Expropiation of Assets in Venezuela - Essay Example

?Daniela Casilla (English 112) Prof. Michael A. Joyner Expropriation of Assets in Venezuela (Pres. Hugo Chavez) 13 November (Estimated word count – 1,667) Introduction The legal definition of expropriation is the taking away of private property in favor of the government for public use in the greater interest of the public. Any vital industry could be subject to expropriation whenever the government sees it fit to do so but this move is also very highly controversial since it runs against the sanctity and protection of private property. It runs counter to an economic principle that business enterprises is better left to investors and that government's business is to support and stay out of the way of business enterprises. It is always a subject of contention because of another issue, which is just compensation. Private property could be taken away by force of government edict, without or very little form of just compensation to the previous owners. The question of proper and correct valuation is also a very serious issue during expropriation as the investors need to get their money back. The compulsory seizure of private property could be applied to any property or to an industry considered as vital to the national interests. The state has always exercised three very important powers for it to govern effectively: police power, the power to impose taxes and the power of imminent domain. The last pertains to the right of the government to take away any property in the greater interest of public benefit, such as taking away privately-owned land to expand a road network, for example, or force people to move to a different location because of plans to create a dam and the place would soon be underwater. It is done all in the name of economic progress or for public safety. However, in the case of expropriation, it is an entirely different matter altogether. This paper argues that expropriation is clearly a wrong step. Discussion There are instances when expropriation is justified, such as during wartime condition in which the government needs to act quickly in the exigency of the situation. In this case, it is clearly justifiable to do so because the national interest is at stake. Failure to act would be the equivalent of gross negligence or the abdication to perform a public and civic duty. History is also replete with instances in which expropriation took place with most of them falling under this justifiable classification of protecting the national interest for the greater public good. An industry considered as vital to the national interests' such as the transport industry, the mining industry, the communications industry or the health industry could be expropriated but a move to do so must be justified to the public and to the investing community. Any expropriation will surely send shivers to investors who now would think twice about committing their money. The difference between the power of imminent domain and expropriation, when it is exercised by the government, is that the former is seen as lawful while the latter is unlawful. The first instance involves a certain process to be followed, such as proper notification of the party involved and providing for just compensation. The second instance is often very abrupt and does not require the government to justify its actions of expropriating private properties. In other words, it is simply just an act of confiscation and seizure by the government. When people started living in organized society, there is an implicit agreement in the people giving up certain rights in favor of the State for the right of being government by that State for their benefit. This is necessary because without this social contract, societies would be chaotic as no one will be able to enforce laws designed for an orderly existence. However, there are also limits imposed on the State and one of the most sacred principles in the modern society is the right to own private property. It is always protected by the laws of any nation. Expropriation is controversial in the sense that justice in this type of action is usually taken for granted. It is only implied that expropriation was done for the public good but it also begs the question of on whose authority is expropriation considered appropriate? The person who ordered it will always come under a cloud of doubt as to motive (Reynolds 85). Today, a case of expropriation can extend to anything privately-owned such as industrial complexes or massive investments in any type of business or industry, not only of land but everything in it. And this brings us to the case of what happened in Venezuela when President Hugo Chavez in one swoop expropriated assets in the oil and mining (gold) industries owned by foreigners. It was an act in pursuance of his own brand of state socialism, distinct from communism or state socialism as practiced before in the Soviet Union and China. He calls it Bolivarianism. Hugo Rafael Chavez once served in the Venezuelan army for about two decades and reached the rank of lieutenant colonel before he was imprisoned by the previous government for launching a coup in 1992. He spent two years in prison but soon came back and won the presidential elections in 1998 and has been in power since. In particular, he views democracy as totally impossible to flourish in a Western-type capitalist system, hence his championing of his local brand of socialism he calls Bolivarianism, after Gen. Simon Bolivar, a 19th century general and politician. This political philosophy advocates for equality, liberty, social justice and solidarity through what he calls as real participatory democracy by the establishment of the Venezuelan Communal Council through which people can express themselves. Chavez had not totally rejected capitalism outright but has just tempered its more extreme forms. The most prominent political view of Pres. Chavez is his belief that globalization is just the newer form of modern-day imperialism in the guise of capitalism, neo-liberalism and exploitation. In a way, all he wants is capitalism with a human face that has compassion for lowly workers. The reasons for expropriation can be varied, such as the expropriation of the land in Guatemala for purposes of implementing genuine land reform or in Russia when the food in the country of Ukraine was expropriated during the Soviet food crisis in the early 1950s. In the case of Venezuela, the reason or justification for expropriation of foreign direct investment in the form of assets was largely political in nature. Hugo Chavez has been a vocal critic of the United States and felt he needed to secure the country’s oil industry to protect himself in a reprisal, such as another coup d’etat launched to unseat him from power. To be fair, expropriation did not solely occur during the presidency of Hugo Chavez. It had started much earlier when Venezuela became a founding member of the OPEC or the Organization of Petroleum Exporting Countries. The government then thought it was crucial to put the oil industry in its hands rather than in foreign corporations and so created a law that required all major oil companies to enter into a 50%-50% joint venture with the government (Falola & Genova 54) but it was actually a euphemism for nationalization. What Chavez did during his term was merely to complete the whole process of nationalization (expropriation in a manner done by the national government of Venezuela) by taking complete control of the national oil company in 2003. Besides oil, Chavez had likewise nationalized other industries such as the telephone, media and power-generation industries (New York Times 1). The most recent expropriation act by Chavez was in the mining industry for gold in which Russian assets were seized in a move to further safeguard its gold bullion stocks. This was done in August this year from a Russian majority-owned company and the government has made it more palatable by suggesting the nationalization was just a mere re-negotiation. With the moves, Chavez has shown he is getting more paranoid by trying to link his nation’s interests with his personal interests of staying in power as his term ends next year, 2012. With this in mind, this paper argues that expropriation cannot be justified as it is being done today in Venezuela. Pres. Chavez had used his political philosophy of socialism to create conditions for nationalizing certain industries on a pretext of social justice for the poor but he had also covertly intertwined this with his own interest of political survival. A study by Prof. Quan Li showed there is a direct link between political insecurity and an incentive for a head of state to expropriate foreign assets (Li 1). The research study validated these findings from statistical data drawn from 63 developing countries in the period 1960-1990. At any rate, expropriation goes against a key economic principle of government non-intervention in the exercise of capitalism and the free enterprise system in much of the global economy. On the other hand, a justification for expropriation is always fuzzy at best. Claims to protecting the national interest can be argued by almost any politician, since expropriation is first and foremost always a political act by a person or persons in power. Anyone can always make a case for expropriation by making all sorts of justifications but citing national interest is always subject to dispute and debate. Latin America, just like Venezuela, has seen a pattern or cycle of investments and expropriation over the years (Manzano & Monaldi 61) in which a country is engulfed in a new wave of nationalistic fervor based on its natural resources. Conclusion Expropriation today is an anachronism in the age of a global economy because it is counter to the general principles of free enterprise. Studies have shown that any expropriation occurs most often after investments were made in the exploration and production phases of an industry, especially in extractive industries like mining and oil. Although Venezuela is unusual in that it has a good managerial class in its oil industry (Coronel 257), expropriation tends to drive away international private investors when they are most needed (Time Magazine 1). Works Cited Coronel, Gustavo. The Nationalization of the Venezuelan Oil Industry : From Technocratic Success to Political Failure. Lexington Books, 1983. Print. Falola, Toyin and Ann Genova. The Politics of the Global Oil Industry: Introduction. Westport, CT, USA: Greenwood Publishing Group, 2005. Print. Li, Quan. “’Democracy, Autocracy and Expropriation of Foreign Direct Investment.” 03 June 2005. Web. 12 Nov. 2011. Manzano, Osmel and Francisco Monaldi. “”The Political Economy of Oil Production in Latin America.” Economia 9.1 (2009): 59-98. Print. New York Times. “Venezuela: An Update.” The New York Times. 29 Aug. 2011. Web. 13 Nov. 2011. Reynolds, Susan. Before Imminent Domain: Toward a History of Expropriation of Land for the Common Good. Chapel Hill, NC, USA: UNC Press Books, 2010. Print. Time Magazine. “Business in Chile: The Big Grab.” Time. 11 Oct. 1971. Web. 13 Nov. 2011. Read More