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Tuesday, 29 Aug 2006
Bolivia's move to nationalize their oil reserves and make the state control it has been failing miserably, once again proving that such socialist moves never work, as I have said here before. The reasons why the program is failing? Well, where to begin? First, there is that whole thing with Brazil being mad at its assets and investments being nationalized by a neighboring country's government, to the degree that it slashed its future investments in Bolivia from 2 Billion US dollars to a measly 90 million. This of course will lead other Oil investors to follow suit, like European Repsol, which announced that it had enough of the Persecution of Bolivian authorities and will cut investment in Bolivia. More companies will surely follow suit. Morales' response?
Bolivian President Evo Morales said yesterday in a speech
that the country never planned to throw out foreign companies or
expropriate their assets “but they can't act likes bosses or
owners, they need to be partners,'' newspaper El Pais reported
today.
Hard to be partners with people who continue hold a gun to your head, dont ya think?
Anyway, back to this debacle..
Of course you can't have socialism without corruption or mismanagment, and both are present here. The Bolivian Oil minister -a political appointee by Morales- just got censured for his managment of the nationalization plan , which was his idea in the first place, and therefore resigned. And the head of the Bolivian Oil state company-also appointed by Morales- has been mired by allegation of corruption for so long that he finally quit today. Morales, of course, can't figure out what went wrong. Socialism happend dude. Maybe looking at Venezeula's state of oil production, which yáll look up to as a great example of socialism done right, might give you a hint of what is going wrong.
Morales and Palacio should look carefully at
Venezuela's example and take heed, he says. "It's clear this oil-rich
country is moving backward, and eventually it will all end badly."The state oil company, PDVSA, reports production
of 3.3 million barrels a day. There is no way to independently confirm
this, and most outside analysts, including the International Energy
Agency, say that PDVSA's numbers are inflated and that production is
closer to 2.6 million barrels per day.But whatever the real output, Venezuela is
raking in more petrodollars than ever because of the high price of oil.
When Chvez came into office in 1999, the country reported production of
3.5 million barrels per day and, with oil selling at about $15 per
barrel, was making just over $18 billion a year.This month, with oil at about $70 a barrel,
PDVSA Finance Director Eudomario Carruyo told Reuters he expects
revenue to top $85 billion this year. PDVSA officials have reportedly
said that oil production will increase to 4 million barrels per day by
2012.Furthermore, in part thanks to Chvez plowing
billions of those petrodollars into new housing, free medical care,
adult literacy projects and other social programs, Venezuelans perceive
the industry to be exceedingly robust now."Normal people don't care about whether
production is 3.3 million barrels per day or 2.6. For them, the oil is
huge and forever," says Alfredo Keller, an independent pollster in
Caracas.What's the problem?
The problem, says Ochoa, is that politicizing
the industry has rotted it, and served both to empty PDVSA of its best
professionals, and to scare foreign partners away from new investment."It is generally safe to assume a pretty steep
fall in PDVSA production over the last few years," says Jack Sweeney, a
former analyst at Stratfor, a private intelligence agency, and now an
independent consultant in Caracas.Maria Mercedes Febres was a senior engineer at
PDVSA until 2000, when, she says, she "saw the writing on the wall,"
and quit. "Political appointees were taking over from qualified
long-timers, and I knew it was going downhill," she says. Most of her
friends stayed on, but their frustration with the political cronyism
finally exploded in a strike in 2002.Chvez refused to negotiate and fired about 18,000 workers, many of them top engineers.
"Most of my ex-colleagues left the country. They
are oil professionals, but here, where the oil industry is in the hands
of the state, they were blacklisted," says Febres. After the firings,
she says, the level of professionalism plummeted. "You need to exploit
your oil efficiently — and for that you depend on technology and
maintenance. We have neither."Foreign partners pull back
Meanwhile, Venezuela's joint partners —
companies such as Chevron, Royal Dutch Shell, and British Petroleum —
are also slowing production here.[...]
Oil minister and PDVSA director Rafael Ramirez
promised output in those fields would soon rise. In fact, the opposite
has happened. According to industry reports, output has steadily fallen
in foreign-operated fields. The largest drop was at Royal Dutch Shell's
Urdaneta field, where output fell to 43,400 barrels per day in March
from 46,900 barrels per day in October.[...]
But, while most companies desperate for oil won't pull out, they will
slow their rate of investment. "When the rent goes up, you become wary
of new investment; it's logical," he says.
So, let's recoup shall we? The Nationalization of assets type of Socialism is bad because: 1) It drives away foreign investmen t and 2) It appoints people who are both incompetent and corrupt, but happen to be close to the person in power, in positions of control of such assets, which they always, slowly but surely, run into the ground. It happend in Russia, It happend in Egypt, It happend all over South America and it's happening now in the new Chavista states. Just wait and see, and dont forget to blame the foreign companies'and their conspiracies for everything when it all fails. Ok?
August 29th, 2006 at 3:34 pm
No system will ever get over the problem of the greed and ambition of human nature.
In socialist states the people who claw to the top do so through politics, which requires far less ability and achievement to rise than actually being good in your field. While business and politics are both shark pools, at least if you rise to the top of the shark pool of business you probably know how to run a business.
Business people understand that if you cut down all the trees in the forest, you have no trees to cut down next year. Politicians are only ever going to be in power for a short period, so they know that if they want lots of wood, they better cut down ALL the damn trees now. Next years trees are for the next government to worry about.
August 29th, 2006 at 4:38 pm
Excellent clarity and conciseness. Let’s also not forget that it happened in Iraq. While the Bush administration believed they would walk in and start making money on the oil there to help pay for the reconstruction, what they found was a delapidated oil infrastructure that was incapable of handling the necessary volume to make that plan work.
August 29th, 2006 at 5:41 pm
Didn’t they just pull this EXACT same stunt in Chad, yesterday?
//Vic
South San Francisco
August 29th, 2006 at 5:59 pm
See your local Commissar for re-education, SM. If you are unaware of the location of your Commissar, please address thepeoplescube.com for correctional activity. Bring a shovel.
On a lighter note, an excellent analysis. It’s always amazing, the lengths to which people will go to harm their own interests.
August 29th, 2006 at 6:09 pm
It seems the whole world will have to learn and relearn time and again that socialism just doesn’t work. Even in the U.S. we have those idiots that believe the big lie that socialism means universal equality, justice, and the government handling everything better. Sadly in the end it just becomes universal inequality, universal injustice, and government corruption/incompetence ruining everything. History has shown that over and over. It’s unfortunate that South America’s latest fascination with socialism stems from their frustration with their in-name-only democracies and the rampant corruption that flows from them.
August 29th, 2006 at 6:28 pm
An anecdote on socialism.
Our friends in Canada have socialized medicine. Pretty much anything you want, when you need it. Or at least that is the theory.
As it turns out, Canada doesn’t have enough doctors. The supply of doctors is constrained. Not by the economy, more specifically, by forces of supply and demand. But by artificial supply constraints.
This control over an aspect of the economy has an interesting impact upon the delivery of socialized medicine. You have an effectively constant number of doctors, and an increasing demand for their services. This leads to the hallmark of planned economies, socialism, and its fellow travellors. Shortages, rationing, waiting lists, and abuse of same. People in power or with powerful friends don’t have to wait. And they usually get to pick the best doctors. The rest of the people can’t do that.
If they opened their medical field up to competition, and allowed more doctors to operate, the doctors would compete. As they do here in the US.
Yes, there is a down side. People can fall out of the system, and yes, they may not receive timely medical care if they are poor and destitute.
Why does this not work? Simply because fixed budgets are zero sum games. The more players, the lower the average payment per player. Fixed medical budgets mean less care on average for more people. Economic disincentives typically mean fewer high quality providers.
Planned economies never work. They cannot. Their implicit assumptions are broken. They have no mechanism to adapt to changing needs. Socialism depends critically upon a planned economy. You cannot provide social services if you have an entity in the system acting in their own interests versus societies interests.
August 29th, 2006 at 6:50 pm
Great analysis, nationalization has never worked. Unfortunately we all pay. A recent Business Week story points out that as more and more reserves are nationalized the ability of the industry to meet future demand becomes less and less.
August 29th, 2006 at 8:08 pm
“Didn’t they just pull this EXACT same stunt in Chad, yesterday?”
Yes, and this is why SM might yet be proved wrong.
Chad dropped all diplomatic relations with Taiwan a few weeks ago, and switched to China instead. Some analysts think the two developments are connected.
I think China cares more about getting the oil it needs to fuel its growth than the profits its oil companies make (or the human rights record of the countries where it gets its oil of course).
August 29th, 2006 at 9:51 pm
If the Bolivians wish to nationalize their oil industry and give it back to native Bolivians, more power to them. However, I hope they realize that they cannot depend on the welfare of foreign aid along the way.
People who want to nationalize industries or even just restrict ownership of such industries to local need to do so with their eyes wide open.
Sometimes industries do need to be nationalized. We, in the US (or any other sensible country), wouldn’t fully privatize our military and we definitely wouldn’t allow international companies to run it, because of the obvious national security concerns. There are valid reasons for leaving industries in state hands, but those people need to be clear what the risks versus the benefits are.
In fact, speaking of privitization of our military, we have went too far in that direction in recent years. We have soldiers leaving ASAP after their commitments are up to join private mercenary groups like the North Carolina-based Blackwater who are then hired by the Pentagon - who must pay these mercs six-digit salaries - to do exactly what they would be doing in the armed forces for substantially less. It is an absolute scam.
There should be a restriction requiring that you must be out of the military for a period of 4 or 5 years before being hired as a merc. This would put a kibosh on the revolving door during wartime since, if you were a soldier and left during the war, there might not be a war to fight, or a mercenary firm to hire you, by the time you were eligible to be hired.
August 29th, 2006 at 11:10 pm
Tommy they are not mercs. They are security firms. The U.S. does not hire them to fight wars. Yes they are in Iraq, but strictly as security guards. For instance, we had them guarding the checkpoints on the Baghdad Airport. It’s not as if they go out with the troops on patrols and raids.
Generally I do agree with you though. The biggest threat our military faces is not on a battle field, but from defense contractors robbing our government blind and weakening our military with billions of dollars of worthless junk (like the F/A-22 Raptor). What we need is more boots and less multi-billion dollar hi-tech light and sound shows (A.K.A. Shock and Awe).
If you want to see the military stay out of the private sector, you should see the cheerleading the high brass does for defense contractors in exchange for cushy jobs when they retire. That’s just sick; especially since they are selling out their country for personal gain.
August 29th, 2006 at 11:46 pm
Socialism is moronic. Under socialism, when anything becomes ‘free’, particularly at a time when everything’s really expensive, all you get is stupid bureaucracy and really long lines for people to try and get it.
August 30th, 2006 at 12:17 am
Socialism: Nice idea; doen’t work. It creates a huge bureacracy that is ineffective, inefficient, and often corrupt. Not enough accountability. Great analysis, SM!
August 30th, 2006 at 12:22 am
#10, Matt: Spot on - great assessment.
August 30th, 2006 at 12:57 am
I agree that socialism is not going to work. However, both Venezula and Boliva are going to find themselves being nothing but economic colonels of China.
Yesterday, China bought in to the Venezuala oil industry big time. China is searching world wide for fuel and raw materials to grow. They are no different than the Europeans of old, or the Americans of the 1900’s.
These South American communist states are going to find themselves getting no benefits as China takes their raw materials to China. Considering that these same two states take great pride in that fact that they threw off their colonial masters decades ago, they are getting right back in bed with a new one.
August 30th, 2006 at 1:11 am
Matt, Blackwater is not a mere “security” firm - though they do that also, of course. I’ve actually known people who have went on to work for the company.
In fact, I have a video on my computer showing a Blackwater sharpshooter in action from a few years ago. The shooter is in Najav engaging the Mahdi Army from a rooftop.
August 30th, 2006 at 1:39 am
Your point about defense contractors is well taken, Matt.
In fact, one of the most disappointing (and lethal) things that contractors have done is excessively promote the supposed strength of today’s tank and armored vehicle armor. We’ve seen both in Iraq and in Lebanon, how effective antitank missles and IEDs have proven to be in spite of the claims of invulnerability that were made for these weapon systems all these years.
Defense contractors scam our military in other ways also. One guy I know who is in the Navy recounted to me how during initial bids, contractors would claim they could do the job for less than initial estimates and upon winning the contract, half way through the project, they would wind up having cost overruns far in excess of those initial estimates. Of course, with half the work done, it’s too late to bring in another contractor.
I also agree that generals should be prevented for working for or lobbying on behalf of contractors when they retire.
August 30th, 2006 at 2:14 am
Tommy,
Funny enough I found that video tonight at combatvids.com. I wish those guys were still in uniform.
August 30th, 2006 at 8:13 am
Well, The Economist also made a special report on the matter, showing PDVSA as an example of how things must not be done in state-owned petroleum companies. And speaking of the loss of qualified personal, it is sooo true: every month there is some section of our refineries which blow up, or when you realize that most of your friends who worked before 2002 now live overseas, you must say that something is happening, and it is not good.
August 30th, 2006 at 8:14 am
So pathetic! Envious trolls.
August 30th, 2006 at 8:19 am
14 Ron - Agreed that China is building a new empire in South America and especially Africa (see http://business.timesonline.co.uk/article/0,,13132-2251243.html)
However, rather than behaving like colonial masters it’s precisely their ‘non-interference’ in the political affairs of these countries that both makes China very attractive to some unpleasant regimes, and destroys any hope that economic sanctions might have an effect on these countries. Western countries and companies may eventually have to hold their noses and try to outbid China for business in the likes of Bolivia if they want to survive. Look at Japan - Koizumi is in Uzbekistan right now trying to do business with Karimov.
August 30th, 2006 at 9:57 am
To Kranky, I don’t know much about the Canadian healthsystem, but I just heard on the news that in the US of A an enormous number of citizens cannot afford
health insurance.
That number is increasing year by year. Seems to me hardly a shining example of how universal healthcare should function.
People in glasshouses and all that
August 30th, 2006 at 10:51 am
“such socialist moves never work”
It depends on the industry. Oil is a healthy, profitable industry and there is plenty of competition.
Railroads, on the other hand, are very hard to make a profit on since motorways were invented. Competition makes no sense (who wants two or three parallel sets of tracks belonging to different companies?). The US had to nationalise its railroads to keep them alive. Britain tried to privatise the railways and the result was a disaster - they had to be in effect re-nationalised.
The Suez Canal is another case where competition is not practical. Without competition, capitalism doesn’t work. One of the functions of a government is to prevent monopolies and cartels from forming in important industries.
August 30th, 2006 at 5:52 pm
Funny enough I found that video tonight at combatvids.com. I wish those guys were still in uniform.
Yeah, I know. I wonder what branch of the armed forces that sharpshooter was in previously. Was he Army or Marines?
August 31st, 2006 at 12:19 am
#6 The low supply of doctors is due in large part to government restriction on the number of entry positions to medical school not any control of the delivery of health care. Plus the USA comes and pillages our supply. Also the fact that the government makes it hard for foreign trained doctors to come here and practice their profession. Not that I’d want every ‘Mohommed, Patel and Manuel’ from the “3rd World” to come and do no intensive upgrading before setting up shop.
August 31st, 2006 at 9:28 am
Jason,
If America is pillaging Egypt’s doctors then they are not being paid enough in Egypt.
No governmet has ever repealed that law.
August 31st, 2006 at 9:40 am
#16 Tommy,
What you leave out is that development is almost always more expensive than planned. You also leave out that the military often changes its idea of what it wants during development based often on new desires, but sometimes on what was learned in development.
Once an item is in production competition keeps prices down.
September 1st, 2006 at 2:11 am
M Simon. I was not speaking of Egyptian doctors but rather Canadian doctors. Was responding to a post talking about Canadian health care.
September 1st, 2006 at 3:05 am
#21 Cut snake:
Nope, we don’t have universal health coverage. And yes, lots of people fall off of coverage.
This is a fact of life in a capitalist economy. There are huge financial incentives to being a doctor in the US. At the moment.
Right now, US drugs cost more than most everywhere else in the world, as most of the rest of the governments have demanded and received price controls. Given the cost to develop drugs, that means that the US market is bearking most of the brunt of this cost. This doesn’t mean the drug companies are doing the right thing. One of the came up with a cancer treatment that costs in excess of 100,000$/year. The development cost of a drug is upwards of 800M$ right now. So if your audience is 8000 people over the lifetime of the drug, well, thats breakeven at 100k$/person per year. I think that is obscene, and there are far better ways to handle that.
The other issue is that health insurance is covering less and less every year. I had some procedures done this year, and though I have excellent coverage, these procedures cost us in excess of $6k out of pocket. No, I don’t like it.
If there was a way to get universal basic coverage without blowing up the cost, the fraud, and reducing services I would be all for it. Given medicaid and medicare, and the amount of idiocy with that, I am not sure that this is such a good idea.
Jason: the US can’t get enough doctors as demand for healthcare is high, while the supply of healthcare providers is relatively limited. This inflates the price we pay for this service. It also encourages others who see that they can make more money here than at home. There aren’t artificial constraints on number of students in medical schools here. However, getting in is very tough.