Making monopolies more responsive the role of societyby Sam Mwale
Most people believe monopolies of any sort to be bad for society. Although some monopolies are tolerated such as the monopoly of the state in certain functions (for example, maintenance of law and order) business and civic monopolies are seen as encouraging stagnation, inefficiency, arrogance, and misuse of resources and power. History bears out this suspicion. Under the single party state, the monopoly of state power has been at best autocratic, and at worst totalitarian. The monopoly of force by the state in many societies (with single party societies bearing the harshest brunt) has often led to repression and abuse of human rights, particularly against dissenters. The state is not alone in abusing its monopoly power. Civil society in its broadest sense is also guilty. Monopolistic civil institutions can be as repressive as state monopolies. Religion in particular has a bad record. For most of the last millennium, religious monopolies (major monotheistic faiths) tried to convert, persecute, oppress, execute, and expel those who differed from the state or majority faith. Social clubs, associations, and institutions, have also perpetrated open or covert monopolies in terms of those they admit or bar from admission. In the past, there was racial, ethnic, gender, or religious monopoly manifested in segregated America, apartheid South Africa, color-bar colonial Africa and Asia, and in many parts of the Muslim Middle East. While such social monopolies are diminishing, there are still many social institutions around the world that strongly believe in excluding anyone that does not conform to their colour, race, creed, or gender. The dangerous cocktail of social and political monopolies lies at the heart of most of the 20th century conflicts, wars, genocide, persecution, and ethnic cleansing. This double cocktail becomes triply deadly when combined with economic monopolies. It is not by accident that those favoured by social and political monopolies also enjoy the benefits of economic monopolies. Social and political monopolies are strongest and most difficult to dismantle when they are inextricably intertwined with economic monopolies. For example, white Southerners in segregated America, Afrikaners and other whites in apartheid South Africa and Namibia, white settlers in Kenya and Zimbabwe, Sunni Muslims in Egypt, and Maronite Christians in Lebanon enjoyed and (in many instances) continue to enjoy economic, social, and political power derived from their monopolistic control of all institutions in the past. The push towards liberalization and pluralism, towards greater dispersion of social, political, and economic poweržand towards creating an enabling environment for greater competition for this poweržis really a determined effort by society to rein in, control and, where possible, dismantle existing monopolistic institutions. It is deeply ingrained in contemporary society that any form of monopolistic power is more likely to be used against, than for the people. For example, in Kenya there is, at the moment, a severe electricity and water shortage. Electricity generation and distribution is largely a state monopoly, policies and finances provided by the government, generation controlled by a wholly stated owned firm, and distribution by a state dominated one. Because of this monopoly, consumers of electricity who make up only about eight percent of Kenyan households but most of its productive sectors are now held captive to the bad policies of the state energy monopolies and to their internal conflicts of interest. At the same time, water distribution is a publicly owned monopoly under the Nairobi City Council. This local authority that loses more than half of the water in its distribution system because of leakage and poor maintenance, is now about to also ration water. Like the state energy cartel, it pleads the drought as the cause of the current water crisis. While drought maybe the proximate cause, the real and longer term causes lie in the abuse of its monopoly power. The two utilities, electricity and water, underline how badly run public sector monopolies can destroy thousands of livelihoods. The fact that there is no alternative to these utilities at this point in time means that most consumers really have no choice but to face enormous power cuts and lack of water and, for some of them, seeing themselves economically ruined while the utilities continue to blunder from one crisis to another. Other monopolies such as those in telecommunications have similarly negative impacts on consumers. For example, the telecommunications monopoly is unable to provide a reliable Internet connection to the rest of the world. It holds the monopoly to the system that connects all the Internet service providers (ISPs) to the rest of the world. This poorly maintained connection is always breaking down, affecting the ISPs and their customers. And yet, this body will not allow the licensing of independent satellite connections for the ISPs so that they can offer alternatives to its hopelessly unreliable connection. Its service to fixed-line customers is similarly poor, while the mobile service remains unnecessarily expensive. Most customers face long periods between calling in for help, and receiving it. They have to run a gauntlet of bribe-hungry technicians, unnecessary bureaucracy, and unhelpful staff to either get a new line, transfer a line from one site to another, or get a complaint fixed. The call connection rate is as low as 35-50 percent, meaning one has to dial several times to get through. The result is a telecommunications environment that is hardly conducive to business, costly globally, and worsened by the monopoly's customer-unfriendly attitude. While the cases above show the enormous costs and disadvantages of publicly owned utility monopolies, the case has been made that some of these are what can be termed as "natural monopolies." It has been argued in some quarters that water supply, electricity, and telecommunications (fixed line) will in some ways always remain monopolistic in nature. It really may not matter whether they are in public or private hands. It is only in very large markets such as the United States where there are sufficient economies of scale allowing for serious competition among privately owned utilities. It also helps that the US does not have a history of state owned firms. For example, telecommunications remain monopolistic (and largely state owned) in Japan, Germany and France, the second, third, and fourth largest economies in the world. There is some element of competition in Britain (fifth largest economy), but even then the now privatized telecommunications firm still controls 90 percent of the fixed line market. The new openings for telecommunication competition lie in the rise of regional domestic competitors, Internet service providers, international telephone service, and cell phones, all of which are tiny (although growing) markets in very small economies such as Kenya. For example, outside of Nairobi, telephone density and usage diminishes rapidly. The only areas with extensive international traffic would be Nairobi and the Coast. The regional services along provincial lines are unlikely to result in efficient privately owned fixed-line regional competitors. The cell phones market has greater potential, but even then, once the current unsatisfied demand is met, new markets would be harder to establish because of the country's growing poverty and worsening economic and policy environment. The ISPs are another growth market, particularly if they are able to get access to satellites directly rather than passing through Telkom Kenya, but even then, their growth is going to be reduced by the ongoing power crisis in the near future. The upshot of all of this is that in the near term (2-3 years), the current telecommunications utility is likely to maintain its monopoly except for the cell phones market, and is unlikely therefore to face pressures to become more efficient. These findings beg the question: how then should utility monopolies be made more efficient, and more people or customer friendly? How should a state electricity monopoly be turned not only into an efficient, reliable, and low-cost provider of electricity to its current customers, but also into an agent of development that will seek to wire in at least a quarter to a third of all Kenyan households in the next decade or so? In other words, can the Kenya Power and Lighting Company even begin to match South Africa's ESKOM record in connecting nearly 4 million new consumers since 1994? The counterfactual question would be: would a privatized KPLC be able to connect even a tenth of ESKOM's 4 million new users in the next ten years? The answers to these questions are not cut and dried. Kenya's energy sector is very badly run at present and privatizing KPLC or the generation company KenGen may not make much of difference. In other words, Kenyans may be stuck with an electricity monopoly for the foreseeable future, located within a very badly managed and run policy, regulation, and generation environment. The same probably applies to the water sector. Although virtually every major town is now privatizing its water supply system (with Kisumu, Eldoret and Nakuru at advanced stages) the privatized monopoly is still likely to face the same badly managed watersheds and reservoirs, poor policy formulation and implementation, and very high costs in rehabilitating the distribution and metering systems. The result would be higher costs passed on the consumer, little to no net increase in new water connections, and therefore little relief to the consumer. Indeed, the privatization of East Anglian water in Britain indicates that water is now more costly than in the past, and is not that much better managed by the new French owners. The element of competition and therefore efficiency and lower costs to consumers will only arise when water becomes a key economic resource, ready to be used to attract new industrial consumers. Most importantly, because of the nature of operation, all privatized water firms remain regional monopolies. If water consumers can look forward to reliable, safe, and low-cost water supplies in Kisumu, Eldoret, Nyeri, and Nakuru for example, thenždespite the regional monopoliesžthe current privatization programme may prove useful to society. We have so far dwelt at length on utilities because their monopoly positions are usually the hardest to change, whether they are in public or private ownership. However, there are several monopolies that can be readily broken up, with great benefits to society. Some of this is already happening. The agricultural sector was once controlled by the state in virtually every aspect. In particular, produce marketing was state controlled. While this worked for a while, corruption, inefficiency, and plain lack of competence soon turned these state marketing boards into sinks of inefficiency. Over the last ten years, a painful reorganization has been taking place. In the liberalized market, it is no longer necessary to have either state or private monopolies. Horticulture, a sector with the least state controlled monopolies has shown the most consistent and widespread growth since the late 1980s, and is now the second largest export market after tea. The end of the Kenya Cooperative Creameries monopoly on formal milk processing and packaging has given the dairy industry a great boost. The rise of highly efficient local milk processors and packagers has given the consumer a wide variety of high quality and price competitive locally produced fresh milk, cheese, butter, and other dairy products. The beef industry has flourished since the demise of the Kenya Meat Commission (KMC) while the pork industry was revived by the private sector (Farmer's Choice) after the demise of the state owned Uplands Bacon. Small enterprises have taken up input supply to producers after the failure of the rundown Kenya Farmers Association. Coffee producers are currently agitating to be allowed to mill their coffee at the lowest cost and most efficient privately owned millers and sell it to the highest bidders through a coffee exchange. The tea producers also want greater market freedom and autonomy in the sector. State monopolies in marketing, processing, and exports are being rejected by all kinds of grain farmers (maize, rice, and wheat), as are private monopolies such as barley and tobacco growing. The agricultural sector is at its greatest flux because of the enormous institutional transition it is facing. The state owned and run monopolies are being broken down, partly because the state is under pressure to pull out under its own liberalization policies, and also because the farmers are rejecting the monopolies. However, the atomized enterprises that are coming in to fill the void are at present too small to serve the farmers efficiently. At the same time, the producers are very wary of privately owned monopolies. The result is somewhat chaotic. The grain, sugar and input sectors are full of briefcase and politically connected operators and speculators that have done enormous harm to them. Some of these carpetbaggers are eyeing the tea and coffee sectors, having been forced out by competitive pressure from horticulture and not being interested in dairy because of its long term investment requirements. Therein lies another great dilemma that has dogged all monopoly busters since the Standard Oil case. How will the currently moribund Monopolies and Prices Commission ensure that state owned or privately held monopolies are broken up into smaller entities or replaced by new entrants who will thereafter provide an efficient, competitive, and higher quality service or product? How would breaking up Telkom Kenya, KPLC, KenGen, KTDA, and Coffee Board of Kenya, for example, not only meet these criteria, but also expand the consumers connected (Telkom and KPLC) or producers in the industry (KTDA and Coffee Board)? The example of the small private fuel suppliers and their extremely dangerously placed petrol stations (as well as incidences of petrol adulteration) point to the danger of unregulated or poorly planned monopoly breakups. In other words, while monopolies may be bad for society, their breakup could actually be worse, causing society even greater cost than before. Unfortunately for Kenya, the institutional capacity to regulate monopolies and create competitive and growing markets is highly limited, and is not a priority. The Communications Commission of Kenya (CCK) is more concerned with selling airwaves and closing down anti-establishment stations, than taking measures to ensure competitive broadcasting and ownership of frequencies. The same CCK has also not shown much spine in regulating and creating competition in the telecommunications sector. The Electricity Regulation Board (ERB) is virtually toothless, as most of the decision-making and resources lie with the Ministry of Energy and KPLC. The Monopolies and Prices Commission (MPC) is virtually invisible, and has yet to make any impression on the public in terms of dealing with unfair trade and price practices. It is the chronic invisibility of the MPC and its virtual absence from the economic front that makes monopolies such as bane on Kenyans. In conclusion, political and social monopolies that have long tyrannized societies have been greatly diminished during the 20th century. Although groups that benefited from such monopolies continue to hold economic power, the opening up of societies is dispersing social and political power, even if in some cases the pace is glacial. The glacial pace is most visible however in the economic monopolies. Because of the enormous private or state resources behind themžand the social or political patronage they representž economic monopolies are far harder to break up than social or political ones. Even more worrying is the lack of a coherent policy and institutional framework for doing so. Most countries rely on a case by case experience and existing anti-monopoly laws and bodies to do the job. Quite often the results are either shifting monopoly from one body to another, dispersing it to a few other bodies, or opening up to a chaotic anything goes kind of situation. As a result the expected gains in efficiency, markets opening up and growing, and greater quality and variety of service and product may not be achieved. That being said, there still remains a solid case, even after this kind of experience, to continue to search, through learning by doing, for ways to diminish the power of monopolies on the daily lives of Kenyans. Small enterprises have taken up input supply to producers after the failure of the rundown Kenya Farmers Association
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