Viva Evo

In the past, nationalization of an industry like natural gas in a country like Bolivia was a recipe for disaster. Skittish foreign investors, worried that their assets are next on the nationalization list, high-tail it out of the country as fast as they can in an economy-wrecking phenomenon called capital flight. Leaders in these countries were between a rock and a hard place. If you don't nationalize, your country thinks you are a sellout to the Americans. If you do nationalize, capital flight occurs, and your country blames you for the widespread poverty and lack of jobs. See, e.g., the recent documentary Our Brand Is Crisis.

Are those days over?

Maybe. With Chavez in Venezuela, President Evo Morales's decision to nationalize Bolivia's prosperous natural gas industry (they have the most gas in South America) might work. Capital flight will probably occur (mostly from places like Brazil), but Chavez, another left-leaning leader currently enjoying enormous profits from high worldwide oil prices, is very sympathetic to Morales and will probably help Bolivia out.

This situation is a bit like the Cold War, only we're so preoccupied with the Middle East that we hardly notice it's happening; thus, we're unlikely to put the same pressure on countries considering nationalization of major industries. As a result, countries are a good deal freer to make a choice to take their economies left-ward without serious consequences.

Thoughts/predictions?