Chavez’ foreign advisors ignore the country’s reality and economics

November 7, 2010

The Chavez “revolution” has attracted all sorts of frustrated Marxists who had been looking for an occupation ever since the Soviet Union fell apart. The ironic thing is that few of them have even bothered to learn much about Venezuela, Venezuelans and our idiosyncrasies. Even worse, their economic ignorance, both in general and about Venezuela, is so incredible that they help magnify with their advise, the ignorance of Chavez and his cohorts.

The latest such case has been Adam Woods. In a document published here in Spanish, entitled “Where is the Venezuelan Revolution Going?” Woods spews out a bunch of statements which simply demonstrate he knows little about economics, Venezuela and is just another theorist of revolutions. I like more Heinz Dieterich, who I also disagree with, but is more realistic and is more candid and honest about what he thinks about the revolution, even if I disagree with him.

Woods’ document has some remarkable statements which simply show his ignorance about history or economics, I don’t think you can give him much credit for understanding Venezuela, his quotes are all from very light weight sources and in itself the content he links to, has little credibility, but he shows it without criticism.

First, Woods concentrates on the “victory” on Sept. 26th. by Chavez. Had it been a victory we would have heard celebrations that night. But for Chavez, the only acceptable objective was a majority of the votes and a super majority in the Assembly. Neither one was achieved. But Woods sides with the revisionist opinion that it was a victory for Chavismo, despite the fact that it took two days for Hugo himself to sell us down that road. He then goes on to say that many lower middle class people have been “cheated” by the opposition, I suggest Mr. Woods looks at eleven years of Chavismo with constant attacks on the middle class, its values and its standard of living, to understand who truly has cheated who.

He then goes on to say that the solution is to nationalize the banks, the large capitals and the basic “levers” of the economy as a way of convincing the middles class that Chavez is on their side.

Where has Mr. Woods been all these years?

The nationalizations of PDVSA, large estates, cement companies, Guayana companies, etc. have yielded little for the Government or for the middle class. In fact, in each case, it is the middle class that has lost jobs, contracts and even a life. And they have seen little out of these nationalizations, as Mr. Woods think will come out of new ones.

For every middle class worker who loses a job or is affected by nationalizations, there is an extended family that is affected. We are still Catholic Mr. Woods!

Because Mr. Woods even dares to entitle a chapter of his document with the pompous title “The Nature of Venezuela’s economy” but then proceeds to show he has no clue what he is talking about.

He starts by citing the fact that the balance between the private and public economy has not changed since Chavez took over. But this is not because Chavez has been meek about destroying the pubic sector, but because even under these dire circumstances, the private sector has managed to create value, which Chavez has yet to figure out how to do. Piece of cake for the private sector which has lots 65% of its industrial companies. Easy to say, but a tragedy on itself.

And just to prove a point, Mr. Woods throws in this pearl of a statement:

“The superiority of a planned and nationalized economy was proven by the colossal success of the Soviet Union…”

Hello? Should I just stop here? Is this guy serious?

Because Mr. Woods then goes on to say that “the opposition  uses shortages to undermine the revolution”

Maybe he has not heard about Pudreval and how the Government has tried to control imports and production, with the result that the more it controls, the more it has to import. The more shortages there are.

And in one of the most laughable paragraphs, Mr. Woods dare blame inflation in Venezuela on “food inflation worldwide”, ignoring not only that inflation around the world is very low, but also that monetary management by Giordani, Merentes, Leon et al. has been abyssmal, with M2 increasing by a factor of four while international reserves have remained constant in the last six years. Perhaps Mr. Woods should read the works of a guy named Friedman who happened to say: “Inflation is a monetary phenomenom”. How right he was!

He then goes on to hail the nationalization of Agroisleña, one of the biggest missteps and errors of the Chavez administration. Agroisleña was such a complex business that I suspect it is harder to run it than Polar. Because the company was not just about agricultural supplies, it was about financing, technology, credit, advise. And we find out less than one month after its nationalization that sales in some regions are down to 20% of what they were, financing is canceled and no seeds or sophisticated products are coming into the country as credit lines have been canceled.

A roaring success. Mr, Woods would lead you to think, except that farmers need the financing, the technology and the seeds, but Mr. Woods probably has never visited a Venezuelan farm. And they need it now, not in three months. It’s all about crops…

And then he focuses on banks. quoting one of the local financial rags, Mr. Woods says: ” 91.2% of banks earnings come from commissions”

Jeez, that’s like saying that 100% of Apple’s earnings come from Macs, the rest is just useless. Forget iPhones, Ipads and all that junk.

Anyone that knows anything about Venezuela’s financial sector (Mr. Woods clearly not included) knows that most of the earnings of the banking system come from buying Government paper at high interest rates and paying low interest rates to depositors. The interest on the Government paper happens to be tax free.

Why doesn’t the Government eliminate the tax free nature of the securities?

Simple Watson or is it Woods? Because if they were not tax free, nobody would buy them and the Government would not be able to finance itself at interests rates which are below inflation.

So, Mr. Woods, the whole racket is a vicious circle. Banks generate revenues in many ways, that their commission revenues are almost equal to their earnings is really irrelevant. What matters is that the Chavez Government during the biggest windfall the country has ever seen, needed to issue these tax free securities to keep going. Eliminate them, and banks would be forced to lend, but Hugo would have no money to spend.

And speaking of lending, Mr. Woods argues that nationalizing the whole banking system would “give the middle class easy access to cheap credit”.

Sorry Mr. Woods. As this post a few days ago shows, Government banks, have never been very efficient about giving out credit. Of the top twenty banks, three of the four owned by the Government are last in loans and Banco de Venezuela, which you say “strengthens the Government position” is weaker and weaker as days go by, going from the top five in intermediation to almost the last four positions.

And let’s not talk about all the new banking regulations, such as the fact that when you charge something on your credit card, they have to send you an email or a and SMS. You see, only private banks are complying with this. And don’t ask Banco Bolivariano to even come close. If you go there with a check from a different agency, they can’t pay, the “system” is not ready. It ahs not been for months, this in a country where all banks (private ones, that is) pay a check on the spot)

But they are revolutionary banks, they are accountable to nobody. And nobody asks.

The point Mr. Woods, is that you seem to have very little idea about the idiosyncrasies of the average Venezuelan. First of all, you may not know this, but we have a shortage of well trained people in almost all fields. Second, under Chavez, we have lost all checks and balances, which means corruption is rampant and nobody is checking. Third, when inflation is 30%, it is difficult to be able to reward and promote those that do their jobs right, so that everyone is just trying to survive and the sense of entitlement and reward are simply lost.

But more importantly, those that are put in charge of all of these nationalized enterprises are simply put there because of their loyalty. They haven n understanding, knowledge or interest in what they are being handed out, other than what is the angle they can take advantage of to make some money. Typically, they are former or active military, accustomed to give orders, rather than talking or arguing what is best.

Thus, all your “suggestions” and contributions to the “debate” are simply useless, because they are theoretical elucrubations, which simply ignore our local reality.

And the revolution will be worse because of it!

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20 Responses to “Chavez’ foreign advisors ignore the country’s reality and economics”

  1. sid addendum Says:

    ok, the sugar refinery wou will see on
    http://www.zvedavec.org/komentare/2010/03/3584-zanik-cukrovaru-v-hrochove-tynci.htm was built on the place of old sugar beet refinery of 1871 in 1969 by Cemedex Warszawa (Poland) for 278 millions of Kčs (former communist currency having 0,12345g of gold in 1 Kčs). Employed: 200 workers since 1970 to 1.4.2007. This day were all “fired”, as the owner, Eastern Sugar BV received 730 euros for each ton of unproduced sugar by EU. The factory owned ISO 9002 of quality, the building you see with cukrovar hrochův rýnec is a store for 20.thds tons of sugar in big bags. Unemployed by prod of sugar beet at about 800, affected all town of 5.000 inhabitants. The beginning- socialist Czechoslovakia, the remnants-capitalist Czechia…

  2. sid to jeffrey house Says:

    well, all people (100%) were employed in Eastern Europe in 1989, while the budget ended on 6.6.90 with an surplus of 400 mil. USD in Czechoslovakia. The planned economy made no jobless, no criminals (at about ten murders a year in 15 mil. state). Wanted a democracy? Then after the work switch on the color TV and listen-look to Austrian/German scene. Everybody leaving the school could choose working position, workers (the avantguard) were given flats in new houses+money from “the socialist companies”. Imagine, that the youg worker decided to work in sugar industry. Then, he received next to salary also the sugar, as in 1918 there were in CZ 167 sugar prod. factories+ fields reserved for production. Export was 1,21 mill. of ton of sugar (450 thds rest for local consumption). This was incalculated in socialist economy, so Czechs remained the exporters of sugar. Then the capitalism came and EU. EU GAVE “quota” of production to E 15 (old ctries). Those old EU were battled at court, (taxes to latam sugar) so, the E 15 COMPANIES bought all east producers, closed them, and ordered to destroy new factories (all factories in fact). Google maps shows that they are “grounded” destroyed. And French-German companies received money from Brussels (restructuring the business), but mainly received Czech, Slovak, Hungarian quotas. Good for what? For the production in France and Germany. Do you suppose it is a competitiveness of capitalism? A hidden hand of a free market? No. France+Germ. now pay more to their producers (subventions), thus, the sugar from latam will never be here on market as the normal good. And our producers and workers are-jobless.Sugar- we import….. Lack of experience, you have got. Can you imagine a rural village, where the youngsters working in co-op farm have their brick houses (not wooden as in US)? And that were times, they were not afraid of paying for housing, electricity, water, sewage, heat. Me personally paid one tenth of my income during my studies in the capital Prague….So, so it is. Planning is sometimes useful.

  3. mick Says:

    Santos seems to be scoring bigtime for his country.

    Taking down FARC leaders,asking questions later(dead men have no trials and their laptops tell plenty of tales).

    Getting Hugo to drop the whole enemy at the gates act. Now he’s sending troops to help control(collect protection money from) the drug dealers.

    Getting a few hundred million off accounts receivable and opening up the possibility of a few billion more.

    He’s got to be making a few Colombian capitalist businessmen very happy right about now. He is smiling all the way to the privately owned bank.

    I bet Uribe is laughing at how he is playing that pompous buffoon.

  4. moctavio Says:

    I think “Know Thy Enemy” is a good motto. It is my understanding that the nationalization of apartment buildings originates in these recommendations. Thus, they are very relevant.

  5. traveler Says:

    “The superiority of a planned and nationalized economy was proven by the colossal success of the Soviet Union…”

    Yes! You could have just stopped there. 🙂

  6. loroferoz Says:

    I cannot fathom, Miguel, why you had to waste your time with Woods.

    Except that it is necessary to show the world that the kind of people attracted to chavismo nowadays (and not by the gifts) are pretty clueless. Or to show that such a level of clueless still exists and freely associates with chavismo.

    I second Alek. A fellow that fantasizes quite seriously, not having any impact in more sensible places (like his place of birth), rather making a fool of himself, turns his gaze, to help the “noble savages” make even greater fools of themselves.

    Though, there might be a reason. If enough British, French and Russians had known what Rosenberg’s writings (and Mein Kampf) were about…

  7. A_Antonio Says:

    “The superiority of a planned and nationalized economy was proven by the colossal success of the Soviet Union…”

    I think Mr. Woods should have a virus in his computer that hides the notice that Soviet Union no longer exist. Or maybe the virus in in his brain.

  8. deananash Says:

    Roy, I was thinking exactly the same thing, so I’m glad I read your comment first.

    Miguel, don’t waste your precious time on such fools.

  9. Kepler Says:

    Dieterich said people should be paid by hours worked, as simple as that.
    So if you are a software engineer developing new ideas or a worker building houses and you work 8 hours a day and you have a rubber stamper at the city hall “working” the same amount of time, you should give the same amount of dosh to all of them.
    I imagine the pleasure he feels when he “marca tarjeta”.

    He also has a stupid fascination for computers, which he does not understand at all.
    There you have also his belief in computer voting (as long as his people control the computers, I’d say).

    One sees his Aparatchik mentality…

    I am not sure if I would call him honest. He has been sometimes critical of Chavismo, but only so much. His level of comptempt for real debate is incredible.

    I haven’t read that book Jeffry mentioned, but I agree 100% with what he wrote here. For reasons different from ideology I followed the events in the Soviet Union very closely and for me it was clear: the system was crumbling. Low prices for commodity -on which the USSR depended- in the eighties did the rest.

    What worries me in Venezuela is that we have more or less got this kind of economy of getting paid while doing nothing since before Chavez…because of the Devil’s Excrement. Only that now the already low productivity is decreasing more and more and the ones doing nothing are basically the ones in power and they are also threatening the rest.

  10. maracucho importado Says:

    apparently, woods, never made a payroll… someone not competent to sweep the floor…

  11. jeffry house Says:

    Tony Judt’s indispensable History of Europe post-1945 shows clearly that the Soviet and Eastern European economies were hollow shells by 1989. Most people had a job, but they made 1/4 of what people in the West got as jobless benefits, while standing around doing nothing. And the shortfall was growing yearly.

    While US supporters of Reagan tried to make the case that his policies made the difference, the truth is that these economies were falling behind so fast that there was no point in continuing.

    Only the wilfully blind fail to acknowledge that “the Soviet model doesn”t even work for us any more”.

  12. Lemmy Caution Says:

    Dieterich wrote books in 2002 around the core tesis that planned economy worked much better now, as computers are faster than in 1989.
    And YES, EVEN HE is much better informed and more honest than most of his international apologets.
    These people are lunatics. It took me time to get used to their level of lunatism.
    I wonder what this people will say in 2020 if Chile and 2 or 3 other better developed countries of Latinamerica really managed great progress in education, well-paying jobs and even public wellfare. I don’t consider the probabilities for this to happen being too low.

  13. Kepler Says:

    Alek,

    I am not sure I would put it that way.
    Chávez is putting pressure on Santos to give Makled
    http://www.eluniversal.com/2010/11/07/pol_ava_chavez-reitera-que-c_07A4703451.shtml
    Too many secrets to reveal. I think Santos will cave in, for some dollars.

  14. Kepler Says:

    I agree with Roy. Soviet Union? Please!

    As for Dieterich: he is also a sad figure, even if some people do know him, at least in Latin America’s political circles and political journalists and among the Linke, the extreme left in Germany.

    He is best known in Latin America as he is “the German professor at a Mexican university”. He couldn’t be a prophet in his homeland.
    I was going to post about him and comment on a video of his in youtube pero me dio una pereza increíble.

  15. Alek Boyd Says:

    Miguel, please don’t waste your precious time with non entities such as Woods. He is nothing, a proverbial case of a communist who, having utterly failed to have the slightest impact in the UK politics, is now projecting his racism towards the noble savages.

    And to be clear about one thing: Woods does not advice Chavez on anything, he just does not have the reach. There are only two people that have Chavez’s ear at this point, Castro and Santos.

  16. geronl Says:

    So now Hugo is nationalizing apartment complexes. wow.

    Here comes the public housing ghetto.

  17. Roy Says:

    “The superiority of a planned and nationalized economy was proven by the colossal success of the Soviet Union…”

    Miguel,

    How could you bring yourself to continue reading the article after encountering that gem? Morbid fascination?

  18. Gringo Says:

    Because Mr. Woods then goes on to say that “the opposition uses shortages to undermine the revolution”

    Very similar to what Unidad Popular and friends said about shortages during Allende’s time as President of Chile. They ignored , of course, that price controls coupled with hyperinflation will inevitably lead to shortages.

    As Mr. Woods thinks economic planning was a success in the USSR , I wouldn’t be surprised if he resorted to that old Stalinist chestnut, “sabotage.”


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