| By Gavin Chait,
on 29 May 2008
|
 Latin America's Favourite Democrats In 2003 Hugo Chavez, president of Venezuela, took control of his country's oil production after declaring his lack of faith in private endeavour. He tore up the contracts that oil extraction companies had signed in the 1990s and imposed new ones on them in which the state became the majority shareholder. Most of the companies did what all companies do when governments rewrite the rules on them. They whimpered a bit, smiled for the media ... and acquiesced. It is difficult arguing that Chavez' nationalisation was a bad thing when daily revenues have risen from $50 million in 2003, to $190 million in 2007. Yet it has been an appalling disaster.
Between 2003 and 2007 oil production fell from 3.3 million barrels of crude per day, to 2.5 million – a drop of 32%. Over the same period the price of oil has risen by over 500%. If the industry had been left alone Venezuela would be generating $60 million more per day. At the same time, rampant public spending has driven inflation to 21%. Enter Exxon Mobil, hardly the world's favourite company (for those who remember the sinking of the Exxon Valdez, an oil tanker carrying more than 11 million gallons of crude oil, which ran aground on Bligh Reef off Alaska in 1989). Exxon has decided that Venezuela's actions constitute the theft of their property and have obtained interim court injunctions in the United States, Britain, the Netherlands and the Dutch Antilles preventing Venezuela from disposing of over $12 billion in assets. Chavez has declared it an act of "economic warfare", but he is in a bind. His "people's revolution" has hollowed out local manufacturing and resulted in massive net imports of most essentials (including food). Without foreign capital he cannot continue to subsidise food and other basics. There have always been petty tyrants willing to take private property with the intention of redistributing it to "the people". There are good economic reasons not to let governments run private companies; they're not very good at it. Cuba's bankrupt state and the devastation left behind by the Soviet Union are all good examples of the final result of collectivist policies. Even without that reason, though, there is a more important one as to why governments shouldn't be allowed to change the rules of business to suite some political whim. It is autocratic, and it is theft. Fidel Castro and his generation didn't mind being called dictators, but Chavez and his ilk like to give the impression of being democrats. This makes them vulnerable. What Exxon has stated, rather clearly, is that a government can be dictatorial up to its borders but, beyond these, they have to obey the law. In South Africa the government has yet to be faced with any major company saying, "No." Hewlett-Packard, an international IT firm, has decided to spend R150 million in "equity equivalent projects" (a nice way of paying a political bribe to stay in business) rather than give away shareholding in its company in order to become BEE compliant. The single exit price on pharmaceuticals has seen drug manufacturers remove their research and development departments from the country. One large multinational I spoke to (who chose to remain nameless) spent over R 100 million on a research facility where they hoped to conduct 10 novel drug trials a year. They have retrenched 150 researchers and shut it down. None of these companies complained. They took it on the chin. Anglo American's Cynthia Carroll, whose company has dramatically reduced their mining production capacity as a result of power shortages, even went so far as to declare everything as being rosy. Law suits for breach of contract are a fair way to demand that the other party honours their promises. For governments no less than businesses. |
