The Roadmap, part VI: No More Drama

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You can have any chancellor you want, as long as it's Helmut.

A few years ago, a group of experts identified the types of policies that most countries with high growth experiences had implemented. Their results, published in “The Growth Report,” are as close to a recipe book on growth as you’re going to find.

This is the sixth part in a series on what Venezuela can learn from that exercise. In Part II, I tackled the importance of inserting Venezuela into the global economy. In Part III, Quico discussed getting the macroeconomic fundamentals right. In Part IV, we looked at why you need a financial system that fosters savings and investment. In Part V, I discussed the importance of letting the market tell you what you’re good at. Here’s part VI:

Think of a country that has grown strongly in the last decades. Think China, Panama, or Peru perhaps. Maybe South Korea, Qatar, or even India. Heck, you could have even thought of Venezuela in the 1950s and 60s, or West Germany after World War II.

You know what I think about when I picture those countries? Not a single one of them has undergone an economic identity crisis during their boom times. Their politics, and the debate over policy, have been remarkably drama-free.

In high-growth countries, the underlying economic framework is never seriously in question. Politics may be contentious, but it’s as if politicians took the economy out of the boxing ring. Their “models” – now that the word is so in vogue – are accepted. It doesn’t so much matter whether the policy mix is right or not, as long as the main actors in the economy believe in it.

Governments in West Germany shifted back and forth between Christian Democrats and Social Democrats, but there was never a radical overhaul of the basics of the “German miracle.” In South Korea, the transition from the Park dictatorship to democracy took several decades, but the politicians left economic governance alone. Chile’s Concertación kept in place many of the basic policies inherited from the Pinochet boom years. Even in post-1979 China, the underlying model of Communist Party-led market-driven development is not really questioned, even when leadership changes.

This points to “consensus” as a basic ingredient for growth.

In fact, the correlation between political stability and growth has been documented since at least twenty years ago. However, correlation is not causation – just because people use umbrellas whenever it rains doesn’t mean that umbrellas cause rain. So, does low growth cause conflict? Or does conflict lower growth?

One can make the case for either one, but economists that have studied this tend to lean toward the latter, the case for conflict lessening growth. The reason is that conflict deters investment – which in turn means people have less capital to work with, and they invest less in human capital. Future productivity is hampered, and as we know, productivity is the key to long-term economic growth.

Now, “diminishing conflict” is not a policy prescription per se. One needs to look more closely at the drivers of conflict, and try to forge policies that lead us toward consensus. A detentè, if you will.

Good luck with accomplishing that in overly dramatic Venezuela.

In countries that grow, you don’t get the melodrama we’ve grown used to in Venezuela. In our country, we’re constantly debating the rock-bottom basics such as whether markets can be trusted to set prices, or whether most economic activity should be in the private or public sector.

Ours is a bankrupt country where the two sides can’t even agree that giving away oil for free is a bad idea, a country ravaged by shortages where we debate the merits of shutting down a border.

The fact that these things are still debated goes a long way in explaining why our country can’t grow. It also helps explain why people view economic policy as do-or-die: one glib decision by a crazy bureaucrat and your lifestyle goes down in flames. (If you don’t agree, ask Venezuela’s most important businessman about this.)

But once economic policy stops being a life-or-death debate, once we agree on a basic set of premises, things get much more civilized. Not only does this help growth, it might be a neccessary condition for growth.

The Growth Report says that sturdy political foundations are essential for long periods of economic growth. Growth should be “consciously chosen as an overarching goal by a country’s leadership.” Succesful economies have governments that “anticipate actions required to sustain the economy’s momentum,” and gives all sectors – opposition, business, unions – a stake in the success of the model.

This is easier said than done.

Much of what happens in our country is driven by ideology rather than serious, evidence-based debate. But ultimately, if we all want growth, then it shouldn’t be too difficult to agree on a certain set of premises: don’t spend more than you have, don’t print money out of thin air, save in good times for when bad times come, make a credible pledge that our children will be better off than we are, protect private property because it’s the basis for growth.

It’s basic, kitchen-table economics.

One of the tragedies that Hugo Chávez inflicted on our country was making craziness “in.” No theory, no matter how hare-brained, was too crazy to be deemed palatable. By making the outrageous ordinary, he destroyed any possibility of consensus in our society, at least in the near term. That is why we can’t even agree on whether inflation is an actual problem or not. As Rafael Osío Cabrices so eloquently puts it, ours is a nation that is not on speaking terms with itself.

This has to end. The basis for our future growth has to come from hatching coexistence between wildly different political factions – from being able to not only implement the right set of policies, but also convince the people waiting in the wings that rocking the boat too much is not the way to go.

For that, we need to shun the wackos. Finding partners on the other side of the aisle means talking to the ones that aren’t crazy and coming up with reasonable policies we can all agree with. Until we do that, we will continue to wander aimlessly from boom to bust, from revolution to counter-revolution.

Can this be accomplished in the context of what remains of our democracy? Perhaps we’ve already begun.

Democracies can preside over remarkable passages of growth – India, Australia, Ireland, even Chile. Growth is accomplished only if we find a way to bring everyone on board and agree on a basic set of permises – inside the opposition, first and foremost, but also inside chavismo. The new “model” has to be one where we agree on the basics, and we establish the mechanisms that allow us to correct course if we need to.

Right now this is practically impossible in Venezuela. But if we don’t start laying the foundations for future consensus … we are not going anywhere.

26 COMMENTS

  1. The elephant int the room looms so large that people can’t see it.
    Universal Suffrage.
    The fact that this issue remains taboo or quickly dismissed brings little hope for a real, permanent fix.
    Donald Trump: Global warming is a hoax invented by the Chinese…..
    Is just a matter of time for the Wackos to prevail.

      • The issue is that 99% of the population of almost any country doesn’t understand the complex issues let alone Macro Economics regardless of income or class.
        It is unrealistic to expect otherwise.
        Election reform is urgently needed to make sure serious politics is not taken hostage by populism.
        Open wide elections is dangerous and naive but we are so brain washed that cant see it.

    • I know where you are going with this, but it is an issue for another day and a different post. It is not relevant to the issue of a consensus on the fundamentals of economic policy. Juan’s issue is a valid and important one and your introduction of the Universal Suffrage debate is a change of subject.

      • Roy, I brought that up because is very relevant to this topic.
        The origin of all Political Drama in Venezuela and other Democratic countries can be traced to the Electoral System.
        It is a circus in mass manipulation that polarize the population in tribal fights at a very low level.
        By the way, The Economist did an excellent piece about this topic last year.
        You will never have stability, consensus in that kind of overheated environment.
        It is the reason why China despite all their failings can plot ahead with their policies while the USA is stuck in partisan gridlock, everything is dictated by the polls and the next election cycle.
        This is why we had the twisted world of Chavez and the absurdities of Maduro and his Economic team.
        I am waiting for a post where you can explain what would be the solution other than pray for the masses to elect a competent leader.

        • Firstly, this issue affects ALL of the democracies of the world. It is a fundamental flaw in the system that results in systemic instability in the political system, massive inefficiencies in government, and abuses by populist scoundrels.

          But, the solution is not as simple as you propose. Your proposal is tantamount to creating a new aristocracy. This is a step backwards and a non-starter. You cannot completely disenfranchise any significant percentage of the population without creating massive resentment which would lead to political instability. I do have proposals to address the problem, but do you really think that Venezuela is the country in which to beta-test a radical political experiment? I don’t think so.

  2. “The elephant int the room looms so large that people can’t see it.
    Universal Suffrage.”

    Of course, you are right. We will be laughed out of the room now.

    • You start with Elections reforms.
      There is no vetting.
      It is harder for a 18 yo to pass a college admission test than to become a Political Candidate.
      No wonder it ends up being a contest about Charisma more than competency.
      Illiterate voters has no problem voting in some countries and are even encouraged in the name of democrazy.

      • Frankly I now this is off topic from Juan’s excellent piece above, but I really feel uncomfortable that these
        kind of comments about limiting people’s right to vote go unchallenged in this excellent site.

        If the problem is uneducated masses having a vote, the solution is not to restrict people’s right to vote, the solution is focusing on education. You might also get rid of the presidential system altogether where an individual get’s too much power, and favor a parliamentary system like in the UK or Australia (among others) where you have a very silent head of state (the Queen) and a parliament where voters can only vote for an member of parliament who represents their region and the Prime Minister can be changed at any time by the members. In my opinion the solution is a lot more education to the general public and a lot less power concentrated in an individual.

        • Miguel, I am sorry to say this but you are being unrealistic and naive to believe that the solution would be Education. Ultimately yes but in practice is not.
          I’ve been living in the USA for half my life and I can tell you that there are plenty of Educational opportunities here for all people. Despite that a large portion of the voters is retarded beyond belief, let alone those that don’t even bother to vote!.
          That is why Donald Trump is doing well in the polls despite all the crazy things he has been saying.

          • Easy. Add to the High School curriculum whatever you think all voters must know. Require High School diploma to vote. Problem solved.

  3. I attempted to post a comment. It was not posted. Instead CC software stated, ” You are posting too quickly.Slow down.” This is nonsense, as I posted only once. Perhaps the software was mistaking my writing and modifying my comment for posting. Perhaps the lesson is to write the comment completely offline, before posting the comment.

  4. Maybe low oil prices will lay a foundation of “we need to create wealth” instead of “we need to distribute wealth evenly”, once our petrostate mindset fades away we might start to see the value in aplying tried and true economic models.

    In the mean time, no real world model might fit the country without major tweaking, since wealth generation is not what bothers us.

    What life coach can guide you trough your daily life of ” i won a powerball”? And we are seeing The aftermatch of it…

    There are other petrostates, but maybe we are the unluckiest of the bunch in the sense that we as a group of people are standing in our own way.

    I’m not saying that we are aliens or unique snowflakes, but just agreing that in order to improve tourism we can use foreign money might prove surprisingly difficult if out counterpart is a city dwelling chavista.

  5. Hannah Arendt wrote that Politics was for deciding really complex social issues , the kind of issues where there might be more than one arguable decision to be taken , But that the management and operative tasks of the state should be left to the experts to ensure their functionality e.g , the building of roads , the organanizing and running of a working education system. maintaining a stable currency using technical metapolitical criteria etc were issues which appplying mayority opinion made things worse so this part of state functioning should be left to technocrats under the overall control or supervision of some political bodies In other words ordinary tasks of governments should be left to expert professionals while the hard tough decisions which had no ready right answer had to be taken by politicians working together , bargaining , discussing , compromising plus the task of monitoring the work of the experts and hold them accountable for mistakes and failues . This division of state functions is also inferable from the writings of Fukuyama on what makes a well working political order . This does away with cronyism , crass thoughtless populism , patronage, clientelism and other vices of arrising from an overdimensioning of the tasks of politicians in a democracy.

    When you want to select the best student in a class you dont have his grades voted by his class mates !! I follow Arend and Fukuyama in their view of the limits and virtues of democracy !!

    • Populism, cronyism, and patronage will *always* be with us. In fact, they are present in every country in the world. This has not prevented some countries from turning their economies around and making huge strides in their development. In fact, some of the fastest-growing countries in the world were and are beset by cronysim. (Think South Korea, Israel, China, etc.)

      The point of this roadmap is to identify the realistic policy changes that are needed to start on the path of growth. Making us all into Singapore … is not part of the roadmap. Getting on a path to growth does not require transforming Venezuelans into selfless Martians.

      • I agree. I think that we should be looking at models that have worked previously in countries with similar fundamental circumstances, emerging from a failed political/economic system. One example that comes to my mind is the Republic of Georgia. Georgia is not a resource rich country but it is similar in that it benefits heavily on rents from transit. After the Rose Revolution, they made a remarkable turn-around and were able to quickly promote massive Western investment. After only ten years, the country is practically unrecognizable.

        • Roy , just a question , How did the georgians motivate their politicians to forego the use of public resources and measures to increse their popularity at the expense of the countrys long term interests , how did they manage to make those mostly oratorical and play acting pols acquire the managerial profecciencies needed to handle complex orgnizations and make them well run and functional ?? The how is the big question . In most countries were the state institutions function and do their job its not the pols but professional public managers who handle the operation of those institutions free from the deforming demands of partisan political agendas !!

  6. Juan , You are right, these vices spring from something deep in the human condition and they can never be totally erradicated even in the best organized of modern societies , what does happen is that the scale and pervasiveness of their presence is better controlled in some systems so they dont do enought damage to stop society from functioning in a sattisfactory way , in these more controlled countries they represent abuses rather than uses ( In Ortegas terminology) and can be managed so they dont cause the frightful havoc they regularly cause in our own more backward societies .!!

    Fukuyama in his latest book studies the origin of these vices in the history of several societies and finds that they tend to scalate quite substantially when they become more democratic because the temptation is too great for pols who depend on their popularity to gain power to injudiciously and corruptly use public resources and powers and jobs to create a clientelar base that assures them of that popularity even when that means that the countrys economic health and future is compromised or set back !!

    His historical studies show that usually these vices become more often controlled by authoritarian governments who set up well organized bureaucracies to handle the operations of government in a professional way. and that its much harder for democratic systems to handle these vices because the tempations are too great.

    The problem he sees is that if the authoritarian govts become too corrupt they dont have an independent rule of law or system of democratic accountability serving to check their rampant growth and domination, So democracy as a method for controlling abuses and providing for alternative changes in government is a must . (He calls this the bad emperor problem) .

    So democracy presents us with a conundrum ,on the one part if propitiates populism clientelism and other like vices on the other hand if you dont have an independent judiciary to uphold the Rule of Law and a system of democratic accountability the ruler can go wild and engage in many destructive misdeeds ( as the saying goes , absolute power corrupts absolutely) .This conundrum is not easy to solve. !!

    Of course forming an enlightened and conscious political elite can help create institutional reform to maintain these vices at bay , but thats a rather difficult and daunting job !! I have an idea that goes beyond the usual nostrums of education and restoration of high civic values to address these problems , but its not that easy to explain and I have already taken too much space so it something we have to leave for later.

    What i fear in democracies is that people use its politics to cater to their agrandized egoes in a not very rational way and that they quickly turn politics into a gladiatorial blood sport for people to entertain themselves scenifying grand partisan struggles that lead no where and make the discussions compromises and bargains on which functional politics depend a very difficult thing !!

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