Venezuela's turn toward socialism: Hugo Chavez plans to nationalize CANTV and EDC

On Monday January 8th, two days before his inauguration to a third term, Hugo Chavez announced that he would deepen his socialist or Bolivarian revolution by nationalizing companies that are deemed to be strategic to the national interest. Specifically, he singled out the telephone company CANTV and the Caracas utility company, EDC. Since both are at least partially owned by U.S. companies (Verizon and AES respectively), this shocked not only Venezuela’s domestic financial markets but also Wall Street.

Chavez’s ability to carry out these nationalizations rests on the confluence of political and economic power he holds. In recent years he consolidated political power in Venezuela by undermining the independence of the judiciary, the national electoral council, the bureaucracy, and he gained complete control of the Congress. On the economic side, high oil prices provide Chavez the resources to compensate the private owners of these or even other companies in Venezuela. Venezuela now holds over $50 billion dollars in international reserves, providing a war chest for not only his social programs but for expenditures like nationalizations.

What is important to understand is that it is unlikely his efforts will spread to other Latin American nations. Most of the recently elected leaders in Latin America (there have been twelve elections in as many months) are turning toward free markets, not away from them. Leftist leaders in countries such as Chile, Brazil, Uruguay, and even Argentina are opening their markets while also instituting broader social protections, including social security, health care, and assistance programs. Even those leaders who may be more ideologically inclined toward state intervention in the economy, such as the presidents of Bolivia and Nicaragua, don’t have the luxury of strong oil revenues. So large-scale nationalizations are unlikely outside of Venezuela. In many ways this is an isolated, anachronistic turn to socialism, ironically buoyed by global capital markets and the increasing demand for oil due to globalization.

Finally, some commentators are pointing to the Iranian President Ahmadinejad’s visit to Venezuela (his second in five months) as a threat to U.S. interests. These meetings, and strategic agreements signed at them, are less important than many fear. While there are several reasons why the United States should worry about its relationship with Iran, the alliance with Chavez will not seriously influence these foreign relations. We should keep or foreign policy strategies and decisions toward each country separate, as their shared anti-Americanism shouldn’t negate their vast differences.

For more thoughts on Chavez’s announcements, please check out my interview with Mike McKee from Bloomberg earlier this week about this development:

Bloomberg interview