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January 10, 2007

Chavez Nationalizations

So everyone's favourite socialist blowhard, Chavez, has announced that he will be nationalizing the largest telecoms company and unspecified oil assets as well. Best comment so far has to be this:

Gordon Johndroe, spokesman for the White House National Security Council, said: “We’ve seen Chávez’s statement. We’ve also seen the results of nationalisation in other places, and in general these types of actions do not produce economic benefits as expected.”

Contrary to popular belief, some of these Americans can do understatement.

I'm not sure that there's actually anyone left who would argue that State run companies are more efficient in their provision of services than ones run by filthy profit seeking capitalists. I understand (although reject) arguments like, well, but, the profits won't go overseas, or the State will get the profits, or phones are a basic right and should be provided by the State.

But a question for the little cherubs on the left, what is going to improve the conditions of the proletariat more? A few hundreds of millions staying within Venezuela? Or an efficient telecoms service? There's actually good evidence from the development literature that a rise in phones per capita (whether fixed or mobile) contributes mightly to GDP growth.

Now, if you believe that a State run company will roll out more lines faster than a private for profit one, well, I'd say you were deluded. But if you're not quite that far gone, can someone explain to me how this nationalization will help the poor of Venezuela?

January 10, 2007 in Economics | Permalink


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*rues Venezuelan oil sector exposure*

Posted by: Barry Bethel | Jan 10, 2007 10:14:13 AM

Well, a die-hard socialist might argue that some utilities are "natural monopolies" and therefore said industries should be regulated and owned. I think that many people still have this gut feeling that if an industry which delivers infrastructure services like roads has monopoly tendencies, then the state should regulate/own it in some way.

I think this view is wrong but free marketeers need to do a bit more to say why. Take the recent mixed results for UK rail privatisation, for example. Hardly a great advert for the free market.

Posted by: Johnathan Pearce | Jan 10, 2007 10:34:08 AM

According to today's Metro, "Mr Chavez also wants to seize the central bank and introduce revolutionary laws to allow him to rule by decree". How can the government "seize" a central bank? Doesn't it sort of control it anyway? That second bit about decrees cheers me up no end. This is all going to end in tears, for them, not us.

Posted by: Mark Wadsworth | Jan 10, 2007 11:04:56 AM

Mind you, the privatisation of oil, telephones, gas, electricity, steel, airlines, airports, air traffic control, buses, council houses, Rolls Royce, British Aerospace, Thomas Cook and British Leyland were all extremely good adverts for the free market.

Posted by: Bishop Hill | Jan 10, 2007 11:05:53 AM

We do need more work on 'natural monopolies'.

Privatising BT however was a great success. Allowing more competition has led to a far superior phone system than we had, you actually get your line within a month rather than a year now.

I dread to imagine what would have happened to broadband/high speed internet if the Post Office (as it was) had a monopoly, or even if BT had one...

Posted by: Tristan | Jan 10, 2007 11:15:43 AM

Is he going to nationalise the cell phone companies too?

If he ain't I would predict that there will be a massive growth in cell phone coverage and usage, up to and including wireless internet. For an example of this I refer you to the South African experience where the terrestrial service is in the hands of the quasi-parastatal, Telkom SA, while the wireless boys run everything else.

They've gotten pretty imaginative too. Where cell coverage, and hence wireless bandwidth, is limited they have cooked a deal with the satellite tv boys and all incoming info (by far the largest bit of the traffic) can be routed via the box top box.

Posted by: The Remittance Man | Jan 10, 2007 2:58:13 PM

You can run an acceptable telecomms infrastructure with a State monopoly, but it will never be as efficient as a privately-run one. Here in Costa Rica, the government runs the phones and Internet, and while I have a cellphone and broadband, it's nowhere near the service I would get if I were in, say, South Korea. The phone system is still GSM and TDMA, with no sign of CDMA (UMTS or CDMA2000) on the horizon. I have a 2 Mbit/s broadband service at home, but it costs me a whopping $50 (nearly £26) a month. I should be able to get 8 or 12 Mbit/s for that sort of cash.

Posted by: David Gillies | Jan 10, 2007 4:49:28 PM