Why we are flat broke and in an nonviable system

To say that we are flat broke requires no explanation. All the indicators, from inflation to black market currency, from crash in importations to crash in oil prices, are all well known, vox populi if you wish. Equally well known the daunting corruption of the last decade and the wasted money in buying foreign sympathies.

Thus there is no point to waste my and your time in rehashing the reasons why we are out of cash. Only the brain washed chavista would dare to argue that. But there is a lesser known fact, or rather less studied fact which is the societal changes in the last decade and a half which makes it more difficult for Venezuela to recover, even if a new creative and honest management were to be swept into office. I have made a graph to try to drive my point in.

During these past 15 years populism has been busy at crating a "client/dependent" society while making sure the private entrepreneurial sector was reduced so that political challenges would be limited, if anything by lack of funding from those with independent income.  In the drawing below the proportions between the social groups are of course not realistic. The way I drew boxes and circles is to be seen on their relative variation over time, not on specific value. The top row "represents" a gross division of society circa 1998. The lower row is what I think it looks like today, with a new social group added, "the exiled".

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DETAILS

1) Let's start from the left. In the "ancien regime" there was already a class of people in the lower strata of the population that was dependent on the largess of the people in charge. But indeed this was somewhat limited and explains in large part the arrival of Chavez, as most had a sense of entitlement. Unfortunately, and deliberately, this has not changed except that now the "client" subgroup is proportionally much larger than it used to be, courtesy of the "Misiones". But all in all, the more so this year with currency collapse, the poor and lower classes are larger than ever in our history. Do the math at an exchange rate of 170 to the USD on the minimum wage and wonder at what can these people can afford today compared to 1998....

We should not be surprised, this is how ALL populisms end. It is just a matter of time. The only escape here is the dotted line that links "clients" with "bureaucrats". Chavismo always needs to recruit people to organize distribution to clients. These agents can be recruited, where else, on the lower classes strata where they can easily be detected. Their promotion to bureaucrat reinforces their allegiance to the regime. (note: the light red arrow reflects the early recruiting of chavismo cadres from the lower classes, and their joining the middle class through adhesion to the army or employment in the bureaucracy; but today the recruitment is mainly out of the Misiones beneficiaries, well screened, well indoctrinated).

2) In the middle, in green, we have had the evolution of the middle class of Venezuela, loosely defined as someone that may not be able to buy a flat but can at least rent something somewhere in a not too bad neighborhood. This group has shrunk, part going directly to the lower classes, such as school teachers, one of the big shame of the regime.

Inside the middle class the portion representing store clerks, trained workers, etc, has gone down as the economy weakened yearly. Today it is not a wild guess to state that the middle class is dominated by the bloated bureaucracy and the army.

It is not idle to note that an increasing large portion of the bureaucracy is formed from ex-military or even active ones.

3) The rich on the right is perhaps the more "mutated" group.

The "owners" have been quite reduced. By owners I mean anyone from a shop owner to a major capitalist. Let's call them entrepreneurs.  With the constant chavismo attack on the more independent minded sector of the society the reduction has been two fold, from those who gave up and retired to those who chose to leave the country. We can note that some did play the chavista game and accepted to partake into the regime's corruption thus joining the new rich class of "bolibourgeois".

Another group inside the rich are the professionals, doctors, lawyers, etc. People that in other country would not be ranked as "rich" but in Venezuela are because, let's face it, in 1998 they could afford a flat. Now many cannot anymore and as such this is perhaps the group that has suffered proportionally the greatest emigration. Let's remind the reader that since Chavez was elected up to 1.5 million Venezuelans may have emigrated.

The rest of the rich, a relative term in Venezuela, composed of retirees, higher management, sales representatives, etc. has equally suffered and has equally left the country with as much capital as they could take away with them. Note: 1) the rich oval is of course overly large as compared to the green or red, this for clarity in the diagram. 2) I should have put an arrow to illustrate the descent of many in the "rich" toward middle class but did not put it for two reasons, one being clarity in the diagram and the main one because I suspect that emigration has taken a much larger toll on the rich than descent to middle class.

Where the major difference comes is the apparition of a nouveau riche group (and sometimes old money that join into the party) the "bolibourgeois", boliburgues in Spanish. These are those who have greatly benefited from currency arbitration, juicy government contracts or simply frontmanship positions, if you forgive my coining of words. Initially this group was connected with bureaucrats favorable early to Chavez. Let's not forget that the regime's cadre and ministers come ALL from bureaucracy ranks, some colleges and the military. I cannot think of a business person, or even a true economist that has participated in the government since 2006 at least. Notes: there is a certain mutual feeding between these bolibourgeois and the bloated bureaucracy and military (dotted line) as all hope for a turn at the cash register. Also there is floating permanence between exile and Venezuela for this group. They enjoy their millions overseas but still need to maintain a presence in Venezuela to make more cash and also try to erase documentation on their misdeed. The Derwick case is a great example of this.

What is wrong with all of that?

Well, look at the shaded boxes, those of "unproductive" people though some are necessary and productive in their own ways (soldiers, police, some bureaucrats). The point here is that the people in the shaded ovals are those who cost directly to the state, be it paychecks, be it populist programs, be it genuine welfare. These groups have increased a lot in the past 15 years whereas the groups that provide, in theory, the taxes for their support has shrunk.

What is worse, let's not be afraid of stating it, is that the class that is more necessary for the recovery of the country, the professionals and entrepreneurs, has been not only economically damaged, but a large chunk has been lost to emigration. Few of these exiled will consider returning to Venezuela,

Thus, EVEN IF tomorrow we get a new more efficient government, the large dependent population will have to be served while the means to restart the economy will be limited in personnel and capital. It is of course not politically correct to point this out, and certainly people like Capriles know that they cannot gain votes discussing this aspect of the situation. Indeed, discussing it becomes is a direct suggestion that the dependent class must be pared down, a sure election loser (cf. Greece).

Thus not only we are flat broke but the system is nonviable and will need, unfortunately, massive overall at a potentially great social cost. And we are in the worst possible situation when at the same time we have a "dependent" class frightened by the future and a business class that is scared to even breathe and thus unable to raise to the challenge.