#13 – The Expat Files: Technology, Privatization, and the Future of Latin America

Automatically transcribed from the original recording; names and wording may contain errors.

[00:01] Hi everybody, I'm Johnny Mueller, and you're listening to The Expat Files, living in Latin America, the one of a kind show that tells you what it's like to live, work, play, and or retire in Latin America. So let's get started. First world people ask me all the time about the state of technology in Latin America. You know, do they have Wi-Fi and iPhones and Blackberries and routers and high speed internet and all that? Basically, they want to know if Latin America is high, medium, or low tech, and my answer is always, all three. And I don't mean that in one part of one Latin country it's high tech, in another part it's low, in another part it's medium tech. I mean in any given city block on any street, there could be a combination of all three.

[00:46] I could explain it better if I go back in time a little bit. Remember some 25 years ago, up in the United States, when Ma Bell was broken up into the baby bells, and then a bunch of new companies like MCI came in to take over a big piece of the long distance business. And then about 15 or 20 years ago when cell phones finally came into use, every cell phone user had to pick a carrier and you had about 15 or 20 options. You remember that, don't you? Well in Latin America, each country had its own version of Ma Bell. Only Ma Bell in the first world was a private company. Whereas in Latin America, every single country at one time had its phone company owned and operated by a government monopoly. And I don't have to tell you, when a monopoly owns and operates something, especially when

[01:37] it's a government monopoly, like for example the US Post Office in the first world. Now imagine for a minute, the worst government bureaucratic boondoggle you've ever had, whether it was dealing with the US Post Office, the IRS, the VA hospital system, Medicare, or unemployment insurance. Now multiply the worst day you've ever had with the bureaucrats by 10, and you're looking at what it was like when phone companies in Latin America were owned and operated by the government. Now it's been about 10 years in Latin America since cell phones have taken off in a big way. And when the cell phone technology first started coming into Latin countries, it seemed as if not one of the government owned monopolies could manage that new technology with any

[02:22] degree of efficiency at all. So the Latin American government sold the rights and the frequencies to private companies. And there was some heavy bidding and backdoor dealing and some billions of dollars changed hands. And since this is Latin America, billions got stolen by politicians and bureaucrats. Every single Latin American country who sold off their cell phone bandwidth and IT rights ended up with huge pots of money, in some cases to the tune of two to three times their yearly tax revenues. Which means on that windfall profit alone, each Latin American country could have run their governments without having to collect a single penny in taxes for two to three years. And as cynical expats like me predicted, the promises were all dead air.

[03:11] And the politicians that made those deals, well they're long gone. And living like kings and queens in their own guarded compounds. And as for those promised social programs? Don't make me laugh. Now like I said, a lot of that took place about 10 years ago. And when the cell phone deals were finally made, people found out that they could go down to their local mall, buy a cell phone and get it activated that very same day. And at first, the Latin population just couldn't believe it. They were used to the way the government phone company did things with landlines, where back in the pre-cell phone days, you'd go down to the government phone office, sign up for a phone, pay about $200, fill in 100 forms, stand in line for two hours at one building,

[03:57] get shuffled to another building, stand in line again, and then have to come back two or three days later and collect your paperwork. And all that so you could get your landline in anywhere from two to four years. And that, my friends, happened in every Latin American country, even the ones that seem fairly organized like Chile, Argentina, and Costa Rica. It turns out that when the government owns a phone company in Latin America, that's the kind of service you get. And that's the kind of service people were used to. And in fact, because there was a two to four year wait for a landline, a sort of informal gray market grew up around the system. In other words, before 10 or 15 years ago, before cell phones hit Latin America in a big way, enterprising people with a few hundred dollars would go down to the phone company

[04:47] and order a landline or two and sit on the paperwork for a few years. Then after a few years went by, they put an ad in the classified section of the newspaper saying they had a landline for sale for maybe 800 to 1,000 US dollars. And as long as you bought the line and held the paperwork proving it, you were entitled to a landline and you could select whatever residence you wanted for the installation. That system doesn't function anymore now that cell phones are cheap and practically everywhere. But most expats I know have at one time or another bought one of those expensive landlines through the classified ads or through a Latin lawyer, usually their own Latin lawyer. And how that worked was that an expat would build a house or start a business and he knew

[05:35] he could never wait four years for a landline. And his lawyer knew that too. And most smart lawyers who have expats for clients had a list right on hand of people who were ready and willing to sell their landline contracts to the highest bidder. And usually the highest bidder was a gringo or a European who would gladly fork out 800 to 1,000 dollars to jump the queue and make sure he was at the front of the line. And of course everybody knew the lawyers were making their own deals on the side. But that was BC before cell phones. But about 10 years ago, when cell phones finally came around and Latin people discovered to their shock that they could get a cell phone in one day, maybe in one hour. Well that's when the government monopolies on landlines completely fell apart.

[06:21] Their infrastructure was rotten, their maintenance departments were bad, and practically non-existent. But it only took a year or two for the dinosaur government telephone companies to get another unexpected windfall and a new lease on life. Because when the internet finally took hold, just a year or two after the cell phone craze landed in a big way, well soon enough businesses and every middle and upper class household needed to have a landline to get an internet signal with decent speed. And that's when government phone companies partnered up with high speed internet services mostly from the first world. And as part of the deal, they got their new partners to beef up the infrastructure, straighten out the maintenance, and do everything else that was necessary to keep the landlines clean

[07:07] and in decent condition and provide satisfactory bandwidth for fast internet service. Now the amazing part to me in most expats is how dinosaur government owned Latin American phone companies could transition from a four year wait for a landline to what customers expect and demand in today's internet age. And what's even more confusing to expats is that now that these dinosaur phone companies have partnered up with first world international firms, how does a first world management team go into one of these lumbering behemoths and turn it around? Now that's got to truly be a miracle in itself. But surprise, surprise, in every case they've somehow done it. And it's still hard to believe. Just ten years ago it took two to four years to get a landline.

[07:55] And more often than not it sounded like you were talking through a tin cup. And now all of a sudden they're offering landlines with high speed internet service. And they'll install them within three days to a week. Now what's up with that? Now you can make your own conclusions, but expats have been around a long time. They know for a fact that the third world will always be the third world, as long as you leave them to their own devices. And they'll only advance into the 21st century, if drag kicking and screaming by some new technology that they need, and they still won't get there without a big kick in the ass and a lot of help from the first world private sector. Now there's one staunch reminder of the old government monopoly phone system throughout Latin America. And that's the ubiquitous payphone.

[08:43] Now if you drive around Latin America, you're bound to see payphones here and there. And some of them even work. And when I look at one of those old payphones today, I can flash back to about 15 or 20 years ago, when you could drive around Latin America and see sometimes 10 or 15 people lined up in front of a payphone. Well the payphones that worked anyway. And I still remember about 15 or 20 years ago, when all over Latin America, lucky families who had a landline would get frequent knocks at the door from their neighbors. Neighbors who either didn't have a phone yet or had a bad line. I can tell you that back then, everybody knew which neighbor had a landline that worked. And if you had one, you were pretty popular. And then about 10 years ago, when cellphones first came in in a big way, you'd still see

[09:29] those long lines at the payphones. And yet everybody standing in line had a cellphone clipped to his belt. Because it turns out, having a cellphone in those days was a luxury. Or I should really say, talking on a cellphone was a luxury. Because the bottom end basic cellphone wasn't that expensive and pretty much everyone ran out to get one. But back then in the early days, cellphone talk time was costing 50 cents to a dollar a minute. And the person you called had to pay on his end too. You remember that? So 10 years ago back in Latin America, everybody did have a cellphone. And it was a big status symbol, whether it worked or not. Just like those early brick telephones used to be some 25 years ago back in the states, when phone time cost $2 a minute and only rich guys and show-offs had them.

[10:18] So there was a time, about 10 years ago, when I used to laugh, when I saw people with cellphones clipped to their belts, standing in line waiting to use the payphones. And funnier yet is the fact that so many Latins use their cellphones as fashion accessories, whether they work or not. In fact, I remember being at a high-end pretentious disco in Panama, when I made a comment to the bartender, saying I couldn't believe how many young kids had such expensive cellphones. And he laughed and said at least half of those kids had cellphones that were disconnected for lack of payment. But they carry them anyway, because it wouldn't be cool to be seen without one. But that was a few years ago. So let's get back to the present. Down here, just like in the first world, Blackberry's, iPhones, iBoxes, Facebook, and high-speed

[11:06] internet are all the rage. Though this is Latin America, the third world, and as you might expect, only 5% of the population can afford toys like that. And in Latin America, a man's toys really do separate the haves from the have-nots. I mean, a high-end Blackberry might cost $500, and that's like one or two months' wages for the average Latin American guy. And even the cheapest version of Wi-Fi, on the low end, will cost $25 a month. So you can imagine, have an internet in the home, which is absolutely mandatory in the first world. Well, in Latin America, you'd be lucky to see one in 50 houses that has it. And everyone knows the internet is indispensable for kids at school doing their homework and doing research. And even down here in the third world, that's getting to be more and more true.

[11:56] So how do lower- and middle-class Latins get on the internet if they don't have it at home? Well, you might have guessed that they all pretty much have the internet at school. But the main ways in which school kids log on is at internet cafes, which are not only dirt cheap, but are as common as churches and cantinas down here. In fact, it's not uncommon for a cafe internet to charge 50 cents US an hour for internet surfing time. I don't know if you could get it anywhere near that cheap in the first world. So what's it cost per minute to use a basic cell phone in Latin America? That's one question I get asked all the time. Well, since first world internet and phone companies have partnered up with the locals, these days there are tons of plans and options that you can choose from, just like in the

[12:42] first world, and there's loads of competition. For example, if you're in Honduras and you hook up with a company called Mobistar, some of their plans offer unlimited minutes when you talk to someone who's using the same phone service. And if you happen to be talking to someone with a different phone service, you might pay 5 or 10 US cents a minute, depending. But by far the most popular way to use a cell phone in Latin America is the prepaid kind, and there's three good reasons for that. One, you could get a basic model for about $15, and they're likely to include 100 free minutes with that. Number two, if you check the daily newspapers, you'll see that every phone company offers a special deal at least once a week, where they'll give you two, three, or even four

[13:27] times the extra minutes for the same price. They call it a two or three or four for one. In other words, if you buy a prepaid card for $10 and normally get 100 minutes of time, on a three for one day, if you buy that $10 card, you'll get 300 minutes, which means instead of paying 10 cents a minute for your phone calls, you'll be paying 3 and a third cents a minute. And there's one final, very good reason why so many people buy prepaid cellular phones. That's because in Latin America, cell phone theft is virtually out of control. I've had mine stolen twice, but thieves never want those cheap low-end models. The ones that work with the prepaid cards, they don't want the ones you can get for $15. They want the high-end models, at least a model that can take photos.

[14:16] Thieves are very tuned in to what technology you're using. They're always on the lookout for someone who's snapping pictures at everybody, or someone who's manically text messaging like an adolescent idiot. Now that's the guy who's going to get robbed. Speaking of text messaging like an adolescent idiot, unfortunately, that craze has also hit the third world. In fact, you almost can't go into a meeting these days without two or three guys ducking out of the room in the middle of a conversation to text message or email or whatever. And if someone's not rudely ducking out of the room every two minutes, somebody's always got his fingers going a mile a minute under the boardroom table. You can't get away from it. Even in the third world. But you won't see that with the common Latin guy on the street.

[15:03] The guy with the $15 prepaid cell phone. I'm talking about wealthy Latins in the upper 5%. People with careers and people with real money, as well as spoiled rich kids. But those are the kind of people expats sometimes end up dealing with, whether they like it or not. Especially if you're starting or running a business. Not only that, when you get together with other professionals and other expat friends, inevitably, at a party or an event, sometimes you'll just end up in a room full of the adult children of the idle rich. And they'll be there trying to make an impression on you with all their expensive first world toys. And for some expats, including me, there's nothing more irritating than being stuck for a night with that group. But for some reason, entitled young adult children of the idle rich seem to just love

[15:52] to hang around with gringos and foreigners and expats. And as a group, these people are more plastic and superficial than anything you might have been used to up in the first world. And where do I get off saying that? Well, how many first world kids do you know that have their own personal bodyguards? I know it's hard to believe, but there's an epidemic of bodyguards down here. And there's a topic that really needs some discussion. Bodyguards. But I promise I'll talk about that on a future show. Last week I did a show where I talked about Brazil, where I warned listeners to be wary of the positive news coming out of government sources, saying that they always exaggerate on the positive side. And how governments, especially Latin American governments, spin it in such a way to make

[16:38] the president and the party in power look like populist heroes. Well, I must have hit a nerve with that one, because it spawned a few emails. And this one's from Darryl in Maine. And he says, wait a minute, what about the way Brazil has weaned itself off oil and has its own biodiesel programs, ethanol programs, and cars that run on flex fuel that make up about 50% of their automobile fleet? So what's up with that? And why doesn't the rest of the world take notice and jump on their example? That is, if it's such a great success story. Well, is it such a great success story? A lot of news sources say it is. Well, if you're in Brazil right now, which you're probably not, you can go to any gas station and buy a gallon of ethanol for a dollar less than you can buy a gallon of gasoline.

[17:27] And if you ask the gas station attendant why it's a dollar cheaper, he won't have a good answer. Now if you're a first world expat, you'll probably suspect something fishy. Like maybe there's a big government subsidy keeping the price so low like that. But if you skip talking to the gas station attendant and instead talk to a college kid, who are usually pretty much in the know, they'll tell you there's no government subsidy and that it's all about the Brazilians and their good eco-management, about how some years ago some forward-thinking politicians decided the country should go green. And he'll give you the standard line about self-sufficiency and breaking the link to petroleum and all that. And he'll usually say it with all the naive college kid enthusiasm he can muster, but somehow for a seasoned expat, make that a cynical seasoned expat, it seems hard to believe.

[18:16] That a big impoverished third world country like Brazil could pull a thing like that off. And the way the international media has been painting it, somehow not only did the first world miss the boat completely on this, but the Brazilians actually seem to have scored a touchdown and now they're the world leaders in the technology. That's what the whole world seems to believe anyway. Well let's look at the facts. I mean what really happens when you drive a car down in Brazil. Let's for a minute look at the good and the bad. For example, if you're driving one of those 10 million flex-fuel cars that are on the roads in Brazil, then you can drive that car on 85-100% alcohol and not notice any difference at all in performance, and only a slight loss maybe 10-15% in fuel economy. So if you run ethanol, you'll save about $10 for every tank full.

[19:02] So at the filling station, everybody and their brother goes for the ethanol nozzle. They'd be nuts not to. But what they don't tell you is that in the first 20 years of the program, there were huge government subsidies all the way down the line. There were subsidies for the sugarcane farmers, and infrastructure subsidies like refineries and pipelines, and there was even an end-user subsidy at the pump for the consumer. So they jump-started the idea with three massive subsidy programs from the get-go. And even though in the last few years they've phased out all these subsidies, and it looks pretty much like the free market is dictating how the alcohol supply and demand curve is running, nobody seems to remember, or maybe they just don't want to admit, that in the early days, the program was a huge failure. The government couldn't get anybody to buy the ethanol.

[19:50] People just didn't trust it, because oftentimes the quality was questionable, and it ruined quite a few engines. So the government, to get the ethanol program jump-started, had to do something to get the price of ethanol way below the price of gasoline. So the Brazilian government went all out and pumped about $5 billion into the project. But that's all water under the bridge. And whether you agree or don't agree with government subsidies, in this case it seems that for once, a Latin American government actually had a vision, and by some miracle was able to stick to a long-term plan through various administrations. But no matter how successful Brazil's flex-fuel program looks to outsiders, and how envious you might be that they get their fuel for a dollar less a gallon than you do, the real

[20:40] reason that ethanol is cheaper than gasoline is a story worth repeating. It has everything to do with the fact that the raw material for ethanol is a sugarcane crop, which is very manual labor intensive, and the tens of thousands of capacino day laborers working in the sugar fields are paid minimum wage, Brazil's minimum wage. Their minimum wage is $270 a month, which works out to a little less than $70 a week. Now by first world standards, those are slave wages. And it's been calculated that if sugarcane or some other crop, like sugar beets, were grown and processed into alcohol in the first world, where the minimum wage is more like $7 an hour, about four times that of Brazil, well in that case, the cost per gallon numbers

[21:30] would actually reverse. So a gallon of ethanol in the first world, without any government subsidy, would cost a dollar more a gallon than gasoline does at the pump. I mean, unless you're bono or sting, who do you know would pay an extra dollar a gallon for ethanol, just because they think it's the green thing to do? So there you have it. In reality, a system like that could only work in a third world country, where minimum wage is so low that it's possible to produce ethanol cheaper than you could buy imported oil. And another thing they don't tell you is how cheap and available good farmland is down in South America. Think of good first world farmland, like in Illinois, where an acre will go for about $5,000. And even so, you can't grow sugar cane on that land, but you can grow sugar beets, which

[22:18] is good raw material for ethanol. Now compare that $5,000 an acre for what you can get in South America for the same amount. Well if you've been south of the border for any length of time, you know there are excellent bargains on land. So often you can buy it for $2 to $500 an acre, which makes good farmland in South America about 10 to 20 times cheaper than in the first world. So there you have it, dirt cheap land, dirt cheap, you get it, I made a pun. Enslaved labor wages at less than $2 an hour makes for a giant hidden subsidy that could never be matched in the first world, even if you had a super mega scale farming and refinery operation going. So what that really means is, if the first world ever seriously decides to switch over

[23:05] to flex fuel in a big way, like Brazil was able to do with over half of its automotive fleet, and the only way to make a Brazil style flex fuel system feasible in the first world is if they buy all their ethanol from the third world, because that's the only way to keep the price at or below that of gasoline. Because only in the third world do you get the advantage of dirt cheap land and virtual slave wages. Now imagine for a minute the scale at which the first world would use ethanol. Now that would cause another huge series of problems that no one's talking about. Now Brazil's been able to do it for their own country, but they only have about 5% of the cars on the road that the United States has. If the first world ever seriously decides to switch over to flex fuel vehicles, it would

[23:53] be up to third world countries to supply the land and the labor. And so much farmland would have to be turned over for sugarcane production, there just wouldn't be enough arable land left in the third world for food production. Practically every last hectare of land would be turned over for biofuels to be exported to the first world, which would mean big business for people in the third world in the biofuel sector, but for the locals that would guarantee a spike in food prices, with bad secondary effects eventually reaching the first world. So what's the real answer then? How can we stop our oil dependency and addiction, and still have cheap reliable transportation? Personally, I think the future is in a new kind of hybrid electric car. I'm talking about the next generation after the Toyota Prius, which is off the drawing

[24:40] boards and basically here already, and being tested. Nissan and Toyota and Peugeot will have models ready in the next few years. And the difference between this new generation of cars and cars like the present Toyota Prius is they have a much bigger electrical plant and a small flex-fuel gas engine. But I know what you're thinking, it's sure to be more efficient in all that. But how's that going to help if you still have to buy some kind of fuel and at night, plug it into the main power grid and charge the batteries? Well there's where the real difference is, because in the last three years there's been a huge breakthrough in solar panel construction and design, and up to now the public has no idea how really revolutionary it is. What's happened is that the Germans and the Japanese have patented what's called a flexible

[25:28] thin film solar array, which actually looks like a roll of wallpaper and weighs just about as much, and you roll it out on a roof or anyplace else that gets a lot of sun. It's the first solar panel on the market that's actually met the magic figure of a dollar a watt, which finally puts it in the ballpark for the average guy. And that means if you have a 4 or 5,000 watt panel system on your roof, not only will it be enough to charge your electric car, it'll take care of all your household electric needs too. Imagine, if you had a system like that, not only would you be completely off the grid, but you'd never have to go to a gas station again, either. I know, I know, you haven't seen any publicity about this anywhere, right? Well you can sure bet the oil companies have nothing good to say about it, and that could

[26:15] be one reason why you don't see it in the media. But I know for a fact that the company that makes the solar panels is running three years behind schedule and production. They've got a backlog of hundreds of orders. Anyway, it looks like a real breakthrough and just the right technology needed to make practical, cheap electric cars available and off the grid. So what's that mean for Latin America? Well for the locals, not much, since more than half of the adult population could never afford to buy a car, even a 20 year old junker. But for expats, it's excellent news. Just think of it, if you have the means to buy one of these new electric cars, and they'll probably go for $20,000 to $25,000, and if you have another $5,000 for the solar panel setup, you'll not only be completely off the grid and out of the clutches of the oil companies,

[27:05] well if you're in Latin America, I guarantee you'll have electricity to spare. Because if there's one thing Latin America is noted for, it's sun, sun, and more sun. And come to think of it, wouldn't that be a great expat business, having a franchise that sells those new thin film solar panel arrays? I mean you can bet there's going to be a big demand, and someone's going to have to sell them and install them, and though I'm sure it's going to take a couple more years to get rolling, it's going to be a great business worldwide. Especially for expats in Latin America, they're always on the lookout for new business ideas, and this one looks like a cinch. In fact, I might just do it myself. You've been listening to The Expat Files, living in Latin America, and of course you

[27:51] can always email me expatfiles at progressiveradionetwork.com. See you next time, nos vemos.