The best work about transition economies analyzes what really has changed, and what hasn't; what will change sooner, and what later; what can be changed, and what can't. This book provides important insights into change in the communications and related industries in the former Soviet Union. The scope of this volume is much larger than telephony. It includes material on communications equipment R&D, equipment supply, specialized services such as telegraph, telex, and facsimile, and television and radio broadcasting. While in some places the threads tying these different pieces together are rather thin, over-all the author provides valuable comparative and systemic perspectives that would be missed in a book with a narrower focus.
The author shows that political priorities strongly shaped the development of the Soviet communications industry. Television had high priority in the allocation of resources because it was an important instrument of centralized political control. By the end of the 1980s almost all households had television sets and access to at least one television channel. Not surprisingly, recent market liberalization has unleashed vicious political struggles over the control of television channels.
Because of both a deliberate policy to restrain decentralized means of disseminating information and a general neglect of consumer services, telephony had low priority. In the mid 1980s only 23 percent of urban households and 7 percent of rural households had telephones. Of the 15 million persons on the waiting list for telephones, 8 million had reportedly been waiting for ten years or more (p. 16). The poor condition of the telephone network is unquestionably a major impediment to economic growth.
Other areas of the communications industry hint at the inflexibility and inertia of communications planning. By the late 1980s, 85 percent of Soviet households were reached by a system of monophonic wired speakers (p. 185). This network is of low quality and expensive to maintain. A variety of different organizations have been struggling to disclaim responsibility for operating it. The reader is left with the impression that the wired radio system has endured only because no one has been courageous enough to break decisively with a past approach.
The author argues that the amount and technological level of equipment available to the Soviet telecoms sector was an important constraint on its performance. He provides a depressing array of case studies that show technological, organizational, and quality failures. The hyper-militarization of the Soviet economy played a key role in removing the resources and incentives to produce advanced, high-quality civilian communications equipment. Nonetheless, Soviet hyper-militarization had a similar negative effect on the production of other industrial machinery and consumer durables. It is not clear that low quality capital was a particular characteristic of the telecommunications sector.
The book suffers from some weaknesses in its discussion of telecommunications economics. Its discussion of pricing assumes a monopoly model but does not recognize the role of demand elasticities in affecting the optimal recovery of common costs. Instead it presents the textbook competitive welfare model of prices equating marginal utilities and marginal costs (p. 40) while curiously declining to consider economies of scale and scope. Traditional telecommunications economics was obsessed with economies of scale and scope. Paying these factors little attention is in some respects a salutary step. Economists now tend to think that regulatory rules that require network interconnection on feasible terms can foster competition among facilities providers. The benefits from such competition are likely to far outweigh lost economies of scale and scope from a single monopoly network.
The strength of this book is its institutional and sectoral detail. One intriguing aspect is the extensive development of alternative telephony infrastructure. The pipeline industry, the railroads, the electric power industry, the Ministry of Defense, the KGB, the Ministry of Internal Affairs, and elite government officials all had their own telephone networks. In 1988 the Soviet Ministry of Communications' network encompassed 33.3 million phones, while 4.3 million phones were on separate networks interconnected to the Ministry's network, and another 7.3 million phones were on totally separate networks (p. 10). In terms of alternative networks, the former Soviet Union may be significantly ahead of countries around the world that are pushing to implement radically pro-competitive reforms in telecommunications.
It is worth noting that much of the descriptive material here concerns the Soviet communications system in the 1980s. Those most interested in more contemporary material may be disappointed in the balance of coverage. The book includes material only through the end of 1993 and is relatively weak on the diverse, and in many cases contradictory, developments since January 1992.
The author suggests that in communications services the legacy of the past will not soon be overcome. Because it provides essential mass services and channels for political communication, the communications sector is politically sensitive. Moreover, sector specific regulations, such as interconnection rules, may play a crucial role in fostering competition. Politics and regulation mean that reform in communications is likely to be slower and more difficult than in other areas of the economy, and the past more important.
This book analyzes a key industry in an economic space that represents a significant part of the world economy. While it is probably most relevant to area specialists and telecommunication specialists, insights gleaned from it would also enrich a more general reader's perspective on comparative systems and economic change.
Douglas Galbi, Dec. 1996.