A very heavy load

September 18, 2008

Things have been hectic for me this week, will try to post, but meanwhile Toby Bottome at Veneconomia says a lot of what I wanted to say:

A very heavy load from Veneconomy

In the decade with Hugo Chavez at the helm, the growth of a
non-productive State has been fostered at the expense of the
restriction of the private sector, which does generate income and
create jobs. This policy has generated a hypertrophy in the state
apparatus of such proportions that it has made the country totally
dependant on oil and placed it in a dangerously vulnerable position in
these times of low oil prices.

Last week, Hugo Chavez himself admitted this weakness and gave the
first official sign that he neither can nor does he want to cope with
this heavy load, when he stated, “We cannot continue incorporating an
additional 50,000 workers a year, that is not sustainable” the
squandering has to stop, “it is necessary to be efficient with
spending.” “We are given to squandering resources,  we ourselves
have increased the practice of political patronage.” Even though Chavez
is right and he had been warned of the danger, he spoke out too late.

One sign that the State is top heavy is the increase in the number of
ministries, 28 in all with the creation of the Ministry for Women’s
Affairs in June this year. That’s twelve more than in 1998 when Chavez
promised to put an end to Venezuela’s inflated bureaucracy.

Added to this is that, after the innumerable nationalizations, state
takeovers and/or confiscations that the government has been heading up,
more than a dozen private companies have become oil-dependant,
inefficient organizations. And that is quite apart from the creation of
hundreds of cooperatives and nearly a dozen missions, which are also
subsidized with oil dollars.

But the most revealing sign of this dangerous hypertrophy of the
government apparatus is the attendant excessive growth in the number of
workers employed by the State. According to data from the National
Statistics Institute, the government services’ payroll has grown by
72.1% in eight years, from 1,283,963 people in 2000 to 2,209,862 as at
July 30, 2008. Some analysts are even of the opinion that the
government payroll is underestimated, as, if the employees of a certain
type of State contractors that have a dependant relationship with
government agencies are added, the number could easily reach 4 million.
It is worth mentioning that one of the agencies that have most
increased their payroll is the Ministry of Defense, with the hiring of
more than 300,000 people for the National Command of the National
Reserve, followed by PDVSA, where the payroll went from 45,000 workers
in 2002 to more than 100,000 in 2008.

Meanwhile, the number of employees in the private sector has grown by only 15.5% since 2000, from 4,026,064 to 4,650,722.

Now, with the drop in oil prices, the VenezuelanState will find it even
less viable to continue financing this huge payroll; not even if the
barrel stays at $100.

What is worse, the collapse of the oil price bubble finds the private
sector diminished and without either the capacity or the flexibility to
absorb this number of workers. Unfortunately, the outlook for
Venezuelans includes higher unemployment, increased poverty, and more

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