Tuesday, December 25, 2007


Nationalization of industries can be a way to limit predatory acts of multinational corporations. It also is a way to limit foreign investment in your country and concomitantly foreign influence. Insofar as foreign investment is good for a country’s economy, nationalization has its definite negative effects. But insofar as it protects low to middle income people against the whims of the big business, it is good. Of course, it is a socialistic endeavor. It is also local protectionism glossing over nationalism. Putin did that in Russia with mixed results—it did not raise the standard of living for most Russians. It also did not really curb influence of big business. It basically only gave more control over the country’s economy to the government. Sometimes it is good. But so far it has not brought any tangible results.

Since January 2007 Hugo Chavez of Venezuela also began in that direction. Targeting the telecommunications and energy sectors, he moved towards the oil industry. The US oil companies there were the target. Exxon Mobil was possibly going to lose all its investments. The comments by the U.S. ambassador in Venezuela about ‘fair compensation’ prompted Chavez to accuse him of meddling in Venezuela’s inner affairs. To moderate the situation the U.S. Department of State spokesman said:

Question: Do you have anything on President Chavez of Venezuela’s announcement… that he was moving forward with plans to create collective property, seizing a lot of landowners’ land to further his socialist policies.

Mr. Casey:… It’s going to be up to the Venezuelan Government and the Venezuelan people to determine how they want to manage their economy and how they wish to move their process forward. I think we certainly believe that free markets, fair markets, fair trade and the opportunity presented through those mechanisms in the long run does far better for the people of the region than any statist solutions…

But ultimately, just as with any country, it’s going to be up to the Venezuelans to determine how they wish to proceed… As you know, we’ve spoken in the past in terms of the expropriation or nationalization of private entities. And the one thing that we have held clear is that we would expect Venezuela, just like any other country in the process of nationalization, to provide fair and appropriate compensation to any private owners in accordance with international standards.

With the recent failure of referendum pushed by Chavez, it is clear that not all of his policies have garnered full support of the people. First, because nationalization generally leads to absolute control of the country by the government. It seems, creating institutions that regulate free markets from abuses and whims would be better. But it is really a spectrum. The more regulation of the market, the more control given to the government. Finding the perfect balance seems to be the solution. It is not by a formula, but about a clever government who can really temper its desire for control and do something for the general welfare of a country. Of course, definition of ‘general welfare’ is subject to dispute…

(see the latest publication of American Journal of International Law)

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