Expropriations

In all just societies, the ability to acquire, hold, and trade private property is considered an inalienable right. In Venezuela, however, private property rights are short of extinct. President Hugo Chávez is leading the charge against private property rights, ratifying legislation that grants the Executive branch absolute power to intervene private entities, without due process, for any reason and at any time. Mr. Chávez’s expropriations have not only hurt foreign investors, but also Venezuela’s national economy and its own workers.

Historically, private property has been legally protected in Venezuela. In fact, Article 115 of the current Venezuelan Constitution guarantees every person the right to use, possess, enjoy and dispose of his or her goods. However, proposed legislation – driven by Mr. Chávez himself – would create a broad standard by which the President is able to takeover any private property deemed unfit to meet the “needs of the population” or “national interests.” As a result, any and all processes of expropriations are absent of due process. In recent years, the Executive has become the sole arbiter of investment disputes, exercising full jurisdiction over nationalizations and expropriations.

Expropriating important sectors of the Venezuelan economy – and running them to the ground – has become a staple of Mr. Chávez’s economic policies over the past 12 years. Many businesses have turned into industrial ghost plants. Factories don’t assemble cars; sugar mills operate at a loss; and companies produce poor packaging for perishable goods, which then spoil easily. In addition, some nationalized companies have yet to open their doors because they are simply inoperable. That is today’s reality for expropriated and nationalized businesses in Venezuela.

What is worse, expropriations are hurting Venezuela’s national economy and its own workers. President Chávez’s “21st Century Socialism” resembles more that of the 20th Century: replete with widespread inefficiencies, declining production, black market expansions, and rampant shortages, inflation, and crime. A recently enacted law dubbed, “Law of Fair Costs and Prices,” grants the government the power to set prices across all sectors of the Venezuelan economy. It also places limits on how profitable private businesses can be – yet another stranglehold on the sector. As a result, businesses often operate at a profit loss, on top of constantly facing the risk of expropriation.

Today, the Venezuelan government faces at least 18 international arbitration claims before the International Center for Settlement of Investment Disputes (ICSID). Many claims are from U.S. companies seeking compensation for their expropriated assets. It should be no surprise to anyone that Venezuela ranks dead last in the 2011 International Property Rights Index, and 172 out of 183 countries in the World Bank’s 2011 Doing Business Report, trailing Iraq and Afghanistan).

For a timeline of expropriations, click here.