TODAY’S ELECTION – WHAT IT’S REALLY ABOUT
The looming election appears patently divisive. But it isn’t the election itself that’s doing it. The division arises from the starkness of choice confronting the nation. The very word “di-vision” almost evokes a condition of “split vision”. It could, for example, mean that the political vision on one side is essentially “statist”. Under this socialist model a massive role is allotted to the state as the repository of economic wisdom – as arbiter on questions of resource allocation, management and outcome determination.
The state, having no direct experience of running any commercial activity, likewise has no measures for assessing its success or failure. It cannot therefore be held accountable when valuable community resources are squandered on favourite government fetishes, whether they involve major infrastructure projects to which private capital would never be attracted, or local issues such as humps in roads or pavement destruction to accommodate scarcely used cycle lanes.
Implicit in the framework of such a regime is the belief that people can’t be relied on to care for themselves. Since the state has power to determine the optimum utility of resources needed for wealth creation, it must also have the complementary ability to provide welfare. So the belief goes.
A true story
It was while reflecting on the characteristics of alternate economic persuasions that I decided to take a step back, and ask how, in totally different circumstances, comparable divisions might play out so as to identify more abiding principles.
A friend in Chile has for years been echoing sentiments that have been simmering throughout Latin America. She has now joined a continent-wide protest group whose aim is to recapture “for the people” the right to extract their nations’ rich natural resources – oil, gas, gold, silver, copper, timber – from powerful US and Canadian corporations. They believe that these businesses have for many years profiteered by using local labour to exploit these resources, in most cases with the connivance of deeply corrupt dictators and their munificently enriched coterie of armed protectors.
As a movement dedicated to the overthrow of incumbent capitalist regimes, they are proud to proclaim themselves communists with the common aim of converting Chile, Colombia, Brazil, Argentina, Ecuador, Peru, Paraguay, Venezuela, Mexico and Bolivia into Cuban replicas.
This set-up has been a breeding ground of seething discontent for at least two centuries, as brilliantly portrayed in the film “Viva Zapata”, set in Mexico, which my readers may well remember. Today’s protest brigade sincerely, if somewhat naively, believes that in the face of sufficiently loud and severe threats, including a heavy dose of targeted rioting, these rapacious corporations will be forced to return those ill-gotten assets to their rightful owners, “the people”.
Resolution, not revolution
Assuming a sane and just solution exists, what form will it take? Will it encourage the exercise of free choice with minimal state involvement? Will it allow people to keep most of their earnings and spend or save it according to those choices? Or will be a People’s Revolutionary Council, robustly statist, micro-managing and deeply controlling?
If our revolutionaries can think clearly for a moment, they will recognise that they are not starting from scratch. Anyone with an ounce of reason will know that a fair and just outcome is impossible if everything that exists right now is simply pillaged in a wave of rampant confiscation. Hopefully they will recall that much Mexican and Peruvian wealth was stolen far earlier by conquistadors in the 16th Century – taken away in fleets of Spanish galleons. You can stretch the doctrine of inherited rights ad infinitum but you’ll never see that stuff again!
Infrastructure doesn’t manifest by magic
Chilean reformers may detest the status quo, but they must nevertheless ask themselves this question: How did the existing infrastructure get there in the first place? The Chilean government may well have negotiated “bad” deals with US or Canadian corporations for the extraction of minerals – but how, after all, would that government have known a good from a bad deal as long as the corrupt kickbacks were coming in?
Absence of the rule of law is always a massive obstacle in the way of just dispensation of resources – and tackling that is a far more rational starting point than bloody revenge.
Secondly, they must recognise the practical difficulties always encountered before the minerals can be successfully extracted. It is capital-intensive work and, depending on the condition of the rock and accessibility of seams, it may ultimately fail to recover the initial investment. It is never a simple matter to make major decisions that carry such a high level of risk.
Thirdly, they need to learn from what happens in other countries. The Latin American situation is analogous to that in the Middle East, where governments, or Sheikhs, as owners, receive royalties based on the amount of oil extracted by licensed companies. The owners’ must use their experience and business skills to confine their awards of mineral extraction rights to entities capable of achieving the optimum return. All this is legally contracted, subject to periodic renegotiation.
Reward goes with risk
In the USA, oil and gas is extracted by private companies from land that is privately owned. These companies survive or fail on the results of their own work and enterprise – results on which other private citizens have no claim because they didn’t risk their own capital. That’s the whole point: no automatic entitlements to the fruits of other people’s work – outside of moral or charitable dispensations.
If governments in South America were to establish legitimacy in the form of corruption-free rule of law, they would be able to auction off the land and mineral rights into private hands. Those entities would then be the risk-takers and would stand or fall by the success of their mineral extraction activities – and would of course be subject to taxation at a rate that would not threaten the viability of the enterprises themselves.
nationalising private companies
The irrational alternative
Stop for a moment and consider the alternative. The past record of Castro/Guevara/Maduro-inspired leadership is one of nationalisation of private companies and the confiscation of their assets. While this live risk exists will private investment be tempting? Some years ago a private company spent $1 billion building rail and pipe lines to oil fields in Myanmar (formerly Burma), after which the Myanmar government nationalised the whole enterprise and confiscated all its assets – since which time private investment in Myanmar has dried up.
Many South American governments have by now discovered, to their nations’ cost, that nationalising the wealth creation process is far easier than knowing how to use it to make a profit. They have discovered that once the mineral extraction process is sequestered from its present owners, its revenue stream somehow just dries up.
Now substitute the names.
For Castro/Guevara/Maduro read Corbyn/McDonnell/Starmer, whose starting nationalisation plans are limited to water, rail, utilities, energy, telecoms, Royal Mail and broadband. The present owners of these concerns, many of which are foreign, will be compensated, of course. In return for the privilege of having their shares impounded, they will receive marketable “bonds” at an exchange value determined by the McDonnell bit of the trio (who’s hobbies include “fo[r]menting the destruction of capitalism”) – but now please go back two paragraphs and re-read the Myanmar experience to ascertain how popular those bonds will be.
And in the interests of fair coverage I should mention that every UK company with 250 or more employees will have 10 per cent of its shares seized and transferred to an “employee fund” without compensation.
You can vote after reading this – but please don’t say you didn’t know.
[EMILE WOOLF – ECONOMIC PERSPECTIVES 69]