Venezuela's ongoing collapse

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VenezuelaBeforeChavez510X340Venezuela is mired in a deep crisis, but you already know that.

Each new day brings with it another batch of bad economic news. When it isn’t high inflation that the government desperately tries to hide, or sharply increasing poverty figures, it’s some other story about an industry on the verge of collapse. One day it’s newspapers, the next day it’s car manufacturers.

But you already know that as well.

As bloggers, we need to document and comment on all of this, but to be honest, it isn’t easy. How many more versions of the “chavismo-is-a-terrible-social-experiment” post can we write? Do our readers really need to be convinced that the country is going down the drain?

As it becomes perfectly clear that chavismo is a failure, we need to take a step back and acknowledge that this is another stage of Venezuela’s alarming collapse, a process that began in the 1970s, and one we have been unable to stop.

This week I had dinner with FRod, and one of the things he reminded me of was that his little tiff with Ricardo Hausmann is ironic given how they edited a book together on this exact topic. (See FRod’s latest retort here, as long as you can get by the Financial Times’ ridiculous paywall)

The book is called “Venezuela Before Chávez: Anatomy of an Economic Collapse,” and it provides insight into the process that led to Chávez, a dramatic socio-economic collapse seldom seen in the history of the world. It is important to re-visit these events to better understand them, and to make sure we understand that the chavista beast has its roots in bigger, deeper failures of Venezuelan society as a whole.

So, if this is simply the latest incarnation of an astonishing economic collapse, what are its roots?

Hausmann and Rodríguez begin by reminding us that Venezuela was once a success story:

“By 1970, Venezuela had become the richest country in Latin America and one of the twenty richest countries in the world, with a per capita GDP higher than Spain, Greece, and Israel and only 13% lower than that of the United Kingdom.”

Starting roughly in 1970, it all went downhill. Why?

There are many answers in the book. Prior to Chávez, Venezuela collapsed because of declining oil production, which in per capita terms meant that each Venezuelan produced less and less oil, and therefore earned less and less from oil income. Temporary price surges made us believe again in the “illusion of harmony,” but once oil reverted to the mean, as it seems to be doing now, the mirage disappeared.

But it doesn’t stop there. Another reason for Venezuela’s collapse is that productivity in our non-oil economy also collapsed. The reason for this is that all the know-how that we obtained in producing oil was not transferred to other sectors, so our technical prowess did not really spill over. There are also macroeconomic conditions at work here – the natural tendency to having an expensive local currency being key.

The book also discusses some of the other important trends in Venezuela’s collapse: an inability for political actors to get together and increase oil production; a collapse in financial intermediation, which prevented firms from adopting technology and expanding; chronic underinvestment in infrastructure due to declining public spending in this sector; regulations that prevent the labor market from adjusting, making it difficult to fire unproductive employees or snatch away talented ones by paying them more; and a political system that rewarded broad-scale patronage over a consensus-based, strategic, targeted approach to development.

I think the book is a commendable effort in forensic development economics. Looking at this laundry list of culprits, one can only conclude that they are still present, stronger than ever.

If labor regulations were tight before Chávez, they are now asphixiating. If the increase in oil production was difficult before Chávez, now it would take a miracle if our wells didn’t dry up. And let’s not even talk about our crumbling infrastructure.

As we absorb the pain of this new crisis, we need to come to terms with its nature. It is the latest onslaught of a deeper malaise. The seeds of the current collapse can be traced back to the vices our economy brings with it from a generation ago.

Changing the government but simply ignoring the factors that led to this collapse would not accomplish anything. The problem goes beyond Maduro and company. While they are obviously a huge part of the problem, the end of chavismo would not necessarily cure our country.

We need to make sure the leaders who wish to replace Maduro understand the nature of the problem, and offer a recipe for escaping this trap.

1 COMMENT

  1. Not firewall, paywall. What I do is copy the title of the article on Google and then follow the link from there and you skip the paywall coming from Google search.

  2. not that I want to be a troll, but what do you mean by expensive currency being a problem? Is it too overvalued or is it that you need too many USD to get Bolivares? (which I obviously know it’s not the case); the casual reader may get confused with this.

        • Nice article, to minimize the effect, the article mentions that “There are two basic ways to reduce the threat of Dutch disease: by slowing the appreciation of the real exchange rate and by boosting the competitiveness of the manufacturing sector. One approach is to sterilize the boom revenues, that is, not to bring all the revenues into the country all at once, and to save some of the revenues abroad in special funds and bring them in slowly. In developing countries, this can be politically difficult as there is often pressure to spend the boom revenues immediately to alleviate poverty, but this ignores broader macroeconomic implications.”

          Is this even thinkable with an opposition government? Will another Caracazo happen? and the more dramatic question, was CAP right?

          • “…this can be politically difficult as there is often pressure to spend the boom revenues immediately to alleviate poverty, but this ignores broader macroeconomic implications.”
            Wasn’t this the very definition of the “war against poverty” that many people praise from the corpse?
            Also, I guess this same thing was the responsible for sending the economy downhill since the 70s.

  3. It appears that, in the broadest of terms, one could say that what went wrong were and still are:

    1. Lack of sound (1.1) political and (1.2) economic governance.

    1.2.1 Lack of a relatively stable currency.

  4. Correction.

    Let’s paraphrase President Bill Clinton and say that “It’s the culture stupid” In Venezuela, you have Facilismo, Machismo, Catholicism and Patronage, which put together make for a very toxic mixture. I give you my opinion as one of those who experienced the negative side of all of the above Venezuelan cultural traits as a teenager growing up in Venezuela, and on a glorious sunny day in the summer of 1975, I said “adios” to the country and never looked back.

    In the USA, I settled. I got an advanced degree and made a very productive and successful career the American way. It was very thrilling to be part of a culture in the USA were the laws are obeyed and if you worked hard, you could eventually make a healthy living without ever stealing a penny from anyone. Yes, it is a cliche, but true. Sure, the USA culture has its problems and share of nut cases and political wrangling. But, for the most part, the system works.

    Not so much in Venezuela. Take patronage, for example. Patronage has always been pervasive in Venezuela regardless of who is in power. A very corrosive symptom is the practice of “quid pro quo” Venezuelan style. Every transaction that I ever witnessed had an element of it at every level, including transactions among family members. I will give you just one small example.

    It was very early in the morning at Christmas time and an older friend of mine needed to have bills paid that were due his company. In the USA, you would just send an invoice and request payment. But not in Venezuela. The first thing my friend did was to load the trunk of his car with two cases of Chivas Regal Scotch Whisky. I asked my friend what the two cases of whiskey were for. He simply responded: “spend the day with me and I will show you”

    We then proceeded to visit every client that owed his company money, find the individual whom he thought would facilitate payment, and present that person with a liter-bottle of Chivas. Often, the bottle would be opened, and a drink would be poured at 10 AM! This went on from morning till night, till all the Wiskey was gone from the trunk, and my friend had successfully collected on the debts. It would be 8 PM before the day was over. By the time we got back home I was exhausted and feeling ill from all that went on during the day. On the way back home I noticed that we were speeding and I decided to wear my seat belt just in case. My friend started laughing at my behavior and said: “you know what seat belts are good for? They will be able to find your body neatly strapped to the seat” I knew then I could not survive and I had to leave.

      • You missed my point Juan. The Wiskey was the payment, the grease, my friend had to use to get his invoices paid. No judgement was implied. I made it clear at the top that it was a cultural observation I was making.

        I was in my late teens on the verge of becoming a man. My friend thought he was teaching me about doing business, instead he scared the crap out of me. I realized I did no have “la hombria” to survive the culture and I had to make a different choice for myself.

        That is the point of my story.

    • A cultural question I have been asking myself these days. What would it take for an educated equivalent gringo (equivalent to you I mean) to defect its country instead of fixing it and/or taking political action?

      It is not I believe those here are immolating themselves. Nor I think those that leave are committing treason. I certainly don’t want that. What I find appalling is how people, good people such as yourself, you know, hard working and honest, feel so powerless when confronted with the idea to fix this country.

      Each country has its particularities. Tocqueville’s Democracy in America argues is not the government or parties but the network of NGOs that make the US a thriving place. Germany has its things too, which are different.

      I like Caballero’s way of thinking in which he said that Venezuela’s democracy was a child (in historic terms). It hasn’t yet figured out what it wants to be when it grows up. It doesn’t know yet what it is good for.

      Many agree with you that the problem is cultural. Then you have two options. Make a social contract that represents your culture (and the institutions that go with it) or change culture (impossible IMHO).

      Or I guess one can shop around for the system that one likes and just emigrate there.

        • Its not the learning of the lesson that matters. Its why they seem to forget so very often and so unfortunately soon after they’ve learned it.

        • “Many agree with you that the problem is cultural. Then you have two options. Make a social contract that represents your culture (and the institutions that go with it) or change culture (impossible IMHO).” – maybe the culture does not lend itself to democratic institutions.

      • Many educated venezuelans find themseves in an Atlas Shrugged situation, better described with the quote:

        “When you see that trading is done, not by consent, but by compulsion- When you see that in order to produce, you need to obtain permission from men who produce nothing- when you see that money is flowing to those who deal, not in goods, but in favors- when you see that men get richer by graft and by pull than by work, and your laws don’t protect you against them, but protect them against you- when you see corruption being rewarded and honesty becoming a self-sacrifice- you may know that your society is doomed.”

        As long as working honestly is a liability in Venezuela, there will be incentives to either work honestly elsewhere or becoming part of the problem.

        The powerlessness may come from a perception of pervasive corruption among the top brass in the State, the governing party, opposition parties, business comunity, academia, trade unions, media, etc (NGO’s might be an area where corruption is less prevalent, but their reach is so limited that maybe they are of no interest to corrupt minded people yet). An overall feeling of corrupt people pulling all levers of power in Venezuela.

        • I agree with every word. But if people leave then there will be no way to reverse it. The only way to reverse is for the good people to act.

          The idea that acting is too hard is what creates the powerless situation. IMO. I don’t know. It is a hard question, but one worth looking an answer for.

          • Prisoner’s dilemma. If no one defects, everyone is better off, if you defect you are better of and the rest are worse off, if other people defect they are better off and you are worse off.

            If the perception of how hard it is to change things in Venezuela were to improve, I’d expect less people to leave, and maybe some to return. But changing the perception is getting more difficult as the situation becomes more dire.

            “Hay un camino” is the kind of campaign that addresses this issue. Too bad Chavez won that election. Maybe #LaSalida type campaigns should be used in the eve of elections, and Hay un camino should be used in years without elections like 2014.

    • “In Venezuela, you have Facilismo, Machismo, Catholicism and Patronage, which put together make for a very toxic mixture.”
      I would left catholicism out of that mixture.
      Most catholics in Venezuela are just filthy hypocrites, who say they believe in a god but don’t even do a fraction of what that religion says.
      To facilismo, machismo and patronage I would add opportunism and general assholery, those are traits of the real virus that’s infected and nearly destroyed Venezuela turning it nito the hellhole it is now: Meet la “VIVEZA CRIOLLA”, also known as “EL RANCHO EN LA CABEZA”

      But our friend the bipolar Chigüire has a better name to describe it:

      http://www.elchiguirebipolar.net/22-10-2013/descubren-que-el-gen-de-la-viveza-criolla-en-realidad-es-el-gen-de-ser-un-mamaguevo/

      Tear off the viveza from the venezuelan idyosincrasy, and you’re cutting off the tumor that’s been ailing this country for so long (Not all the problems would go away with that, I know, but it’s a damn good start)

      • My friend, I agree with you — for the most part.

        There’s a reason why the collective unconscious of a nation gives rise to and prizes viveza. The answer has a lot to do with the psychology behind the dominant state religion. Hear me out before you pounce.

        For when that religion controls (for the most part) the education and socialization of a population — from cradle to grave, when congregants — especially female and the less well educated — are treated as children, when all congregants are trained to give up personal accountability in exchange for periodic exemption through confession (rinse and repeat), when rote-memorized mantras numb reason, when a byzantine maze of do’s and don’ts wrapped in an imposed cloud of guilt begs for petty rebellion, that is, by those who know they’ll be exempted through confession, well, a general psychological profile emerges that some commenters on this post don’t want to deal with.

        The general behavioral practices that I’ve described are my personal observations over many decades with one foot in each of two continents of this hemisphere. Through readings and associations, I’ve also learned that other state religions use psychological tactics as a measure of social control — and dominance — some more fiercely than others. And some states dispense with religion altogether, but not the psychology of mass dominance and control.

        I’m not opposed to a society’s need for religion. In fact, I think it’s vital. Most of us have a hunger for spirituality that must and should be quenched. But I can’t help wonder about the relationship between a dominant state religion that uses psychological ‘tuercas’, especially on females (breeders), or 51% of a population, and a nation’s progress or lack thereof.

        • One problem with this analysis is that the amount of viveza widely varies throughout countries that have had Roman Catholicism as the dominant state religion. Venezuela and Argentina: mucha viveza, but higher in Venezuela- at least now. Colombia- less viveza than Venezuela or Argentina. Chile: much much less viveza. Not to mention Roman Catholic countries in Europe.

          And to switch from Roman Catholicism to another example of a dominant state religion, consider Great Britain, where in centuries past Anglicanism was the dominant state religion. You couldn’t get into Oxbridge without professing belief in the Anglican creed. [Those who didn’t, and got into Oxbridge as student or faculty, such as Isaac Newton, had to fake it.] I don’t see viveza as having been such a problem in Great Britain of centuries past compared to present day Argentina and Venezuela. Or consider colonial Massachusetts, where Puritanism/Congregational Church was definitely a “dominant state religion.” [Massachusetts didn’t have disestablishment until the 19th century.] Those Puritans weren’t shining examples of viveza, in spite of their dominant state religion in colonial Massachusetts.

          • Yes, there is great variety in how much an organization, deeply embedded in a culture, exerts control of a population’s mindshare, as there is variety in how much that population submits to being dominated (or has no choice in the matter). Similarly, there is variety in the size and strength of that mindshare control, due to other significant influences — a lay government, geopolitics which ushers in multiple influences, the evolution of higher education (among women, in particular), and of course, the passage of time.

            My thoughts on the reason behind viveza hinged on a dominant imprint through education that’s intertwined with a religion that puts a much higher value on magical realism over scientific reason, on group think over independent thought, and on submission to a patronizing system over personal accountability. Central, too, to the tight control practices has long been a significant cult worship of blood, shrouds, and bones. Call it shock and awe. In Judaism you get a bit of that in a bris. But no religion that I know of beats the use of blood as a psychological control mechanism as does Roman Catholicism.

            In many Islamic States, the efforts to control mindshare (especially that of women, children and the poor) are particularly fierce. Less fierce, only because they are pockets within a very homogenous U.S. population, is the control for mindshare among Mormons and Southern Baptists.

            Those nations or regions where Roman Catholicism has had a heavy hand in gaining mindshare, especially among women and the poor, are, as I see it: Ireland, Poland, Peru and Quebec. The latter is an interesting case, where contemporary women, as opposed to their mothers and grandmothers who were educated to submit to and never question the Church, said: ‘Buzz off, Church. I’m not playing your breeding game. If it were not for immigrants from the Middle East, which forms a growing chunk of the Quebec population, that province’s birth rate would be much lower.

            My thoughts on Peru and Poland are anecdotal. An Italo-Canadian who married a Peruvian was creeped out by the darkness and heavy-handedness of the Catholic churches he visited while in Lima. I have spent time in Poland and have caught aspects of the strong imprint of the Church. But unlike what happens in Latin America, and perhaps because of the influence from the Soviet Union, during the many cold war years, if not the pre-WW2 proximity to Europe, I came across a lot of really bright and well-educated women. A certain benefit is a relatively well-ordered society.

            As for Ireland, I don’t know enough about present-day conditions, especially after the market opened up dramatically (currently in a bit of tailspin). But a common saying used to be: there is no more Catholic than an Irish Catholic. Female domination was huge. And I’m not talking in the era of Newton.

          • Greetings, I am a long time “lurker,” first time commenter…

            I have traveled a lot in Latin America and lived for a while in Colombia. While I loved living there, I feel pretty confident in saying that there is absolutely as much “viveza” in Colombia as there is anywhere on Earth; I think most Colombians would say the same.

            I have heard “Our country is the most corrupt country in the world” from Colombians, Mexicans, Ecuadorians, Argentines, Venezuelans (of course), Peruvians, etc. The only exceptions among Latin countries I have visited are Costa Rica and, as you mention, Chile (where, as I understand it, offering a police officer a minor bribe can bring the whole world crashing down upon you). It definitely seems to be a common problem in most of Latin America.

            However I like your main point that it’s hard to pin the roots of “viveza level” down with any certainty. Perhaps it’s not as much religion (Catholic or Congregational?) as it is about circumstances. The conquerors of Latin America came to subjugate and get rich; the Puritans came for entirely other reasons and had to depend on one another (and the native locals!) just to survive (OK, subjugation eventually came anyway, but not at the hands of the Puritans). No one with a sense of entitlement would have willingly chosen a situation in which the shelters get built before winter or we all freeze to the death.

            Definitely a depressing and seemingly intractable social reality in most of the region…a society in which people with integrity are always swimming against the tide is not a happy place to be.

      • Do you think it’s only Catholics?
        I am not a Catholic but I have to say I have seen the same behaviour with every single one of the other
        faiths in Venezuela, including all the different evangelical churches.

  5. You don’t have to go to university to get to all these conclusions. There is nothing new here.
    There was definitely less export per head but I wonder how many were producing anything any time: there were and are more people for the oil produced by some machines and a few guys (admittedly, since Chavismo PDVSA productivity as measured by actual workers doing something useful really went down dramatically)

    Two other issues that are seldom mentioned (at least by those who never went to public schools in Venezuela) are the dramatic population growth and the collapse in the quality of education for the masses.

    Take these countries: Argentina
    Bolivia
    Brazil
    Chile
    Colombia
    Ecuador
    Haiti
    Mexico
    Peru
    Venezuela
    All of them saw a huge population growth between 1970 and 1992…and yet rates were rather different.
    Venezuelans made up 11% of the combined population of all those countries in 1970.
    In 1992 they were 14% of the whole lot.

    I wonder if the PJ/UNT guys would ever have the courage to introduce an effective programme of education for birth control at schools in Venezuela.

    • By the way: right now Venezuelans are 15% of the total population of that group of nations.
      Venezuelans are still reproducing like rabbits compared to the rest. One tiny detail: some of the best agricultural areas for certain products are gone for good. You cannot produce in the Llanos several things you could produce in many areas of the coast or Merida that are now concrete and tin.

      • “Venezuelans are still reproducing like rabbits”

        With all the electrical cuts what else is there to do?
        I write this sitting in the dark here in Isla Margarita for the 3rd day in a row.
        It’s tiring. 🙂

    • “I wonder if the PJ/UNT guys would ever have the courage to introduce an effective programme of education for birth control at schools in Venezuela.”
      That would go against the ingrained machismo in a high percentage of population in Venezuela, which is part of the “viveza criolla” virus.
      Anything that threatens the “viveza criolla” is a big no-no for the populists in Venezuela.

  6. Excellent post. The culture is indeed above the economics in Venezuela’s case, that’s were the future generations have to focus on, I believe everything will follow. Malandrismo, to try to be “mas listo que el otro” all the time, opportunism, and rule-bending, are some of the most endemic, toxic/dangerous traits our dear country has to deal with.

  7. Chavista experiment has now ruled Venezuela over a third of it’s slow motion collapse. That’s fairly significant, even though it began earlier. It was also likely a significant factor in the last six years prior to it’s rise to power, so it’s safe to say Chavizmo was an important factor during the latter half of the collapse at the time of writing.

  8. “We need to make sure the leaders who wish to replace Maduro understand the nature of the problem, and offer a recipe for escaping this trap.”

    Naaaa, i don’t think that recipe will be a good campaign strategy because i can’t see it as pleasant, how do you campaign promising sweat and blood?.

  9. ISTM the story is this:

    Venezuela circa 1970 was a modestly prosperous Latin American country, with (for Latin America) relatively high levels of social capital (democracy, respect for law, education, work ethics). There were nonetheless problems with patronage, cronyism, and “grease”. There was also something of a racial hierarchy, in that Venezuela’s upper class, its business, academic, and political elite were nearly all criollo; the mestizo/Indio/black population was excluded.

    Then came the oil bonanza of the 1970s, bringing enormous amounts of free money. Most of it was sucked up by the elite – not necessarily for themselves personally, but for things they valued – free college tuition for their children (and for any non-elite youngsters who managed to qualify), free gasoline, subsidies for favored businesses (horse racing!)… Venezuela spent enormous sums on public works, with a big rake-off for Venezuelan middlemen and contractors.

    With so much money sloshing around, Venezuelans became more interested in wangling a piece of it than in productive work. Everyone wanted a piece of the jackpot – but pretty much only the elite got it. The middle class and lower class got only the left-overs. Still, there was enough for everyone to be happy – the illusion of harmony.

    Then in the late 1980s, oil prices crashed, draining the jackpot. By the 1990s, Venezuela was in fiscal crisis. There were muddled attempts to fix things by CAP and others, leading to the caracazo. Infrastructure and industry declined from underfunding. The elite was squeezed; the “lower upper” class painfully so. The masses even more so. And they saw, or remembered, the continued prosperity of the elite, and felt even more keenly their indifference to the needs of the excluded.

    Venezuela’s extant political system diffused and buffered the discontent. Nearly all politically active Venezuelans were committed to the existing parties. Then Chavez appeared. He was charismatic, and he appealed to the non-criollo masses directly. He also appealed to aggrieved lower-upper and middle class Venezuelans; these became his party organizers. Soon he was in power and rewriting the constitution.

    Then came the oil boom of the 2000s: an even bigger flood of money to find an even bigger festival. Some of it was spent usefully, I suppose. It would be interesting to track actual net investment from 1990 to 2010 in (for instance) the electricity system, or highways. Chavez having so much more money to spend, it’s probable that for a while such investment actually increased, checking the material decline. But since the mid-2000s, the profligacy, greed, and incompetence of the chavernment and its cronies devoured all the money and then some, and the decline has resumed – now approaching collapse.

    The larger consumption boom financed by the 2000s jackpot means a much harsher crash when it ends, and chavismo has dug a deeper pit to fall in by non-investment in essential infrastructure and services, and by running up enormous debts.

  10. It is clear to me that an “economic class war” is confusing the political landscape and has subordinated everything else. There needs to be some kind of “cease fire” to allow the mess to be cleaned up!

    • I visit Aporrea too and find them to be as critical to the government as any oppo rag minus the quality of the writing 🙂

      And as you say, their proposals are rather deranged. However they despise escualidos while they may only detest Maduro. The net effect is that they are no allies because given the capitalist impurities that traditional oppo contains they prefer the turd of Maduro.

      However, the sympathizers of Aporrea may be another story, so I guess that’s what is being captured by the condemning poll numbers.

  11. Venezuela has one big resource , oil , everything has always depended on the rational management of that resource and the money it brought in ,

    Originally professional management of oil was developed by the international oil companies and the resulting professional organization left as a legacy to the country when the oil industry was nationalized in 75.

    This oil resource (depending on oil prices) could provide the country with a floor from which to which to operate the economy and if times were good with a bonanza which allowed the pols to distribute the oil following a populist clientelar agenda which helped them retain the power they held so dear.

    Where the country was never fully succesful was at managing the money the oil brought in , part of the money was well spent but the management in fact became worse and the challenges greater as oil prices fell and the population grew so that at one time it became impossible for the country to continue with the political model which sustained its weakly institutionalized democracy and begun breaking to pieces .

    Chavez came to power and with him the vices of the 4th republic methastatized into something much more virulent and destructive fueled by the Messianic egolatric delusional personality of the man and ultimately of those than fell for his message. .

    Chavez decided not only to destroy the whole organization which allowed Venezuela to rationally run its oil business ( with some pecadilloes brought in by the local political culture) but to destroy all the institutional underpinnings of democracy , leaving only a fachade which he could control and manipulate to farcically legitimize his rule . Using the oil wealth brought in by market changes caused by globalization ( making the far east a huge imported of oil which it wasnt in the past) he used that flood of money to shower his constituency to keep the illusion going that everything was great ,

    He was profiting of course from the 60 years of a well managed oil industry which allowed oil production to keep going for a time but after some years the rot set in and today Venezuelas oil industry is a mess incapable of keeping the oil income coming at the same rate specially as it is a slave to govt policies which are totally irrational from an economic business point of view .

    If Chavez hadnt come in, if we had continued being ruled by the old clique of pols that had the run of the country in the past our situation today would not be great but it certainly wouldnt be as critical and ruined as what we experience today.!! This is not defend the pol model of the past , but there was a limit to what they dared do in pursuit of their political interests, a limit which Chavez great popularity and morbid personality eroded and ultimately destroyed . It was the final destruction of those limits which have brought us to the crisis we face now. The past brought us to the crisis which made Chavez possible but if Chavez hadnt comewe would be ruled ignominiously but not as destructively as we have been by Chavez first and by his succesors later.

    We appear to be incapable of combining the normal conditions of a third world democracy ( an inmitation of much more mature first wold democracies) with some reasonable form of economic governance . So maybe we have to take a good hard look at our love of pristine liberal democracy and make a reality check on whether it is as viable as we would like it to be given our culture and the dynamicss of our national ethos.

    • Bill,

      Interesting take on how we got here. I agree with that part. Since Venezuela will be rebuilding from scratch, it is indeed an opportunity to reexamine what we want to build to replace what was. However, as flawed as liberal democracy is, I don’t see any better models out there for providing long term economic and political stability. Even the most benevolent dictator will make gross errors and eventually dies. Stability comes from strong institutions and separation of powers. These do not guarantee efficiency, but they do act as a brake against implementing anything radical and dangerous. I do not advocate that we settle for strict imitation of the mature first world democracies, but the pressures of restoring the economy and putting people back to work will not allow for a leisurely examination of alternative models.

      After the final collapse (which is coming soon) Venezuela will be forced to give up a great deal of its sovereignty in return for the capital needed to restore oil production. I don’t see us deviating too far from the current models, as a matter of simple expediency and outside influence.

      As for the “national ethos”, it is about to get the shit kicked out of it. Venezuelans are going to be forced to grow up and face reality. It will be many more years hence before Venezuela gets on its feet again. Meanwhile, we are going to have learn how to crawl first.

  12. “Changing the government but simply ignoring the factors that led to this collapse would not accomplish anything.”

    All points are valid and the book might be accurate regarding the “Exact Sciences” side of the issue: the economic flaws and the lack of reforms; but it’s probably dry regarding the “Humanities” aspect of the problem, thus I doubt it touches on the mother of all evils: gramscism corrupting Venezuelan society from inside after decades of infiltrated marxists in the academia, private companies, politics, civil society and mass media, changing the way the average Venezuelan thinks, what reached its peak through VOTES on a criminal party called PSUV. What you have now is a society that replaced catholicism for socialism. And it didn’t happened by accident. I don’t think that all the terrible economic problems in Ireland, Italy, Portugal or Greece since 1970 would have allowed such sociological disaster in those countries. It’s deeper than that.

  13. Can someone please explain why we listen to Hausmann? Where’s the credibility/what’s all the hype? He was minister of planning during some of the worst years before Chavez. Brilliant theorist, dull practician? Serious question.

      • Thanks.I read right after I posted this. It’s not that I disagree with what him and the other economists have to say (nor am I qualified to offer a rebuttal) but I think we need to scrutinize everyone we give credence too. I think I actually rarely agree with you haha but you have a point questioning his position at a private financial institution – just like we should always look at a diplomats (Cuban/American/Chinese) underlying national interests, or a politician’s personal economic interests, or a bloggers access and network interests etc..

  14. IT seems the economics of the matter can be agreed by most of us here. The real problem that Venezuela and other countries always face when it comes to implementing the necessary “reforms”, is with regards to “culture” or national idiosyncrasies. Whether it’s the Venezuelans with their “viveza criolla” -or the French wanting to keep working 35 hours, retiring at 55, etc.

    It will take a new generation that has been taught basic civics to change the current state of affairs. It seems the best we can hope for with the current opposition and the population in general, is a return to something resembling what we had before in the times of the Cuarta Republica -sadly so-, before we can have the kind of country Rodrigo talks of above and in his previous posts.

  15. ” . . . a process that began in the 1970s”

    That’s a telling insight. It was in the 1970s that OPEC hit its peak. While drivers in the USA were hurting, the subsidy for drivers in Venezuela suddenly became gigantic. One can set aside Nixon’s introduction of fiat money, since it had damaging effects worldwide, and instead consider how the local Venezuelan subsidy has led to a misallocation of resources that’s been proportionately much higher than the misallocation in the USA. In sum, fiat money distorts the outlook of entrepreneurs, but the addition of significant subsidies for drivers takes entrepreneurs into the realm of fantasy, boosting fruitless activity over productive businesses.

    I used to visit Venezuela regularly in the late 1960s and early 1970s. I enjoyed it. Today I don’t blame Venezuela’s decline on local culture. Instead, to me, it all stems from the lopsided effects of the oil industry that governmental mismanagement has amplified. That mismanagement has accelerated under the Castros’ rule by proxy.

    The USA will end up suffering the same fate as Venezuela because the sovereign debt is much greater, partly owing to the balloooning liability for public pensions.

    Bureaucrats are the same everywhere. Politicians are bureaucrats, and so are the bemedalled and beribboned flunkeys who run the military. Even the spooks conducting ever-expanding domestic surveillance are bureaucrats. It’s the destiny of bureaucrats to keep grabbing more turf till they collapse the economy that feeds them.

  16. I like this kind of debate. Because I’ve been warning for a long time ago, this kind of disaster Vzla is right now. But, this is not coming out of the blue. This is a result of several factors:
    1) The Society. There’s a man standing in front of the Bolivar statue in Caracas. And this man is asking only one question to every person who passes by: ¿What are your values? ¿What are the ideas you are defending? In 1928, maybe the answer could be: “The end of dictatorship”. In 1955: “Progress”. In 1976: “Economic development”. In 1986: “I want to have a Ford Sierra and be like Barbara Palacios”. In 1995: “Bankers: I want my money back!”. Well, I don’t need to remember that the end of dictatorship arrived in 1935, “progress” was halted after MPJ regime, “economic development” (where are you?)… Only the Bárbara Palacios/Ford Sierra wishes came to reality to many men/women in Vzla.
    2) The economy. There is a point in this debate about the vzlan economy that nobody has mentioned. The freefall of Vzlan GDP, certainly starts in the 70’s and it hasn’t stopped yet. But htere is a fundamental change in that years. Was the 1975 nationalization of iron, and the one with the oil in 1976. This is a fundamental change in the way the state relates with their citizens. Before nationalization, only a fraction of the oil income, was translated in local currency. It was the part that the oil companys should pay because of the activity (royalties, taxes, etc), and this was the way the government funded their expenses. Starting in 1976, the Vzlan government was in control of the 100% of the oil activity and the oil income. In 1982, was stablished the forced sell of USD from PDVSA to the Central Bank of Vzla, to change it in Vzlan bolivars, as a way to avoid a currency devaluation.
    3) The society and the economy. Their are intertwined. The economy is always the result of the values, the perceptions, the expectations, the ideas, and the wishful thinking of people. And so, when the economy is doing well, the society is reflecting it. In the bad times, the same thing. When politicians realize the waterfall of oil income that they were handling, they started to drive directly to disaster. They start by doing some great things (Caracas subway, Children’s Museum, Developing of satellite cities in Caracas, the drop of milk in public schools, the Gran Mariscal de Ayacucho program), but all of these, even when they’re good, missed the point. The point was the people, who get fat, tons of fat, but didn’t grow muscles. They expanded education, but as they were expanding educational coverage, the quality was falling. So, in the end, the public education was expensive for the citizen. Only the graduates from private schools, could arrive to have a seat in public universities. Because of the average required to arrive at the UCV, for example. And, here comes another question: ¿How can you handle the frustration in a father who expects his daugther/son will get in the public university, but finds it’s almost impossible to do? Specially, when the society will always ask you for the university you graduate and will accept/reject you depending on it. And I’m not talking about searching for a job. And as a result, the public sector was always expanding its size, as a way to compensate the lack of private employment creation. And, I’m talking about the Vzlan 80’s. As you can see, there’s nothing new. The difference, if there is any, maybe lies is in the ideology behind this present and the past.

  17. The leaders who wish to replace Madura, actually don’t.
    They just want to keep their goodies and their privileged social status as politicians.
    Add that to the pile of reasons why this country will never get rid of chavismo, unless chavismo kills itself.
    It’s the only way.

    • metodex,
      Chavismo is on a direct suicide route. The country of Venezuela is going down the drain quicker and quicker. How bad can Chavismo lead a country? Where is the bottom? How can it go?

      A free-market economy with no gov’t intervention would have left a reasonably wealthy country with fewer poor. Chavismo has made everything worse.

      Name one thing that has improved over the last 14 years? Just one?

  18. Urgently need a manual for those of us who are staying put on “how to survive in a country that is swiftly going down the rabbit hole”.

    • As requested…

      At some point, when there is nothing left to steal, the Chavista officials in the government will simply abandon their posts and disappear. With no imports coming in and power vacuum in Caracas, the country will descend into chaos, and gangs of armed looters will roam the country stripping it what remains. Here is what you should do:

      1. Make sure you have a two or three month supply of food. This should be non-perishable items. Assume you will lose electrical power during this time.

      2. Organize some source of drinking water. The method depends on where you are. Strict rationing may need to be implemented and enforced.

      3. Buy a camp stove and gas so you can boil water and cook during this time. Buy any other items needed to survive without power and water. Assume that you will be essentially “camping” in your house or building.

      4. Talk now to your neighbors in you building or urbanization. You will need to quickly organize a defense against armed gangs of looters. If this sounds difficult, you will find it is easier than you thought. The thugs will go after soft targets. Any reasonably credible defense will deter the looters and convince them to look elsewhere for an easier score.

      The military will eventually get their shit together and restore order. You just need to make sure you survive and protect your families and your property until they do.

      Good luck.

  19. Actually, according to the University of Chicago Milton Friedman boys, Vzla is about to get the “Shock” treatment which is supposed to be very therapeutic. Kind of like an enema.

  20. Venezuela is not an island like Cuba, and the communists will not be able to control everyone easily like in Cuba because there are plentiful escape routes and potential for counter-revolutionary FARC-like attacks across the overgrown jungle border. As their socialist fantasy collapses, the chavistas will become more and more repressive towards dissent and brutal to any opposition (classic communist repression). The iconic, strident blaming of the bourgeois parasites and the gringo oil customer/monster will wear thin. There may even be a military coup eventually in an attempt to restore order and stop the madness.

  21. I was in Venezuela before Chavez – it was two nations. In US we have the “haves” and the “have nots”. Venezuela had “PDVSA” and “everybody else”. Chavez tried to correct that but didn’t have the smarts to govern. The same situation exists now – only the descriptions have changed and it seems that they still don’t have the smarts to change anything.

  22. Hola Juan Cristobal,

    I have been reading the blog for a long time, today is the first time I’ve ever commented.

    I have a question for you: with economic collapse apparently imminent, what might be the implications of Venezuela’s long term oil contracts with China? My understanding of economics is very rudimentary at best, but in my limited understanding it seems logical that the Chinese will be VERY committed to propping up Chavismo and thus ensuring that the contracts are honored, no?

    It seems to me that the implications of this for Venezuelans could be chilling.

    Last week while traveling in a different country I saw some friends from a Venezuelan oil region and one of them told me a really depressing story. Apparently the Chinese were not happy with the crude they were getting from region X, as it was considered too heavy. No worries, the government discovered a source of lighter crude – right smack in the middle of a residential neighborhood. The only houses bought out were the ones that absolutely had to be removed in order to set up a new well – everyone else that lives around that area now lives in an oil field. Their homes have become worthless, but that just doesn’t matter – the Chinese wanted it, the Chinese got it, period.

    Could China act to keep Venezuela from hitting bottom? If they do, what are the long term implications for Venezuelans? Could there also be long term security implications for the U.S.?

    It just doesn’t feel good…

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