The same old fears

Posted on Friday, May 17, 2019

This week Mexico’s President Andrés Manuel López Obrador (better known to the press as AMLO) announced that he was going to build a government telco to bring the Internet to underserved areas. Most commentators think he is crazy. I agree.

(The joke going around Latin America is that he changed his name from Manuel Andrés López Obrador because then he would be better known to the press as MALO. Some knowledge of Spanish may be required to get the joke. Unfortunately, many Mexicans are not laughing.)

AMLO was elected on a populist platform that combined fiscal sobriety, anti-corruption and the kind of ‘square-the-circle’ fantasies that accompany such campaigns. So far (just under six months) he has delivered on fiscal sobriety. Anti-corruption remains to be seen because he is so convinced of his own ability to control it through sheer force of will (and long speeches) that he is dismantling transparency mechanisms, closing watchdog organizations and appointing suppliers without competitions. Only his own virtue and his ability to choose virtuous subordinates (ahem!) are saving Mexico from a wave of graft and bad contracts.

Or at least that is the hope because there is no way to stop his acolytes and family members from running off with national treasury if they turned out to be of less virtue than he thinks they are.

As for ‘square-the-circle’ fantasies, this suggestion is just the latest in a series of expensive and probably doomed projects. You can read the description here (pass the link through Google Translate if you do not read Spanish).

So, so you think you can tell / Heaven from hell

As almost always with populist notions, at the core there is a real problem – getting decent broadband into under- or unserved territory – and the germ of economic reality: broadband service in sparsely populated or very low-income areas would have a significant impact on the economic well-being of their inhabitants but providing such services profitably is impossible without subsidies or very high prices.

AMLO is right. Broadband should be a priority but profit-seeking enterprises will only build where revenues exceed costs. This is a problem I have written about a number of times, most recently using the UK rural broadband controversy as a base.

He is also right that Adam Smith’s invisible hand will never build 100% broadband coverage at prices that 100% of the Mexican population can afford. There is no pure market-based solution. If 100% broadband penetration is Mexico’s goal, other models must be attempted.

But he is wrong that the answer is an old-fashioned government monopoly telco. Mexico tried that (as did many if not most countries in the world). It did not work (as it did not in most countries in the world) and had to be dismantled.

By the late-1980s, Telmex was hopelessly overstaffed, under-invested and unable to deliver on its mandate. It was privatized and, while Mexicans still complain about quality-of-service, penetration has risen dramatically in services the old Telmex would have been unable to manage.

Did you exchange / A walk on part in the war / For a lead role in a cage?

As with most of AMLO’s square-the-circle fantasies, he goes way beyond mere naivete to distortion of the facts and a desire to rewrite the last several decades of Mexican economic history. At the idea’s launch, he deliberately selected normally irrelevant statistics about broadband coverage, using geographic figures (which are unsurprisingly low) instead of the more correct population coverage (which are much higher and much more in line with global norms). Unless he really believes that Mexico needs broadband at the top of the Popocatépetl volcano, population coverage is the right measure.

This of course made the problem look much worse than it really is and focused the solution on the wrong tools – increasing infrastructure instead of dealing with the pricing issue. If population coverage is high, most of the government’s attention should be focused on how to make broadband more affordable to low-income families, normally by subsidizing them directly. But by focusing on geographic coverage, he left the impression that the issue is infrastructure so he proposed a new government-owned telco to build and manage it.

AMLO failed to mention that Mexico had already invested in creating a 700Mhz wholesale broadband network, precisely to deal with the issue of uneconomic coverage. Assuming that the problem was not merely that he failed to see the reference to ‘Red Compartido’ in his briefing notes, he consciously plans to duplicate the investment already made.

One can only imagine why he might want to be so wasteful but it is entirely consistent with his approach to other issues where previous governments had implemented fully privatized or public-private partnerships. It seems that wherever such arrangements exist, he wants to build a fully public replacement.

Running over the same old ground

I wrote about this same issue six months ago in an article entitled ‘You go back, Jack, and do it again’ so I do not plan to ‘do it again’ or ‘run over the same old ground’.

Instead, I will focus on that article’s main point, that these kinds of solutions keep coming up because humans have short memories. We remember the friendly government telco that could not disconnect service if we didn’t pay our bills and had low, politically-controlled prices. We forget that it was slow to evolve technologically and had lousy customer service. In Latin America, we forget we often had to pay ‘acceleration fees’ aka bribes to even get service.

AMLO approaches many issues with a nostalgia for the decades following the end of the Mexican Revolution. His economic and political hero is Lazaro Cárdenas who served as President of Mexico from 1934 to 1940. Since AMLO was born in 1953, his nostalgia is not based on personal experience.

Telmex was born in 1947, was nationalized in 1972 and privatized in 1990. AMLO’s Secretary of Communications and Transport, Javier Jiménez Espriú, served on the Telmex board when it was a government monopoly during the 1980s. He was born in 1937 while Lazaro Cárdenas was president. He will be 82 years old at the end of July.

Year after year / Running over the same old ground / And how we found / The same old fears

Title Reference: The titles come from Wish You Were Here, the title track of Pink Floyd’s 1975 album of the same name. It was released as a single but like most of Pink Floyd’s work, it did not chart well, charts being based on so-called Top 40 radio play. A 5 minute 35 second song was not going to compete in that situation. (The top Billboard song in 1975 was Love Will Keep Us Together by the Captain and Tennille. Not at the same intellectual level but try to get it out of your head if you hear it or remember it.) The album, however, went to number one in the US and UK and has sold over 13 million copies since its release. There are lots of interpretations of what Roger Waters was trying to say with the lyrics and Waters himself is not very helpful. Here I picked the lines that, for me at least, dealt with repeating the same mistakes over and over again.

Wish You Were Here Songwriters: David Gilmour / Roger Waters © Peermusic Publishing, Concord Music Publishing LLC, BMG Rights Management

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