Chris Tufton, Contributor
CABLE AND WIRELESS activities in Jamaica continue to generate controversy and similarly the proposed sale by the Government, of The Jamaica Public Service Company Limited (JPSCo). But what are the issues facing small developing countries attempting to adjust to the increasing influence of international capital?
The debate on the role of the multinational corporation (MNC) in lesser-developed countries is not new. But recent protests against the impact of globalisation have brought back to international discussion the potential impact of large international organisations on developing economies.
Whatever side of the debate one supports, the future of the world is likely to see a greater concentration of industries and by extension more, not less, involvement of foreign capital in developing economies.
The implications for developing countries are fewer, larger and more economically powerful players, particularly in industries requiring advance technology. How we deal with this reality is also a subject for debate. In the past, policy makers have employed a number of strategies.
Firstly, assuming there are informed consumers, one approach is to allow consumer choice to determine who survives and who fails in the industry, irrespective of the organisation's country of origin. This allows the MNC to freely compete among themselves and with local industry players. If the state intervenes, it is only to promote free and fair competition. This requires an efficient bureaucracy to monitor the activities of the industry players. Importantly also, this approach allows for consumer choice, and thus power to influence the activities of the business enterprise.
Achieving spin-off benefits
But some Governments have gone further, playing a more proactive role, linking the involvement of the MNC to other activities in the local economy, with the hope of achieving spin-off benefits. By encouraging joint ventures with local partners, or promoting linkages with local industries, developing countries hope to benefit from the knowledge and markets of the MNC. In these cases, a country requires a minimum level of infrastructure to exploit these advantages. Technology is neither inexpensive to acquire, nor to transfer.
Finally, policymakers could decide that for purposes of economic viability, maximum efficiency, or for the welfare of the society, foreign capital should be restricted, or at the other extreme, allowed monopoly status in sections of particular industries. The case of C&W and JPSCo can be used to highlight this point. It is a fact that C&W has done a tremendous amount of work to enhance the telecommunications capabilities of Jamaica. This development is a critical requirement to enhancing local efficiencies and by extension international competitiveness of the country.
This was unlikely to have been achieved if the utility was still in the control of the state or local private enterprise. Here, foreign capital was critical to the country's development. But it seems also true that the sale of the then Jamaican Telephone Company was conducted without an adequate understanding of the potential implications to the country, from control by this powerful private monopoly. The sale clearly took place without the necessary preparation to ensure that there was a balance between the interest of this multinational and the interest of the Jamaican consumer.
The result, as they say, is history, but the blame should not be placed at the feet of the multinational, whose main motivation, expectedly, is profitable returns for the parent company. C&W acted predictably, both in terms of their contractual obligations, and from the perspective of what drives this type of organisation: control for secure returns.
Renegotiate the contract
In this case, the state made the errors as it attempted to establish this necessary, but flawed relationship. And so, long after the fact, the state attempts to renegotiate the contract, and through the setting up of the Office of Utilities Regulation, has attempted to put monitoring mechanisms in place. This is no easy task. Suffice it to say this is a classic case of how not to conduct a privatisation programme, particularly when it involves a potential monopoly in such a large and important industry. Then there is JPSCo. This utility monopoly is also critical to the overall economic advancement of the country.
In contemplating the sale of JPSCo, the core issue has to be how will foreign ownership impact on the long-term efficiency prospects of that organisation, and by extension, the overall development of the country?
To adequately address this issue, one has to understand the capabilities and motivations of the potential purchasing multinational, and balance those interests with the strategic, economic and social importance of the sole energy utility, to a small developing country.
To sell JPSCo, without serious analysis of the long-term implications, or just to support budgetary commitments would be a fundamental error, and one the country would regret for many years to come. This is not to suggest that every aspect of this organisation is strategically necessary for state control. Private companies could easily operate areas such as billing and customer service.
But, there are strong arguments supporting the view that if the country has the local talent, an attempt should be made to maintain controlling interest in what is clearly a strategically important industry. In fact, studies show that potential benefits of such an approach extend to areas such as expanding the country's local talent and technology, necessary variables for future development.
Chris Tufton is pursuing doctoral studies at Manchester Business School, England. Comments at CCTufton@ yahoo.com
