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The State Can Take It or Leave It: Nationalization v. Privatization

Putin holds cards on Russian oil…but he's not aloneWhat is happening my plaid party people?  The Avenger decided to stay on here in Russia for another day to work off my wicked Putin-induced vodka martini hangover…and to investigate the nationalization of Russian oil; a process that has also been going down in Kazakhstan, in Bolivia, and in Venezuela too.  And man, the US and other western countries get pissed about nationalization—they only want to hear about privatization!  What’s that? You don’t recognize these terms? Well, you’ve got to know about this shit to understand the world my affable and affluent amigos! Start learning the ins and outs of economic control with these stories:

How Russia is Nationalized: The Oil Sector

Zimbabwe Votes to Take Control of Foreign-Owned Mines

Exxon pursues arbitration against Venezuela over seizure of oil assets

Chavez threatens to nationalize Venezuelan private schools

Bolivian President Seizes Gas Industry

…and the opposite side of the coin:

Japan begins privatization of its mammoth postal system

Activists Oppose Egyptian Healthcare Privatization

Iran to Privatize Airline, Banks

India’s Privatization Plan Is On Track

So what’s the deal with these two terms? They are polar opposites my friends, and folks around the planet have passionate views about the good or evil effects that nationalization or privatization can produce. People get downright hot and bothered about these terms!  And in some circumstances, initiating these actions has caused political dissent, diplomatic friction, or outright violent hostilities between peoples, companies, and even countries! Damn! Why so much heat? First…what are they?

Nationalization is a process whereby a government takes control of an economic activity that was owned by and/or run by private individuals/companies hands. It could be transportation, corn, water, uranium, or even bananas…but usually it happens to high-dollar commodities.  For example: Exxon acquires rights thru a government contract to pump shit tons of oil out of selected oil fields in Venezuela.  Exxon Hugo takin' over the bubblin' crude…and Exxon is pissed!goes there and sets up shop, building infrastructure like the oil wells and pipelines, and starts pumping and exporting oil. But then Hugo Chavez gets elected President of Venezuela and decides that Exxon is making too much money on that oil, and since the oil is actually in his country, he decides to take it back. All of it. So Hugo would nationalize the field, along with all the infrastructure that’s now on it, and send Exxon packing. Can you dig that?

But it never really works that simply.  Even in this Venezuela/Exxon example (which actually happened) Hugo didn’t simply just kick Exxon out and take their shit; he offered to buy back their shares and their investments at a fair market value.  Sometimes the parties have to go to court to negotiate these settlements (see Exxon story above). Nationalization of an industry often involves the government simply re-writing all prior contracts with the companies in such a way that the state owns more than 50% of the action.  But make no bones about it: if the companies refuse to co-operate or sell back their shares, then the state will just take the shit from them!

And OMG nationalization so completely pisses off ‘the West’…especially the US!  Why? Well, where do you think all the big multinational corporations are from? That’s right! Most of those companies doing business abroad (and that get their shit nationalized) are from the US/Europe. So those countries feel obliged to stick up for the rich dudes who lost their shit. Sometimes they fell so obliged that they might invade the country, or even assassinate the leader who oversaw the nationalization. Or in the case of Chavez…threaten to.  Sound crazy? Yeah, it is.

So why would a state do this nationalization gig? Sometimes its done to protect a critical industry in times of war or emergency (some countries have nationalized steel during wartimes); sometimes its done because the industry is a matter of national security (Israel runs its airline industry); sometimes its done to an industry that is floundering and about to crash on its own (perhaps the US/health care issue).  But more often than not, a state will reclaim rights on an industry that it feels it’s getting ripped off in.  Stick with the oil example: when Exxon or Shell or anybody else is pumping oil out of Venezuela or Nigeria, the corporation is making the lion’s share of the profits. The Avenger will just make up some numbers to help you get the point:

Let’s say a barrel of crude sells for $50 on the international market; Exxon may pay $5 toWhat's a few billion barrels between friends? Venezuela for every barrel pumped out, thus leaving $45 for their own pockets.  But people in Venezuela may say: “WTF?” “It’s oil from out country….but we only get 1/10 of the sale?  That is a shitty deal!” And if enough folks in the government think that way, then they may make moves to nationalize the oil industry and rework the system to get more of the cash. Does that make sense? Venezuela did it. Russia did it. Bolivia did it.  Kazakhstan is thinking about it. 

Oh, by the way, did you see President Evo Morales of Bolivia on the Daily Show with John Stewart last Evo sez: week? Totally hilarious! And Evo referenced why he decided to nationalize his countries oil and natural gas: “On the issue of nationalization of oil and gas,” Morales said, “in 2005, before I came president, the Bolivian state received only 300 million dollars from its oil and gas exports. And now since they’ve been nationalized, the Bolivian state receives more than two billion dollars. Therefore, we followed through on what we promised.”

Are you starting to realize why this is happening at this particular juncture in history, particularly in the energy sectors?  If you answered: ‘because the price of oil is freakin’ high, and expected to get even higher’ than you win the prize! Oil producing states see the future sales going nowhere but up, and want to have a bigger slice of the pie for themselves.  Oil is one of those special commodities that kind of defies free market capitalism–in that lots of states control their industry as opposed to letting private individuals run the show. See map below for a few countries of note… And while die-hard capitalist countries claim that governments cannot run industries as well as private corporations, those states that are controlling their oil do seem to be making a holy shit load of cash right now…despite the fact that the private industry isn’t in charge.  And speaking of private….

nationalized countries of note…

Privatization is precisely the opposite of nationalization: it’s when a state sells off an industry or I'm not even sure what the hell this means…but I like it!!!business that it controls to a private entity, most often a company/corporation.  Look to the above story from Japan for your best example of that right now: Japan sold its postal system to a private company. Wow!  The whole damn post office! Why would countries sell an asset like the post office or the telecom industry? Because most free-market capitalist societies believe that private individuals and businesses simply run things better. That’s the bottom line.

The theory goes like this: because private entities are motivated to maximize profits, they will do a better job making an industry like a post office more efficient, or they will work harder to find more oil, and are more flexible to invent new technologies and try new approaches which make the business run the best. Remember: one of the golden rules of capitalism is that competition will weed out the least efficient, and the better mousetrap will win every time. Folks of this opinion believe that governments are clunky, inefficient—and because they don’t have to compete with anybody—are uncompetitive! No shit? Lack of competition makes you become uncompetitive? Yeah, I can dig that!

Places like India and China have just figured this stuff out in the last couple of decades, and are Ha! I wonder why India wanted to privatize the train system? …And who would be dumb enough to buy it???privatizing like mad right now. India has recently privatized its transportation system, its telecommunications system, and anything else it can get its hands on to sell! China too has increasingly let out the reigns on its prior control of everything economic (during its botched attempt at communism) and that place is a venerable wild west of capitalism! Even Iran is in the privatization game…and they usually despise all ideas that are western in origin. There must be something to it!

And its not like the governments simply privatize the industry and then just walk away poorer for the experience. Capitalist theory would suggest that not only does the state make money on the initial sale of the industry, but in the long run will make way more in profits by simply taking a cut of the profits and/or taxing the service/product. Since private business will do it better, there will be more oil or more uranium or more corn or more stamped letters to tax…therefore the state makes more money! And without having to actually spend money running the damn show! You dig?

Does it sound like I’m picking sides on this nationalize/privatize debate? Don’t be fooled. The Plaid Avenger is here to tell you this: this is complicated shit, and there is no wrong or right side here.  It really goes on a case by case basis in my book. Does private industry typically do shit better than government-run shit? Absolutely! Are some countries getting totally reamed by some private corporations? Absolutely! Are some states unfairly grabbing shit from corporations whose time and investments made the industry profitable in the first place? Absolutely! Are some multinational corporations total scumbags who use their money and power to corrupt and control industries within a state? Ab-so-fucking-lutely!

So pay attention to which states are selling, and which states are buying, their industries.  And also pay attention to which industries are up for grabs.  You will hear a lot in the US about the possible nationalization of health care; in India about the privatization of telecoms; in Russia about the Godzilla Hotties? What will the Japanese think of next?nationalization of the oil industry; and in Japan the privatization of the post…and now you know what that shit means, but more importantly, why it is happening…

I just hope I can still get my damn collectable Godzilla stamps in Toyko…even if it is from a private vendor… 

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