- 30 Jun 2010
- Working Paper Summaries
The Empire Struck Back: The Mexican Oil Expropriation of 1938 Reconsidered
Executive Summary — The Mexican petroleum expropriation of 1938 looms large as the beginning of Latin American resource nationalism and the apogee of America's "Good Neighbor" policy. In Mexico, the expropriation is viewed as a patriotic triumph, in which the federal government seized control of the country's most valuable natural resource. In the U.S., the temperate reaction of the Roosevelt Administration is seen as the decisive break with Washington's imperial relationship towards Latin America. Washington "curbed its finance capital," it is said, and downgraded the protection of American overseas private investments. In this paper, HBS professor Noel Maurer explains how the actual historical record diverges substantially from the accepted view. Key concepts include:
- The oil companies developed political strategies that maneuvered the very reluctant Roosevelt Administration into defending their interests. A detailed understanding of the key players in the executive branch was fundamental to these strategies.
- The U.S. government succeeded using sanctions and the threat of sanctions to force Mexico to compensate—in fact, overcompensate—American companies.
- The Mexican oil industry was in decline by the 1930s for geological (not political) reasons. As a result, the American oil companies with interests in Mexico were in financial distress during the same period.
- The oil companies deliberately provoked the expropriation, because they could not afford to give in to union demands to control all hiring and firing.
- The expropriation did not increase the Mexican government's petroleum revenues or the wages paid to Mexican oil workers.
- The key difference between the environment of the 1930s and today is that in the 1930s, domestic courts still refused to use their authority against foreign governments. Today, that is no longer the case.
The Mexican expropriation of 1938 was the first large-scale non-Communist expropriation of foreign-owned natural resource assets. The literature generally makes three assertions: the U.S. government did not fully back the companies, Mexico did not fully compensate them for the value of their assets, and the oil workers benefitted from the change in ownership. This paper musters data and evidence that supports only the first of those assertions, and only to a limited extent: the companies devised political strategies that maneuvered Roosevelt into supporting their interests, and they were more than fully compensated by the Mexican government as a result. 33 pages