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The Rise of Economic Nationalism

Expropriation of foreign-owned assets—considered passé in the 1990s—became en vogue in the first decade of the 21st century, as the race to control national energy supplies and gain market share prompted an increasing number of governments to nationalize or re-nationalize strategic assets.

The trend toward economic nationalism has also been fueled by greater global income inequality, growing dependency on ­individual commodities for government revenues, too many countries hitching their economic fortunes to China, and an increasing propensity for oil-producing countries to continue to produce oil outside proscribed multilateral agreements.

Many governments have also demonstrated a willingness to renege on contracts, which international law gives them the right to do as long as compensation is fair, prompt and adequate. As the Spanish company Repsol learned in 2014, when its ownership stake in Argentine oil company Yacimientos Petroliferos Fiscales was expropriated, a decade of profitable operation is no guarantee of future success, and it can take years to reach an agreement on compensation. In the meantime, companies are left to wonder when or if they will ever be paid, while bearing the cost of expensive negotiations and laboring under the burden of halted revenue-generating activities.

If one or two governments were taking such actions, they would be labeled “rogue” and simply avoided by investors, but the rise in economic nationalism is occurring in tandem with “democratic” elections in many developing countries, lending legitimacy to government actions. Venezuelan President Hugo Chavez and Bolivian President Evo Morales, for example, both enforced multiple expropriatory actions of foreign-owned businesses in the natural resource sector in the name of “the people” when they first came to office. The spread of democracy in the new millennium coincided with the rise of extreme political movements on the left and right, with particularly negative consequences for international businesses in certain strategic sectors.

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