The Thicket

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The fine landed like a bombshell in this well-appointed east-side building’s condo board. The government was fining them for BsF.60,000 – some $10,700 at the no-joke exchange rate – for “workplace safety violations.”

None of the residents was prepared for this. Sure, labor inspectors had been to the building some weeks before and made a big deal over the fact that the main electrical breaker boards were inside the caretaker’s apartment – a workplace hazard in their book. But the condo board had already spent a considerable amount of money relocating all the electrical equipment to the common areas, so they thought that would be the end of it.

A couple of panicky phone calls to the building administrator later, they had their culprit.

“Oh yeah,” the administrator said, sizing up the situation, “it’s probably because you forgot to make the conserje sign her occupational hazard disclosure papers. They’ll throw the book at you for that.”

This only confused the condo board more. It was the first they had heard about occupational hazard disclosure documents. The administrator did what to he could to reassure them. “It’s ok,” she calmly reassured them, “we have some on file here, we’ll fax them over.”

The fax came bearing an official form that, it turns out, the condo board is now legally mandated to present to the caretaker for her to sign. It listed every kind of injury a conserje could imaginably suffer doing her job, asking her to certify that she’d been made aware that, for instance, the dust that she kicked up when sweeping the building’s common areas could cause allergies, and that mopping the floors made them dangerously slippery and a potential accident hazard.

The condo-board head rushed to have her sign the statement, which the conserje did with some understandable bewilderment.

“Who doesn’t know that wet floors are slippery?!” she mused as she signed the paper the doñita had just put in front of her.

It was slightly embarrassing for all involved; it all seemed too stupid for words. But getting that document signed was the first step in filing an appeal against the over-sized fine.

Turning up at the labor inspector’s office, the condo-board head found herself at the far end of a queue that snaked up three flights of stairs, into the offices on the third floor. Hundreds of people, most of them fined for similar banalities, were camped out for a long, sweaty day of waiting, the bureaucratic obstacle course you’re forced to navigate if you want to appeal a fine such as this.

They might as well put up a sign saying “Welcome to the insane world of LOPCYMAT“. To you and me, that stands for Framework Law on Prevention, Work Conditions and Environmental Standards in the Workplace – chavismo’s kafkaesque worker “health and safety” law.

Shielded by the unobjectionable aim of protecting workers’ health and safety, LOPCYMAT has created a mad thicket of mostly superfluous regulations guaranteed to create a mass of mostly useless paperwork, all backed up by the threat of heavy, often crippling penalties.

In the event, our condo-board head wasn’t even in that deep. For violations judged more severe, LOPCYMAT specifies draconian criminal penalties that can range up to four years in jail if a worker is temporarily disabled at work. Regardless, the bread and butter of the law’s punitive regime is its system of hefty fines, liberally handed out for failing to comply with any of dozens of rules, whether substantive or procedural.

Predictably, the stench of corruption hangs over every LOPCYMAT enforcement measure. The long queue to file an appeal delivers you to the hands of a foul-tempered bureaucrat that, more often than not, resolves the labor dispute with a not-particularly-oblique request for a bribe, “y dejamos eso así”… literally, and we leave it at that.

In effect, the interminable line outside any given labor inspector’s office these days is filled with people waiting patiently for their turn to be shaken down by a corrupt bureaucrat.

And yet, LOPCYMAT is merely the tip of the chavista regulatory iceberg, a regulatory amuse-bouche.

An even more punitive new anti-drug law threatens company managers with criminal penalties if their employees are found holding illegal drugs on the job. In other words, if somebody you hire turns up to work with a baggie, he goes to jail for one year; you go to jail for four.

Seniat – the government’s tax collection agency – can rightly claim title to having started this trend. This famously penalty-happy agency can and will fine you for misspelling a supplier’s name on a tax reporting form, and can shut you down temporarily or permanently for almost any violation, no matter how technical or banal, with little to no chance of appeal.

IVSS – the Social Security Administration – and Indepabis – the Consumer Protection agency – add in their own layers of regulatory harassment to the mix, each reserving the right to fine or shut down firms or jail their owners for a bewildering variety of violations. Even the fire department can shut you down if you fail to cross every t and dot every i in their rulebook.

The whole edifice of stifling regulations locks in on itself to create a kind of iron fence around the private sector. Create hundreds and hundreds of arbitrary rules and you can be sure that, at any given time, even the best, most conscientiously-run of businesses will be in violation of at least some of them.

Layer in the potential for heavy fines for every broken rule, and you get a private sector gripped by a justified paranoia, certain that at any time somebody from the government could turn up and flip their operation on its head.

Not surprisingly, regulatory compliance takes up an ever growing share of private firms’ resources, with medium to large firms forced to set up their own in-house compliance departments to try to stay ahead of the ever-growing thicket of nuisance rules.

Assailed by a government that doesn’t hide its contempt for them, private firms in Venezuela are merely in the business of keeping their heads above regulatory water. And new regulations come online all the time, with each new rule bringing its own compliance costs.

But if private firms are getting pinched on the production side, they’re getting pinched on the marketing side as well. Each day, more industries find themselves in a market where the prices they can charge customers as well as the cost of their inputs are also set by the state. Not only does the government control costs via regulation, it controls the sales price as well. And so, as the cost of staying ahead of the regulatory thicket inevitably starts to exceed the revenue they can raise by selling at controlled prices, firms shut down, leaving the space to be filled by a public sector that, deep down, sees no good reason for the private sector to exist in the first place.

None of these rules apply in the public sector. This means that if you have the misfortune of working for a state-owned firm, none of these “protections” apply to you.

As more and more workers are injured or killed due to workplace accidents in the nationalized industries in Guayana, the labor inspectorates do nothing. When a chlorine gas tanker-truck overturns in Clarines setting off a chemical poisoning emergency that leaves twelve people dead and hundreds injured, the government blames the truck driver.

And if PDVSA decides to unilaterally cut your wages, or the Metro de Caracas openly announces its intentions not to abide by its collective bargaining agreement, you’re shit out of luck. The thicket is to be applied against evil capitalists only. The virtuous public sector makes only innocent mistakes, it never commits crimes.

This unrelentingly hostile business climate has left Venezuela ranked as one of the world’s hardest countries to do business in. Amid this chaos, chavismo is now proposing the coup de grace: a sprawling, antediluvian labor law reform that would force hundreds of firms that are now just barely getting by to shut down.

It’s not just that chavismo is pushing a paleolithic Severance Pay regime that creates massive disincentives to hiring and will wreak havoc with company balance sheets by creating, out of the blue, huge new labor liabilities. It’s that they’re pushing for an even shorter workweek coupled with a tripling of statutory paid vacation time, from 15 days to 45. It’s that, on top of that, they are adding in worker co-management statutes that will strip entrepreneurs of what last remaining shards of control they once had over the companies they’ve created. All this in a country where two-thirds of formally employed workers are in the private sector.

Chavismo’s war on the private sector is all-encompasing and unrelenting, organized around an unambiguous objective. The government has set out to create a system where private industry doesn’t need to be expropriated to disappear over time, because the regulatory thicket itself guarantees its inviability.

Think of it as collectivization via bureaucratic hassle.

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