I recently wrote this piece for Gunster’s Boardroom Brief. Click here to learn more about my work at Gunster.
On October 26, 2010, Venezuelan soldiers arrived at Owens-Illinois’ Los Guayos factory. The U.S.-based glassmaker employed over 1,000 people at the facility. The day before, Venezuelan President Hugo Chavez had announced that the plant would be expropriated by the Venezuelan government. “The expropriation is already ready of this glass company,” Chavez said. “What’s it called? Owens-Illinois. Expropriate it.” Chavez described Owens-Illinois as “a company with North American capital that has been exploiting workers.”
Owens-Illinois has hardly been alone as a target of Venezuelan’s current government. In the last two and a half years, American companies including Cargill, Coca-Cola, ExxonMobil, McDonalds, Pepsico and Wendy’s have either had assets expropriated by the Venezuelan government or have been threatened with expropriation. Although the Venezuelan government typically promises to compensate owners of expropriated assets, in practice this compensation has been limited. According to a May 2010 report, Venezuela has paid only 37% of the promised amount for expropriated assets.
Venezuela is not the only Latin American country that has engaged in practices that undermine private property rights. Latin America is large and varied, and it would be a mistake to make generalizations about the region. Notably, the Property Rights Alliance’s 2011 International Property Rights Index ranks Chile ahead of Spain and lists Uruguay ahead of Italy in its rankings, which are based upon each country’s respect for private property rights. However, as illustrated by this table, other Latin American countries are ranked lower. Furthermore, the same Property Rights Index ranks Latin America, as a whole, as the world’s second-worst region (ahead of Sub-Saharan Africa) when it comes to protection of private property rights.
The U.S., in general, and Florida, in particular, provide strong constitutional and statutory protections of private property rights. These protections are important for businesses. The Fifth Amendment to the U.S. Constitution provides, in part, that “private property shall [not] be taken for public use, without just compensation.” There have been numerous judicial decisions addressing, among other things, what constitutes a taking and what is a “public use.” This article cannot address each of these nuances. However, what is clear is that this constitutional protection exhibits significant limitations on the government’s ability to take property and guarantees compensation when taken. In most Latin American countries, those protections do not exist, which creates a risk to the business.
Florida provides even more property rights protections than the U.S. Constitution. The Florida Constitution provides that “[n]o private property shall be taken except for a public purpose and with full compensation therefor paid to each owner … ” The Florida Constitution further limits takings by not allowing private property taken by eminent domain to be transferred to a natural person or private entity unless three-fifths of the state legislature approves the transfer. The provision for “full” (as opposed to “just”) compensation and the additional limitation on takings provides Florida property owners protection beyond the U.S. Constitution. Further, Florida provides additional statutory protections to property owners. The Bert J. Harris, Jr. Private Property Rights Protection Act aims to protect real property from overly burdensome governmental regulations. This act provides, in part, that “[w]hen a specific action of a governmental entity [such as a governmental regulation] has inordinately burdened an existing use of real property or a vested right to a specific use of real property, the property owner of that real property is entitled to relief.” This relief may include the government’s purchase of the overburdened property or compensation for the diminution in the value of the property so burdened. These are complex issues that demand careful consideration; but the protections afforded to property owners by the Florida Constitution and the Florida Statutes are much more significant than any protection provided in Latin America, and even most states. Additionally, the fact that the U.S., in general, and Florida, in particular, have independent, high quality judiciaries means that these protections actually provide a basis for redress when these rights are violated.
These protections could channel increased economic development to Florida should Latin America continue to experience strong economic growth. Although there are exceptions, such as Venezuela and Argentina, much of Latin America has experienced a strong economic run in recent years. For example, Peru’s economy grew by 8.3% in 2007 and by 9.8% in 200–the highest growth rate in the world for that year–and Brazil, Chile, Colombia and Mexico, among others, have also been experiencing strong economic growth. This strong economic growth in many parts of Latin America has led to an expanded middle class and, consequently, stronger consumer markets. For example, by some estimates Colombia’s middle class has grown by 30% in the last five years. There is growing evidence that much of this economic growth is the result of governmental policies that generated confidence in foreign businesses in making direct investments in certain Latin American countries.
However, businesses that seek to sell to the growing Latin American consumer market may remain concerned by the past disrespect for private property rights by some Latin American countries. This concern could impact their decisions regarding where to locate their regional manufacturing and distribution facilities. Florida is well positioned to profit from this concern. In particular, Florida will appeal to businesses that seek to access the lucrative Latin American market without being subject to the often-unpredictable domestic politics of some Latin American countries.
Florida is near the geographic center of the Americas and near the hemisphere’s center of population. Additionally, in the optimistic scenario in which economic growth results in wealth and consumer markets being spread more evenly across the Americas than at present, Florida will find itself located not only near the geographic and population centers of the Americas, but near the center of economic activity. That is, while many businesses, particularly in the manufacturing and distribution sectors, may historically have been deterred from maintaining facilities in Florida due to Florida’s location at the corner of the continental U.S., as the target market for such facilities grows increasingly hemispheric in scope, Florida will find itself as the optimal location for these facilities. Moreover, commercial connections between Florida and Latin America are already strong, meaning that the infrastructure for increased trade between the U.S. and Latin America is in place.
Of course, there are a variety of other factors that will play a role in determining whether Florida is able to capitalize on this confluence of advantages. Some are within our state’s control, such as educating a workforce that attracts increasing numbers of companies seeking to do business with Latin America. Others are a matter of U.S. national and international policy; for example, Florida’s ability to capitalize on Latin America’s economic growth will be greatly enhanced by increased free trade between the U.S. and Latin America, including the passage of the proposed free trade agreement with Colombia. Of course, most centrally, Latin America’s economies must continue to grow robustly. Altogether, Florida provides access to Latin American markets while allowing businesses to enjoy the property rights protections that come with being on U.S. soil. This should bode well for the state’s economy in the years to come.
