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  • The Political Economy of Institutional Change in the Electricity Supply Industry: Shifting Currents
  • H. V. Nelles
Carlos Rufin. The Political Economy of Institutional Change in the Electricity Supply Industry: Shifting Currents. Northampton, Mass.: Edward Elgar Publishers, 2003. xiii + 226 pp. ISBN 1-84376-203-X, $90.00.

This challenging and intellectually ambitious monograph attempts to explain how two "economic institutions"—property rights and competition—are determined in the course of restructuring the electric services industry. Three explanatory variables, judicial independence, ideology, and distributional conflict, are subjected to theoretical, comparative, and empirical analysis in four case studies to determine their precise role in shaping the resulting ownership patterns and the degree of competitiveness in the electricity business.

The arguments advance through five stages: a highly selective classification of the existing literature; the development of a formal theoretical model; a test of the model's results using cross-national comparisons of outcomes of the electricity restructuring process; a further test in the form of detailed analysis of four cases in Latin America—Argentina, Bolivia, Brazil, and Chile. Finally, emboldened by his results, Carlos Rufin concludes with a brave attempt to predict outcomes in Mexico.

The book is challenging not only because it makes very generous assumptions about the reader's knowledge of the new institutional economic theory but also because full understanding of the construction of the model requires a degree in mathematics. Whole pages are given over to equations. The book is intellectually ambitious because it sets out to answer a very big question: How across the face of the earth can one explain the different ownership and competitive outcomes in the deregulation and restructuring of the electricity industry? It provides an answer in the abstract. Then it uses a large multidimensional data set to test the robustness of the theory. It then provides an analytical history of recent regulatory change in four [End Page 194] countries. Rufin is by turns a theoretician, statistician, Latin American historian, and, in the conclusion, prophet.

After much humming and whirring the model apparently produces five testable hypotheses or propositions of the following sort: "Proposition Four: Distributional conflict, in the form of competition among suppliers for the rents accruing to them under the three possible regimes, makes P [publicly owned monopoly] more likely." A heroic attempt to gather data about outcomes and political process on a global scale narrows the focus to ideological factors and distributional conflict (class struggles, union strength) as key determinants. Rufin knows that there are problems with both the quality of his data on various electricity reform regimes and the subjective nature of the scoring he applied to produce his grid. That does not in itself vitiate the effort but, rather, makes the case for a more determined effort by other scholars to improve the process.

The three chapters comparing the restructuring of the electric services industry in Argentina, Bolivia, Brazil, and Chile are the most accessible portions of the book. Rufin's approach has the merit of structuring the analysis of each country's experience within an analytical template that directs attention to the influence of judicial independence, ideology, and distributional conflict (defined as "the attempt to use the coercive power of the state to alter the distribution of income produced by the economic system, and the reaction against such attempts by negatively affected actors"). The model he claims seems to have more power determining ownership patterns (private versus public) than in predicting whether competition will be adopted as the allocative regulator.

Rufin's conclusion after this systematic comparative examination is that ideology is the most important explanatory variable. He means by this not necessarily the implicit political culture of the country but, rather, the ideological conviction of key bureaucrats, planners, and politicians. Restructuring of the electric services industry comes across after all of this analysis as something akin to missionary work. It all depends upon the ability of Chicago School and Harvard-trained economists to get control of the political levers when they go home. Local class struggles, which theoretically bias the process toward public monopoly, have a lesser importance, and judicial independence is the least powerful determinant of outcomes.

The attempt to reduce complex human phenomena...

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