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Beyond the Internet: Radical Reformer vs. Smooth Transformer

Beyond the Internet: Radical Reformer vs. Smooth Transformer. Meelis Kitsing International Policy Fellow Center for Policy Studies (affiliated with the Open Society Institute and Central European University) kitsing@policy.hu. Outline.

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Beyond the Internet: Radical Reformer vs. Smooth Transformer

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  1. Beyond the Internet: Radical Reformer vs. Smooth Transformer Meelis KitsingInternational Policy Fellow Center for Policy Studies(affiliated with the Open Society Institute and Central European University) kitsing@policy.hu

  2. Outline • Why research the Internet diffusion of Estonia and Slovenia? • Methodology • Outcomes in Internet diffusion • Explaining outcomes • Estonia: Radical Reformer • Slovenia: Smooth Transformer • Reformation vs. Transformation PISTA'03 Orlando, Florida

  3. Why researchthe Internet diffusionof Estonia and Slovenia? • Public policy: enlargement of the European Union, the eEurope+ and eEurope programs, agendas of governments, international organizations and NGOs. • Political economy of transition • The performance of different political and economic systems (free markets vs. social democratic corporatism) • Role of institutions in economic performance • Market failures and public sector failures • Trade, FDI and technology transfer • Studies on Internet diffusion PISTA'03 Orlando, Florida

  4. Methodology • A qualitative approach • Two primary case-studies: Estonia and Slovenia • Two secondary case studies: Latvia and Slovakia • Dependent variable is Internet penetration • Explanatory variables are political, legal and economic factors PISTA'03 Orlando, Florida

  5. Outcomes in the Internet diffusion Country Internet Users in 1999 2000 2001 2002 (per 10,000 inhabitants) Czech Republic 682 971 1363 1467 Estonia 1387 2721 3005 4133 Greece 705 947 1321 1815 Hungary 597 715 1484 1576 Italy 1430 2304 2758 3010 Latvia 430 619 723 1331 Lithuania 279 609 679 679 Poland 542 725 978 984 Portugal 1000 2494 3494 3555 Romania 267 357 447 806 Slovakia 1112 1203 1203 1604 Slovenia 1257 1507 3008 4008 Spain 703 1343 1828 1931 Source: International Telecommunications Union (2003). PISTA'03 Orlando, Florida

  6. Explaining outcomes • Geography • Size of country • Per capita GDP • Civil liberties and democracy • Infrastructure • Number of personal computers PISTA'03 Orlando, Florida

  7. Estonia: Radical Reformer • Initial starting position: COCOM and limited diffusion of ICTs • Privatization of incumbent telecom company in 1992 • Monopoly in fixed lines over voice telephony until end of 2000 • Free market in data transmissions, ISPs and backbone providers • Partial liberalization in leased lines and alternative uses of infrastructure • Free market reforms: liberal FDI and unilateral free trade, flat income tax, zero corporate income tax • Government use of Internet – “epistemic IT community” • Presence of diverse interests in the telecom sector • Predominantly center-right political parties PISTA'03 Orlando, Florida

  8. Slovenia: Smooth Transformer • Initial conditions: limited technology transfer and trade relations with Western Europe • State/domestic ownership of incumbent telecom company • End of monopoly in fixed lines over voice telephony delayed constantly • Licenses required for ISPs; leased lines partially liberalized; data transmissions monopoly a reality • Trade gradually liberalized; selective protectionism in the FDI regime (discriminatory privatization process) • Social democratic corporatism: centralized labor unions and predominantly center-left political parties • Government use of Internet PISTA'03 Orlando, Florida

  9. Reformation vs. Transformation • Gradualism and shock therapy in transition • Social democratic corporatism and free market system • Wealth effect • Path-dependence • Vested interests and regulatory capture • Accountability of incumbent telecom company • Regulatory framework: formal and informal factors • Internet access prices PISTA'03 Orlando, Florida

  10. Conclusion • Similar outcomes with different paths of transition and political economy systems • Slovenia represents exception: initial position and wealth • Estonian experience more relevant for policy implications • Little hope for specific Internet policy without broader changes • Independence of regulator • Reducing barriers for competition • Liberalizing FDI regime • Credible commitments to market opening PISTA'03 Orlando, Florida

  11. Thank you Presentation and conference paper are available. Research paper and policy paper will be made available by September at www.policy.hu/kitsing PISTA'03 Orlando, Florida

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