Tuesday, November 14, 2006

Best of Captain Capitalism - Why Low Corporate Taxes are Like Cary Grant

So there's a wave of socialism occurring in South America. Hugo Chavez has revamped the current contracts he's had with the bevy of oil companies that have invested in Venezuela so that the state gets 82.5% and ownership of the oil fields.

His Mini-Me Poodle (and waaaaay more of a poodle than Blair could even be accused of being Bush's) Evo Morales just stole the two largest gas fields from Petrobas, BP, Total and Repsol. And let's not forget their handcuffing of Suez, the French water firm that has brought water to more people in Bolivia than any government could, by denying them the ability to (GASP, HOW DARE THEY) CHARGE FOR WATER!!!! This resulted in the contract being cancelled...and poor people getting NO water.

And let's not forget my favorite, the Argentines decision in 2001 to pay back that $132 billion when they damn well feel like it, if at all. Until that time Nestor Kirchner has asked his people to boycott Shell, which is the epitome of all their problems...not stupid people who elect morons into office.

So here's what I don't get;

Why the hell is anybody going to invest in these scam countries again?

No seriously. $5 billion alone was invested in Bolivia's natural gas industry by foreign firms. They turned fields that were producing nothing, literally nothing, into fully functional gas fields. The same could be said for Hugo's beloved and sole source of power; oil. Anywhere from 1/3 to 1/2 of the oil being pumped out of Venezuela is pumped out only because foreign companies came in and did the work. And once the infrastructure is built up and everything running (not to mention billions of dollars worth of investment and therefore jobs created in these local countries), the moronic people of these nations, lacking any sense of basic economics, elect socialists and renationalize everything, essentially bitch slapping the foreign investors in the face.

Grand.

Alas, I can't see how this would be any different than beating a woman in the hopes of her becoming your wife.

Seriously.

I was under the impression that to woo a lady you (I don't know) BE NICE TO HER????

You know, things like flowers, being funny, witty, taking them out dancing, making their time spent with you enjoyable so they'd WANT TO hang out with you. They WILLINGLY invest their time in you.

The same, I'd assume would apply for companies and investors. If you want companies to invest in your country and create jobs, then maybe a good first step would be to not reneg on your contracts, let alone confiscate all their assets.

And hell, that's physical abuse. Let's talk verbal abuse. Have you ever heard a leftist here in the US say anything nice about a corporation?

Like "they bring jobs into this economy."

Or "I'm happy they make a good product at a good price."

Or "Gee, Wal-Mart has effectively raised poor people's standards of living by bringing the prices down for practically ALL goods and services, thereby boosting their purchasing power; thanks Wal-Mart."

No, it's usually this vitriolic, hate-filled, venom, spewing from their mouths;

"CORPORATIONS DON'T PAY THEIR FARE SHARE!"

"IT'S CORPORATE AMERICA THAT'S CONTROLLING THE WORLD AND MAKING US SLAVES!"

"CORPORATIONS ARE NOT SOCIALLY RESPONSIBLE!"

"CORPORATIONS USE ALL THOSE LOOPHOLES!"

It is literally no different than a guy going up to his wife and saying;

"You are the dumbest, fattest slob I know!"

"Get your ass off the couch and make me dinner, woman!"

"If you don't go down to the liquor store and get me my whiskey, you'll feel the back of my hand!"

Alas, I aliken countries to varying men depending on their approach as to how they'd intend to attract investors and companies, just as these men planned on attracting women.

For example, Ireland, Slovenia and most of Central Europe for that matter would be Cary Grant.


They fully expect to woo investors with wit, charm, goods looks, and little, if any corporate taxes.


Then there's the US or any developed "1st World" nation.

A man who maybe at one time was the all-star quarter back in high school, but has since got a gut and just ASSUMES people are going to want to invest in him as he ASSUMES his wife will always stay married to him because how could she possibly do any better than his 40% corporate tax rate. Fetch me another beer, bitch!

And then you have the out right wife beaters and abusers. The Cubas, the Venezuelas, the Bolivias and North Koreas.

And how do they attract investment? By stealing it like some low-life, parasite boyfriend who steals his girlfriend's credit card to buy drugs and booze. They rule by fear and threatening the girl to stay with them or they'll get what's coming to them.

And you wonder why which countries have better economic matrimony?

15 comments:

Sanjay said...

Aaron, your general lack of any grasp of what's going on is so stunning that one reads it and finds oneself motivated to defend creeps like Chavez. Again, you ought to actually try _reading_ that _Economist_.

What happened in Venezuela wasn't, say, a Cardenas-style nationalization. He forced the oil companies to renogatiate -- and they did. The CEO of Shell _just_ pronounced himself -- again -- quite satisfied with the deal Chavez gave them -- and why shouldn't he be? All the companies from whom he threatened to seize assets are still in Venezuela --- and they're all still profitable. So, who would invest in Venezuela? Well, for one thing, the very companies you seem to think were shafted are.

And it doesn't seem a hell of a bad bet. If resource prices keep going up, like most people think they will, then there's money to be made. If they sink, then, Chavez is screwed, and they'll have him by the short and curlys; his government depends on patronage and cheap handouts and ultimately on the oil companies. I think they're in a safe position actually.

Morales has been more ham-handed. But I think from his perspective he's gambling reasonably. Right now Chavez is giving away money. It's not clear to me what better options poor Latin American countries have right now than trying to ride the Chavez wave; you aren't going to argue that Morales has a lot to gain by making concessions to the Americans right now? And Europe is supine. So he's getting his aid where he can. Much of what he's proposed for infrastructure improvent and cleaning up the bureaucracy is pressingly necessary, although I think he's kidding himself as to how well he can do that with revenues on his resources. But if he pulls off any fraction of that he'll make Bolivia a better, not a worse, investment target, largely because it isn't very hard to do from where he's starting. He's making a gamble on Respol because Spain is sucking up to Chavez, and playing a similar game with Brazil; I give him a 40% of pulling it off. I'd be much more bearish on Morales if anyone in Europe were showing any balls on standing to up Venezuela on democracy (the Bush administration having stupidly bungled away its credibility during the 2002 coup), but they aren't, so, he's picking his patron well.

Upshot, sitting back and bitching about the _economic_ policies in Latin America isn't likely to buy you much more than bitching about resource nationalism in the Middle East --- and nobocy is willing to address the _political_ policies because they are, in fact, investing or trying to invest.

As for Eastern Europe being like Cary Grant for investors, well, Christ, put it next to Western Europe and even the Phillipines would look like Cary Grant.

BradMan said...

I agree with Sanjay.

I dont agree with nationalization of private companies assets but on the other hand, if they weren't making bucketloads of profit before and after changes in the contracts..then what incentive is there to stay? They stay because its profitable to do so.

One theory is that countries almost have to play this bait and switch game. Bait in companies with the promise of grandeur, and then switch the contract with them to something 'fairer' once they have invested in the country. They wont leave, and the country wont get screwed by the oil companies.

Oil companies have the reputation of being very...whats the word... unfair lets say, when first negotiating contracts with governments. I pretty much have a first hand account through my old man. He runs a company that negotiates all oil contracts on behalf of 'an african country' (probably not a good idea to state the name) government. Ive also helped him run audits on some of the various companies working there. Its pretty disgusting to see how north americans do business around the world. Everyones an idiot that can be taken advantage of except us.

I pretty much applaud Chavez for sticking it to the oil companies. Its a very hard thing to do.

-Brad

Sanjay said...

Oh, in some ways I'd go further than BradMan on resource nationalism. To some extent if you make a deal with a government --- particularly a non-democratic one -- and it loses power, touch rocks. That's the rationale we use for forgiving of "odious debt" as in Iraq. In fact while the Cardenas nationalization was more disastrous than what Chavez did I like it, in its way, better: it seems better justified.

Now, up and taking over the assets the company has put on the ground is a bit of a stretch. But if you, say, cut an oil deal with Saddam, and moved in some assets, and now lo and behold there's somebody else running Iraq with a better claim to the right to allocate the resources...Aaron seems to want to believe you can then huff and pretend you didn't realize the bargain you were making coming in.

On the other hand, "applauding" Chavez seems like an error. He is an undemocratic thug desperately in need of a whippin boy: foreign oil companies are a comparatively safe target especially since the mood in the devloped world in not to defend them.

Anonymous said...

Hey Cap'n. Long time reader, first time commenting.

It sounds like what these guys are saying is that what Chavez and Morales did was ok because they only shafted those big bad oil companies a little bit.

In the Captain's analogy, it would be like saying that its ok to slap her (its not like he punched her) because she's a bitch anyway.

Is there no chivalry in socialism??

Sanjay said...

Josh, jeez, I'm not saying that at all -- in fact I think you'll notice both BradMan and I said, we don't much like resource nationalization. But Aaron is doing something he does very very often: right conlusion, wrong (or irrelevant) facts. He wants to say, see, what Chavez has done is stupid because, now who's gonna invest in Venezuela? And that's just wrong --- hell, nobody has disinvested over this, quite the reverse!

As for, "just a little," jeeaz, there's such a thing as supply and demand, no? If your supplier suddenly charges you more because he can, is _that_ bad economics? Well, Chavez did what he did, and got away with it, because resource prices went up. He's not "slapping" anyone since, as we both pointed out, those operations are still quite profitable! It's more like cutting the woman back from a 5 grand a week allowance to a $2500 one!

Don't copy Aaron's habit of not checking the facts before posting.

Brandon Berg said...

"I was under the impression that to woo a lady you (I don't know) BE NICE TO HER????"

I can't comment on the South America situation, but I have to ask: Where the hell did you get an idea like that?

Anonymous said...

I don't think anyone is going to disinvest given the amount of resources that they have already invested there, but policies like this will no doubt deter future investment. There's a time consistency problem here where investors aren't going to believe that Chavez and Morales say anymore because they have shown that they have no problem changing the rules of the game when it is to their advantage.

As for the idea of labeling this simple supply and demand, I would say that only goes for mutually voluntary exchanges. In this case, the government strongarmed the oil companies and, in effect, unilaterally changed the contract. It's like someone with a gun walking up to you and saying "Gimme your wallet or your life." Of course you're going to give them your wallet, just as oil execs would gather "renogatiate" rather than have all their assets siezed. In either case, its robbery is you ask me.

Sanjay said...

Josh, van der Veer said again this weekend that he was happy with the deal -- and he recommended that more oil companies consider this kind of deal. I don't kow what would be more "mututally voluntary" than that. "Strongarmed" doesn't cut it, then! Desmarest of Total is apparently also weighing investment in Venezuela and Spain is courting Chavez, hard -- in fact it's hard to look at the amazing amount of jet-setting Chavez is doing and make the claim he isn't getting investors: he is. Again, I think the guy is horriible, but you're making up a reason. Van der Veer singlehandedly eats your case.

It ain't robbery. If the oil companies were bein given a deal where they'd lose money they'd have forfeited the assets. (Mind you, it's not even clear that theft was on the table: Chavez was talking about buying out the assets: no doubt at a steep discount but still.) To argue that I'm robbing you when I offer you a deal which is profitable for us both -- uh, yeah. Straight from the Aaron school of economics. He is certainly threatening them -- but as I discussed above I think there is a reasonable calculation that they'll end up in a good place. In a sense the oil companies are praying for the same kind of dirty insider deal that Chavez would claim he is destroying -- and they're well placed to get it.

Anonymous said...

Sanjay, I think you're looking at this too superficially. Of course the oil exec is going to say this is a great deal in public. He's dealing with a man that has the ability to take away all his assets in a whim. ("Thank you sir. May I have another?") If he starts denouncing the deal like he wants, then he puts his company's profits in even greater danger. At this point, he's simply trying to minimize the losses.

I don't think that you can argue that this deal is profitable for the oil companies. You have to compare how much they would have made before the deal and after the deal. The fact is that they would be making more money had Chavez not forced them into this other deal.

Besides, if the oil companies were truly benefiting from this deal then why would they need to be forced into it in the first place? This ability to resort to coercion makes what happened fundamentally wrong and I would call it theft.

Sanjay said...

Josh, you're looking at it uninformedly, and, a la Aaron, are so sure you're right you aren't even checking into the facts. Check out yesterday's FT -- it's not just that van der Veer said he was satisfied with the deal, he counselled oil companies to look at more deals like it!

This: "he puts his company's profits in even greater danger. At this point, he's simply trying to minimize the losses." is wrong, and silly, and not how you run a business. The loss would've been a fixed amount and probably not so bad -- he could've appealed to the Netherlands for help with Chavez (which he didn't even _try_ to do) and anyway gotten at least a tax write off, and then it's done. Much better than hemmhoraging money for God knows how long. And _not one_ of the comnpanies made that choice! The mind boggles at how much you are refusing to consider the evidence here.

As for "I don't think that you can argue that this deal is profitable for the oil companies," um, no, actually you can't argue it's not, unless they;re lying to their shareholders and all about to go to jail. Duh, it's not as profitable as if Chavez were charging less. But it's profitable as hell -- it was years ago and the oil price has just gone up.

As for, "Besides, if the oil companies were truly benefiting from this deal then why would they need to be forced into it in the first place?" are you seriously suggesting they were going to just give Chavez a bigger cut out of the goodness of their hearts? He said, give me a better price, or I find another distributor. It's the same thing any manufacturer might do to his distributors. If it's theft, all of capitalism is theft. It's not. Nobody will agree but Aaron and he's an ass. Theft would've been if Venezuela actually took the property with no compensation --- and that was never on the table.

Look, argue it if you want. But please do read something about it first.

Sanjay said...

Just a little more:

CEOs don't make nice to dictators by lying about hoe they feel about their contracts. He has a fiduciary responsibility to his shareholders, and they don't want him saying he's going to cut more bad deals. What's Chavez going to do if he says, "I hated the deal but had no choice"? Nothing, that's what.

As for threatening to take away the concession -- when your town negotiates the power franchise, or the US negotiates with a defense contractor, or a resource extractor for that matter, what is it you think we do, exactly? That's the deal: come up with a contract we both like, or I'll find another concessionsaire. Now, Morales' 100-day deadline is a little bit much: but there's nothing in priniciple wrong with a renegotiation.

Captain Capitalism said...

Hey Guys,

Sorry, really busy. If you saw the girl I was dating you'd under stand. So here is a quick response;

Sanjay - Shut up, you're a moron.

Brad - Fine, you may have a personal gripe with the oil industry, but that's just one industry they're renationalizing. There was the water contract in Bolivia. Look to see general taxes in Venezuela go up, and the timber and other natural resources industries in these countries become targets for nationalization.

Josh - You're right.

Brad again - I watched a lot of movies to get the idea that in the olden days treating women nice would "woo" them. In reality today though, you're right, treating them like crap is what gets them...perhaps socialism is the way to go.

Sanjay said...

See what I mean, Josh? That alone should give you pause.

Sanjay said...

Ecuador appears to have proven the point. The dtate has just seized Occidental's assets and is looking for a new firm to invest. They apper to have no shortage of candidates! Granted, Occidental is a bit of a special case, but still.

Bike Bubba said...

Um, Sanjay, exactly how do you "force" someone to renegotiate a contract? Can you do that with your mortgage, your car payment, or your taxes?

Of course not. It's the sole prerogative of those (government) who have people over a barrel; you do it mostly at gunpoint, which is exactly why you don't hear too much complaining about what's going on. Al Capone's complaint department didn't take too many notes, either. And sadly, this kind of thing is rampant in petroleum, so it's the best deal a company can get.

So to stay "they still have bidders means it's OK" is to simply ignore what's really going on. You need to consider the reality that we aren't seeing what Bastiat described as "that which is unseen." Let's try a really free market in fuels and see what happens to Hugo Chavez.

It won't be pretty if it's tried, I assure you.