The failure of Dependency Theory
One of the chief drawbacks of Latin American Dependency Theory (aside from the fact that it immorally restricts trade) is that it renders domestic industries decrepit due to isolation from innovations in global markets.
Such is now the case with Mexico's ailing, inefficient, and outdated oil industry which is controlled by the foundering Pemex. Since 1938, the Mexican government has barred any foreign control over oil reserves in Mexico. This has led to a long slow downward spiral for the Mexican oil industry. Infusions of foreign capital are effectively outlawed, so Pemex has no funds for better extraction methods or state of the art equipment.
Unfortunately for the Mexicans, there is no shortage of nationalism among them (much like the Americans) and the populist elements think that free trade and free flows of capital will ruin their economy. The opposite is true of course, and if the old oil monopoly is not softened soon, the Mexicans may be forced to relive the eighties and will fall victim to economic isolationism yet agan.
Comments (3)
Owen
There is a difference between "owning" oil reserves and being allowed rights to efficiently and profitably "exploit" them for a fee paid to the government per barrel.
The former is hardly ever granted, but the latter is in almost every country with oil reserves. Think Nigeria, the Middle East and other places in South East Asia and Africa.
Venesuela enjoyed the injections of foreign capital for about 20 years before "buying" them out at below market prices which is a bit mean really.
Published: April 26, 2008 11:45 PM
Andrew
Mexico's floundering oil industry will no doubt get worse before it gets better, all instances of nationalization and populist economic experiments have resulted in decreased productivity and affluence. Production in Venezuela has dropped consistently by a minimum of 100,000 bpd per year since Chavez installed his cronies into key positions in industry previously held by technically proficient industry professionals. The intricate balance of free market macroeconomic functioning required to buttress an economy sufficiently to ward off Dutch disease is easily disturbed, Chavez's policies would have bankrupted Venezuela if he had not been saved by the over 300% price increase of oil since the beginning of his tenure as chief commandant. It is most upsetting to see socialist policies consistently hurting the people they supposedly aim to save.
Published: April 27, 2008 2:51 AM
Morten Lindegren
well
keeping control over the national oil production insures control over how the value of the oilreserves are used. In a market with raising prices, sitting on your product is not a bad idea.
it is of course a matter of perspective, but the only ones who really gain the most if these resources were to be controlled by free market whould be america (and china and some of europe) before you flame me, take 2 seconds to think about it
kind regards - Morten
Published: May 15, 2008 12:07 PM