From: lessgovt@gmail.com   
      
   The Oldest Mistake in Economics   
   Chile nationalizes its lithium reserves, in another sign of Latin America’s   
   left turn.   
   By Mary Anastasia O’Grady, April 30, 2023, WSJ   
      
   It’s never a good idea to allow career politicians to manage the economy.   
   They’re not a financially astute bunch and their incentives are all wrong.   
   Yet developing countries rich in natural resources continually repeat the   
   mistake.   
      
   In Latin America, it’s as if abundant blessings from above come with   
   instructions prohibiting their productive use. For the latest example, see   
   Chile’s socialist President Gabriel Boric’s April 20 announcement that his   
   government will nationalize    
   the lithium industry.   
      
   Chile has one of the world’s largest lithium reserves and in 2021 it was the   
   second-largest producer of the mineral, after Australia. This “white gold”   
   is a key component in rechargeable-battery technology.   
      
   In an address to the nation, Boric called the country’s vast reserves “the   
   best chance we have at transitioning to a sustainable and developed   
   economy.” He added: “We can’t afford to waste it.”   
      
   The implication of Boric’s remarks is that Chile has an enviable supply of   
   something the world will want for years to come and that the only way to   
   ensure that the nation captures its maximum value is to make the state its   
   owner. Both suppositions    
   deserve scrutiny.   
      
   It’s tempting to call the Boric declaration the top of the market, but that   
   may have already happened. Lithium prices have retreated some 70% since   
   November, mostly due to falling demand in China. The mineral remains important   
   in today’s battery    
   market, but it’s by no means the surefire future of rechargeable technology.   
      
   No one knows where the search for reliable, low-cost energy storage will lead,   
   but the hunt is on to replace lithium. A November piece—in the North   
   American industrial-sourcing platform Thomas—titled “7 Lithium Battery   
   Alternatives” noted that    
   industrial demand combined with “issues surrounding lithium extraction and   
   safety are forcing markets to find batteries independent of the alkali   
   metal.”   
      
   Among these, the report says are “sodium-based battery technologies,”   
   through which “several ventures are threatening to kick lithium out of the   
   battery equation entirely.” Solid-state technology is also gaining ground,   
   with Toyota Motor Corp. “   
   on track to roll out solid-state EVs by 2025.” If that technology is   
   successful, the report said, it could “propel the industry beyond its   
   lithium-based constraints that are currently causing low EV adoption rates.”   
      
   As the Thomas report notes, the development of energy storage to replace   
   lithium has to be both feasible and scalable. Science isn’t yet there. But   
   the idea that mankind will be satisfied with the limits of lithium production   
   goes against experience.   
      
   “Human beings are intelligent animals who innovate their way out of   
   shortages, real and imagined,” the Cato Institute’s Marian Tupy wrote in   
   2018 in reference to alarms set off by China’s dominance of rare-earth   
   minerals. The national-security    
   crisis predicted by New York Times columnist Paul Krugman and others hasn’t   
   happened because the market has produced searches for new deposits and   
   substitutions, Mr. Tupy explained.   
      
   But let’s suppose that lithium is the silver bullet for humanity that Mr.   
   Boric describes. A second problem is the unlikely assumption that state   
   ownership is the best way to capitalize on it.   
      
   There are currently two companies mining lithium in Chile: Sociedad Química y   
   Minera de Chile (SQM) and Charlotte, N.C.-based Albemarle Corp. (ALB). Boric   
   has said that their concessions—expiring in 2030 and 2043, res   
   ectively—will remain in place.    
   But he also said that he hopes the companies will work with the state before   
   those expiration dates, which sounds like they’ll be pressured to do so.   
      
   When those concessions expire, and for any new entrants in lithium, only   
   minority ownership by private investors will be permitted. The state will   
   become the 51% owner of the business. The day after the Boric speech, SQM   
   shares lost nearly 20% while ALB    
   was off almost 10%.   
      
   The govt says that minority partners will put up capital and know-how to   
   explore and exploit Chile’s lithium reserves and the Chilean state will   
   provide “financing.” But the Associated Press reported on April 21 that   
   “it remains unclear whether    
   the government would contribute capital in direct proportion to its ownership   
   stake.”   
      
   How excited will investors be about risk-taking with a govt partner that has   
   final say over management and keeps a majority of the profits? Perhaps China   
   will take the bait. But for private capital much will depend on alternatives.   
   Shares in Australian    
   lithium miners rallied on the Boric announcement; neighboring Argentina also   
   has large reserves and allows private mining concessions.   
      
   Mr. Boric thinks Chile is so special that investors will go along with his   
   plan to increase their risk and decrease their returns. He’s also licking   
   his chops at the prospect of a new state company whose patronage jobs and   
   budgets will increase his    
   power. Clearly, it’s a moment he doesn’t want to “waste.”   
      
   https://www.wsj.com/articles/the-oldest-mistake-in-economics-chi   
   e-lithium-nationalization-china-rare-earth-3649c652   
      
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