Sunday, March 2, 2014

Unfinished Business (part 5) - Why Nationalization of Foreign Assets Leads To Failure

“In Venezuela, like other socialist governments before it, Chavez nationalized foreign assets.   When you nationalize foreign assets in your own country, there isn't going to be any more foreign investment.

These countries always try to negotiate first under the threat of nationalization but that never works because private business and industry whose assets are going to be nationalized know that it really doesn't affect them that much because the country still has to export whatever those assets are producing.

In other words, just because the assets are nationalized does not mean that the companies that formerly owned those assets are completely out of the picture. The country that did the nationalizing does not have the infrastructure or expertise to run the assets that it nationalized. Then they have to keep the corporate managers and workers around because they are the only ones that know how to maintain the asset.

The corporation is still earning the same amount of money that they earned before. It is Exxon and Chevron who are most affected by this, but they still have a contract with the Venezuelan government to run the facilities because the Venezuelan government cannot run the facilities themselves. The corporations do not want to lose their investment because they know that the likelihood is that eventually -since it has happened in every case, except for Cuba -the assets are going to be returned to them anyway when there is a change in government. 

With few exceptions that has happened in every country that has brought in the socialist government which has nationalized assets. When the socialist government are thrown out of power because the country is broke and the conservatives are put back into power, they return the assets to their rightful owners because they know it is the only way they can bring in foreign investment back into the country. They have to make the country a credible place to do business in again. This is the inherent problem of putting the peasants in charge”.

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