. But, this can be seen as the cost of modernization and integration into regional and global telecoms alliances. Once competition is allowed, everyone (especially the clients) will reap the benefits of modern information highways. To my mind this thinking is flawed. The direct and indirect damages incurred by monopolies are immeasurable. Monopolies must be dismantled - and the sooner, the better. The transfer of part of a monopoly from domestic to foreign hands does not alter its economically cancerous nature. Monopolies are guilty of over or under optimal investments, of overcharging clients, of distorting the allocation of economic resources, of market rigging, corruption and other criminal activities, of providing poor service, of selecting the wrong technologies. Only the threat of competition - actual and fierce - can change all that. Even so, long after competition is introduced, monopolies seem to continue to control their markets. British Telecom still controls 72% of its markets - despite more than a decade of competition. Despite these considerations - and due to rampant corruption and cronyism - the Czech Republic, Hungary, Yugoslavia-Serbia, Estonia, Latvia and Russia chose this path. Bulgaria and Romania will follow them next year and it seems that Macedonia might follow suit, more out of lack of choice of alternatives - than out of careful selection of them. The other way is by selling shares to investors in the stock exchanges - local and foreign. Poland has adopted this path after years of foot-ragging. It will sell shares of its carriers early next year. This, however, is not a solution available to small countries with an undeveloped stock exchange and low liquidity. To float the local PTT in the Macedonian Stock Exchange would be absurd. Even to attract domestic capital in sufficient quantity would be unthinkable. Some countries avoid privatization altogether. They regard the fix of privatization as a fad, or a passing craze (which, in its more extreme forms, it is). They declare the telecommunications sector to be a matter of national strategic importance (again, to a very limited extent, it is). Slovakia has introduced a law in 1995 to actively prohibit the privatization of its PTT. But experience disproves the Slovak stance. Admittedly, privatization does have its unpleasant side effects: redundant workers are fired by the thousands and unemployment goes up, for instance. Another result, cutely felt by every potential voter, is the radical increase in the price of local phone calls which used to be subsidized by the outlandish charges imposed on international calls. Once cross - subsidization ceases and more realistic pricing is introduced - prices shoot up. But the price of all other services drop as sharply and there is a dramatic improvement in the quality and speed of the services provided. The technological aspect is not to be sneered at, either. The current infrastructure is insufficient in all Central and East European countries. It is partly incompatible with European Union standards and networks. The existing backbones will, of course, still be used but they will be gradually replaced by fibre optics and digital switchboards. Technologies like cable TV and broadcasting networks, satellites and above all, wireless and GSM networks will serve to bridge the capacity and compatibility gaps and deficiencies. They will also reduce the dependence of new market entrants on the infrastructure and services provided by local PTTs - and this is good news. Theme Parks War - especially coupled with a globally sluggish economy - has a contradictory effect on the consumption of entertainment. Disposable incomes plummet curtailing the sales of medium to big ticket items such as cruises and resort vacations. But people - besieged by anxiety and bad news - also wish to be diverted. As the conflict rages, they stay indoors and tune in. Home entertainment booms. But once physical insecurity abates, consumers go out in full force mobbing movie theatres and theme parks, making up for lost time and frayed nerves. A Solomon Smith Barney report, published in December last year, concluded that large cap entertainment stocks plunged by 32 percent during the previous skirmish in the Gulf. Stocks of destination travel sites and cruise lines took an even harsher beating, plummeting by 52 percent - this despite the counterintuitive resilience of amusement parks to military and political unrest. In anticipation of the next round of fighting, these stocks are trading at valuations below even the traumatic tail of 2001. Though quicker than other types of equity to recover postbellum, this holds true only for short and decisive conflicts. Analysts often monitor the performance of theme and amusement parks to divine trends in the industry as a whole. This would prove impossible in Europe where the culture of theme and entertainment grounds is still in its infancy. Denmark has Legoland and Tivoli. France boasts the recently recovering Disneyland, Vulcania and Futuroscope. Germany has Phantasialand. Italy sports Gardaland. Spain joins the continent's minimal offerings with Port Aventura and Terra Mitica. The Dutch De Efteling spent the last decade "Americanizing" its facilities. Only the United Kingdom has more than a smattering "pleasure beaches" and "worlds of adventure". A recently mooted Dracula theme park in Romania was shot down by irate citizens and an overweening bureaucracy. "New Europe" is no better than "Old Europe" when it comes to entrepreneurship. In both market penetration and spending per visitor, Europe is at least a decade behind the USA. Indeed, the eerie paucity of theme parks is symptomatic of the generally moribund, rigid and hyper-regulated economies of the European Union. The continent has less than half America's number of parks per 10 million denizens and one third its visits per head per year. Only 20 major European attractions garner more than 1 million in annual attendance. Another 50 or so attract less than 1 million patrons. With revenues of c. $2 billion, Europe's parks combined amount to one third the sector in the USA and underperform many parks in Asia as well. European firms are still woefully primitive when it comes to marketing and educating their public. According to the Economic Research Associates, a consultancy, venture capital is rare and usually squandered by developers on wages and other "soft", non-productive costs. Management is inexperienced and peripatetic. In Asia, theme parks are considered the magic pill. Japan has Disney World and the Tokyo DisneySea Park. Disney is slated to open a giant franchise in Hong Kong in 2005. Mainland China is eyeing the experiment favorably. Universal Studios countered by inaugurating a themed playground in Osaka in 2001 and by embarking on three feasibility studies in China. From Jakarta, Indonesia (the Taman Ria amusement park) to Vietnam - everyone is climbing on the bandwagon. There seems to be a dearth of American interest in Europe despite its far higher purchasing power and the existence of a single business address - the European Commission. Theme parks are multifarious businesses. They provide work to thousand of small suppliers in a virtuous ripple effect. Hosting and gaming experts, marketers, managers, on-site employees, suppliers of logistics, food retailers and caterers, entertainers - all benefit mightily from the presence of such grounds. The park's brand is often parlayed into trinkets, toys, clothes and souvenirs sold by locals to tourists, both domestic and foreign. Destination travel is a growth sector. The International Association of Amusement Parks and Attractions, a trade group, reported that worldwide park attendance was up one quarter between 1991-2001 to 319 million people. During this decade, revenues perked up by 50 percent to almost $10 billion annually. This was largely due to a rise in per capita spending within the grounds from $23 to $30. Returns on - usually massive - investments are impressive even in saturated markets such as the United States. The profitability of theme parks frequently balances losses spawned by more glamorous bits of entertainment groups. Amusement grounds - themed or not - are astoundingly immune to geopolitical upheavals. Attendance in Disney's US parks declined by only c. 5 percent during the 1991 Gulf War. Even September 11 failed to dent it measurably. EuroDisney is partly to blame for the scarcity of themed parks in Europe. For many years it was perceived, quite correctly, as an insatiable white elephant gulping rivers of red ink. Reality moved on but impressions - fostered by smug pundits - lasted. Wary investors and governments throughout the Old Continent confined themselves to the mostly family-operated "garden parks" and "carnival grounds" built during the 1960s and 1970s. The truth is that Disney's Parisian adventure is flourishing. The entertainment behemoth is planning to invest c. $540 million in Walt Disney Studios, an annex of the French outfit. This is projected to add 5 million visitors to the current 12. Another satisfied investor is Six Flags. The operator recently expanded to Mexico and Europe where it runs the six sites of the former Walibi Parks and Movie world, an erstwhile Warner Bros. property in Germany. It soon added a Spanish Movie World to its portfolio. Non-US operations already account for 15 percent of its sales. But these are the exceptions that prove the rule. Europe is staid and serious. It prefers indigenous high-brow culture to American low-brow imports. Or so the French would have us all believe. Torture The European Court of Human Rights agreed yesterday - more than two years after the applications have been filed - to hear six cases filed by Chechens against Russia. The claimants accuse the Russian military of torture and indiscriminate killings. The Court has ruled in the past against the Russian Federation and awarded assorted plaintiffs thousands of euros per case in compensation. As awareness of human rights increased, as their definition expanded and as new, often authoritarian polities, resorted to torture and repression - human rights advocates and non-governmental organizations proliferated. It has become a business in its own right: lawyers, consultants, psychologists, therapists, law enforcement agencies, scholars and pundits tirelessly peddle books, seminars, conferences, therapy sessions for victims, court appearances and other services. Human rights activists target mainly countries and multinationals. In June 2001, the International Labor Rights Fund filed a lawsuit on behalf of 11 villagers against the American oil behemoth, ExxonMobile, for "abetting" abuses in Aceh, Indonesia. They alleged that the company provided the army with equipment for digging mass graves and helped in the construction of interrogation and torture centers. This past November, the law firm of Cohen, Milstein, Hausfeld & Toll joined other American and South African law firms in filing a complaint that "seeks to hold businesses responsible for aiding and abetting the apartheid regime in South Africa ... forced labor, genocide, extrajudicial killing, torture, sexual assault, and unlawful detention". Among the accused: "IBM and ICL which provided the computers that enabled South Africa to ... control the black South African population. Car manufacturers provided the armored vehicles that were used to patrol the townships. Arms manufacturers violated the embargoes on sales to South Africa, as did the oil companies. The banks provided the funding that enabled South Africa to expand its police and security apparatus." Charges were leveled against Unocal in Myanmar and dozens of other multinationals. Berger & Montague filed, last September, a class action complaint against Royal Dutch Petroleum and Shell Transport. The oil giants are charged with "purchasing ammunition and using ... helicopters and boats and providing logistical support for 'Operation Restore Order in Ogoniland'" which was designed, according to the law firm, to "terrorize the civilian population into ending peaceful protests against Shell's environmentally unsound oil exploration and extraction activities". The defendants in all these court cases strongly deny any wrongdoing. But this is merely one facet of the torture business. Torture implements are produced - mostly in the West - and sold openly, frequently to nasty regimes in developing countries and even through the Internet. Hi-tech devices abound: sophisticated electroconvulsive stun guns, painful restraints, truth serums, chemicals such as pepper gas. Export licensing is universally minimal and non-intrusive and completely ignores the technical specifications of the goods (for instance, whether they could be lethal, or merely inflict pain). Amnesty International and the UK-based Omega Foundation, found more than 150 manufacturers of stun guns in the USA alone. They face tough competition from Germany (30 companies), Taiwan (19), France (14), South Korea (13), China (12), South Africa (nine), Israel (eight), Mexico (six), Poland (four), Russia (four), Brazil (three), Spain (three) and the Czech Republic (two). Many torture implements pass through "off-shore" supply networks in Austria, Canada, Indonesia, Kuwait, Lebanon, Lithuania, Macedonia, Albania, Russia, Israel, the Philippines, Romania and Turkey. This helps European Union based companies circumvent legal bans at home. The US government has traditionally turned a blind eye to the international trading of such gadgets. American high-voltage electro-shock stun shields turned up in Turkey, stun guns in Indonesia, and electro-shock batons and shields, and dart-firing taser guns in torture-prone Saudi Arabia. American firms are the dominant manufacturers of stun belts. Explains Dennis Kaufman, President of Stun Tech Inc, a US manufacturer of this innovation: ''Electricity speaks every language known to man. No translation necessary. Everybody is afraid of electricity, and rightfully so.'' (Quoted by Amnesty International). The Omega Foundation and Amnesty claim that 49 US companies are also major suppliers of mechanical restraints, including leg-irons and thumbcuffs. But they are not alone. Other suppliers are found in Germany (8), France (5), China (3), Taiwan (3), South Africa (2), Spain (2), the UK (2) and South Korea (1). Not surprisingly, the Commerce Department doesn't keep tab on this category of exports. Nor is the money sloshing around negligible. Records kept under the export control commodity number A985 show that Saudi Arabia alone spent in the United States more than $1 million a year between 1997-2000 merely on stun guns. Venezuela's bill for shock batons and such reached $3.7 million in the same period. Other clients included Hong Kong, Taiwan, Mexico and - surprisingly - Bulgaria. Egypt's notoriously brutal services - already well-equipped - spent a mere $40,000. The United States is not the only culprit. The European Commission, according to an Amnesty International report titled "Stopping the Torture Trade" and published in 2001: "Gave a quality award to a Taiwanese electro-shock baton, but when challenged could not cite evidence as to independent safety tests for such a baton or whether member states of the European Union (EU) had been consulted. Most EU states have banned the use of such weapons at home, but French and German companies are still allowed to supply them to other countries." Torture expertise is widely proffered by former soldiers, agents of the security services made redundant, retired policemen and even rogue medical doctors. China, Israel, South Africa, France, Russia, the United kingdom and the United States are founts of such useful knowledge and its propagators.
How rooted torture is was revealed in September
1996 when the US Department of Defense admitted that ''intelligence training
manuals'' were used in the Federally sponsored School of the Americas - one of
150 such facilities - between 1982 and 1991.The manuals, written in Spanish and
used to train thousands of Latin American security agents, "advocated execution,
torture, beatings and blackmail", says Amnesty International. Trade Unions Self Defense started as a Polish farmers' trade union a decade ago. It leveraged its populist and activist message to capture 20 percent of the electorate, at least in recent opinion polls. Last week it failed to bring Poland to a halt in protest against liberals in the central bank and iniquitous bureaucrats in Brussels. In the last elections it won 10 percent of the votes and 53 seats. When the Belarusian Federation of Trade Unions convoked a rally against the government's bungled economic policies at the end of March, less than 1000 people turned up. Restrictions imposed by the often violent authorities coupled with sabotage by pro-government unions assured the dismal flop. Public sector trade unions in Macedonia have been more successful in extracting concessions from the government in an election year, though not before they embarked on a nation-wide strike timed to coincide with an ill-fated visit of the IMF mission. Despite strident warnings from the itinerant delegates, the minimum wage was raised heftily as were salaries in the public sector. The unions are about to strike again in an effort to extend the settlement to other state functionaries. Romanian union members took the streets on May 30 threatening to emulate Argentina's mass protests and shouting ominous anti-government and anti-IMF slogans. The government buckled under and agreed to raise the minimum wage by 70 percent within 12 months - as an opening gambit in the forthcoming round of bargaining. Industrial action in Romania in the past often ended in bloodshed and its governments are mindful of it. An agreement was signed with the prime minister on June 11. On June 20, Spain's trade unions went on a general strike, contesting the prime minister's advanced plans to reform both hiring and firing laws and unemployment benefits. With both job protection and social safety nets threatened, the unions' success was less than striking. Only socialist dominated regions and cities responded and demonstrations flared up in only a couple of places. The murder of a - second - government advisor on labor legislation in March has stiffened the Italian authorities' resolve to amend, however marginally, provisions pertaining to the reinstatement of "unfairly sacked" employees. Two small trade unions - CISL and UIL - have signed an agreement with the government last week, ditching a common front with CGIL, by far the largest syndicate with 5.4 million members. CGIL called for regional strikes through July 11, followed by a general strike in September and October. It will also challenge the amendments to the law in the Constitutional Court. Solidarity recently called upon the Polish administration to withdraw its amendments to the labor code and to allow it to negotiate with employers the voluntary expunging of anti-labor clauses. In what they called a "historic manifestation", Solidarity teamed up with erstwhile rival left-wing union to demonstrate in front of the Ministry of Labor. About 400 people showed up. The one country bucking the trend may be Tony Blair's United Kingdom. It has adopted a minimum wage and forces employers to bargain collectively with unions if most of their employees want them to. The number of such "recognition" agreements, according to "The Economist", tripled between 2000 and 2001, to 470. Union membership in the service sector and among women is rising. Working days lost to strikes in Britain doubled from 1997, to almost 500,000 last year and the year before. Although a far cry from the likes of Ireland, Spain, France, and Italy - it is a worrisome trend. Interesting to note that many of the strikes are the result of performance-related wage gaps opening up among workers following botched privatizations (e.g., the railways, the post office). Bellicose, fogeyish, trade unions leverage the discontent bred by mismanagement to their advantage. Failure to mobilize workers, half-hearted activism, acquiescence with policies implemented by right-wing governments, transformation into political parties, growing populism and anti-Europeanism - these are the hallmarks of these social movements in search of a cause. As more and more workers join the ranks of the middle class, own shares, participate in management through stakeholder councils, go entrepreneurial or self-employed, join the mostly non-unionized service sector, compete with non-unionized and thus more competitive workers in their own country or globally, become temporary and contract workers, or lose their jobs - union membership plummets. The ignominious implosion of Communism and socialism throughout Europe tainted the trade union movement, often linked to both. Membership was halved in Britain in the lat two decades. Union membership among the young in heavily unionized Sweden slumped to 47 percent last year - from 62 percent in 1995. The failure of trade unions the world over to modernize only exacerbates this inexorable decline. The structure of a traditional trade union often reflected the configuration of the enterprise it had to tackle - hierarchical, centralized, top-down. But rigorously stratified corporations went the way of central planning. Business resembles self-assembling ad-hoc networks, or a guerilla force - rather than the bottom heavy and elephantine organization of the early 20th century, when most unions were formed. Individual workers adapted to the ever-changing requirements of ever-shifting markets by increasing their mobility and adaptability and by immersing themselves in life-long education and training. Consider the two ends of the spectrum: agency, freelance, and fixed-term contract employees (or even illegal aliens) and executives. Both are peripatetic. Workplace-orientated trade unionism cannot cater to their needs because they rarely stay put and because their skills are transferable. The UK's Economic and Social research Council Future of Work Programme, launched in 1998, studied the role of trade unions in the rapidly changing landscape of labor. In Working Paper no. 7 titled "Beyond the Enterprise? Trade Unions and the Representation of Contingent Workers" published last year by the Cardiff Business School, the authors say: "The empirical pattern revealed by the research is complex ... We also encountered situations where unions had made use of enterprise unionism to represent contingent workers. For example, enterprise collective agreements may be used to regulate the numbers of contingent workers employed together with their terms and conditions ... Departure from the enterprise model was most apparent within unions that organize freelance workers. The latter are mobile workers and unions adapt to their mobility by reliance on non-enterprise forms of representation. Amongst agency and fixed-term contract workers, however, there is more emphasis on integration of the needs of these workers in the dominant, enterprise model of union representation. In part, this reflects the fact that agency and contract workers can develop a long-term employment relationship ..." Trade unions are adapting by modifying their recruitment methods. Unions solicit members in employment bureaus, temp agencies, job fairs. They offer "customized packages" of workplace-independent benefits and services dispensed by paid, roving, union officials, or sub-contractors. Many unions re-organized along geographical - rather than sectoral or enterprise-wide - lines. Syndicates are in the throes of appropriating functions from both the public and the private sector. Some unions offer job placement services, training, requalification, and skill acquisition classes, legal aid, help in setting up a business, seminars and courses on anything from assertiveness to the art of negotiating. In some countries, unions, having failed to negotiate with multiple employers in different sectors all at once, resorted to - mostly failed - attempts to unilaterally dictate to employers the employment terms of temporary, freelance, and contract workers. This was done, for example, by publishing fee schedules. Others negotiated enterprise agreements with labor supply firms, thus circumventing the employers. Unions have always tried to sway legislation by lobbying, making political contributions, and endorsing political candidates - as they have this past week Gerhard Schroeder who is up for re-election in Germany come September. The unions' ability to mobilize the vote makes them a formidable force even in relatively non-unionized countries, such as the USA. Recognizing their importance as a social institution, government or employer-financed unions still exist even in Western and better governed countries, such as Greece. In the former colonies of the British Empire, trade unions have to be approved by a registrar. Unions act as think tanks, advocacy groups, and pressure groups rolled into one. They try to further job protection wherever possible - though the task is becoming increasingly untenable. Even old-fashioned unions put the media to good use in exerting pressure over their recalcitrant governments. Some scholars urge the unions to diversify and embrace work-related issues of minorities, the disabled, gays and lesbians, or the old. Egged on by the ILO International Programme on the Elimination of Child Labour (IPEC), Nepal's three main trade unions have targeted child labor in their country. They issued a code of conduct applicable to all their members. This is an example of the convergence of trade unions and NGO's. Syndicates are recasting themselves as labor non-governmental organizations. Britain's once belligerent 6.8 million members strong umbrella Trade Unions Congress (TUC) now talks about a partnership with employers and labor-input in management decision making. German-style institutionalized consultations with employees regarding labor matters and crucial business decisions are already enshrined in EU directives. The unions are trying to modernize in form as well. In Britain, trade unions put technology to good use. The Web sites of the TUC's member unions provide online membership application forms, information packs, and discussion of social and cultural issues. Jane Taylor, Information Manager at the Communications Workers Union, writing recently for the online research guides community, FreePint.com, commented about the new openness of the revamped unions: "More and more unions are providing online access to their internal and external documents. Some only provide access to their journals, but others put a full range of their documents online. These are often the most interesting as they tend to be responses to government proposals, briefings on changes in employment legislation and briefings around the issues facing their members, whether they be teachers or postal workers." But Web sites are insufficient weapons against the twin tsunamis of technological change and globalization. Unions often blame the latter - and its representatives, the WTO, the IMF, and the World Bank - of retarding workers' rights by imposing austerity measures on crumbling countries. The ILO Bureau for Workers' Activities (ACTRAV) organized, last September, a get together between union activists and representatives of international financial institutions. The IMF's much vaunted poverty reduction strategy which calls for consultations with all social stakeholders, trade unions included, as a precondition for new lending, was derided by the Rwanda representative. Quoted in the ILO's December 2001 issue of the "World of Work", he complained: "One day I was called to meet a representative of the Bretton Woods Institution, but only during breakfast in a big hotel in Kigali! I would have preferred to have him meet the inhabitants too. He would have seen homeless people, sick people, starving people. He would have seen that while the financial institutions produce tons of pages of reports, poor people continue to die by the thousands." Others grumbled that the IMF had a strange way of "consulting" them - they were invited to listen to a monologue regarding the policies of the Fund and then dismissed. The usual criticism prevailed: "When one knows that in Africa an employee feeds five or six people, how can the Bretton Woods Institutions speak of a reduction of poverty by requiring the layoff of 25 per cent of civil servants? ... And when the IMF demands that Bulgaria reduce salaries even more, when they are already so low, one cannot speak of a measure aiming to reduce poverty ... In this country at war (Colombia), where unionists are being assassinated, where workers live in fear for their lives, the IMF has just requested the government to show more flexibility on the labour market! Where will that lead?" Even the ILO joined the chorus accusing the IMF of violating the ILO's core conventions by arguing against collective bargaining and the provision of social protection. The delegates also demanded a labor-related input in all WTO deliberations. The landscape of labor unionism is subject to tectonic shifts. But unionism need not conform to its image of archaic obsolescence. UNI and Ver.di are examples of what can be achieved when a timely message is combined with sprightly management methods and more than a modicum of spin doctoring. United Network International (UNI) held its first World Congress last September in Berlin. It is the outcome of a synergetic merger between IT, telecom, print, and media-entertainment unions. All told, UNI boasts 800 member unions in over 140 countries. It represents a break with both exclusively national and rigid sectoral unions. It is a "global union" - a cross-country, cross-sector body of representatives. Its natural counterparts are multinationals and IFI's. It already signed agreements with OTE, Carrefour, and Telefonica - three global telecom firms. Ten such umbrella organizations exist under the auspices of the Brussels-based International Confederation of Free Trade Unions (ICFTU). The 3 million members strong Ver.di is the outcome of a March 2001 merger of five German labor syndicates. It is a services only union in a country where professionals prefer to belong to less proletarian "associations", the modern equivalents of medieval guilds. Its muscle, though, is a response to the perceived threat of "transnational capital". Yet, at the bottom of it all is the single member, the worker, who pays his or her dues and expects in return protection, better pay, better work conditions, larger benefits, and, above all, a sense of belonging and purpose. Referring to a ceremony to commemorate 20 years of Solidarity in Poland, a disgruntled former dissident welder poured his heart to the ILO's "World of Work": "There are no workers at this feast, just men in coats and ties. Nothing remains of Solidarity except its name. It has lost its essence, they have betrayed and forgotten us." This betrayal, the bourgeoisification and gentrification of trade union functionaries and erstwhile rebels, the cozying up to the powers that be, the bribes implicit in swapping the shop floor for the air conditioned offices and minibar-equipped limousines, the infusion of trade unionism with nationalistic or populist agendas - these corrupting compromises, expediencies, amenities and tranquilizers may constitute the real danger to the continued existence of the labor movement. Transition (from Communism) The implosion of communism was often presented - not least by Francis Fukuyama in his celebrated "The end of History" - as the incontrovertible victory of economic liberalism over Marxism. In truth, the battle raged for seven decades between two strands of socialism. Social democracy was conceived in the 19th century as a benign alternative to the revolutionary belligerence of Marx and Engels. It sparred with communism - the virulent and authoritarian species of socialism that Marxism has mutated into. European history between 1946-1989 was not a clash of diametrically opposed ideologies - but an internecine war between two competing interpretations of the same doctrine. Both contestants boasted a single market - the European Union and COMECON, respectively. In both the state was heavily involved in the economy and owned a sizable chunk of the means of production, though in the Soviet Union and its satellites, the state was the economy. Both sported well-developed, entrenched and all-pervasive welfarism. Both east and west were stiflingly bureaucratic, statist, profoundly illiberal and comprehensively regulated. Crucially, the west was economically successful and democratic while Russia evolved into a paranoid nightmare of inefficiency and gloom. Hence its demise. When communism crumbled, all of Europe - east and west - experienced a protracted and agonizing transition. Privatization, deregulation, competition and liberalization swept across both parts of the continent. The irony is that central and east Europe's adaptation was more farfetched and alacritous than the west's. The tax burden - a measure of the state's immersion in the economy - still equals more than two fifths of gross domestic product in all members of the European Union. The countries in transition - from Russia to Bulgaria and from Estonia to Hungary - are way more economically liberal today than France, Germany and even Britain - let alone the nations of Scandinavia. An increasingly united Europe has opted for "capitalism with a human face" - the democratic isotope of socialism (sometimes with a touch of corporatism). But it now faces the challenge of the Anglo-Saxon variety of the free market. Nowhere is this ideological altercation more evident than in the countries formerly behind the iron curtain. Long before Enron and World.com, the tech bubble and Wall Street's accounting frauds and pernicious conflicts of interest - transition has exposed the raw and vulnerable nerves running through the foundations of Anglo-Saxon capitalism. Eastern Europe is a monument to the folly of unmitigated and unbridled freemarketry. Transition has given economists a rare chance to study capitalism and economic policies from scratch. What's more important - free markets, institutions, education, democracy, or capital? Central and east Europe became a giant lab in which to peruse policies pertaining to criminality, private property ownership, entrepreneurship, privatization, income distribution, employment, inflation and social welfare. Superficially, the debate revolved around the scientific rigor and usefulness - or lack thereof - of the "Washington Consensus". Opposing monetary and fiscal policies, free trade versus protectionism, capital controls and convertibility - these occupied the minds and writings of all manner of economic and development "experts" in the first decade after the fall of the Berlin Wall. Yet, deep underneath, transition - perhaps because it was so thoroughly botched - taught us unforgettable lessons about markets and the way they work, namely that "objective", "mechanical" capitalism is a mirage. Perhaps the most important moral is that, like all other economic processes - transition is, mostly, in the mind. Successful capitalism requires education and experience. The blind in east Europe were led by the one-eyed. Capitalism was presented - especially by Western protagonists of "shock therapy" - as a deus ex machina, a panacea, guaranteed to transport the region's derelict economies and destitute people to the kitschy glamour of the tacky soap operas that flooded their television screens. Bedazzled by the alleged omnipotence and omniscience of the "invisible hand", no one predicted the utter meltdown that ensued: the mass unemployment, the ubiquitous poverty, the glaring abyss between new rich and always poor, or the skyrocketing prices even as income plummeted. Nor were the good parts of the new economic regime understood or explained: private property, personal profit, incentives. The dangers of transition were flippantly ignored and the peoples of central and eastern Europe were treated as mere guinea pigs by eager Western economists on fat retainers. Crime was allowed to hijack important parts of the post-communist economic agenda, such as the privatization of state assets. Kleptocracies subsumed the newborn states. Social safety nets crumbled. In their vainglorious attempt to pose as accurate and, thus, "respectable", scientists, economists refused to admit that capitalism is not merely a compendium of algorithms and formulas - but mainly a state of mind. It is an all-encompassing, holistic, worldview, a set of values, a code of conduct, a list of goals, aspirations, fantasies and preferences and a catalog of moral do's and don'ts. This is where transition, micromanaged by these "experts" failed. The mere exposure to free markets was supposed to unleash innovation and entrepreneurship in the long-oppressed populations of east Europe. When this recipe bombed, the West tried to engender a stable, share-holding, business-owning, middle class by financing small size enterprises. It then proceeded to strengthen and transform indigenous institutions. None of it worked. Transition had no grassroots support and its prescriptive - and painful - nature caused wide resentment and obstruction. The process of transition informed us that markets, left to their own devices, unregulated and unharnessed, yield market failures, anomies, crime and the misallocation of economic resources. The invisible hand must be firmly clasped and guided by functioning and impartial institutions, an ingrained culture of entrepreneurship and fair play, classes of stakeholders, checks and balances and good governance on all levels. Wealth, behavioral standards, initiative, risk seeking - do not always "trickle down". To get rid of central planning - more central planning is required. The state must counteract numerous market failures , provide some public goods, establish and run institutions, tutor everyone, baby-sit venture capitalists, enhance innovation, enforce laws and standards, maintain safety, attract foreign investment, cope with unemployment and, at times, establish and operate markets for goods and services. This omnipresence runs against the grain of Anglo-Saxon liberalism. Moreover, such an expanded role of the state sits uncomfortably with complete political liberty. That capitalism is inextricably linked to democracy is a well-meaning fallacy - or a convenient pretext for geopolitical power grabs. East Europe's transition stalled partly due to political anarchy. China's transition, by comparison, is spectacular - inflated figures notwithstanding - because it chose a gradual approach to liberalization: first economic, then political. Last but not least, pure, "American", capitalism and pure Marxism have more in common than either would care to admit. Both are utopian. Both are materialistic. Both are doctrinaire. Both believe that "it's a jungle out there". Both seek social mobility through control of the means of production. Both claim to be egalitarian forms of social engineering and are civilizing, millennial, universal, missionary pseudo-religions. The denizens of the nether regions of central and eastern Europe have been the victims of successive economic utopias. They fear and suspect ideological purity. They have been conditioned by the authoritarian breed of socialism they endured, really little more than an overblown conspiracy theory, a persecutory delusion which invariably led to Stalinesque paranoid backlashes. Indeed, Stalin was more representative of communism than any other leader before or after him. The Economist summed this semipternal mass hysteria neatly thus: "The core idea that economic structure determines everything has been especially pernicious ... The idea that ... rights have a deeper moral underpinning is an illusion. Morality itself is an illusion., just another weapon of the ruling class. As Gyorgy Lukasc put it, 'Communist ethics makes it the highest duty to act wickedly ... This is the greatest sacrifice revolution asks from us.' Human agency is null: we are mere dupes of 'the system', until we repudiate it outright. What goes for ethics also goes for history, literature, the rest of the humanities and the social sciences. The 'late Marxist' sees them all ... not as subjects for disinterested intellectual inquiry but as forms of social control." Many in Europe feel that the above paragraph might as well have been written about Anglo-Saxon capitalism. Reduced to bare-bones materialism, it is amoral, if not immoral. It upholds natural selection instead of ethics, prefers money to values, wealth formation to social solidarity. Predators everywhere - Russian oligarchs, central European cronies, Balkan kleptocrats, east European managers - find this gratifying. All others regard capitalism as yet another rigid and unforgiving creed, this time imposed from Washington by the IMF and multinationals rather as communism was enjoined from Moscow by the Kremlin. With eight of the former communist countries about to become members of the European Union - albeit second rate ones - transition is entering is most fascinating phase. Exposed hitherto to American teachings and practices, the new members are forced to adhere to a whole different rule book - all 82,000 pages of it. European "capitalism" is really a hybrid of the socialist and liberal teachings of the 19th century. It emphasizes consensus, community, solidarity, equality, stability and continuity. It places these values above profitability, entrepreneurship, competition, individualism, mobility, size, litigation and the use of force. Europeans firmly believe that the workings of the market should be tampered with and that it is the responsibility of the state to see to it that no one gets left behind or trampled upon. European stakeholder capitalism is paternalistic and inclusive. Employees, employers, the government, communities and suppliers are partners in the decision making process or privies to it. Relics of past models of the market economy still abound in this continent: industrial policy, Keynesian government spending, development aid, export and production subsidies, trade protectionism, the state-sanctioned support of nascent and infant industries. Mild corporatism is rife and manifest in central wage bargaining. |
