Monday, May 08, 2006

Bolivia: Nationalization and Disfunctionality

Bolivia's first real nationalization of its natural resources, did not happen after the Chaco War, or the National Revolution of 1952. We have to go back to 1924, when, Simón Ituri Patiño, bought out Chilean interests Bolivia's then booming tin mining industry which by 1910 produced 20 percent of world production.

Patiño, who started out as a lowly clerk, was very much in the mold of America's robber barrons, and is considered the first modern Latin American capitalist. He controlled extensive holdings in tin production, not only in Bolivia, but worldwide to the point where he arguably rigged pricing of the metal. In Bolivia, he came to symbolize the rosca, or the screw, which together with two other families, exerted vast influence in the country's life. They made billions of dollars from Bolivian mining, most of that capital leaving the country, and forever leaving a bitter taste in many Bolivians minds.

What is less known is that at one point, Patiño had offered to finance settlement efforts in the underpopulated eastern lowlands, to increase agricultural production, and to build a railroad from there to the highlands. He had less than pure motives; he wanted a steady source of food and wood for his vast workforce in the mountains. In those critical first couple of decades of the 20th century, Patiño was generating a lot of cold hard cash, and was willing to invest at least some of it in Bolivia - he started and financed the country's first real national bank. But,his proposal went nowhere, because a squabbling Congress refused to give him a concession. Other plans of his ended up with the same fate, through legal and political wrangling. Patiño then simply went about his business, building his own railroads, sending his capital abroad, bribing politicians to avoid taxation, and moving his influence around through his army of lobbyists.

In the end we will never know how much of his capital Patiño was willing to keep and invest in Bolivia, but it is clear from this tale, that when there was a rare window of opportunity, when capital was ready and available for valuable improvements in the countries interests, but that it was killed by stupidity. As a result the railroad from Santa Cruz was never built, the East continued to be isolated for decades, and Bolivia was mostly a net importer of food.

Unfortunately, Bolivia has continued with a cycle of lost opportunities, and bad timing. The left loves to mythologize the 2002 "Gas War," celebrating it as some big victory. Reality is that much opposed plan people opposed (some paying with their lives) involved foreign companies willing to finance and build a pipeline to a Port in Chile, to set up the capacity to produce liquid natural gas for export to ready customers in the United States. It is 2006, Bolivia does not have a pipeline to a Pacific port, does not have facilities and capacity to produce liquid national gas for export, in a world where there is rising demand. HOW GREAT IS THAT??.

When the military government nationalized Gulf Oil's holdings, they got basically a turnkey oil-producing operation, with sizeable reserves, which could produce, store and ship oil to customers anywhere in the world. Despite initial losses caused by a fairly loud Gulf campaign worldwide, after settling, Bolivia was in a great position to take advantage in the post 1973 rise in oil prices.

There are critical differences between 1969 and today. Then it was mostly about oil, which unlike gas, is easier to store and ship. And Bolivia's gas industry is still in its infancy, with crucial new investments needed not only for further exploration and industrialization, but also for maintaining current production levels. The past four years have seen investors panic and cancel investments. Evo's show of force supposedly "nationalizing" the gas and oil fields, might have sunk any remaining confidence, despite the fact that this is nowhere near as drastic as early expropriations. But the damage is done, and the country stands to lose in the long run, and it can not go it alone to develop its resources. The cynical lesson is that you should at least wait until the enterprises you want to expropriate are fully funded and projects completed, before taking them over. To paraphrase Lenin, let the capitalists sell you the rope with which to hang them. But here, it appears that Bolivians might have both jumped the gun and shot themselves in the foot, again.