Political Survival, Energy Policies, and Multinational Corporations: A Historical Study for Standard Oil of New Jersey in Colombia, Mexico, and Venezuela in the Twentieth Century

By Bucheli, Marcelo; Aguilera, Ruth V. | Management International Review, May 2010 | Go to article overview
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Political Survival, Energy Policies, and Multinational Corporations: A Historical Study for Standard Oil of New Jersey in Colombia, Mexico, and Venezuela in the Twentieth Century


Bucheli, Marcelo, Aguilera, Ruth V., Management International Review


Abstract:

* We draw on the selectorate theory and detailed historical research to explain how a government relationship with foreign multinationals will depend on the strategies followed by the host country's ruler to assure his/her political survival. Focusing in three oil-exporting countries (Colombia, Venezuela, and Mexico) and one firm (Standard Oil Company of New Jersey) during the twentieth century, we show that oil rents are a valuable resource for the host country's ruler to assure the loyalty of his/her winning coalition.

* We argue that a government depending on a small winning coalition will use oil rents as a private good to be distributed among those close to the ruler, while a government relying on large coalitions will use oil rents as public goods to be distributed among the population. When acting against foreign multinationals, the host government is constrained by the political power of the firms' home country over the host country and by the relationship between the firm and its home country. Finally, we show that shared political agendas between host and home governments give the host government more space to maneuver against foreign firms.

Keywords: Foreign direct investment" International political economy- Selectorate theory. Oil industry. Economic nationalism

Introduction

Political conflicts around the oil industry in less developed countries are as old as the industry itself. Oil multinationals have confronted governments who claim that these foreign corporations are taking a disproportionately large share of the oil wealth, leaving very little to the local society. Sometimes, this debate has ended in the outright expropriation of the foreign multinationals' assets by the host government, as happened in Mexico in 1938 or in many poor or recently decolonized countries in the 1960s and 1970s (Yergin 1991). More recently the governments of Russia, Ecuador, Bolivia, and Venezuela have expanded government control of their energy resources in detriment of the multinationals operating there already, using again arguments of exploitation and national sovereignty. In other underdeveloped oil producing countries, however, the multinationals have a close and good relationship with the home governments, as is the case of several of the oil exporting countries in the Persian Gulf. By conducting a comparative historical study, this paper argues that the different actions followed by the governments of an oil producing country towards foreign oil multinationals are determined by strategies of political survival of the oil producing country's ruler. Similarly, we argue that the strategy followed by an oil multinational is closely linked to its role in the host country's ruler political survival. We believe that the recent dramatic fluctuations of oil prices, the aggressive entry of emerging economies as new large oil consumers, and the fact that several important producing countries are increasing state control in the oil sector makes the long-term analysis of the multinationals-oil producing governments' relationship particularly relevant.

This article examines two interrelated research questions: (1) How does the size and ideology of the ruling political coalition influence the government of an oil producing country incentives for expropriation or redistribution of the oil wealth? (2) How do the oil producing country's constitutional constraints and the relative bargaining power of the oil multinational and its home country government vis-a-vis the host country government influence the multinational's strategic response of the foreign investors? We answer these questions by studying the operations of a large American oil multinational, the Standard Oil of New Jersey (later known as Exxon, and now ExxonMobil, hereafter "Jersey") in Venezuela, Mexico, and Colombia during the twentieth-century.

Our argument can be divided in the following two hypotheses which we carry throughout the three cases we study: First, the decision by a government to redistribute the oil wealth among its citizens (through expropriation or higher taxation) is determined by the size of the political coalition that put (and kept) the ruler in power.

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Political Survival, Energy Policies, and Multinational Corporations: A Historical Study for Standard Oil of New Jersey in Colombia, Mexico, and Venezuela in the Twentieth Century
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