Thursday, August 21, 2008

Two, three, many CEMEXes!!

Good economic news from Venezuela: the economy grew 7% in the second quarter of 2008, and 5% in the quarter before that. This is the 19th successive quarter of growth. Growth was actually higher (7.8%) in the non-oil sector, which is good.

In the last few days, Venezuela completed a set of nationalizations which will allow the revolutionary State control of over 90% of the national cement industry. The local subsidiaries of the companies Lafarge and Holcim (French and Swiss owned respectively) had been nationalized in June, and the government recently worked out compensation through negotiation with their owners. The Mexican company CEMEX, however, could not come to a reasonable agreement with the government, so the Venezuelan government will be unilaterally deciding on compensation, and seizing the factories and assets of the Venezuelan operation of CEMEX.

Looking at the details of the situation it becomes clear why it was necessary to both take control over the cement industry, and also why it was necessary to unilaterally seize CEMEX without agreeing on compensation. Let's deal with the latter point first. Simply put, the price CEMEX was asking was outrageous and at variance with the facts. They wanted 1.3 billion dollars. For the other two companies, Venezuela paid $267 and $552 respectively- those two companies produce over 50% of Venezuela's cement, and CEMEX subsidiary in Venezuela about 40%, but the Mexican company wanted a sum more than 50% greater than for the other two combined!

Private consulting firms estimated that appropriate compensation for the company would be between $350 and $950 million. Of course, those are estimates from within the capitalist world economy's frame of reference, which (in its typical irrational and immoral way) judges that the ownership of money invested in a company should give a person as much control over the products of that company as the people who actually invest their daily labor in the cement it produces. In a socialist society, governed by an ethos that those who work should receive the reward, not those who invest their money, the whole issue of compensation should not come up, and Venezuela would be justified in seizing the company with minimal compensation if that. But of course that's not the world we live in. I simply raise the point to show that even private consulting firms, with the expected bias towards capitalist ownership patterns, estimated that CEMEX was publishing fraudulent estimates of its worth.

It is a further fact that CEMEX was producing way below its capacity. Indeed, this was one of the reasons given for nationalization: that Venezuela needed more cement and that if CEMEX was insisting on producing inefficiently, with outdated technology (perhaps as a deliberate plot to destabilize the government) then it was breaking the constitutional requirement that private property serve a social function. This is a moral as well as constitutional requirement of course.
CEMEX was already falling in value due to the mortgage crisis in the United States so one could argue that they are actually coming out of this better than if the Venezuelan government had waited awhile and allowed them to go bankrupt.

Not only was CEMEX systematically lying about the value of its assets, it's argued that it has been guilty of polluting the environment and not taking care of the waste it puts out. Chavez accuses the company of pouring poison into the lungs of Venezuelan boys and girls. I haven't been able to find too many details on CEMEX polluting Venezuela but I don't doubt it. This is after all the company whose plant in California released 172 pounds of mercury into the environment. There have also been rumors of labor issues at the company. The government have assured the workers of CEMEX that no one will be laid off and in fact they will get a bigger say in the management of the company. Indeed the expropriation appears to have been popular among workers in the cement industry.

So let's see: a foreign company producing a critical national producer good is having labor issues, lying about the value of its assets, polluting the environment, producing toxic waste, and systematically exporting a product that is more immediately needed at home? They are violating the entire spirit of the constitutional precept that private property must serve a social function. Sounds like a prime target for expropriation to me. Chavez would be within his rights not to give them a penny. Right now he appears willing to give them $650 million, half of what they asked for- an extremely generous offer. Honestly they should be lucky he isn't trying to sue their executives into the bargain for attempting to defraud the government.

One industry is down- in the hands of the Venezuelan people! How many more to go?

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