Hugo Chavez is back in the news, threatening to nationalize Venezuela's banks.
"Private banks have to give priority to financing the industrial sectors of Venezuela at low cost," said the democratically elected head of state. And if they don't, "it's better that they go [away]... that they turn over the banks to me, that we nationalize them and get all the banks to work for the development of the country and not to speculate and produce huge profits."
The nation's big steel company better watch out too. Chavez doesn't like the way Sidor (a company whose owners are based in Luxembourg) does business. It "has created a monopoly," Chavez says. But what annoys the man is that they try to make a profit by selling their output on the world market at market prices, rather than selling it into the local market at reduced prices. "If the company does not immediately agree to change this process they will oblige me to nationalize it,” he says.
Can anyone remember a case when nationalizing a major industry led to greater efficiency, higher profits, more output, lower prices, or happier customers? We can't. But up is down...in is out...and dumb is smart.
Eventually, dumb will be dumb again. But who knows how long that will take and how much dumber smart will get by then.
Bill Bonner
The Daily Reckoning Australia
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About the Author
Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
Comment by JLTN on 6 May 2007:
You ask, "Can anyone remember a case when nationalizing a major industry led to greater efficiency, higher profits, more output, lower prices, or happier customers?"
I don't really know my history on this topic but is it possible that if companies would cooperate with the Venezuelan government that they could be profitable? Perhaps not as profitable in the short term but what about over time? Look at Japan where the government and industry are bond like husband and wife. I mean, it's pretty common knowledge that Japanese men are married to their companies. The government gets its cut and business and society at large get theirs. People in Japan have pretty secure jobs if they work in the blue chips here. Think Panasonic, Toyota, Sharp, Nissan, etc. So, government interaction with business isn't necessarily bad. The Japanese have a pretty good life style. You don't see homeless too much, people are out shopping, eating, traveling, and, most important: working. They are busy here and on tight schedules.
Anyway, what's this all got to do with the Chavez administration? Well, perhaps they're trying to build a strong and independent society just like the rest of the world would like to have. America has it, Japan, Europe have it. China's on it's way to it, Russian and India too. Perhaps these stocks will do well in the long term for patient investors.
Comment by Mike on 8 May 2007:
This is in response to JLTN. Why would it ever be in a companies best interest to say sell some of its product at reduced prices to the local market? I think you are looking at the situation backwards. It is the the governments best interest to cooperate with the company. If the company can sell good X abroad for a sizable profit it will keep trying to make more of good X. This means more Venezuelans will be employed. The alternative is that Chavez can nationalize it, distribute good X to the people, and watch as the company slowly is ground to dust and then no one has jobs or good X either.
As for Japan, it has been stagnant for about a decade now so I don't think that is a great example. They are also moving towards privatization in their financial services.