A View of Venezuelan Nationalization Venezuelan President Hugo Chavez plans to nationalize the nation's telecommunications and electricity companies. Moises Naim, former minister of trade and industry in Venezuela, offers his insights.
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A View of Venezuelan Nationalization

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A View of Venezuelan Nationalization

A View of Venezuelan Nationalization

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In the global economy, where more and more capital is held in private hands or by publicly traded companies, Venezuela seems to be bucking the trend. This week, as the assumed power for a second six-year term, President Hugo Chavez announced that Venezuela will nationalize firms in two major sectors of the economy - telecommunications and electricity. Some companies in those sectors have shareholders in the United States, including Verizon, which owns a large stake in the Venezuela telecom giant CANTV.

We're joined now by Moises Naim, an economist and former minister of trade and industry in Venezuela. He's currently the editor of Foreign Policy magazine. Mr. Naim, thanks very much for being with us.

Mr. MOISES NAIM (Foreign Policy Magazine): Thanks for having me.

SIMON: And there's nationalization and there's nationalization. What does it mean in this case?

Mr. NAIM: Well, we don't know yet because they have different ways of doing this. You can just take them over or you can pay the owners their rightly deserved price of the shares. Everything signals that he is willing to pay the shareholders. But deciding what the price and how is it going to be paid and everything else is still undefined.

SIMON: And as you see it, Mr. Naim, as someone who was a member of a government, but I think it's safe to say not a member of the government that Mr. Chavez thought a lot of, what do you see this as being behind this decision? Is it dictated by economic necessity or something else?

Mr. NAIM: Well, it is dictated by economic opportunity. What happens is that Venezuela is an oil country and given what's happened to oil prices, Mr. Chavez is awash in money. And this is essentially a political move to signal a commitment to what he says is moving the country to the 21st century socialism that he dreams of having for his country.

In terms of efficiency, it's very interesting to note that the phone company that he now wants nationalized used to be a state-owned enterprise. And in Venezuela it used to be that you had to go for decades before - if you asked for a phone line, you had to go in a queue and only by bribing somebody in the state-owned enterprise were you able to get a phone line. And phone services were terrible and so on and so forth.

SIMON: What about the argument that although a certain nationalization may have its potential drawbacks, on the other hand, why should foreign companies be able to own huge positions in basic services?

Mr. NAIM: Behind the question is the passport theory of foreign investment. Meaning that what is the passport and the nationality of the owners of a company, and that will tell me how they will behave. There is no evidence that foreigners behave differently in owning some companies than locals.

In fact, in many Latin American countries, in many African countries and Asian countries, national ownership has always meant worse behavior from a social perspective than foreigners. You know, when there is capital flight, the people who take the money out first are the insiders and the nationals.

Foreign companies, because they're regulated very often by their own entities at home, they are more careful about paying taxes. And so the notion that inherently a foreign company is going to misbehave and a locally owned or a state-owned company is going to be more socially desirable, there's absolutely no evidence about that, and in fact the evidence points in the contrary direction.

SIMON: Can't a nationalized industry have the potential of offering cheaper basic services to people, which can count for something in a country?

Mr. NAIM: Actually, that should not be linked to ownership. You can have foreign ownership or even private ownership and then generate all sorts of subsidies. All the available research shows that ownership matters. It matters in terms of efficiency. And if you have social goals that you want these enterprises to follow, there are many other more powerful instruments that have to do with taxes, that have to do with subsidies, that have to do with targeted approaches and programs for the poor, for those that need it the most, that are far more effective in helping the poor.

In fact, Mr. Chavez's nationalization, just the mere announcement, has hurt the poor in very important ways.

SIMON: By having people begin to cash themselves out of companies.

Mr. NAIM: Right. What happened is the moment that he offhandedly said I'm going to nationalize the electricity and phone company, immediately there was a huge outflow of money in the country and a devaluation. The currency lost half of its value. And that is fueling inflation in a country that has one of the highest inflations in the world. And you know, when there is inflation, the people that are hurt the most are the poorest.

SIMON: Moises Naim, editor of Foreign Policy magazine, thank you very much.

Mr. NAIM: Thank you.

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