Archive for March 6th, 2007

Venezuelan Style Socialism: Five little problems by Raul Gonzalez Fabre:Second Problem: Nationalizing with a dysfunctional state

March 6, 2007

This is part II, part I is here (Previous Post)

Second Problem: Nationalizing with a dysfunctional state

Chavez did not damage the Venezuelan State, but he reached power precisely because the State was damaged. From being an instrument of society to modernize it, our State turned into the principal obstacle for that modernization: a large machine, costly, inefficient, not only clumsy, but also a stumbling bloc for social initiatives, each time more of a failure in its basic responsibilities of guaranteeing security, education, health and infrastructure.

The Venezuelan State of the XXth. Century itself as a distributor/investor of oil income with the aim of modernizing the country. The State failed not so much because of the bad design of the successive modernization projects, but because of the existence of an underlying distribution criteria, always the same, but always different from what the modernizing project proposed. This criterion continues to be: income is distributed according to the connection of those that receive have with the one that gives it away. That connection can be personal, a business one or political, and with frequency all of them at the same time. Our Venezuelan state is capable of turning any modernizing plan into a feast of oil income distributed according to networks of private links.

Chavismo seems to be conscious of this. That is why it does not use, but instead duplicates the State in the diverse plans and misiones, borrowing the organizational capabilities of the Armed Forces and the Cuban State. It so happens, that despite this practical recognition of the inefficiency of the Venezuelan State, the economic design of “XXIst. Century Socialism” has as its axis the re-nationalization of the spines of the economy, that is, communications, energy, mining and hydrocarbons, perhaps later, foodstuffs, transportation, construction, tourism, banking, education…declaring them “strategic”, “of National Security”, or the like.

This can only surprise us. A Government that does not know what to do with the basic social functions of the Venezuelan State and sublets them to the military and the Cubans, pretends to assume with the same dysfunctional state, large scale economic operations that the private sector is executing reasonably well, with more or less benefit to its shareholders, but without any cost to the public sector.

What will come after the nationalization, in the short term of a few years, we do know, because we have lived it before. It is sufficient to rewind the movie to the period of Dr. Lusinchi, who “was also like you”. (Reference to his campaign slogan) The nationalized industries will start departing from the logic of business, which is what sustains them on their two feet. Managers, workers, clients, contractors and suppliers will all understand that the company has changed its nature; it is not there to produce a benefit for the shareholder, but to distribute oil income among those that are connected to it. Each one will try to extract its piece of the pie: the managers fattening up their accounts abroad, will cultivate political clientele: the clients will look for frozen “social” tariffs, the workers will pressure for union protection for their jobs and will place their relatives in the company; the suppliers will sell with scandalous overcharges and the contractors will ally themselves with whomever it is necessary inside to get the business. Investment and productivity will decay. Private relations, whether they are family, economic or political, will soon predominate over more or less rational rules that the Owner-State will try to impose.

Government owned companies and decentralized entities were decisive in the bankruptcy of the IVth. Republic, precisely because since they were part of a State in charge of distributing wealth, they were incapable of conceiving themselves as long term businesses. It is astonishing to replicate an economic model that failed precipitously in better institutional conditions and professional capabilities that this regime can possibly obtain. Given its peculiar political structure, Chavismo can only obtain professional capabilities to manage those companies at outrageous prices (whether it is the middle class which it hates or hates him, or from Cuba, if they have it and if the Government wants to continue making the State more foreign). And it can only respond to the income expectations of its social base with respect to the nationalized industries, destroying their business model and turning it into a source of benefit for the owners (and of taxes for the State) in sinkholes for the oil which is already wasted through the numerous internal and external channels, without leaving any capitalization for the country.

Venezuelan Style Socialism: Five little problems by Raul Gonzalez Fabre: First problem: Living off the income Socialism

March 6, 2007

Once in while I read an article that I like a lot because it is clear and to the point and says a lot of what I am thinking of have thought, but synthesizes things in a very nice way. Such is the case of the following article by Raul Gonzalez Fabre published in SIC magazine (A Jesuit publication) recently, entitled “Venezuelan Style Socialism: Five little problems”. It is long, so that I will translate it in the same five parts or “problems” that the article focuses on: 1) Living off the income Socialism, 2) Nationalizing with a dysfunctional state, 3) Businesses without Businessmen, Markets without merchants, 4) The phantom of the New Man and 5) Government by witticism.

Lately, I have not been writing much for two reasons, I have had a terrible cold for over ten days that has taken a lot of energy out of me, but additionally, things like more mismanagement of the economy or the unity party only having one party seem to be almost irrelevant in the scheme of things. So, while I get my energy back, enjoy this lucid article:

Venezuelan Style Socialism: Five little problems by Raul Gonzalez Fabre

Hugo Chavez was reelected in December 2006 with more than 60% of the votes. During his campaign and afterwards, he assured us that voting for him was backing an XXIst. Century Socialism of unknown boundaries. At the same time, the nucleus of his campaign consisted in an expansion of public spending which gave way to a phenomenal populist piñata, with money and imports running with an abundance that made us remember the first period of his archrival Carlos Andres Perez.

First problem: Living off the income Socialism

There is however a problem: not even Commander Chavez can deceive himself with respect to the fact that receiving income form the state in exchange for votes, on the one hand and producing at the maximum of your own capacity without the spirit of profit for the benefit of the collective, on the other, are opposing movements of the human soul. If you recruit supporters and voters via the first procedure, it is going to be truly difficult to make them function under the second directive.

In fact, Adam Smith already noted the attitude of the indepently wealthy class, accustomed to receive without work or care, is contrary both to the entrepreneurial initiative based on your own interest of the capitalist class, as well as to the effort to survive and social ascent of salaried workers. Nobody will get involved with the complications and risks of investments, or in the sweat associated with productive employment, if you can solve your economic problem with income from the land, the State or whatever.

That is why Asdrubal Baptista (a local economist) has insisted that in the great economic project of the Venezuelan XXth. Century, consisting in using oil income to realize the first accumulation of a modern capitalist system was internally contradictory. He was absolutely right. Businessmen under the regime of oil income (protection, contracts, incentives, overpricing, preferential dollars, loans without return…) already have a profit made for them: They don’t need nor wish to leave to compete in uncertain markets with Colombians with knives between their teeth, or Chinese that work sixteen-hour days. The income that was going to feed our endogenous capitalism also froze it after the initial push. When the hour of truth came and income was seriously diminished, there was no competitive private sector, capable of going to open markets without the aid of the State in order to leverage their development.

Living off the income paralyzed capitalism, with which it shared the search for its own interest as the fundamental motivation. Now Venezuelan style socialism pretends to convert the beneficiary of the income that he cultivates with gifts, campaigns and missions, into a socialist capable not only of efficiently producing but do it following the interests of the community at least as much as his own interest. Where living off the income capitalism was impossible because it was internally contradictory, living off the income socialism will fail for even more reasons. There can no be socialism in Venezuela but another gargantuan distribution of wealth through a scheme that is even less productive and capable of creating economic modernity than that of living off the income capitalism.