Resource Nationalism: Beyond Ideology

Article excerpt

The temptation to seize greater control over natural resources during times of high commodity prices transcends partisanship.

Latin America's political Lefthas displayed symptoms of bipolarity for much of the past decade. An early purveyor of this diagnosis was Jorge Castañeda, former Mexican foreign secretary (2001-2003), who in 2004 identified what he called "two Lefts" in a piece for Project Syndicate. One Lefthad "truly socialist and progressive roots" that was "following pragmatic, sensible and realistic paths." The other stemmed from "a populist, purely nationalist past" that had "proven much less responsive to modernizing influences."1

In a 2006 essay for Foreign Affairs, Castañeda expanded the argument. He said Latin America's overall leftward shiftwas driven by two wings: moderate parties and movements led by reformed socialists who had come to embrace "a more or less orthodox market framework" and a more radical set of populists whose main aim was to seize control over sources of revenue and who were "much more interested in policy as an instrument for attaining and conserving power than in power as a tool for making policy."2 His model was underpinned by the assumption that the latter camp-the far Left-would quickly collapse as its economic policies proved unsustainable, thus paving the way for the free-market reforms gaining traction around the hemisphere in the 1980s and 1990s.

But Latin America's Lefthas not followed Castañeda's model. At the heart of his analysis was the notion that economic nationalism and extreme government interventionism were confined to the far Left. Empirically, however, the economic policy of more moderate regimes has united them with their more radical ideological cousins.

Strip away the rhetoric about "neoliberalism," and the two Lefts blend into a policymaking continuum. The best example is in the area of natural resources. National leaderships representing both wings have raised taxes on foreign investors, enhanced the roles and budgets of stateowned companies and intervened in the economy. Both pursue policies of "resource nationalism," in which the state asserts its control over natural resources and uses that control for political rather than economic ends. The differences between them are more of degree than conceptual distinction. That such resource nationalism even encompasses right-of-center governments, such as Chile, suggests that the tendency runs far deeper in Latin America than any one particular political ideology.

Emerging Markets Blur the Line

How did the "two Lefts" analysis become undone? In a word: China. That country's spectacular growth, along with that of other advanced emerging economies such as India, has had a more pronounced impact in Latin America than in other world regions, for four reasons.

First, it caused a boom in commodity prices. That was of obvious benefit in particular to South American economies, which had long been key global suppliers of basic commodities such as oil and gas, precious and base metals, and foodstuffs such as soybeans, cocoa, coffee, and orange juice. These price increases meant a windfall for governments of all political persuasions.

Not only did they make existing extractive facilities more lucrative; they also created strong incentives for more exploration and exploitation. Even though prices have fallen from their peaks, commodity revenues are still high by historical standards. For example, in September 2012, U.S. rating agencies raised Ecuador's credit outlook, citing high international oil prices. This has enabled countries such as Venezuela, Ecuador and Bolivia to shrug offdeclining production and to defy predictions of their imminent demise for at least the past six years. It has also spurred more moderate regimes to pursue rentseeking policies, including higher taxes and a bigger role for state-owned enterprises.

Second, trade and diplomatic ties between China and Latin America have grown rapidly. …