Tuesday, February 13, 2007

The Venezuelan autocracy: building it up (part 3: the purse strings)

It is certainly normal that any government interferes at some point in the economy. It is simply impossible not to do so since modern governments are expected to emit, say, health regulations which represent an economical cost that needs to be assimilated somewhere. We cannot be like some US Libertarians who still have to recover from the end of the Gold Standard. However there is an implied effect in accepting that a government interferes in an economy: with the wrong folks in office the temptation is just too strong not to try to control the economy for their political goals. This is exactly what Chavez will be doing from now on.

Attempts at controlling the economy are recurrent in Venezuela. All previous government used all sorts of controls, from currency exchange regulations to price controls and all sorts of labor rules. The only difference with Chavez and the previous governments is that Chavez is going further. But the Chavez administration is equal to previous ones in the failure to successfully regulate the economy.

That is perhaps why Chavez has decided to establish more controls than ever before, to control all in such away that he might ignore the negative results. This will doom him to an even greater failure sooner than later but right now he could not care less as he is reinventing the wheel. Though one could argue that on the short run, while the regime consolidates its hold on the people, altering the economical parameters could have the putative benefit of linking any accidental prosperity to the great provider, El Supremo.

The private sector of the economy is also a tool that the opposition can use to mount a challenge to the government of Chavez: the entrepreneur mentality is viscerally allergic to the autocratic expression of the state. The government must make sure that the majority of the resources are controlled by the state. Not necessarily owned but definitely controlled in such a way as they cannot be used to promote adverse political ideas. In other words, through tools like the tax system the state can make sure that major funding for opposition party will not come from private business while the state dip with impunity into the state coffers to finance chavismo political activities. Never will the opposition have a fair shot at campaign financing.

We must remember that Chavez cannot forget and even less forgive the fact that after 8 years of glorious revolution the private sector remains overwhelmingly against him. Be it the general strike of 2002-2003, be it the knowledge that those who come hat in hand to ask for contract of help pretend to be chavista as long as the money flow reaches them in one way or the other. The electoral map of December 3 is quite clear: the more private sector workers in a given electoral district, the lower the Chavez score. Etched on stone almost.

So Chavez has decided to eliminate the private sector of the economy, but since he knows that in the XXI century this cannot be done quite completely (Chavez is well aware of what happened to Cuba) then he will at least limit it as much as possible. This is done through many ways but let’s focus on only a few.

Control of the financial system

This is already done. The majority of the deposits in the major banks are state bonds and deposits. The mere threat of withdrawing the funds of a given bank could send this one in a fatal downspin. They will behave. Main banks are covertly nationalized.

To this you can add other controls such as the currency exchange system of CADIVI. With such a tool the government controls how much people are spending when they travel, who can import goods and which goods, etc… Very cleaver as there is always some permit that can be required to block any recalcitrant sector of the economy from accessing dollars. These days it is sort of working but there are already signs of deterioration (and corruption inside) just as it happened with the earlier RECADI of cursed memory. An authoritarian regime eventually will not be able to resist using such a biased tool for its unethical benefit.

Now we are promised through the enabling law to have significant changes brought to the rules that set trading and business exchanges, "codigo de comercio". It is to be guessed that the modifications will be done in order to favor state owned enterprises over the private sector. Such things as how property rights are set, how public notaries function, how the stock market is regulated, how compensations can be claimed will be changed, likely to allow more governmental control.

New forms of property

Another weird project is the insistence to include in the constitution “new forms of property”.

Property is simple: you own something or you do not.

The objective sought by the government is that by “describing” new forms of property inside the constitution will results in a relative notion of what private property is, a right depending on political expediency and needs of chavismo. For example the government wants to describe cooperatives or co-gestion enterprise as a “different” form of property. It also wants to create social values company. Needless to say that how the government defines what is a social value property can change just as the wind changes. Again, an enterprise belongs to the boss, the workers or both. But it belongs to someone. It is to be feared that the whole system being set up would amount to little more but a way to enact as many indirect nationalizations as the government will need to do.

State monopolies

In a good mercantilist and socialo-commie fashion the Venezuelan state wants to recover control of what it defines as “strategic” companies. If a case can be made for the oil industry to be under state control, the latest round of nationalization make absolutely no sense on the economical level. Besides when one remembers how was the phone service under state owned CANTV, or how is today service in the state owned utilities one shivers thinking at what the future has in store for us.

So what is behind this recent fever? Two things: to look socialist, and to expand patronage. After all chavismo has thousands and thousands of people to find work for and efficient private companies will not do the trick. Only state monopolies not required to be efficient can solve unemployment for chavista supporters for a short while. Besides nationalizations are a wonderful tool to punish the opposition: do you think that all the management of ELECAR, CANTV or some of the oil joint ventures will remain in place when it is found out how many of them appear in the Tascon list? Chavez wants to ruin whoever voted against him. Period.

Social laws

There is always the manipulation of social laws as an efficient tool to control the economy and even more to control the private sector (control being meant as control per se, independent of the economical result). Chavismo has been very productive on this front. In the past 5 years it is fair to say that the amount of paper work that any private business must do has at least doubled. New laws about environmental regulations, working conditions, social responsibility, and many more, have brought new expensive and incredibly time consuming penalties. Now, many of these laws are in current use in developed countries and Venezuela is merely catching up. The problem here is that these new laws tend to give an inordinate discretionary power to public servants to impose fines and regulations. The processus to appeal unfair decisions will be cumbersome and in the hands of a judicial system that will rarely dare to rule against the state.

In other words these laws if necessary are also actively conceived as additional control tools that can be used against any private business that happens to displease the central government. It is to be noted also that the main violators of many of these rules are the public administration or state companies. To the point that PDVSA is actually exempted from some of these regulations because, well, you know, they have their own regulations and they cannot be scrutinized by external sectors.


Inclusion of corruption as a state policy or an administrative tool to control might seem odd. But after 8 years of chavista rule who can possibly deny that corruption has served well the regime in establishing its power? The rules might not be set in the law but do find a private company owner that has not bribed any public servant, a cop, a National Guard in the last few years. This has in fact become such an established way of business that it is a wonder there is no a budget item officially dedicated at greasing any paw that might cross your way. From scotch bottles given at Christmas to outright payments, it has become the norm for business now, and I am not talking about the huge commission who have allowed many a regime servant to reach luxurious living standards. Actually one could say that corruption is indeed set in the law. The new laws of social control for example are a breeding ground of corruption. When the public employee that surpevises your business has all the power to set the fine, and finds somethign wrong with your business, guess what will happen? Some bargaining where you will pay the supervisor instead of paying the fine.

Corruption is a must in an autocratic regime. Because an autocratic regime is morally and ethically bankrupt it requires to have a majority of the country to be morally and ethically bankrupt to justify the system. Do not expect corruption to subsidize in the next years. What the regime will do instead is to minimize the perception of corruption. Censorship? Tightening the inside control to force corrupt chavista to enjoy they larceny overseas instead of at home? Some way will be found but corruption as a tool to control the country, and the private sector of the economy is a given. After all the beauty of corruption is that both parts must remain silent about it: when it unravels no one knows who will end up in jail.

Now the question is, under such administrative burdens, under their ever expanding reach, under a regime which has stopped for many years to offer a stable judicial system to investors, who will come to invest in Venezuela? The answer is probably that the government does not wish to have capitalist investors if it can help it. And if the economic prosperity of the country must suffer on the long term, well, it does not matter as long as the new Bolivarian man comes into existence. That man might be poor, wretched, without ethics or morals, but he will be chavista or will at least understand that there is nothing outside of Chavez sphere.

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