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.

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