Save the Prosperity Infrastructure
The Hill
February 7, 2012
By James K. Glassman
In declaring last month that he won’t abide by rulings of the main international forum for settling investment disputes, Venezuela President Hugo Chavez is following in the footsteps of Argentina’s leaders, whose brazen behavior is encouraging other nations to ignore the legal framework that gives investors confidence to invest trillions of dollars in faraway projects essential to global economic growth.
Chavez told a television audience on Jan. 8: “We have to get out of that ICSID, and I tell you, We will not recognize any ICSD decisions.” Venezuela has 21 cases pending before the World Bank’s International Centre for Settlement of Investment Disputes, totaling $40 billion, or one-tenth of the country’s gross domestic product. The claims stem from expropriations of the assets of such U.S. energy companies Exxon Mobil, ConocoPhillips, and Chevron as well as Europe’s Repsol, ENI, and Staoil.
Chavez’s threat is only display of contempt for what can properly be called the “prosperity infrastructure.” One of the great gifts of Western civilization, this is the framework of international law and global trade rules, enforcement of the sanctity of contracts, and the power to ensure that the world’s oceans and air routes are open to commerce. While the infrastructure was developed mainly by the United States and Britain, its positive externalities extend around the globe. Everyone gains.
In their book Invisible Wealth: The Hidden Story of How Markets Work (Encounter, 2011), Arnold Kling and Nick Schulz show that today the most important sources of wealth aren’t natural resources or factories. They reside in what the authors call “the software layer,” which is “a set of expectations and rules about negotiating, financing, and post-purchase obligations” (p. 5). These are among the intangibles that comprise the prosperity infrastructure.
A World Bank study looked at the difference between the total wealth of a nation and subtracted from it natural and produced capital. The result is intangibles, and the study concluded, “The most striking aspect of the wealth estimates is the high values for intangible capital. Nearly 85 percent of the countries in our sample have an intangible capital share of total wealth greater than 50 percent.”