Privatization and nationalization: Two models of state capitalism


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US leaders might ponder the lessons of Venezuela and Iran.

Iran and Venezuela share many similarities. Recent political revolutions have brought in anti-US governments. They are Opec’s two most powerful price hawks, and they are increasing their links through industry and a shared bank.

Their similarities and links, however, are in opposition to one big difference in their economic policies: Iran is privatizing assets as fast as Venezuela is nationalizing them.

The latest nationalizations in Venezuela include one of the country’s biggest banks, which was owned by Santander. Cemex, a formerly Mexican-owned cement company is also now controlled by the state. In Iran, even parts of the national oil, gas and petrochemicals companies are soon to be up for sale. A foreign investor might even buy a stake that would partly control the national Iranian telecommunications company. The government is to sell most of the biggest banks in Iran too.

The youth of Venezuela’s revolution – still less than 10 years old – might be part of the reason for this contrast. But Iran’s election of Mahmoud Ahmedinajad was in some ways a reaffirmation of the values of the Islamic revolution, in reaction to the reformist, more conciliatory tendencies of the previous decade.

Iran is not the only country where a resurgence of capitalism has come with a decidedly statish tinge: think China, or the US’s darlings on the other side of the Gulf.

But Iranian state capitalism will be more populist in the way it is managed. The distribution of so-called justice shares is one feature of that. These are placed in funds to be distributed to the poorer sections of the population after the dividends have paid back their initial value on privatization. The government keeps large proportions of privatized companies in direct stakes. Employees, or pension funds for employees, also get big chunks.

Mahmoud Ahmadinejad’s government has used state banks as tools of wealth redistribution through cheap borrowing rates and coerced lending. The economic fallout of this might have caused a partial halt to the activity. But the fact that this was a feature of the same government that is controlling the privatization process might give some indication of what the future will hold for banks and other big companies after they have been privatized. Indeed, no one investor will be allowed to own more than 10% of a privatized bank – except the government.

Privatization in Iran is not a recognition of the advantages of the competitive and individualistic US spirit. On the contrary, it is partly to allow improvements in technology, and the globalization, development and strengthening of Iranian industry, even while Tehran and Washington try to isolate each other.

The world’s governments will probably not fall for the trick. But it might allow those countries such as Turkey and China that are clearly keen to benefit from Iran’s oil, as well as its large and educated population, and handy location, to do so with less worry from the US.