As Mexican President Andrés Manuel López Obrador and Colombian President Gustavo Petro seek to increase state control of the electricity sector to tame inflation, they should heed the lessons of Venezuela and South Africa. To avoid disaster, both countries will have to reverse course and regain investors’ trust.
CAMBRIDGE – In the traditional (and somewhat outdated) distinction between left and right, left-wing parties represent workers, while right-wing parties represent the owners of capital. When the left is in charge, according to this view, it tends to use its power to reduce the share of national income that goes to capital, either through raising corporate taxes or taxing personal capital gains.
Some left-wing politicians, however, attempt to minimize capital’s share by regulating or nationalizing capital-intensive industries, such as electricity and infrastructure. For example, Colombian President Gustavo Petro recently announced that he would default on the terms of road concessions and freeze tolls. Yet, given the terms of the contract, this forced the finance ministry to compensate investors, and left future investors on notice. Petro also announced his intention to take responsibility for setting household utility bills away from the independent regulator, so he can personally cut electricity costs.
In Mexico, President Andrés Manuel López Obrador (widely known as AMLO), has launched an overhaul of the electricity market that would cement the monopoly of the state-run Comisión Federal de Electricidad (CFE) and effectively roll back previous pro-market reforms enacted by his predecessor, Enrique Peña Nieto. As a consequence, private investment in the Mexican energy sector has collapsed.
CAMBRIDGE – In the traditional (and somewhat outdated) distinction between left and right, left-wing parties represent workers, while right-wing parties represent the owners of capital. When the left is in charge, according to this view, it tends to use its power to reduce the share of national income that goes to capital, either through raising corporate taxes or taxing personal capital gains.
Some left-wing politicians, however, attempt to minimize capital’s share by regulating or nationalizing capital-intensive industries, such as electricity and infrastructure. For example, Colombian President Gustavo Petro recently announced that he would default on the terms of road concessions and freeze tolls. Yet, given the terms of the contract, this forced the finance ministry to compensate investors, and left future investors on notice. Petro also announced his intention to take responsibility for setting household utility bills away from the independent regulator, so he can personally cut electricity costs.
In Mexico, President Andrés Manuel López Obrador (widely known as AMLO), has launched an overhaul of the electricity market that would cement the monopoly of the state-run Comisión Federal de Electricidad (CFE) and effectively roll back previous pro-market reforms enacted by his predecessor, Enrique Peña Nieto. As a consequence, private investment in the Mexican energy sector has collapsed.