Doña Petra vs. the Machine

How do you move from a kleptocratic system of control to a progressive system of support and economic institutionalization?

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What would the economic platform of a genuinely progressive political movement in Venezuelan look like? It’s a question we’ve almost stopped asking, but I think it’s urgent to resurrect it. What would real social progress (supporting the vulnerable, expanding the rights of the excluded and ending the undue privileges of the few) look like? ¿Con que se come eso in Venezuela today? Who are the weak and excluded, and who are the privileged few?

Let’s think of Doña Petra and Pedro Derwins.

Doña Petra, is a lovely 70-something living in Catia. No stranger to disappointment, she’s seen Venezuela rise like a rocket, run out of fuel and fall deep into the ocean… twice. While she’s benefited from the battery of social programs implemented by Chavismo, the recent economic downturn has dragged her – and about 40% of the population – back into poverty.

She’s now much worse off than she was in 1998. Back then she at least had the strength of younger years. Doña Petra woke up today at 3 in the morning to buy chicken. She’s spending her golden years standing in never-ending lines, trying to get staples with her inflation-withering churupos.

Pedro Derwins – Fred, as his friends call him – is a carajito in his early 30’s. He was quite aware of como se bate el cobre in the Venezuela that Chávez molded. He knew better than most how to shake the revolution down for goodies. He mobilized his high school networks to set up a racketeering scheme based on shady connections with government officials to exploit exchange controls. Under “socialist” Chavismo, he has made hundreds of millions in over-invoiced imports. Fred woke up today at 1 p.m. after a wild party in Cannes, France. All his money is carefully stashed in strong currencies, somewhere far away.

A progressive agenda for Venezuela today is straightforward.

It needs to reward Doña Petra and punish Fred Derwins.

But what does that mean? Well, it means changing the “system of rewards and punishments”.

Fred Derwins is a total asshole; we all know it. The nuance here is that he’s an empowered asshole. He’s empowered by a system that rewards the well connected with massive rents for completely unproductive activities. Fred excelled at the best-paying game in town: profiting from arbitrage. It’s just that that game produces nothing of value to anyone else in society. The platform of a progressive party has to be centered on dismantling the systems that allow people like Fred to loot the nation by befriending thugs who play the role of gatekeepers to cascades of easy money.

But there can be no control where power is absolute. Progressives should aim at decoupling Venezuela’s extreme concentration of power in the executive branch. In our petroleum-dominated economy, the main goal is preventing the opportunistic, voracious and discretionary use of oil revenues. A progressive political agenda for today’s Venezuela should, most of all, be unequivocally Anti-Rentista.

All of which means that progressives should be openly against import subsidies, fuel subsidies and price controls…

Wait! Come again?

Progressives should advocate for increasing the price of dollars, energy and food? Wouldn’t that further worsen Doña Petra’s dire situation?

The kleptocracy’s narrative for implementing these systems of control has been social in nature.

“We want Doña Petra to be able to move around, so we’ll give fuel away for free”. Doña Petra doesn’t own a car, but the system allows for a 3 billion dollar fuel smuggling industry which benefits, overwhelmingly, Fred.

“We want Doña Petra to be able to buy food, so we’ll force producers to sell most basic staples below production costs”. Doña Petra woke up today at 3am to try and find food, but the system allows for a thriving bachaqueo sector made of those who can exploit the system to obtain and resell goods: the many smaller scale Freds who live on every block in the country.

“We want Doña Petra to be able to buy her medicines, so we’ll sell dollars to importers at 1/50th of their value so that lower costs trickle down to the Doñita’s pocket”. Doña Petra cannot find her medicines easily either, but even the government has recognized the misplacement of at least 25 billion dollars in overpriced imports.

The goal of these policies is clearly not social. They are the scaffolding of a system of political control for the extraction of staggering economic rents from all Venezuelans. Nevertheless, the simplicity of their stated logic is terribly powerful: “to include Doña Petra, prices need to be low”.

But come to think of it, while all these control systems force lower nominal prices of basic goods, they do not make goods any cheaper. Doña Petra ends up paying so much more in terms of her powerlessness: spending so much time and discomfort to get low quality goods without any decision power due to non-existing variety. And she pays way much more if you account for the value of the public goods and services that she won’t get due to the enriching of Fred and his thuggish friends.

Don’t get me wrong: monetary access is very important. But Doña Petra does not need nominally low prices. She needs relatively low prices. That is, prices that are low relative to her income. So what should progressives propose if they want to guarantee Doña Petra’s access to basic goods while empowering her against the racketing of cronies like Fred Derwins?  

While there would be a number of fiscal specifics to consider, progressives should find the following answer straightforward: We should do away with price caps on goods, energy and foreign currency, and substitute them for a transparent, non-politicized and direct system of cash transfers to citizens.

These transfers would guarantee Petra’s access to basic staples while prices increase, but as rewards divert away from smugglers, bachaqueros and enchufados towards productive economic agents, Doña Petra’s conditions would drastically improve: lines would disappear, and diversity reappear as competition for the Doñita’s preference and loyalty kicks in.

Perhaps less directly noticeable to her, Petra’s well-being would also be lifted as the government starts addressing the fiscal and external imbalances behind today’s crisis, and the economic downturn starts to subside.

Beyond the crisis, the progressive’s pledge to Doña Petra should be to protect her grandsons from the economic collapses that destroyed the aspirations of prosperity that she had for her sons and herself. While Fred was able to stash our money far away, Petra was forced to lose as the economy tanked. Preventing collapse means preventing politically motivated excesses in the management of economic policy.

In fact, the progressive way forward for Venezuela’s economy is its institutionalization.

Values are essential to outline a vision, but a clear assessment of history and circumstance is the key to prioritizing and sequencing interventions.

After being plundered by a small group of military kleptocrats acting in the name of social inclusion, Venezuela’s progressives need a narrative that transcends abstract positions on the size of the state, and that addresses our real inequities and the real dangers for our poor and vulnerable. Siding with Doña Petra today means empowering her by supporting her income and protecting her economy from the rapacious Pedro Derwins and his friends, old and new.

 

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I work in development economics for countries with governments that want to deal with (some of) their issues. I think I'm a fiscally-responsible progressive. I've thought a bit about the Political Economy of oil in Venezuela, and I worry about the politics of the things that need to happen. I think Rómulo Betancourt, Adolfo Suárez and George Washington were exemplary politicians. What I miss the most about Venezuela: My family, my friends, my weather, my food, my band, and teaching in my university.

22 COMMENTS

  1. Good article! I would add: you need strong rule-of-law to prevent Ms. Petra from receiving her $ support at the whim of a strongman who channels money to the poor.

    The money needs to be there if Venezuela is to avoid Next Chavez, but it has to be available only to those who qualify, legally, for a benefit. And the law has to make those benefits, however ample, available ONLY to those who fit the criteria. Otherwise, you have people coming in to the system bearing notes which say: ” She supports Comandante X; make sure she’s on the list.”

    If the link between Comandate X’s love for the people and their right to a benefit when needy isn’t broken, every social payment becomes a personal gift, to be repaid at election time.

  2. Amen. Really. Directly supporting the people in need while dismantling the whole edifice of corruption with its thousand gatekeepers asking cuanto hay pa eso and conspiring to see how to profit from arbitrage. Thats the recipe.

    No idea if anybody is going to pay atention, as, again, Chavismo is just the ultra-fanatic expression of the same trend in Venezuela that has been runing and ruining the country since … hell, at least the 70s?…

    • Dunno. This is a real issue, but I don’t think that a progressive platform should say “We’ll work with the corrupt elite to gradually dismount their privileges”.

  3. I think you, Cinco Cuartos, are quite right with your proposals for Venezuela. What is really difficult is the implementation. It would mean for the state to lose power, creating institutions would mean the dismantling of the network of patronage of our petrostate. It would mean that doña Petra’s grandson would say “I worked hard and I bought this home” instead of “AD or PSUV (or whatever comes next) gave me this place”. Some of us (I don’t know how many) are game for this, but I don´t know about our politicians.

  4. So now the *progressive* political agenda from some economic think-tank is claiming a mind-stake. Nothing wrong with that, if you’ve never seen a variation of the promises made before the last movie rolled. In the meantime, those who have ask: why the crypto authoring? What’s the fear? I can’t take this seriously.

  5. “After being plundered by a small group of military kleptocrats acting in the name of social inclusion, Venezuela’s progressives need a narrative that transcends abstract positions on the size of the state, and that addresses our real inequities and the real dangers for our poor and vulnerable.”

    How refreshing to read the word ‘Kleptocracy’, the one that most accurately describes Cleptozuela, as I’ve been calling that “socialist” disguised, pseudo-‘democracy’ for years.

    These modern Latin American hybrid blends of authoritarian Castrista dictatorships, full-blown, yet hidden Capitalism, with that delightful Chavista populist flavor.. claiming leftist, selfless ideals when in fact they’re nothing but a bunch of under-edecated thugs, criminals and power-starved Thieves. Left, Right, pueblo, contra el imperio, si, cuentame una de vaqueros.. anti-maduristas pero chavistas (the latest despicable yet convenient trend) almost everyone after the same thing. $$$. Period, hiding under any flag, and platform party, using any tricks and multiples ‘patriotic’ disguises.

    And it’s not just the few “military kleptocrats”, or the putrid politicians, the Cabello/Ramirez/Maduros and 32 Ministers ” de la cupula” of mega-thieves, or the TSJ, or just the Police, Sebin, or Guardia, or the “Parliament”, or even the countless, perfectly well-described “Pedro Derwins – Fred, as his friends call him – is a carajito in his early 30’s. He was quite aware of como se bate el cobre in the Venezuela that Chávez molded. He knew better than most how to shake the revolution down for goodies”.

    Venezuelan Cleptocracy is everywhere, at all levels, in different forms. From the poor, entrepreneurial bachaqueros trying to make ends meet, to customs agents at the ports, to the low level “Union” representatives, the the mid-level “contratististas” hired by the 32 klepetocratic long corruption tentacles, to the Derwick Bolichicos. Everyone leeching, at the very least complicit, ‘matando tigres” left and right, if not straight-up stealing asking for “vacunas” everywhere, without any shame at all. The Corruption cancer has metastasized into every single fabric of Venezuelan society, among THE worst cases on the planet of massive embezzlement to petty theft and ‘cuanto hay pa’eso’ at every street corner.

    Now changing this epidemic Kleptocracy with “progressive” rhetoric, with such an ignorant pueblo, is much more difficult to achieve in reality, with tangible results. It will be a monstrous task, an utterly impossible one indeed under any Chavista-light Mudcrap or future disguised Cleptocracia. Did we already forget 4 decades of intensive Ad/Copey pilferage?

    In my view, the only way to really go full “progressive”.. whatever that truly means… would be Educating an incredibly ignorant and brain-washed populace, with what a brave lady from Myanmar, Aung San Suu Kyi, called last night on 60 mins. ” Disciplined Democracy”, if you saw that.. Or what is known in Singapore as “The Big Stick and the Big Carrot” reward system. Otherwise, get ready for many more decades of various forms of vulgar Kleptocracy and continued national disaster.

  6. A few comments :

    1. Clientelism, Cronyism , irresponsible Populism are all forms of corruption , not just the use of political power for personal enrichment . Pols misuse and waste of public funds be it for political or personal gain or from incompetence are the bane of all inmature or disfunctional democracies everywhere in the world where the functions of the state have not been institutionalized and given to technocratic or professionally run organizations , to organizations which are run on a professional basis by experts working free, from short term political pressures and interference.

    2. These corrupt practices exist everywhere in the world , not just in oil rich countries , Brasil is now at least as corrupt as Venezuela was under the 4th Republic (and maybe worse, eg the old Pdvsa was never as corrupt as Petrobras) and it never had oil , The US has known deep corruption during a big part of its life , even while the economy was experiencing great growth , General Jackson started the practice of clientelism as an omnipresent and permanent feature of US political life until a political reform movement managed to promote the creation of proffesional civil service institutions towards the end of the XIX century and the beginning of the XX century , meantime men like Boss Tweed in NY , and Mayor Daly in Chicago , and Governor Pendergast in Missouri made methodical use of corruption to run their fiefdoms.

    3. Where clientelism and cronyism and populism have been brought into control ( never wholly dissapearing) its been because political action has created a system for the operation of the state by organizations run on an autonomous technocratic basis , subject to general political control but not day to day partisan pressures and interferences.

    4. Nowhere has the problem been attacked by simply distributing state resources direct to the mass of the population .

    5. Of course where a country rich in natural resources recieves a windfall flood of income because of the temporary surge of the market prices of such resources a special challenge is created because of the tendency of people (specially pols) to be over exhuberant in their wasteful and corrupt use of those extra resources to buy the popularity they need to maintain themselves in power. However what most noted economist recommend in such cases is for the extra income to be placed in funds to be maintained for when the prices fall to cushiion the impact of such fall in prices on the life of the country. This is what was done by the oil rich middle eastern countries , by Russia, by Norway , which not that oil prices have fallen are not experiencing the catastrophic fall in life conditions which we Venezuelans are going thru.

    5. Not to be forgotten is that just as important as instituting benefits for the population , is to create the infrastructure and conditions to promote a countries capacity for the creation of wealth , purely distributive policies in the long run are unsustainable if no effort is made to improve the countries capacity for the creation of wealth which often involves huge public investment in all sort of projects .

    6. Venezuela particularly has been destroyed by 15 years of misgovernment , it needs rebuilding which will require the use of massive amount of public resources (even if private investment is invited to participate in the job) , for example the mining infrastructure of the iron mines of guayana are in ruins , rebuilding them will require 25 billion US$ , even if Mrs Petra is persuaded to spend he money investing in this project it will be awhile before the required amount is gathered . This is just one example ,there are many others. Social programs will have to be phocused and selective and very well run to make ends meet , they will have to target specially such programs as can help capacitate future generations of Venezuelans to become productive in a modern competitive economy . Just distributing wholesale handouts of public moneys to the mass of the population is the equivalent of squandering state resources where they are needed on investments which have a much bigger pay out .!! and that is NOT VERY SMART !!

    • Providing to the poorest in the country is smart. You will need to give them some help for the effects of all the other reforms that will have to be done. Not only because not doing so will be an humanitarian crisis (although that would be the best reason), because if not your counter-revolution will be a short one.

      The patient will need blood transfusions and oxygen while you operate… if not all the reforms will be pointless.

      The day, say, the stupid foreign currency controls die and the price control die, as they should if the country is going to get out of the hole it is in, you need to be there for the people that are the most vulnerable so they can survive the hit.

      • Yes, there will be no reforms unless there is political stability, and there will be no political stability if the majority of the population is rendered suddenly unable to afford what little relief they are standing patiently in line for now.

  7. Subliminal racism aside, this has been tried. Nobody bought that direct tansfers would be less corruptible than structural subsidies, and the change might leave many a voter fearing he’ll be the one left out.

    “Por lo menos ahorita ahi esta el mercal, y al fin de cuentas siempra da pa la arepita, y las birritas no han faltado.”

    We can’t win the lesser evil game.

    Me, I imagine solid industry and job programs having some success, leaving some programs here, lifting some controls there. People do want jobs. A greater good rather than lesser evil.

  8. I think this is the perfect defintion of an idea without implementation plan. It sounds beautiful but how are you going to handle the first year? Do you think once you remove all price controls people will get more money to buy food? How long it takes to open a flour factory once you make the conditions ideal for business? How would you feed a la donha during that time?
    I think we should conquer a exoplanet with the same conditions as earth, we need clean water and clean air. Sound excellent but I don’t have a plan.

    • There has been a lot written on the topic of direct transfers in Venezuela. Obviously, not a lot of it fits a blog post. This post was about one layer of the proposal: How it would fit a progressive narrative for empowering Doña Petra while decoupling the systems that allow Fred to loot the nation in the name of redistribution (price controls).

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