March 26, 2005

Last week
I was once again in Spain,
a country dear to my heart, because I spent five years of my youth living
there. It is indeed a very special country. Forty years ago Spain and Venezuela found each other in exactly
the opposite positions they find themselves in today. Venezuela was
then a rich country, just out of a dictatorship, trying to make sense of how a
democracy worked. The country had a strong economy, a strong currency and the
private sector was thriving. Spain
on the other hand was a fairly poor country, under the Franco Dictatorship
which dictated how things should be done. Tourism was the main industry in Spain, as the
state tried to push into various areas, ovreregulating the private sector.

Today, the
two countries have taken very different paths and the results are diametrically
the opposite. Spain
is prosperous, the private sector is thriving and they enjoy unprecedented
levels of freedom and democracy. Venezuela on the other hand has
become a relatively poor country, as the standard of living has gone down
significantly in the last twenty five years.

there were complex cultural and educational variables involved in the different
paths taken by the two countries. But in the end, the difference boils down to
one country (Spain) choosing the private sector as its main driver, while the
other one (Venezuela) has been bogged down for forty years in the belief that
this weird form of state capitalism is the solution, even if our current
President claims now to be a socialist.

Chavez is
right when he says that the forty years of democracy were a failure. But the
path he is following is precisely the one that led to the errors of the last
forty years. He has magnified and emphasized the mistakes of the past, taking
the country in the same path that so obviously failed in the 70’s and 80’s. There
is simply one difference: During the forty years of democracy that preceded
Chavez, there were checks and balances that showed the mistakes that were being
made. Currently Chavez controls everything and any criticism or challenge to
his authority leads nowhere.

In the 60’s
had no oil companies, a state telecom company, little science and an overly
regulated banking system. Venezuela
on the other hand had oil concessions and a Government owned Oil Company, a
state telecom company, a small but world class scientific community and a
banking system that was overly regulated.

By the
time the seventies came around, the two countries took very different directions.
nationalized the whole oil industry, imposed further regulations on the banking
system and did not let go of the telecom company until 1991. Oil prices went up
and the Government created myriads of new Government enterprise,s thinking that
was the way to grow the economy.

Spain followed a different road.
Telefonica was completely privatized and the Government did not get too
involved in running new enterprises. After Franco’s death in 1975 the “socialists”
took over and actually gave the private sector even more of a free hand, the
economy grew, Spain joined the European community and the rest is simply

Venezuela on the other hand was late in
privatizing. Late in closing most of these money losing Government enterprises
and has continues to this day to overregulated the private sector, including
three separate episodes of exchange and export controls in the last twenty

While I am
obviously oversimplifying, let’s look at a few economic areas and what has been
different between these two countries:

Agriculture: Spain was strong in certain areas
of agriculture, particularly orchards, olives, olive oil and wines. Not much has
changed in the last forty years except the emphasis on these same areas of
strength and not self-sufficiency. Yesterday’s olive and wine cooperatives have
led to luxury brands run by the kids of the members of the cooperatives and
mechanization has increased yields. Fewer people live in rural areas, but
production is up.

contrast, Venezuela
has been repeatedly pushed into a dream of self-sufficiency which is no more than
a chimera. Meanwhile areas like cocoa and coffee were overregulated,
deregulated and subsequently regulated again for too long and the country has
failed to develop its strengths. Only in some areas of tropical fruits have
there been improvements. Fewer people also live in rural areas, but production
is way down.

Oil: Spain had no oil and no oil
companies in the 60’s and has become somewhat of an oil powerhouse. Repsol and
Cepsa, to name just a couple, have expanded and grown by simply looking
outwards in Africa and America.
A few years after the Argentinean Government privatized YPF, Repsol took over
YPF, while PDVSA stood idly on the sidelines.

Venezuela meanwhile has continued to lose
production capabilities. When Carlos Andres Perez nationalized the oil industry
in 1974, the country produced over a million barrels of oil a day, today OPEC
and the AEI say the country produces only 2.6 million barrels a day, while
PDVSA claims it is producing 3.1 million. PDVSA did expand internationally for strategic
reasons, a policy that was widely opposed by many of today’s Government and
opposition figures. They all claimed the money should be spent in Venezuela and
not abroad. Spain
would have nothing with thinking like that, but our current Government is
actually proposing to sell assets abroad. Go figure!

Telecom: Venezuela’s telecom company is
majority owned by US’ Verizon which inherited it from GTE. It is also the second
largest mobile carrier. The largest is Telcel, majority owned by none other
than Telefonica of Spain, which bought all of Bellsouth’s cell phone concessions
in Latin America last year and owns operating companies in Peru, Chile,
Argentina and Brazil (And 5% of CANTV!)

Banking: In the 70’s the Venezuelan
Government limited the percentage that foreign banks could own in local banks,
essentially creating a strong local financial system. However, lack of adequate
regulation created a financial crisis in the mid-90’s and laws were changed to
allow foreign banks back in. Today foreign banks own over 60% of the local
banks, with two Spanish owned banks in the top four in size. Spanish banks have
become so aggressive that they have expanded all over Europe.
Only last week BBVA announced a takeover of Italy’s number 6 bank Banca
Nazioanle del Lavoro.

the European community created a scientific system in Spain in the last
twenty years. Twenty years ago, Venezuela’s
science was of higher quality and productivity than Spanish science. This is no
longer the case. Twenty years ago, good Spanish scientists went abroad,
Venezuelans came home. Today, it is exactly the opposite.

examples may give an oversimplified view of what has happened in the two
countries, but I believe that we took one path dominated by a mindset of
ideology and a lack of economic culture on the part of our politicians. Spain, on the
other hand, was blessed by the ascension to power of a strong academic and professional
class, which had been relegated to the sidelines during Franco’s Dictatorship. These
capable men became politicians and helped created what it is to me certainly an
economic and development miracle.

here in Venezuela
we continue to follow on the same path of errors and improvisation. Venezuela
Inc. is back, PDVSA is being reduced to its minimal expression and the private sector
is overregulated with exchange, financial and export controls. Ideology
continues to dominate action and ignorance rules. Only yesterday a pro-Chavez
Deputy said in reference to an economic concept “the fact that such a concept
does not exist, does not mean that we can not invent it”. It is ignorance and
ideology like that that has taken these two countries, Spain and Venezuela, in such diverging paths
in the last forty years. Nothing in the horizon indicates there is any change
in the near or medium term future.

(Don’t miss the pictures from the World Orchid Show I posted today)

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