See Robert Millward's The 1940s nationalizations in Britain: means to an end or the means of production? Economic History Review, I, 2 (1997) pp. 209-234.
Today a new wave of state interventionism via nationalizations sweeps the region presenting itself as the definitive solution to poverty, inequality and technological backwardness.
In Part I we have already discussed how the demise of 19th century mercantilist, export-led model gave way, towards the 1930s, to various forms of populist governments. Their main concern was how to finance an ever growing bureaucratic state without alienating political support by client elites reluctant to being taxed. The resources available for public finances were scant and revenue could only be supplemented by borrowing in weak domestic capital markets. Foreign markets were usually rather disinclined to lend.
Hence the occurrence, in the late 1920s, of the first Latin American state-owned enterprises, most of them public utilities that, whenever possible, were expropriated rather than created. Nationalization not only came to be the favorite Latin American method of state intervention but, in many cases, almost the only public finance resource.
Unlike may other regions of the world, most Latin American nationalizations depart from the Keynesian redistributive formulae you can find behind the post-war era European nationalizations. Most have stemmed from nationalist politics and populist agendas, no matter how "Keynesian" they might have been portrayed by promoters and detractors alike.
Some authors have argued that natural monopolies suffice to explain, for example, why fuel and transport utilities went into public ownership in the UK during the post-war era while manufacturing did not. They contend that despite many institutional changes that came about in the UK after the war, most of them led by Labour governments, "the shift to public ownership was ultimately determined by economic factors present throughout the nineteenth and twentieth centuries."1
To be sure, the European Recovery Program provided billions of dollars to European nations to help them rebuild their economies. But Marshall Plan notwithstanding, consensus has awarded the Keynesian corpus the general acceptance of state interventionist policies as the framework for post-war era's European nationalizations.
It is very illustrative to probe into how Keynesian Latin American 20th century's nationalizations have been. At least on the rhetorical field, the distributive rationale for many an ill-fated Latin American nationalization program purported to be Keynesian-inspired.
Measured up against post-war era "Keynesian goals", and compared with French and British nationalizations, how much have Latin American nationalizations contributed, if anything, to consumption and investment on the demand side? How productive on the supply side? Have they helped increase employment or ensured conditions for long-term growth? How well have they fared in developing national infrastructure? Have they really improved the export performance of their countries?
A disturbing question arises whenever direct spending of nationalized enterprises's net income is considered: has any Latin American nationalization directly benefited the population's health care or education? Finally, how have those ineffable complementary "targeted" policies, such as tax relieves, soft credits, export subsidies, direct subsidies and structured tariffs that usually accompany nationalizations helped to create wealth and reduce poverty?
A close look at one of the most emblematic nationalization experiences in Latin America during the last century yields interesting findings.
Argentina's dictator Juan Domingo Perón has long been the most representative specimen. Coming to power in 1946, he led a rapid expansion of redistribution programs. Labor's share of income rose from 40 in 1946 to 49% in 1949 and social security expanded in an unprecedented way.
What made this possible without a collapse of the economy was the global boom of meat and wheat prices that occurred immediately after WWII. Argentina's meat and wheat export revenues doubled between 1945 and 1948, with almost no significant increase of volume. Perón then set up a marketing agricultural board that for a short time managed to keep domestic food prices down while collecting a huge surplus from exports.
At this point, Perón saw the opportunity to accelerate industrial growth and overtake developed world's life standards beyond any cautious expectation over impending sharp adjustments in postwar Europe that, despite high world prices, soon shortened its demand causing a 30% decline in Argentina's agricultural income.
With government resources being taxed from ebbing primary products exports, intensive capital manufactures simply could not absorb the ever growing labor force that flocked from the countryside into Buenos Aires and other big cities.
It was then when Perón nationalized railroads, the telephone system and seaport facilities. Even in hindsight it is difficult to see what economic effects was he trying to bring about.
With European capacity to import Argentinian goods severely curtailed by its postwar adjustments and U.S. agricultural protectionism excluding Argentine products, the trade balance went rapidly into tremendous deficit and reserves evaporated. An artificial boost in money supply that was supposed to finance industrialization only caused inflation to double, peaking at 31% in 1949. The marketing board soon began dealing with all kinds of rent-seekers.
Low prices fixed by the board forced enormous subsidies on railroad fares that soon turned the once proud national railways network into a pitiful shambles. By 1952, already lacking the support of the multi-class and nationalist coalition that had supported him, Perón faced a huge economic recession. He tried an untimely and farfetched stabilization plan to cut government's spending and cap wage and prices hikes but social violence had already set in and, for all his authoritarianism, Perón was ousted by a military coup in 1955.
It all happened more than fifty years ago. It was not the first populist-oriented nationalization ever to take place in Latin America. Over the years it spurred other experiments in populist policies and nationalizations that refined the notion that state interventionism is the key to economic growth and that income redistribution can dispense with the risks of hyperinflation and social unrest.
At the same time, Perón shaped a 20 century Latin American myth: that of the philanthropic strongman who assisted only by willpower and an eclectic maze of economic platitudes can bring wealth and justice to the downtrodden. To be fair, he also relied on the abilities of a utterly charismatic blonde movie actress who in time outgrew Perón's own mythical qualities.
Still, the perplexing fact is that failed populist policies like those bulldozed by Perón in the late 1940s and early 1950s were repeated in the 1980s, all leading to similar pits of failure. Bolivia, Brazil, Chile, Mexico Bolivia, Venezuela, all these countries can attest to more than one failed nationalization. "Redistributionism is a spontaneous feeling", wrote Bertrand de Jouvenel back in 1951.2 "This, like so many spontaneous assumptions of the human mind, is an error."
Still, as I write this more populist-inspired nationalizations keep coming back to our redistributionist countries with ever growing symbolic and emotional power.