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1 This article was downloaded by: [University of Pittsburgh] On: 16 November 2010 Access details: Access Details: [subscription number ] Publisher Routledge Informa Ltd Registered in England and Wales Registered Number: Registered office: Mortimer House, Mortimer Street, London W1T 3JH, UK Review of International Political Economy Publication details, including instructions for authors and subscription information: Explaining hydrocarbon nationalization in Latin America: Economics and political ideology Ruben Berrios a ; Andrae Marak b ; Scott Morgenstern c a Department of Economics, History and Political Science, Lock Haven University of Pennsylvania, Lock Haven, PA, US b Department of History and Political Science, California University of Pennsylvania, California, PA, US c Department of Political Science, University of Pittsburgh, Pittsburgh, PA, US First published on: 19 October 2010 To cite this Article Berrios, Ruben, Marak, Andrae and Morgenstern, Scott(2010) 'Explaining hydrocarbon nationalization in Latin America: Economics and political ideology', Review of International Political Economy,, First published on: 19 October 2010 (ifirst) To link to this Article: DOI: / URL: PLEASE SCROLL DOWN FOR ARTICLE Full terms and conditions of use: This article may be used for research, teaching and private study purposes. Any substantial or systematic reproduction, re-distribution, re-selling, loan or sub-licensing, systematic supply or distribution in any form to anyone is expressly forbidden. The publisher does not give any warranty express or implied or make any representation that the contents will be complete or accurate or up to date. The accuracy of any instructions, formulae and drug doses should be independently verified with primary sources. The publisher shall not be liable for any loss, actions, claims, proceedings, demand or costs or damages whatsoever or howsoever caused arising directly or indirectly in connection with or arising out of the use of this material.

2 Review of International Political Economy 2010, ifirst: 1 25 Explaining hydrocarbon nationalization in Latin America: Economics and political ideology Ruben Berrios a, Andrae Marak b and Scott Morgenstern c a Department of Economics, History and Political Science, Lock Haven University of Pennsylvania, Lock Haven, PA, US; b Department of History and Political Science, California University of Pennsylvania, California, PA, US; c Department of Political Science, University of Pittsburgh, Pittsburgh, PA, US ABSTRACT Recent hydrocarbon nationalizations in Bolivia, Venezuela, and Ecuador have renewed debates about the dangers of radicals, populists, or leftists. But, while some of these presidents have acted aggressively towards multinational owners, as a group their policies have not differed greatly from non-leftists facing similar circumstances. To test our hypothesis, we provide a detailed three-variable coding of every Mexican and South American president (for all countries with oil resources), as well as a coding of their policies towards the hydrocarbons industry. The historical review shows that political leaders from all sides of the ideological spectrum have advocated, pursued, or sustained nationalizations, and thus there is no clear relation between these political labels and nationalization policies. An examination of two alternative hypotheses timing and starting point finds that while nationalizations and privatizations do come in bunches, the hydrocarbon policy and economic circumstances that presidents inherit are more likely to determine the policy that they pursue. KEYWORDS Latin America; oil; gas; hydrocarbons; nationalization; populism; petroleum. In the summer of 2005, Bolivia s interim president, Carlos Mesa, faced mobilized and inconsolable masses demanding nationalization of the country s gas industry to redress decades of exploitation and poverty. The demonstrators blocked the roads into La Paz, denying entry or exit for people and goods, even threatening the supply of water and cooking oil. Review of International Political Economy ISSN print/issn online C 2010, ifirst Taylor & Francis DOI: /

3 REVIEW OF INTERNATIONAL POLITICAL ECONOMY Vendors handed out pamphlets proposing new nationalization policies. Before long, Mesa resigned and the leader of the movement, Evo Morales, was elected president. One hundred days after taking office he acted on his mandate, sending troops to take over the gas fields. His nationalization program, however, turned out to be more rhetoric than reality. His plan did not include expropriation of private assets; instead nationalization came to mean the purchase of a majority share in the interests of the multinational firms and an increase in taxes. Further, when the state found it had insufficient funds for the purchase of the necessary stocks, that plan was largely abandoned, leaving nationalization to imply a simple (though significant) increase in taxes on the companies. 1 Still, recent nationalizations in Bolivia, Venezuela, and Ecuador have renewed debates among academics, entrepreneurs, and policymakers about the threats of radicals, populists, or leftists to economic stability (e.g. Dornbush and Edwards, 1991). Amidst this debate has emerged the idea of two types of leftist politicians. In an influential Foreign Affairs article, former Mexican Foreign Minister Jorge Castañeda claims: One is modern, open-minded, reformist, and internationalist... The other, born of the great tradition in Latin American populism, is nationalist, strident, and close-minded (Castañeda, 2006). 2 This dichotomy is problematic. While some of history s supposed closed-minded leftists, radicals, or populists, have sometimes acted aggressively towards the multinational owners of the hydrocarbons industries, their policies have not differed greatly from other presidential types. First, like Morales, many leftist presidents actions suggest more of a propensity to negotiate rather than to expropriate. Second and more importantly, our empirical investigation shows that political leaders from all sides of the ideological spectrum have advocated, pursued, or sustained nationalization. Presidential type, then, is a poor predictor of nationalization policy. We support this assertion through a detailed coding of every Mexican and South American president (for all countries with oil resources) and their policies towards gas and oil industries over the past century. Mining, telecommunications, and other industries have also been central to many countries (leading us to discuss the Chilean copper industry), but we focus on hydrocarbons because, as the recent controversies show, it has been the industry most symbolic of foreign domination across the region. The analysis shows that political leaders have used the term nationalization to describe policies that range from expropriation of private foreign-owned firms without compensation to a simple renegotiation of contracts with international investors. Our theoretical goal is to test whether leftists or populists show a propensity toward nationalizing their hydrocarbon industries. We address this concern by delineating the range of nationalization policies, and operationalizing different aspects of 2

4 BERRIOS ET AL.: EXPLAINING OIL NATIONALIZATION populism and leftism, namely the presidents class-based support, their position with regard to the role of the state in the economy, and their fealty to elections and extant political institutions. We show that there is no clear relation between these political labels and nationalization policies. After demonstrating that neither populism nor ideology explains hydrocarbon policy choices, we briefly examine two alternative explanations for nationalization policies: timing and starting point. The timing hypothesis asks whether ideology is subsumed by general regional trends (nationalizations with the 1960s and 1970s and privatizations with the 1980s, for example). While we do find some evidence that nationalizations and privatizations come in bunches, the most common policy choice (regardless of the ideology of the governing party) is the status quo. The starting point hypothesis is more promising. Our evidence suggests that economic considerations, not ideology, determine the policy they pursue. Thus, those countries that are earning comparatively inadequate returns through royalties and/or taxes on hydrocarbon production are more likely to move against the companies than countries that already gain significant revenues from these industries. This finding suggests one additional conclusion: that policy change, rather than actual policy, drives international responses. This conclusion is evident in a comparison between the bad left in Venezuela with the good left in Brazil. In Venezuela, Hugo Chavez first worked to wrest control of the national oil company PDVSA from the opposition. PDVSA had been internationalized starting in 1989, such that it sold concessions (often at very favorable terms) to foreign investors and then competed with those firms. For our purposes, Chavez s more important move was to purchase a majority share in most of these foreign-owned companies. This new system, which left up to 40 per cent of the companies in private hands, was not unlike that already enjoyed by Luiz Inacio Lula da Silva in Brazil, and leaves a much greater role for private capital than in Mexico or Saudi Arabia. It is only Venezuela, however, that has received international opprobrium. This example thus suggests, then, that while presidents who move against entrenched interests chance retribution, presidents who come to power after nationalization can not only avoid privatization, they can often enjoy the fruits of the nationalization without international scorn. THE DEPENDENT VARIABLE: CHARACTERIZING OIL NATIONALIZATION PROCESSES While at some points in time foreign firms have been welcomed into Latin American countries, at other times the countries and firms have clashed over the possibility of nationalization. While nationalization has affected a wide range of industries, 3 we have confined our focus to the nationalization of oil and gas resources in Mexico and South America, with an emphasis on extraction (rather than the distribution and marketing aspects 3

5 County REVIEW OF INTERNATIONAL POLITICAL ECONOMY Table 1 Oil and gas nationalizations Year of Nationalization Argentina 1922, 1924, 1930, Bolivia 1937, 1969, 2006 Brazil 1953 Chile 1932, 1950 Colombia 1951 Ecuador 1972, 1974, 2006 Mexico 1938 Peru 1968, 1986 Uruguay Venezuela 1976, 2001 Source: Compiled by authors from Grosse (1976), Blaiser (1985), Sigmund (1980) and others. 1 ENARSA, the state corporation created in 2004, controls concessions for off-shore rights. The rest of the oil industry is still largely owned by a private corporation (YPF-Repsol), with the state as a minority share-owner. The 1930 nationalization was cancelled by a military coup. 2 Refining and distribution; Uruguay has no oil for extraction. We therefore ignore Uruguay in other parts of this paper. of the industries). Table 1 lists the countries and the years in which their oil and gas resources were nationalized. 4 Note, for example, that Argentina, Bolivia, Chile, and Venezuela (among others) have moved multiple times to nationalize the same industries. The later processes either reversed privatization processes or deepened the earlier nationalizations. While Table 1 denotes the major nationalizations in each country, nationalization is not a dichotomous variable. Nationalization can mean taking full control of all aspects of an industry, but in most cases, countries are not so bold. 5 Recall that even Bolivia s highly publicized nationalization of its gas fields in 2005 largely mandated that the state acquire a majority share. Similarly, Ecuador increased taxes and government controls in 1972, and then took a 62.5 per cent share of Gulf Oil in When evaluating their options for increasing revenue and exerting greater control over oil resources, governments face numerous options (and multiple challenges). At one extreme, the governments can expropriate foreign assets and reassert national sovereignty over subsoil resources, by claiming that the foreign companies have exploited the country. At the other, the governments can negotiate with the foreign firms to purchase all or perhaps just 51 per cent of the company s assets. The goal of this type of system is to ensure that foreigners continue to invest and use their technical expertise to develop the enterprise. A third option, perhaps not on the same continuum, would be for the government to restructure the tax and royalties system to increase their take from the foreign enterprise. 6 In this case, the company either could be left partially in foreign hands with state and private local interest forming a type of joint venture. Sometimes a foreign 4

6 BERRIOS ET AL.: EXPLAINING OIL NATIONALIZATION firm with only a minority share can still exercise some control if it provides the technological know-how. Finally, there is a fourth option: governments can set up public enterprises that compete with private companies. This arrangement can help the government to access lucrative resources while still encouraging outsiders to invest in the economy (though often in riskier aspects of the business such as exploration and refining). These options suggest a four-dimensional characterization of nationalization based on whether: (1) the government has majority ownership or a 100 per cent share in the company; (2) the public company has at least 50 per cent (but not full) ownership of the industry; (3) the foreign firm and the country reached agreement on compensation; and (4) the government moves for more control over oil and gas companies by significantly increasing taxation and/or royalties. In most cases, the nationalization processes that we have categorized are not one-shot deals; each policy change is just another step in long-term conflict between the states and the foreign corporations. In some countries, there had been previous attempts to wrest some level of control over their resources, either through taking more direct management of the industry, changing the tax structure, renegotiating royalty payments, and/or exercising greater financial control of the multinational interests, depending on who was in office. In others (e.g. Venezuela 1976 and Colombia 1951) nationalization was the means by which the countries ended long-term contracts or concessions. Still, in each country, the nationalization pressures came to a head with significant legislation that set up new state enterprises or dramatically changed the level of control afforded the countries. Tables 2 4 focus on these laws, using cross-tabulations to highlight the multidimensional character of the nationalizations. The first dimension (rows in Table 2) is whether the countries took over complete control or whether joint ventures were formed in which the private firms continued as minority shareholders. In the clearest cases, the nationalizing country has taken over the complete industry. Foreigners were expelled from these countries and 100 per cent; of their assets were transferred to the state. The second dimension of the table (columns) is crucial, however, because in many cases the state has not tried to monopolize the industry. There is much diversity in the way that the states have asserted less-than-full monopoly control. Cases that fall into the right column, therefore, include those where the state has taken full control of a particular firm but not others, when they have taken over a sector of the industry (such as extraction or distribution), or where they have asserted ownership of resources in a specific region. The top left box of Table 2 recalls the classic understanding of nationalization: a state enterprise with total control of an industry. Mexico s creation of Pemex by taking over of the foreign-owned oil fields in 1938, Peru s take over, and the creation of Petroperu are the clearest cases of this 5

7 REVIEW OF INTERNATIONAL POLITICAL ECONOMY Table 2 Country share and company monopolies Monopoly industry Public company competes with private firms 100% ownership Argentina Argentina 1922, 1924 Bolivia Chile 1932, 1950 Bolivia 1969 Mexico 1938 Ecuador Peru 1968 Uruguay % < ownership < 100% Brazil Bolivia Peru Colombia 1951 Venezuela 1976, Ecuador 1972, Cancelled by coup. 2 The 1924 nationalization deepened the state control. See Table 1 about Government owned only a majority share, but only domestic investors allowed. 4 In 1976 the private companies became subsidiaries of PDVSA. 5 After nationalizing the industry in 1968, the state allowed some private exploration in the 1970s. Two companies, Belco, and Occidental, struck oil in the 1970s. Occidental, however, had been in a joint venture with Petroperu and Belco was taken over by the state in 1986 (compensation was paid several years later). 6 From Ecuador s standpoint, the dispute with Occidental that ended in the cancellation of its contract was not a nationalization. 7 Bolivia s 2006 Hydrocarbons Law called for majority Bolivian ownership but Bolivia lacked the capital to actually purchase majority shares and settled for a sharp rise in taxes. box. Bolivia s policies of 1937 also fit there. 7 Other cases of nationalization are less complete (lower left box), leaving important roles for the private companies. In Venezuela, for example, the 1976 nationalization converted the private companies into subsidiaries of the state corporation. These companies, then, maintained an important role in directing the industry. Still, this case fits under the monopoly category as the state had a stake in all oil production. In Bolivia, the state nationalized Gulf Oil in 1969 but officials allowed other private companies to continue operating. The Argentine processes in 1922 and 1924 are similar. There, the state created a national corporation, YPF, and then reorganized such that it would fully control some but not all wells (Solberg, 1979). 8 These cases, as well as Ecuador s recent court ordered takeover of Occidental Petroleum, therefore fit into the upper right box. 9 In these cases the state has typically asserted its ownership of subsoil rights and then granted concessions to either the private or public firms. In some of these cases, the state also asserts full control of a part of the industry, such as extraction, while leaving downstream aspects (processing) to private industry. The final box in the table includes those cases (Bolivia 2006, Colombia 1951, and Ecuador 1972) where the state corporation took just a majority share in some but not all of the natural resource companies. In these cases 6

8 BERRIOS ET AL.: EXPLAINING OIL NATIONALIZATION Table 3 Country share and compensation agreements Compensation agreement No compensation agreement >50% ownership Bolivia 2006 Colombia 1951 Ecuador 1972, 1974 /1 Venezuela 2001 /2 100% ownership Bolivia 1937 /3 Brazil 1954 Chile 1950 /6 Mexico 1938 /4 Venezuela 1976 Peru 1968 /5 /1 Unclear if the state took even a majority share in some firms. /2 Two companies have not yet settled an agreement. /3 Agreement signed six years after nationalization. /4 Companies settled in 1941, but under the succeeding president (and pressure from the U.S. government due to WWII). /5 Some compensation six years after nationalization, though not fully public terms. /6 In 1932 the Chilean government claimed the right to assert full control over oil resources, but they did not do so. At that time the government did establish state control over imports, distribution and sale of petroleum. Sources include: Sigmund (1980) Blasier (1985), Puga Vega (1964). as well as Chile s 1968 nationalization of their copper fields the state took control of the most lucrative companies or asserted control over proven oil (copper) fields without asserting control over exploration or more risky ventures. 10 Often the distinguishing feature between the nationalization arrangements is whether the countries and companies reached agreement on compensation for the transfer of assets (Table 3). These agreements are always controversial, since the multinationals are wont to claim the governments have undervalued company assets, and the host country claims the opposite. Still, negotiations have often led to signed formal agreements. The clearest case of a state taking over a company s assets without reaching financial agreements was Peru in 1968, when the military occupied and expropriated the oil fields of the International Petroleum Company (IPC). Peru made it clear that IPC was a special case and that other nationalizations that were to follow were to be properly compensated. As a result of economic sanctions applied by the United States and the substantial reduction in bilateral aid, Peru provided a packaged compensation to nationalized U.S. firms, and although the details were not made public, some funds may well have reached the IPC. 11 Ecuador also took over a petroleum company without compensation in 2006, but in this case the state justified its action, arguing that the company violated its contract by selling stock to a third party without state approval. Finally, the other exceptional case of an expropriation in South America dealt with copper rather than oil. Three U.S. companies controlled 85 per cent of copper produced in Chile (Ingram, 1974). The main argument against compensation was that the 7

9 REVIEW OF INTERNATIONAL POLITICAL ECONOMY multinational companies had taken excess profits and thus deserved no more revenues from the state. 12 In most other cases, however, governments have paid substantial sums to the companies (Sigmund, 1980). In Mexico, for example, the oil companies were paid $47 million to settle the takeover in 1938 (and the British industries were paid $80 million). The corporations initially resisted this arrangement (demanding $262 million), but finally signed the deal in In Venezuela the oil companies were paid about $1 billion (against an estimated value of about $5 billion) in 1976, which critics at the time, as well as today s (Chavez controlled) PDVSA, claim is more than the companies would have earned for the next 10 years when their concessions would have expired. With one partial exception, even the recent nationalizations have not been expropriations. Venezuela s Chavez made front-page news for nationalizing his country s oil industry but this was not an expropriation. In fact, much of the controversy was whether Chavez had enough cash to compensate the companies. Most of the companies reached agreements with the state and converted their strategic associations and operating service agreements into joint ventures (with a PDVSA share of 60 per cent) as required in the 2001 law. As noted earlier, two companies, ConocoPhillips and ExxonMobil, did not reach agreement, and as a result, the state took shares of 100 and 83.4 per cent respectively, while the companies took their cases to arbitration. Similarly, Evo Morales received international scorn for his nationalization of the gas fields in Bolivia. Here again, however, the nationalization was not expropriation. Morales did force the firms to sign new contracts that sharply increased taxes and royalties, and the state was supposed to purchase a majority ownership of the stock. The tax change went forward, but the vast majority of purchases stalled owing to a lack of state capital. The Morales example points to the next defining variable for nationalization, the taxing scheme. In one sense, the taxing scheme is a continuous variable defining the degree of nationalization. Any tax above zero implies the state has a claim on the resources themselves and/or the profits obtained from the exploitation and sale of those resources. As Sigmund (1980) argues with reference to Venezuela in the 1940s, increasing taxes (whether on profits or a per/barrel assessment) is a good alternative to taking control of an industry, because it increases a country s revenues without generating threats to the supply of capital and technology, economic blockades, or even military intervention. In most cases (e.g. Venezuela 1945, Peru prior to 1968, and Ecuador since the 1970s), the taxes have been used in the countries struggles against the corporations as an alternative to managerial takeovers (Lieuwen, 1985). Taken together, Tables 1 3 plus the taxing issue suggest a two-part 9- item scale (Table 4). The first part is based on presidents options when facing a privatized industry, and the second part of the scale indicates 8

10 BERRIOS ET AL.: EXPLAINING OIL NATIONALIZATION Table 4 Scaling privatization and nationalization Nationalization/Privatization Scale Example Starting with a Private Industry 1 Monopoly Nationalization No Compensation Peru Monopoly Nationalization With compensation Mexico Majority Share Nationalization No compensation Bolivia Majority Share Nationalization With Compensation Venezuela Extend government controls (or taxes) Mexico Leave Privatized Bolivia Starting with Nationalized Industry 7 Leave Nationalized Brazil Partial Privatization Peru Full Privatization Venezuela the options for a president facing a nationalized industry. For the first part, at one extreme the president can leave the industry privatized or move to expropriate the industry and take monopoly control without offering compensation. Focusing on these extremes, however, misses the great variety in government petroleum industry policies. Moving up the scale from leave privatized, the next theoretical category is one where the government extends some controls or increases taxes, but leaves ownership and operations in the hands of the private companies. The next two most severe options are for the government to purchase or expropriate majority ownership in one (or more) companies, while leaving other companies to operate independently. The Venezuela experience presents a subtype. Chavez entered facing a national oil company, but it operated autonomously. There were also several private companies. Chavez moved against both: first consolidating control of the national company, and later purchasing (or expropriating) majority shares of the private companies. As a result, we categorize him as facing a privatized rather than a nationalized industry. The final two categories in this part of the table are when the government assumes monopoly control of the industry either with or without compensation. For the second part of the categorization, where presidents enter facing a nationalized industry, we have truncated the discussion and just focus on the options of leaving the industry nationalized, and partially or fully privatizing it. The middle category, however, could include a range of options; the government could sell control of some (but not all) oil fields, it could keep subsoil rights but sell some portion of the national company, or it could keep control of some aspects of the industry (such as distribution) while selling off rights to others (such as extraction). Many of these category definitions as well as the placement of particular presidents require interpolation. First, it is not always clear when a tax change is dramatic enough to imply a categorical shift in government 9

11 REVIEW OF INTERNATIONAL POLITICAL ECONOMY policy. Similarly, it is frequently unclear how to judge compensation packages. To limit the bias here, we tried to judge whether there had been significant negotiations prior to the nationalization and whether the companies accepted the new terms. Of course the companies may have been negotiating under duress (i.e. the threat of a forced takeover), but this should help differentiate the cases where the country takes over an industry and then later offers some compensation. THE PURPORTED INDEPENDENT VARIABLE: LEFTISTS, POPULISTS, AND INSTITUTIONALISTS Studies of populism have generally come to a clear conclusion about the negative relation between populism and economic policy. 13 In the most influential study of this phenomenon, economists Dornbusch and Edwards (1991) focused on the macroeconomic mismanagement of populist regimes. A first-glance review at recent nationalizations in Bolivia, Ecuador, or Venezuela might raise similar concerns, with the presidents dangerously pursuing rhetorical gains while ignoring issues of efficiency and property rights. Our evidence, however, suggests otherwise. In short, we find that not only were the policies undertaken in Bolivia, Venezuela, and Ecuador rather moderate (involving negotiated settlements or court ordered cancellations rather than outright expropriations), but also that other historical leftists and populists have not behaved much differently from centrists or rightists. To evaluate this hypothesis, we require operationalization of presidential types (military or elected), ideological positions, and populism. Authoritarianism was traditionally defined by the presence or absence of elections, but recent experiences with illiberal or delegative democrats who combine elements of authoritarianism with elections, suggest difficulties in applying that criterion. Populism has always been a contested concept that embodies some combination of a charismatic style with the leader s appeals to lower or multi-class constituencies, urban workers, nationalism, and the avoidance or manipulation of the democratic institutional framework. 14 Definitions of populism in Latin America often conflate a ruler s style (personalist or anti-institutionalist) and an ideology (multiclass and redistribution) (e.g. Drake, 1978; Dorbusch and Edwards, 1991). Weyland (2001), in recognition of the problem, used Venn diagrams with four interlocking circles to explain the multiple if not conflicting ways that the term has been applied in a Latin American context. Many of these defining characteristics, however, are endogenous to policy choice, and thus the concept is still unusable as an independent variable. The idea of leftism has similar problems because the term can imply both economic principles (redistribution) and political views (centralization). Even more problematic, these issues overlap aspects of populism. 10

12 BERRIOS ET AL.: EXPLAINING OIL NATIONALIZATION In order to deal with some of these issues, our approach is to classify presidents according to three (relatively) independent and (to an extent) measurable dimensions as shown in Table 5. We will return to the numbers in the table shortly, but here focus on the coding system. The first variable, depicted as the horizontal dimension of the table, is the standard class divide; is the leader supported by lower or upper classes? Empirically (and theoretically) the support coalition is tied to the presidents policy preferences (extreme leftists are statists), but especially among politicians supported by the middle sectors of society there is significant diversity in the presidents attitudes about the degree to which the state should insert itself into the economy. As a result, we add another dimension to the model based on the presidents implementation of statist versus neoliberal policies. In examining the statist-neoliberal scale, we tried to evaluate the presidents policies without regard to hydrocarbons policy. Of course hydrocarbons policy is often a central component of the economic policy, but we found many exceptions. Similarly, it was not always possible to separate ideology from policy stances, but we attempted to do so by categorizing the former according to the presidents support coalitions at the time they entered office separate from the actual policies they implemented. Switchers (Stokes, 2001) like Fujimori (in his first term), therefore, combine center-left and neoliberal labels in his first term but center-right and neoliberal labels in his second. This is justified because we are trying to understand how a president s ideology and campaign promises affect future policy decisions. In coding these two dimensions, we worked from several sources. We first consulted Coppedge s (1998) study of expert surveys. While a useful starting point, his study provides only a rough measure; consider that the Peronists are classified as a secular centrist in 1946 but other for Coppedge s data also fails to help in classifying the non-elected presidents and the time series ends in the mid-1990s. Still, the data is fairly comprehensive and provide a consistent way to judge the ideological position of many of the presidents in our sample. To complement Coppedge s work and to separate the presidents support coalition from their policy positions, we relied on presidents biographies and other specialized literature. Next, we operationalize Roberts (2007a, 2007b) conception of populism. Roberts moves beyond the conflicting (and often historically specific) definitions of populism by focusing on leaders connections to already established, institutionalized parties, arguing (as do we) that leftism and populism are separate categories and that populism refers to the topdown political mobilization of mass constituencies by personalistic leaders who challenge established elites (either political or economic) on behalf of an ill-defined pueblo. We capture populism by coding whether the president created a personalist electoral machine and consequently lacked close 11

13 REVIEW OF INTERNATIONAL POLITICAL ECONOMY Table 5 Presidential classification scheme and nationalization types Left Right (worker (upper-class Total support; Center- Center- support; no number of redistribution) left Center right redistribution) entries Statist Military 1,1,7,7 1 7,7 6 4,7,8 13 Dubious elected Institutional 2 7 7, Non-institutional Elected Institutionalist 2,7,8 6 5,7 5 3,7 6,7,7 18 Non- Institutionalist 4,4,5,7 4 Regulatory Capital (Mixed) Military 7 4,6,6 6,7, Dubious election Institutional 5,6,6,7 4 Non-institutional 5 1 Elected Institutionalist 7 6 7,7 9,8 1,6 5,7 10 2,6,6,7,7, Non-Institutionalist 1,5,5,6 4,7 5,5, Neoliberal Military 6,7 7,8 9 Dubious elected Institutional 6,7 6,2 4 Non-institutional 7 1 Elected Institutionalist 7,7,8,9,9 6,7 4,6 10,7 12,8,8 32 Non- Institutionalist 8 6,6 6,6 6,7,7 8 Total number of entries Numbers in boxes refer to the nationalization typology listed in Table 4. When there are more than three examples in a box, we list the type of nationalization followed by an x and the number of occurrences; 7 5 implies five examples of nationalization type seven (leave nationalized). 12

14 BERRIOS ET AL.: EXPLAINING OIL NATIONALIZATION ties to existing political parties. 15 To this end, we first distinguish those leaders who were elected from those who were not, and also consider whether elections were held in dubious circumstances. Then, among the elected presidents, our concern is whether the leaders worked through the existing institutional structure or created a new political party or constitutional framework. Our specific coding criteria is whether the president s party gained at least 10 per cent of the vote in an election prior to the president s campaign; if not, we label the president a non-institutionalist. Presidents who took power via a coup or rigged elections (as in Mexico until 1997 or in Argentina ) fall into the category of dubious institutionalists, recognizing the pro-forma nature of many of these elected regimes that were nonetheless often highly institutionalized. This technique distinguishes, for example, Juan Perón, Getulio Vargas, and Alberto Fujimori, traditional populists who took power without the aid of longstanding political parties, from Allende who won the Chilean election as the representative of an established party. Still, some leaders are difficult to classify, such as Ecuador s JoséMaría Velasco Ibarra who was elected five times from a variety of parties. As a result, specialists will undoubtedly disagree with some of our classifications, but the large number of cases should give confidence to the trends we have uncovered. In sum, the three dimensions provide a more precise classification of presidential types. We replace the vague term populism through a consideration of whether the leader is tied to existing parties and institutions. As such, we can clearly distinguish between Chávez and Morales (elected non-institutionalists with a lower-class support base) from Allende (institutionalist with a lower-class support base). We can also separate out those leaders who are often grouped with the populists but gained power through military intervention (Alfredo Ovando in Bolivia, Juan Velasco Alvarado in Peru, Velasco Ibarra and Guillermo Rodriguez Lara in Ecuador, or Fujimori who imposed an auto-coup in Peru). The framework is still complicated, however, because some leaders used the military to gain power but consolidated that power using elections (or vice versa) and without much resort to coercion. Further, Perón and others have moved at different times in their careers with reference to their willingness to use force (and on which citizens). These coding issues complicate empirical discussions, but as we show in the next section, the classifications allows for tests of the relation of presidential types and nationalization policies. OIL NATIONALIZATION POLICIES AND LEADERSHIP TYPES To analyze the relation of institutionalism, ideology, and the policies towards hydrocarbon industries, we now combine our two typologies. If we find that institutional routes to power and ideological categories do align 13

15 REVIEW OF INTERNATIONAL POLITICAL ECONOMY with nationalization processes, then we can conclude that a president s type is related to policy choice. If not, then economic factors, the international climate, or starting point must provide a better explanation for a country s move towards or away from nationalization. Toward this goal we first categorized every president in Latin America from the time when countries adopted oil or gas laws according to the criteria suggested in the previous section (only excepting very short-lived presidencies). We then matched the presidential types with the presidents policies towards the industries. Our database, which is available at our website < politics/faculty/morgenstem/ morgenstem personalwebpage.html>, includes 169 presidential terms and is summarized in Table The numbers in the cells refer to the nationalization types, defined in Table 4. The top left entry, therefore, signifies that four presidents were statist-leftists from the military. Two of these nationalized their industry without offering compensation (code 1 from Table 4) and two left their industries nationalized (code 7). The raw data in the table gives a first indication that ideology is only weakly related to any aspect of nationalization policy. To highlight this null finding we conducted both bivariate and multivariate tests. First, Table 6 looks at the bivariate relation between the presidents left right position and their nationalization policies. The nine most aggressive nationalizers (codes 1 and 2) include four leftists, two from the center-left, and three from the center or right. As a percentage, then, the leftists have been more likely to nationalize, but even most of these presidents have acted with prudence, Table 6 Left, right, and nationalization Left Ctr-left Cen-ter Ctr-right Right Total 1 Monopoly Nationalization No Compensation Monopoly Nationalization With Compensation Majority Share Nationalization No Compensation Majority Share Nationalization With Compensation 5 Extend Government Controls (or Taxes) Leave Privatized Leave Nationalized Partial Privatization Full Privatization 2 2 Sum

16 BERRIOS ET AL.: EXPLAINING OIL NATIONALIZATION offering compensation and continued private opportunities rather than outright expropriation. Looked at another way, among the 14 leftists, one-half of them came to office with nationalized industries, and only one of them moved towards privatization. Although six of the other seven moved the industry towards nationalization, only two failed to offer compensation. This record, however, does not compare unfavorably with the center-rightists. Of the 49 presidents in that category, 24 did not privatize their public enterprises, 19 left their private industries untouched, and four moved their private companies towards the public realm, though all of these offered compensation. The strongest objection to this conclusion is that none of those nationalizing without compensation come from the right side of the ideological scale. There were only five presidents classified as nationalizing without compensating the industrial owners. Two of these were leftists (Bolivia s Ovando Candia [ ] and Toro Ruilova [ ]), two center-leftists (Brazil s Vargas [ ] and Peru s Velasco Alvardo [ ]), and one centrist (Argentina s Yrigoyen [ ]). At the other extreme, however, most rightists and center-rightists with a neoliberal bent failed to privatize. There is, therefore, a weak relationship between leftists and nationalization, but little expectation that putting rightists into power will result in the return of industries to private hands. In sum, while there is some evidence that the leftists nationalize, the starkest conclusion is that presidents of all stripes, including those of the center and right, have not moved to privatize state hydrocarbon industries. To confirm this finding in a multivariate setting, we used a series of ordered-logit regressions, conditional on the initial arrangement of the industry (Table 7). First, for presidents facing privatized firms, we can regress the nationalization policy (scaled 1 6) on the president s IDEOL- OGY (scaled 1 5; left to right), whether the president was ELECTED, Table 7 Ordered logit regression; dependent variable; nationalization policies (codes 1 6) All Excluding Excluding All Cases Far Left Far Right Cases Neoliberal Statist Elected Institutional Non-Institutional 0.74 Ideology (L-R) N Pseudo R p <.1; p <

17 REVIEW OF INTERNATIONAL POLITICAL ECONOMY dubiously elected, or took power through a coup (scaled -1, 0, 1) and a series of dummy variables indicating (a) whether the president s general policies were STATIST, NEOLIBERAL, or a mix and (b) whether the president was the head of an INSTITUTIONAL party or not. In our descriptive table our variable distinguishes institutionalists, non-institutionalists, and military leaders. In the regression, however, we could not include a second dummy due to the very high correlation between ELECTED and the second dummy. A final regression, therefore, uses a NON-INSTITUTIONAL dummy in place of the INSTITUTIONAL variable. Supportive of our hypothesis, the first regression shows that neither a leader s electoral status, whether or not they lead an institutionalized party (in contrast to a new movement or the military), nor their economic policy has a statistically significant impact on their nationalization policy. The last regression confirms the finding, though it suggests the statists are less likely to nationalize. Contrary to the bivariate analysis, the ideology variable does reach statistical significance. The result, however, is tenuous, since it is predicated on the few outliers on either side of the spectrum. The second and third regressions show that if we drop the seven leftists or eight rightists, ideology is no longer related to nationalization policy. The finding that outliers drive the regression implies a need to investigate them in more detail. As we noted above, there were only a handful of leftists (seven who entered when the gas industry was in private hands), and although all of them did move towards nationalization, five compensated the companies. On the right, seven presidents left the industry in private hands and one partially nationalized the industry (Urdaneta Arbeláez, Colombia ). The poor relation of ideology and nationalization is further evident if we consider cases where presidents enter facing already-nationalized industries. The regression (not shown) indicates that presidents on the right are even less likely to privatize industries than are leftist presidents. Stated in reverse, presidents on the right tend towards the leave nationalized side of the scale. These relations hold if we drop the far left from the regressions (the ordered logit does not converge if we drop the far right). Alternative explanations If ideological leanings fail to fully explain nationalization policies, the alternative hypothesis is that economic pressures and constraints drive presidents. When presidents consider nationalizing petroleum or other large industries, they must address four central questions: First, how will a country finance the takeover of the industry? Second, after the takeover, will the country have enough access to capital to finance continued investment in the industry? Third, will the United States or other affected 16

18 BERRIOS ET AL.: EXPLAINING OIL NATIONALIZATION countries impose an economic squeeze or other sanctions that would affect access to either finance or technology? Fourth, how well will a nationalized firm compete with private enterprises? Nationalization projects are very costly, and Latin American countries have generally lacked capital necessary to purchase foreign-owned assets. When countries negotiate with firms rather than expropriate assets, the country must finance the purchase through a combination of international loans if available, domestic budget allocations, domestic bonds, and levies on future income from the nationalized industries. 17 Where funds are not easily available, nationalizations have sometimes been slowed or stopped (e.g. Bolivia 2006). Investment capital is a second concern. Countries may not be able to count on accessing international financial markets; private investors would likely be wary about putting their money in an industry where there is the potential for further nationalization. 18 Third, how will the United States or other countries respond to the nationalization? In some cases, the United States has not responded with more than offers to negotiate settlements, but in other cases the responses have included military intervention, economic sanctions, rhetorical threats, and the suspension of aid (Blasier, 1976). A fourth consideration is how well the state enterprise can compete with private firms. Efficiency, investment, costs, and U.S. responses will be involved in this decision. When countries lack sufficient investment funds to develop a full industry or are unwilling to make risky investments in particular areas, a potential strategy is to allow private investment by forming joint ventures. Regarding the oil industry, this might imply allowing private firms to become involved in explorations, refining, or the distribution but not the extraction of the resource. By allowing public private partnerships, such a scheme can facilitate technology transfers and the marketing end of the business. These concerns explain why some presidents who may be predisposed to nationalization do not move far in that direction. An additional hypothesis, then, is that the leftists and/or non-institutionalists nationalize industries only when the international environment is more supportive of statist policies. There was a wave of nationalizations in the 1960s and 1970s, followed by some retrogression in the 1980s, and then a return of nationalizations in the last few years. These waves, however, have not swept in all countries. Table 8 tests whether the relation between ideology and institutionalism with nationalization is time bound. The figures in the table divide the presidents by their left/right ideology and whether they were institutionalists or not. For example, there were six institutionalist and five non-institutional presidents from the center and right who left their industries private in the 1990s and 2000s, but 14 who left them nationalized. 17

19 REVIEW OF INTERNATIONAL POLITICAL ECONOMY Table 8 Timing and nationalization/privatization policies Left Center-left Center and Right s 1980s s s 1980s s s 1980s s Monopoly Nationalization, No Compensation Monopoly Nationalization, With Compensation Majority Share Nationalization, No Compensation Majority Share Nationalization, With Compensation Extend Government Controls (or Taxes) Starting with Privatized Industry 0/1 0/1 1/0 0/1 0/1 2/0 0/1 0/1 Leave Privatized 4/0 1/0 3/1 7/4 2/2 6/5 Starting with Nationalized Industry Leave Nationalized 1/2 1/0 1/0 4/1 4/0 6/1 13/8 11/3 14/1 Partial Privatization 1/0 1/1 0/2 2/0 Full Privatization 2/0 2/0 Totals 2/3 1/0 1/2 9/3 7/0 12/3 22/15 13/5 22/6 The first number is the quantity of institutionalists and the second is the number of non-institutionalists. 18

20 BERRIOS ET AL.: EXPLAINING OIL NATIONALIZATION While the table does reflect the waves, the most common policy is the status quo in all periods; regardless of the ideological position of their presidents, countries with privatized industries leave them privatized, and those with nationalized industries leave them nationalized,. Since the 1990s, Latin Americans have elected three leftists, 15 from the center-left, and 28 presidents from the center or the right. Of these 46 presidents, 15 inherited a private industry and did little to move towards nationalization. Another 23 inherited a nationalized industry and stood pat with the extant policy. Only eight tried to change the extant policy; two moved towards some nationalization and six moved towards privatization. These patterns are not dissimilar from those in the 1960s 70s. What does seem to separate the non-institutional left from other presidents is the process by which they have moved against foreign companies. The two institutional centrist presidents that moved their countries to nationalize their industries Carlos Andrés Peréz in Venezuela (1976) and Eduardo Frei in Chile (in regards to copper in 1968) used less contentious methods than have recent presidents in Venezuela and Bolivia. Sigmund, for example, describes the Venezuelan nationalization of 1976 as peaceful and relatively free of conflict (p. 226) and the Chilean policy under Frei was termed negotiated nationalization (Girvan, 1972). There is also the case of a center-right non-institutionalist, Velasco Ibarra, who moved so cautiously towards nationalizing the Ecuadoran industry in 1972 that the military overthrew him in part to speed the process (Martz, 1987). This is eerily similar to the case of Belaunde in Peru, who was deposed in a military coup by Velasco Alvarado in order to nationalize the U.S.-owned International Petroleum Company. While nationalization was a theme of the 1960s and 1970s, the 1980s brought privatization to the Americas. After the so-called lost decade, however, many countries have reevaluated the role of the state in the economy, and three countries have made sharp moves to re-nationalize oil industries: Bolivia, Venezuela, and Ecuador. It may be no coincidence that two of the countries have been led by non-institutionalists with agendas focused on the poor. But, there have been other non-institutionalists in this period, and they have either privatized industry or maintained a privatized status quo. Further, one institutionalist Palacios in Ecuador further nationalized his country s industry. None of the remaining institutionalist presidents have nationalized their industries, though two of them have maintained their previously nationalized industries under state control. Argentina is a partial exception, in that their president Nestor Kirchner created a new national corporation, ENARSA, but this was a vehicle to control off-shore concessions rather than already established operations. YPF, which was sold off under Carlos Menem beginning in 1991, is now a subsidiary of the Spanish firm Repsol and one of the largest energy companies in the world. Further, though Kirchner is a member of 19