Argentina's government, led by President Cristina Fernandez de Kirchner, has proposed the nationalization of Argentine oil company YPF SA. The nationalization is far from a certainty, and one must remember that Argentina’s political system frequently moves in a different direction from the rest of the world. This does not necessarily signal a global trend, but it does create an opportunity to recall the ample precedent for nationalization over the last hundred years. Nationalizing private corporations has been out of fashion for quite some time, but that does not mean that the practice won't resume.
Nationalizations have generally been linked to revolution and war and in those circumstances have tended to occur without compensation. The Russian Revolution, for example, resulted in the uncompensated nationalization of vast swaths of the economy; a similar pattern unfolded in Cuba. During World War II, the Germans seized multiple assets in occupied countries, sometimes administering them through state organs, sometimes transferring them to German ownership. Put another way, nationalization is common during regime change, whether the latter occurs by revolution or conquest.
Nationalizations also occur during regime creation. The fall of the European imperial system after World War II resulted in new states that engaged in waves of nationalization. The Egyptian seizure of the Suez Canal in 1956 stands as a prominent example. The seizure triggered an Anglo-French-Israeli invasion, which the United States blocked, and resulted in a shift in the dynamics of the Middle East. In 1973, during the Arab-Israeli War, Arab countries not only imposed an oil embargo but also nationalized the whole or partial assets of Western oil companies. Following World War II, the rise of leftist parties to power in Europe triggered selective nationalizations of major enterprises and sectors of the economy. These were prompted both by ideology and a sense that the elite had failed after two world wars had left Europe impoverished. War and revolution are the most frequent cause, but we have seen nationalizations occur under less extreme circumstances.
About a year ago we wrote a Geopolitical Weekly entitled "The Crisis of the Elites," which argued that the crisis beginning in 2008 activated a collapse in confidence in the financial elite, followed by a crisis of confidence in the political elite for failing to hold the financial elite accountable. We have seen this crisis develop in the United States, intensify in Europe, and now, with the rise and fall of Bo Xilai, take root in China. In extreme cases, this can result in revolutions. In less extreme cases, regime change is avoided, but the regime shifts its behavior substantially.
One outcome of this sort of crisis is the redefinition of the state to at least some sectors of the economy, sometimes resulting in nationalization. Since the fall of the Soviet Union, the main trend in the world has been privatization, the transformation of state-owned enterprises into privately held enterprises. In 2008, this process began to be called into question. Paradoxically, a perceived failure of the state in controlling the financial elite can turn into a call for more intense state controls by a regime controlled by a different faction. At a certain point, calls for controls turn into calls for nationalization.
We are not at this point globally, and it is not clear we will arrive there. However, the Argentine move, while obviously a wild card, serves to remind us that waves of nationalization have not been uncommon in the last hundred years, and the wave of privatization we have seen for the past 20 years not only can't last forever but is more rare than waves of nationalization. Depending on how things unfold, particularly in Europe and China, Argentina might not wind up alone.
