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Lessons for licensing systems are just as clear: • Minimise licenses.• Where you just must have them, let the licences not be &#14...

Lessons for licensing systems are just as clear:

Minimise licenses.
Where you just must have them, let the licences not be ‘‘contracts’’ between the licensor and the licensee. Let them, as the chairman of TRAI, Pradeep Baijal, says, be automatic authorisations.

Contrast the licences given to the basic operators — basic operators will provide X number of public telephones in villages — and the pattern even in India in regard to the Internet: you pay the fee and commence the service you want to provide.

When you have to give a licence or an authorisation, give it in the open, in full.
If contractual conditions just have to be included, ensure that there is no ambiguity in the drafting. And that penalties for non-compliance are so stiff that the licensee will violate them at the pain of death.
No licence, no policy — how often we are told, ‘‘But the NTP-99 did not say this …’’ — should be viewed as having been writ in stone. On the contrary, every ‘‘policy’’, every licence condition, like every law must have a ‘‘sunset clause’’ — that it will expire after X years unless it is renewed — and that with due deliberation.

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Of our organisations, it is the Reserve Bank under Bimal Jalan that set up a sort of regulation review authority: a ginger group of young officers with a deputy governor as the distant head. It was given freedom to examine ab initio each form, each regulation.

When those young, fresh minds could not find a manifest reason for its continuance, they would ask the concerned division to show cause why the rule, etc should continue …

Y B Reddy, the new RBI governor, advocates that such sunset clauses should be incorporated not just in every law to be passed in the future, they should be enacted for every existing law and regulation and form too — that unless it is consciously enacted to continue within the next five years, it must lapse.
The faster technological change is in a particular sector, the shorter must this time-to-sunset be.
In these sectors, when a technological advance enables a person or induces him to step beyond the existing regulation, the presumption must be the opposite from what it now is — not that he must be arraigned, but that the regulation must be re-examined.
One way, Reddy suggests, for shifting the balance of presumption is to examine in each instance whether one can build in for that regulation and licensing condition a compounding clause.

Deeply ingrained attitudes

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For such reorientations — of those who draw up licensing regimes, of regulators — to come about, three attitudes that have got lodged deep into our heads need to be exhumed.

The first is the notion that unless an activity is regulated, there will be chaos, that growth has to be ‘‘managed’’. We still have not seen the basic truth that is all around us, the truth Hayek used to emphasise: order does come about through human actions without human design.

From language, to the organisation of society, to the rituals and mores of daily life, to the Internet — each of these has grown by human actions but without human design. For each of these, rules of conduct have evolved without premeditated design, certainly without governmental design.

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We have a recent example in the cable industry: it has grown so swiftly precisely because governments were not alert enough to step in and ‘‘regulate’’ it!

When activities develop like this, when order comes about spontaneously, before stepping in, governments must first answer, ‘‘Why should this activity be regulated? Why should another order be superimposed in this sphere on the order that has grown spontaneously?’’

The second fixation is the excessively-expansive view we have developed about the responsibilities of the state. One of the great strengths of our civilisation has been that our society takes care of many of the setbacks and misfortunes that are the inevitable part of life — misfortunes that in other civilisations fall upon the state.

Our parents rely on us to serve them in their old age. We rely on them. Were I to be disabled from earning a living tomorrow, I know that I will have my parents’ house to continue to live in, that I would be helped by my brother, sister and a host of relatives and friends. Anita and I know that were we to drop dead tomorrow, her sisters and friends would look after our Adit.

In India our families, our society are our safety net. They are our social security system. In western countries the state has to perform these functions.

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Forgetting the strengths of our civilisation, we are insisting that our state take over these functions. The state has neither the resources nor the competence to do so. But we are thoughtlessly going on piling more and more of such tasks on it.

We need no seer to foretell the result. Our families and communities will be weakened — for the bonds that are nourished by actual service to each other, by devoting time and resources to caring for each other will atrophy by disuse.

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On the other side, the state will not be able to fulfill the tasks that would have been loaded onto it. The quotient of resentment — in particular, against the state — will mount.

This is dramatically evident, and most immediately ruinous in spheres in which technical change is rapid. A licence is given. Technological advance enables the service to be provided at lower cost. Competitors are eager to enter.

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The licence holders insist first the state must ‘‘compensate’’ them. We had invested on the assurance that there will be no more than four operators in a circle, they say, if you allow a fifth …

The paging industry demands that it be provided a relief package because it has been well-nigh wiped out by permission given to the cellular industry to provide short messaging service; the cellular industry demands it be provided a compensation package before it will allow you to move to the universal licence regime that technology so clearly dictates …

It is no job of the state to shield entrepreneurs against technological change, against the gusts of competition. It is certainly no job of the state to shield them from the consequences of their own wrong decisions.

The third attitude is, if anything, even more deeply ingrained in our heads. It is the place we have accorded — in our discourse, in our policies — to ‘‘equity’’

Everyone is convinced that the system is in some special way unfair to him. Those for whom reservations have been decreed are convinced that our society has always been and most certainly continues to be unfair to them. The rest are convinced that those reservations have squeezed them out.

The cellular operators insist they must get further compensation packages, that the WLL fellows should in fact be kept at bay because the latter have been allowed to ‘‘enter through the backdoor’’; because they — the cellular operators — are the ones who developed the market …

The WLL operators insist they are being unfairly kept down because the cellular fellows have already reaped the advantages of early comers — ‘‘Were they not the ones who used to fleece consumers by charging them Rs 16 per minute? Is it not our entry which has ensured that rates have fallen below Rs 2 a minute? Is that not what has led to the explosive growth of telephony that all of you claim credit for today?’’; the cellular operators, they say, were given a bail-out package whose net present value is Rs 30,000 crore …

Thus every social group, every corporate entity is convinced — that it is being dealt with unfairly. The conviction is coupled with special ability! Each social group, each collection of corporates is able to dress up its special interest in principle! ‘‘Equity’’, ‘‘fair play’’, ‘‘level playing field’’ …

This combination on one side — of conviction and ability — and a weak state on the other. A state that has been weakened by fragmentation — of the electorate, hence of legislatures, hence of the executive. A state that has lost legitimacy in its own eyes — in part because of this very factor, this barrage of egalitarianism, contrasted with the inevitable failure to deliver absolute fairness.

The result is predictable. The state lurches from one concession to the next, from yielding to the group that is insistent today to the other which is disadvantaged by that new concession …

Policy is buffeted. Growth is retarded. Every measure that is taken to alleviate the grievance of one group causes the other to feel that yet another injustice has been heaped on it …

Take note of reality

To reverse this spiral we have to throw those attitudes out of our heads, and realise:

Growth and order do not need governmental direction and regulation as much as they need free-play.
Every change, every rule will benefit some and disadvantage some.
The faster technological change is in a sector, the more relative positions of participants will alter.
The state just cannot keep providing ‘‘compensatory packages’’ to those who are disadvantaged by each wiggle of technology or fortune.

Concluded

(The article is based on the author’s valedictory address at the seminar on dispute resolution mechanism in the telecom sector organised by TDSAT in Sept 2003)

READ PART I, II, III & IV
Dial Reform
Licensed to crawl
Eyes Wired Shut
Who’ll take the call?

First published on: 18-10-2003 at 12:00:00 am
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