Free Markets, Free People

nationalization

Why governments are dangerous

When government doesn’t want to pay a bill, you have little recourse except the courts in most law abiding countries.

In the dictatorship that is Venezuela, not only does the government not pay the bill, but it takes you means of livelihood to boot for daring to attempt to collect what you’re owed. Such is the fate of one American owned country which tried to collect on its debt.

Venezuela will nationalize a fleet of oil rigs belonging to U.S. company Helmerich and Payne, the latest takeover in a push to socialism as President Hugo Chavez struggles with lower oil output and a recession.

[…]

The 11 drilling rigs have been idled for months following a dispute over pending payments by the OPEC member’s state oil company PDVSA. Oil Minister Rafael Ramirez said on Wednesday the rigs, the Oklahoma-based company’s entire Venezuelan fleet, were being nationalized to bring them back into production.

The reason they weren’t presently in production is the Venezuelan government refuses to pay them for $49 million for past services.

Of course the government of Venezuela has devised an excuse for what would be grand theft in any other law abiding society:

Ramirez said companies that refused to put their rigs into production were part of a plan to weaken Chavez’s government,

“There is a group of drill owners that has refused to discuss tariffs and services with PDVSA and have preferred to keep this equipment stored for a year,” Ramirez told reporters in the oil producing state of Zulia. “That is the specific case with U.S. multinational Helmerich and Payne.”

Interestingly, we here have the opposite problem. Venezuela’s government is trying to get drilling rigs into production and has resorted to nationalized theft to do it.

We have a government trying to take drilling rigs out of production, and is prepared to ignore court rulings to the contrary and do so by executive fiat.

~McQ

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How To Kill An Economic Recovery

Hugo Chávez is in the news again, appropriating and nationalizing more of the oil industry in his country.

That sort of move by him has become so routine that it almost isn’t news anymore. But this particular sentence caught my eye and reminded me of what we’ve seen here as well:

This move forms part of a broader assault against the private sector, which Mr Chávez has increasingly blamed as Venezuela slides into recession.

Vilification is a political tactic in use by a certain type of politician, and anyone paying attention to what has been going on in this country has seen it deployed in earnest against the wealthy and certain industry sectors in the US in the last few months. The health care industry is next. And, as in Venezuela, the government is being offered as the best alternative. Yet watching Venezuela, most understand the ramifications of moves such as Chavez is making on the long-term viability of Venezuela’s economy:

But analysts say that by shifting its problems onto its suppliers, PDVSA is storing up even bigger problems for the future. Not only does it lack the ability to operate as efficiently as the service providers, but it sends a grim signal to companies considering investing in Venezuela. Consequently, future oil production is under threat.

While the moves taking place here aren’t as drastic as those in Venezuela, they’re just as problematic. Government appointed board members on auto company boards and government calling the shots in the financial sector aren’t direct takeovers, but they portend a level of government meddling unseen here before. And health care and energy are next.

The key word in the quoted paragraph above is “investing”. Investors are very wary about both the auto and financial industries at this point. They’re wary of the auto industry because government is essentially throwing the bankruptcy procedures out of the window and those investors which should be guaranteed the first seat at the table for the recovery of their investment are now being vilified as “greedy” and pushed to the side. Any reason they or any other investor should take a monetary stake in either of the government controlled auto companies again? And given the experience with autos, don’t you suppose investors in the financial sector are having second thoughts?

Investment is the road to recovery in recessionary times. The moves Hugo Chávez is making in Venezuela are exactly the wrong moves in terms of economic recovery (not to mention being a complete violation of property rights). While not as drastic as Chávez, the moves the Obama administration have made are sending a similar signal to investors.  And that doesn’t bode well for a swift economic recovery.

Health care and energy are next.

~McQ