New York Times Magazine published a rather fascinating article Sunday about the rise of nationalized oil throughout the world.
Predictably, it initially came off as a love letter to Venezuela's Hugo Chavez and his new brand of oil socialism.
Yet, if you dig deeper - unfortunately offshore deeper in a very lengthy piece - author Tina Rosenberg ended up rather dissatisfied with "petrocracy," and, instead, advocated private ownership of oil with tighter regulations and more aggressive taxation.
Anybody need a pinch?
Unfortunately, to get to the really compelling parts, one had to suffer through a great deal of Hugo-mania (emphasis added throughout, h/t Charles Johnson):
Who holds the world's oil? You might assume it's in the hands of big private oil companies like ExxonMobil. But in fact, 77 percent of the world's oil reserves are held by national oil companies with no private equity, and there are 13 state-owned oil companies with more reserves than ExxonMobil, the largest multinational oil company. The popular perception in the
United States is that if leaders of oil countries nationalize their oil, they are bucking a global trend toward privatization. In reality, nationalized oil is the trend. And the percentage of oil controlled by state-owned companies is likely to continue rising, mainly because of the demographics of oil. Deposits are being exhausted in wealthy countries - the ones that exploited their oil first and generally have the most private oil - and are being found largely in developing countries, where oil tends to belong to the state.
Now, I know what you're thinking: Isn't there a bathtub or shower in the house that needs re-grouting? However, I promise...it gets better, but not yet:
[Hugo] Chávez is a prophet in search of disciples. He seeks to present Venezuela as a more moral world power, uniting Latin America and poor countries everywhere in a socialist alliance. He has invented a new kind of socialism, which he calls Bolivarian socialism, named for the independence hero Simón Bolívar: a little Marx, a little Jesus, a little anti-imperialism and a lot of the whim of Hugo Chávez, dedicated to the "comprehensive, humanist, endogenous and socialist development of the nation." His is a gospel greased by oil, which is financing his transformation of Venezuela. Chávez is a genius of a politician: charming, folksy, flirtatious. I first met him in New York in 1999, the year he became president. I sat next to him at an interview, very pregnant. He embraced me - "But you should come have the baby in Venezuela!" he enthused.
The appeal of his message transcends the charisma of the messenger. To other countries - especially the oil and gas nations in Latin America that watch Chávez with particular interest - the appeal is simple to understand. Oil- and gas-dependent countries are historically ill governed. Today their people are in rebellion against globalization, which promised much but has brought them little. They have been told their countries are rich, but they see they are poor. So someone must be stealing the profits.
Marvelously, Rosenberg explained why: "Many nationalized oil companies are poorly managed - on average, national companies are 65 percent as efficient as private ones, according to one study."
Amazing thing to read in the Times, wouldn't you agree? But she wasn't finished:
Paradoxically, nationalization brought the government less money and less control. When Venezuela's oil was still in private hands, the government collected 80 cents of every dollar of oil exported. With nationalization the figure dropped, and by the early 1990s, the government was collecting roughly half that amount.
[...]
But many people, not just Chavistas, would argue that Venezuela lost. By 1998, real wages in Venezuela were less than 40 percent what they had been in 1980. A third of the country was living in extreme poverty - up from 11 percent in 1984. "It was normal for people working for Pdvsa [Chavez's oil company] to be very proud - it was recognized as one of the best oil companies," says Tissot, the oil analyst. "In contrast, the politicians were making a mess managing the rest of the country. Pdvsa was working, but Venezuela was not working."
In fact, though oil prices have skyrocketed in recent years, and the poverty rate has declined in Venezuela, the economy there is in deep trouble:
[T]he percentage of those living without running water and living in inadequate housing, as well as the number of young children not attending school, has scarcely budged in the last 10 years. The percentage of babies born with low birth weights actually rose from 1999 to 2006. And this is according to government statistics. It is early, but these numbers may mean that the missions are mainly helping through the stipends.
Whatever success the missions have at helping the poor may be dwarfed by the grotesque distortions in the economy as a whole. Inflation is officially at 16 percent but is most likely higher, according to Orlando Ochoa, the economist, who is usually critical of Chávez. He says that in the basket of goods and services used to measure inflation, just under half the items are sold at government-controlled prices. Many goods simply can't be bought at those prices, and consumers must pay double the price in a street market. Or the goods can't be found at all, their producers forced out of business by price controls. Beans and sugar were hard to find cheaply when I visited Caracas in September; fresh milk and eggs hard to find at all. Recently, people had to line up for five hours to get a liter of milk. One proposal in Chávez's constitutional referendum could increase inflation much further by abolishing the autonomy of the Central Bank and giving the president power over Venezuela's international reserves. The proposal would also essentially allow Chávez to print money.
[...]
Venezuela's adventures in oil nationalization have produced two very different models. At a time when oil prices were low and the country in dire need of social spending, the old Pdvsa's focus on reinvesting in oil production was undemocratic and unfair to the Venezuelan people. But the new way has produced something arguably worse - economic failure despite a boom in oil prices, and it is unfair to future generations.
In the end, Rosenberg miraculously concluded:
Nationalization, however, doesn't cure these ills, and it can deprive a nation of its rightful take of its natural wealth in other ways...So perhaps the best strategy for resource-rich countries is to keep the oil private, watch it carefully and tax the hell out of it.
Shocking revelation from the New York Times, wouldn't you agree?
