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)

PISTA'03 Orlando, Florida 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 Why research the Internet diffusion of 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 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 Outcomes in the Internet diffusion Country Internet Users in (per 10,000 inhabitants) Czech Republic Estonia Greece Hungary Italy Latvia Lithuania Poland Portugal Romania Slovakia Slovenia Spain Source: International Telecommunications Union (2003).

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

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