Stiglitz defends nationalization in Bolivia
Joseph Stiglitz believes the nationalization plans of the Morales government in Bolivia should be praised and criticizes the conditions under which previous oil deals were penned:
As with many privatizations elsewhere, there are questions as to whether the foreign investors have kept their side of the bargain… The problem in Bolivia is a lack of transparency, both when contracts are signed and afterwards. Without transparency, it is easy for citizens to feel that they are being cheated – and they often are. When foreign companies get a deal that is too good to be true, there is often something underhanded going on. Around the world, oil and gas companies have themselves to blame: too often, they have resisted calls for greater transparency. In the future, companies and countries should agree on a simple principle: there should be, to paraphrase President Woodrow Wilson’s memorable words, “open contracts, openly and transparently arrived at.”
For now, the world should celebrate the fact that Bolivia has a democratically elected leader attempting to represent the interests of the poor people of his country. It is a historic moment.
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Ever since I lived in Bolivia during highschool I have made a point of following Bolivian politics and other national developments. Here I have to agree with Stiglitz and his tepid support of Morales. For the last ten years or so, what has been going on in Bolivia under the guise of free trade has been criminal. And yet American newspapers rarely covered stories coming out of Bolivia. Now that Morales has been elected there has been an incessant flow of reactionary criticism. Where were these critics before Morales was elected? Why didn't they ever write about the disaster of water privatization or the abuse of indigenous groups by foreign mine operators? Only when the interests of big business is threatened do critics pretend to care about Bolivia.
Posted by: Ethan Arpi | Jul 6, 2006 12:28:00 PM
Ethan Arpi comments that "what has been going on in Bolivia under the guise of free trade has been criminal"
But don't you think that only the judicial branch of the government can decide who is criminal?
There is a good reason why judicial branch and legislative branch are created to check the executive branch. Otherwise Morales can sentence any of his opponents into jails by "claiming" that they are criminals.
In the 20th century, so many innocent people lost their lives as a result of the "people's court". When any single person can murder others simply by claiming the other side to be a criminal, dizasters and civil wars always ensue, because disagreement becomes a criminal act.
Let's agree to disagree and not call others criminal simply because they disagree with you, OK?
Posted by: R-Squared | Jul 6, 2006 7:32:26 PM
Friends, as it bears direct relevance to what is discussed here and also points to an area where WBG could and should help, I allow myself to transcribe this partial note I made during a recent Public-Private Partnership in Infrastructure seminar.
We need mechanisms to share the upward potentials too.
So much attention is given to the different downside risks of a PPP that sometimes it gets layered with too much risk coverage and which sometime leads the PPP to end up being a public-sector-risk that pays private-sector-returns. This sometimes allows a promoter, in time, to turn around to the market, sell out and record extraordinary profits. We have heard of projects that were priced at 14 to 16% rate and the suddenly resold, some time later, at 8 to 10%, and which for a 20 year project amounts of course to mind-boggling profits, and that do upset many.
Also the how to deal with sudden changes in underlying circumstances needs much more thought. In my country, Venezuela, many oil sector PPPs were put in place when prices of oil were extremely low (late 1998) and the Economist, April 1999, predicted a price of 5 dollars per barrel. Of course when then later oil passed 20 and even reached 70 irresistible and irrepressible pressures and temptations to renegotiate where generated, even if brute force had to be applied, and which has quite unnecessarily created immense conflicts, as all of it could have been avoided or solved amicable if some reasonable what-if clauses had been included from the very start.
Since at the time of putting these oil PPPs in place, the investors were clearly more concerned in getting their investment back, as fast as possible, discounting at high rates, valuing the present and ignoring the future, we can suspect no one was paying any significant amount for the “remote” possibility of making windfall profits if oil surpassed “20” dollars per barrel, and so decent what-if clauses would have been very easy to negotiate and put in place.
In this respect I believe that the World Bank could contribute a lot studying in much more detail what reasonable escape clauses could be construed in order to safely release the various pressures that could arise, so as to keep them from exploding. In this context it is important to remember that as the IFC normally represent more the interest of the private sector investors, as it should, nothing wrong with that, this could hinder it from being able to provide the best “government” advice and so perhaps this particular part needs to be carried out by WB itself.
Posted by: Per Kurowski | Jul 7, 2006 6:36:25 AM
Hi R-Squared. In response to your comments: It seems to me that there are two types of crimes: (1) legal and (2) moral. Legal crimes involve breaking laws. Martin Luther King Jr. may have been a criminal for violating laws that prevented him from protesting in Alabama but I dont think we would say that he did anything wrong. The converse is also true: someone who complies with an unjust law passed by a corrupt government might be considered a criminal. As Stiglitz notes in his article, many of Bolivia's privatization schemes were far from just. Were foreign mining and gas companies knowingly engaged in contracts with Bolivia's corrupt government? Of course. As for your comment about "people's courts"--frankly I'm not really sure what you're talking about. And while it is true that millions of people have been murdered under the guise of communism it is also true that millions have been killed under the guise of capitalism. American slavery, for example, was in large part justified with capitalist rhetoric. Of course, this doesn't mean that capitalism and slavery are the same thing. Let's just be careful when it comes to rhetoric.
Posted by: Ethan Arpi | Jul 7, 2006 1:43:26 PM
Hi, Ethan,
“It is also true that millions have been killed under the guise of capitalism.”
Could you give me a concrete example in which people who otherwise would have lived however died in a mass scale because of capitalism? Capitalists sometimes (or as some believe, always) exploit workers, but they are not stupid: dead workers do no good to them.
“Martin Luther King Jr. may have been a criminal for violating laws that prevented him from protesting in Alabama but I dont think we would say that he did anything wrong.”
I am an admirer of Dr. King too. But I don’t admire him because he broke the law. I admire him because he is a great man fighting for justice within the system. When he intentionally broke a law, he did not refuse to go to jail for it, because he knew that if he had defied the law (by for example calling supporters to storm the prison and rescue him), he would lose many rights that the law gives him. If King can defy law for the name of justice, then someone else (a racist for example) who believes in his own version of justice can assassinate King in the name of justice too.
Don’t you think that one of the greatest progresses of civilized societies is that we don’t convict people on political and moral basis anymore? We can distain someone because he is immoral, but we shouldn’t jail him or kill him, or deprive him of his private property. The reason is simple: there is no clear rule on moral and immoral, and no one can be a better judge than others. For the case Dr. King we agree he is moral, but what if a case is presented to us for which we don’t unanimously agree on.
By the way, as students of history, we should always have a caveat in mind, that we should not use today’s standard to judge history. At that point in time, it was not unanimously agreed that what Dr. King was advocating is right. Society’s values change over time and Dr.King was successful in changing the society’s value in favor of him, toward a direction that is more just. This is also why I admire him. When you disagree with the majority of the society, you try to convince them peacefully. If you indeed have the truth in you side, over time you will convert them. Dr. King never advocates confiscating private properties, although if we really want to draw the link, it is reasonable to say that part of all white men’s wealth indirectly came from Black slaves’ uncompensated hard-working. He never tries to make such an argument. Such type of reasoning has no limit. Up to this step (i.e., White’s wealth partly came from the Black in an unjust way), we all agree it is reasonable. But then there is no such a judge (unless angels do exist) who call tell me where to stop. Ultimately, anyone can say that his neighbor’s wealth is obtained immorally. You may say I am describing an extreme case. But such extreme things did happen a lot in the history (Russia, China....). Were those people out of their mind? No, they were not. They at that time in point believed that the victims were actually immoral, and what’s wrong with depriving immoral people of their wealth? They reasoned.
“Someone who complies with an unjust law passed by a corrupt government might be considered a criminal.” He’s immoral, but he’s not a criminal. I disdain him, but I wont’ make him a criminal, because when protecting his rights I am protecting mine too. If he gets convicted, then someday when I walk into a MacDonald I may get arrested for indirectly engaging in cultural genocide. When it comes to moral and immoral, there is no limits and no boundary and in most cases people don’t always agree with each other. Over time we learn that tolerance for immorality is better solution than killing each other (and it is always the case that both sides believe the other side to be immoral)
When you see a murderer acquitted simply because the evidence is seized illegally by police, should we, who have a sense of morality, kidnap and lynch this person? We all know why we don’t do it.
Posted by: R-Squared | Jul 8, 2006 2:01:09 AM
Hi, Ethan,
By the way, at some point when we finish this debate, I may want summarize the whole debate into one article in my blog, which will include both your and my arguements. Could you permit me to copy your comments here to my blog?
Thanks a lot.
Posted by: R-Squared | Jul 8, 2006 2:16:25 AM
Hi R-Squared,
Feel free to use this in your own blog. However, I think we have gone a little off topic from the original post. Also, I think that you may have misinterpreted some of my points. But anyhow, feel free to use the stuff here.
Posted by: Ethan Arpi | Jul 10, 2006 11:05:07 PM
I think very few would disagree that the division of powers into legislative, executive and judicial branches is a _very_ good idea. And if indeed something illegal happened during the awarding of the contracts, it should ideally be investigated by the police and the courts.
But this is quite hypothetical; even assuming an independent and effective judiciary it is exceedingly difficult to establish that something was not done according to the law.
I don't know whether Morales is indeed trying to undo the wrongs of the past, or if he is just looking to satisfy popular sentiment, fill his own pockets, or a combination of these. I guess the test will be what he does to increase transparency and the rule of law in general, and to himself and his government in particular.
That said, this is a real problem in many developing countries, and not just with regards to awarding contracts for natural resources or other natural monopolies. Usually however, the costs of undoing the wrong are higher than the benefits. Alienation of investors, creditors, etc. If a country refused to pay back debts accumulated under a corrupt government, arguing that the bank(s) should have known about this, how many loans would they be able to get in the future?
That's why, as Stiglitz underscores, transparency is so extremely important. Because if it is not done correctly at first, it will be very difficult to undo later on.
Best regards
Lars
Posted by: Lars | Jul 11, 2006 8:57:03 AM
Talking about transparency and Judicial branches. I suggest an International Watcher (Agency or NGOs) and International Regulations to oversee transparency and "open contracts" in the cases of oil, natural gas and mining.
Posted by: Richard | Jul 12, 2006 12:48:31 PM
I do not believe it is fair to compare Martin Luther King actions with Morales actions regardless of the motives for doing so. King's quest was about individual rights and Morales is about business. So much so that if the oil price today was $7 dollars a barrel the oil companies would be begging for expropiation and the Bolivian government would want nothing to do with it.
I do believe though that there are certain reasonable expectations by both parties entering into a contract and that if such expectations are not met, end up being far off or unpredictable, both parties have the right to excersise their muscle to pull out of the contract and/or renegotiate the terms.
There is an old say that reads, "the purpose of contracts is to break them".
I also believe that the problem with Morales decision is more how he did it and not why he did it.
Business is inmoral by nature because it is based on greed so why he did it is irrelevant.
At the end, it all boils down to another popular say; "God forgives sin but not scandal".
OPPENHEIMER TO NATIONAL TV
Posted by: Mosuqueton | Jul 19, 2006 12:34:54 AM
It is madness to defend the robbery of property, no matter what the faults of the systems were.
There are several ways of improving the system without doing what the communists did in Europe, with disatrous results, in the last century.
A president should not, by mean of weapons, set himself over the law. What Bolivia needs is a president who will make just laws and abide by them. Not one who disregards law altogether.
Posted by: William Hagerup | Aug 19, 2006 7:16:50 PM