If you’re in Venezuela this Holy Week, chances are you will either suffer a blackout, or you will turn on the water and see nothing come out. It’s pretty likely you will have to suffer both stations of this via crucis.

The most disheartening part? You will probably fail to hear a single person utter a sensible solution to this mess.

The other day, my relatives in Maracaibo, exasperated as nearly everyone else, were telling me that water service in Venezuela’s second city is being rationed to once every ten days. The previous night they had suffered a blackout – and there are no blackouts quite like Maracaibo’s 28-degree-celsius-at-three-in-the-morning-with-no-breeze blackouts.

Everything, it seems, keeps getting worse.

 
People have not yet made the connection between the government’s complete domination of the utilities sector and their irretrievable breakdown.

The weird thing is that nobody talks about the obvious solution to the problem. It seems as though it’s forbidden to say that the only way we will get out of this conundrum is by privatizing both services – partially, or wholly.

Venezuela’s problems are not caused by drought – they are caused by under-investment. And what causes under-investment?

Well, corruption and inefficiency, of course, but that’s just what’s on the surface. The underlying problem is that the bureaucracy is broke. It is hard to knock a government currently facing a ginormous budget deficit and sky-high interest rates for simply not investing in power plants or water treatment facilities. These people simply have other priorities…and will continue to have other priorities, forever and a day. 

Inevitably, we will have to call the private sector in. Isn’t it high time we start laying the groundwork for this by … telling people we will have to call the private sector in?

One of the many challenges of reforming our utilities is going to be convincing people that these moves, which will undoubtedly involve raising the price of utilities, are good for the nation. People have not yet made the connection between the government’s complete domination of the utilities sector and their irretrievable breakdown.

And that’s because nobody in our public sphere is linking the dots for them.

Take, for example, today’s interview with intellectual heavyweight Arnoldo José Gabaldòn, published by Prodavinci. Gabaldón, in talking about the many crises facing the country, refuses to say the obvious: state ownership of things the state has no business owning is the problem.

Instead, he talks vaguely about inefficiency, about corruption, and about the olden days, when the Venezuelan government was able to do things a bit better. He does not mention the private sector. Gabaldòn seems to be stuck in this time warp that Ramos Allup sort of believes in – that governments such as Betancourt’s can materialize and solve people’s problems.

Gabaldón is entitled to believe the Venezuelan government, led by somebody else, can do better. He is clearly wrong.

It is a fact that in Venezuela’s current incentive scheme, the government has a thousand other things it needs to invest money in before spending considerable amounts on electricity and water. 

We may not like it, but it’s the truth: without the private sector – not you, Derwick – we will quickly have to start making up our own excuses for Venezuela’s continuing utilities crises. And we will quickly run out of them. Ultimately, when we are forced to call on private firms to fix our utilities sector, what will we tell the voters?

Venezuela’s problems are political, but they are also technical. Our electricity and water crises are technical issues having to do with inefficiencies in supply and screwed-up relative prices that cause havoc on demand. The only way out is by calling on private companies to help sort this mess out.

Letting the market into our utilities sector is no longer a matter of choice, or ideology. Ignoring this issue now…will only cause us massive problems in the future.

32 COMMENTS

  1. La palabra Privatizar es una grosería en Venezuela. Y va a tardar mucho, décadas, para que deje de serlo. Y seguiremos con pésimos servicios.

    • igual que “liberar precio”, “capitalismo”, “liberalismo” y todo lo que se asemeje. Por mucho tiempo se nos susurro al oido que el petroleo lo puede pagar todo.

      • Lamento los adjetivos de este post, pero no hay sinónimo que entregue el mismo mensaje:

        En realidad, lo que se nos susurró al oído es que todo el que se esfuerza trabajando es gafo, que todo el que se esfuerza estudiando es un mentepollo, que todo el que respeta las leyes es pendejo y que todo el que se esfuerza por tener buena calidad de vida es un ladrón.

        Mientras que por el otro oído se nos susurraba que el que hace trampa es inteligente, que el que preña más carajitas es más macho, que el que mata a alguien es más arrecho,que el que le roba a los demás es más chévere, QUE EL QUE DOMINA A GOLPES A LOS DEMÁS ES MÁS GENTE QUE EL OTRO, es decir, LA VIVEZA CRIOLLA.

  2. It seems pretty obvious that someone-not-Maduro should take over these services. But without knowing what the enforced just price of electricity will be, private actors will not want to invest anything either. An insane economy doesn’t allow piecemeal reforms.

    I fear that Venezuelans are like the parson driving the one-horse shay:

    “Close by the meet’n’-house on the hill.
    First a shiver, and then a thrill,
    Then something decidedly like a spill, —
    And the parson was sitting upon a rock,
    At half past nine by the meet’n’-house clock, —
    Just the hour of the earthquake shock!

    What do you think the parson found,
    When he got up and stared around?
    The poor old chaise in a heap or mound,
    As if it had been to the mill and ground!
    You see, of course, if you’re not a dunce,
    How it went to pieces all at once, —
    All at once, and nothing first, —
    Just as bubbles do when they burst.”

  3. What are you going to do with the corrupt & totally inefficient companies like HidroCaribe and other regional water companies that the unions have a strangle hold on.
    It takes 8 to 12 workers to fix a simple leak when 2 or 3 would be more than sufficient because of union controls.
    If you tried to privatize this mess it would take most of your investment to get rid of the deadwood.
    It would need special legislation just to start the process.

    In the 90s CANTV was successfully turned around in a relatively short time but it was a struggle for the new owners to deal with the excess payroll & lack of training of the workers.
    Too bad it’s returning to it’s prior state of inefficiency.

    • Reform labor law, eliminate laboral inamobility, and fire the lazy asses off without any compensations on the basis that their uselessness was hurting the enterprise’s assets and operations, thus damaging the customers.

      You also have to reform the laws that guide people to create businesses, as there’s no reason at all that it takes like half a bloody year to put a LEGAL business in operation (When it should be a deal no longer than one week), and enforce it by fining the buhoneros’ and illegals’ asses off too, don’t they want to pay fines? Then they have to get their work licenses and start paying taxes and services.

  4. Besided the p world the other taboo is the s word, subsidies, to make the companies attractive for the private sector you’d have to raise prices and there is absolutely no one in the opposition explaining the hard cold truth that you can’t have good public utilities while irresponsably subsidizing it and promoting its irrational use by not charging nothing for it.

  5. “Gabaldón is entitled to believe the Venezuelan government, led by somebody else, can do better. He is clearly wrong”. I mean he is right, other people led the government much better. Never good enough may be a better way to put it.

    “It is a fact that in Venezuela’s current incentive scheme, the government has a thousand other things it needs to invest money in before spending considerable amounts on electricity and water.” Like what? Can’t hardly think of anything more basic than these two.

    I agree only partially with your argument. You will have to pick a combined scheme and none is perfect. These are the typical choices:

    This is on the electricity side:

    Generation should be private. The state can participate with projects that are so large that no private entity can put together. Think Guri. But electrons can be sold as commodities and markets can lead to a lot of competitiveness and efficiency. This has been the proven way to go.

    Distributing electrons in whole new deal. Getting electrons to consumers requires very expensive infrastructure. One that brings very low revenues and do to physical constraints, is inherently monopolistic. Here you have to pick your poison. Either a state-own competent company distributes electricity. Or you concede a monopoly to a private company that is overseen by a competent regulating body. Either poison required competent individuals working from government and companies.

    For water:

    There is not a thing a privately own water collection. Not that I know off at least. And for the same reasons that electricity distribution is monopolistic so is water. So you have to choose between the two previously mentioned poison.

    Private enterprise is no panacea, they also need incentives. The best incentive in my opinion are competitive markets, but these are not so present when you talk about utilities. If you don’t have that you have to have regulating bodies that keep greed in check while having these companies meet quality standards. Private companies will also require individuals that are competent.

    Putting this debate aside, I am afraid that the reason the MUD doesn’t mention the P word is not because they are afraid of it, it is because they don’t believe in it. Capriles’s vision is that of a “better managed chavismo” which is a “worse managed adequismo”.

  6. I think there will be mass privatizations. They will avoid the P word, as they did in China. And they will give rise to a new class of oligarchs presiding over corrupt and inefficient, but private, enterprises (like China, Russia). It will not be a good thing.

    Privatization of natural monopolies like utilities require strong, independent oversight at the privatization stage, and ongoing. Privatization of utilities gives rise to problems of price gouging, under-investiment, and over-inventment (known as gold plating). The chances of strong, highly expert, and independent administrative bodies arising in Venezuela any time soon to oversee a privatized utility sector is zero.

    When Venezuela has the corruption levels of Sweden, it may want to consider privatizing utilities. Doing it now is like the very uncapitalist act of selling at the low point in the market when one’s bargaining leverage is weakest, to one’s spouse.

    • Or in Mexico, where Carlos Slim got handed the telecommunications biz. There has to be a better way to privatize.
      In general, the privatization of telecom businesses in Latin America worked out well. Getting a landline installed went down from months-or years- to weeks or days. When I was working in Argentina, it took a year and $1000 [back then- now ~$2000) to get the government-owned telecom biz to install a landline. The payrolls padded with do-nothing employees got reduced.

      The main problem with electricity in Venezuela is that it is under-capitalized because a substantial proportion of consumers pay nothing for it. How is that going to get fixed? It seems to me that it would be better for a government-owned company to stop the freeloading. If a privately owned company tried to stop the freeloading, the shouts for re-nationalization would begin in a New York minute, as the saying goes. In the midst of the worst economic economic recession in decades, getting consumers to pay for electricity becomes even more problematic.

      The issue of padded employee payrolls will be problematic whether a company is publicly or privately owned, due to the current labor laws in Venezuela.

      Venezuela has had a government that for the lat 17 years has shouted ¡Exprópiese! time and again. I doubt one can find an instance where the expropriated company performed as well or better under government control than it did when it was privately owned. Those companies need to be privatized.

      • Yes, it seems that behind many a billionaire business genius from a weak democracy is the privatization of a public utility. Call it the “-stanification” of the communist world. As in Venezuelastan. Or Cubastan. I do believe it is coming.

        I agree that government should not be in ranching. It should not be in yoghurt production. It does not need to make sugar. It should largely get out of the “news” business. It should not be in cocaine trafficking. And in my opinion, it does not need to be involved in resource extraction. Water and electricity? Not so clear-cut in my view. What responsible shareholder cares about whether the people in rural Guárico state have access to water and electricity?

        • ” What responsible shareholder cares about whether the people in rural Guárico state have access to water and electricity?”

          They would care as long as there’s a revenue to their investment, that mean, people that pay their service, even better if said people are agricultural producers, another thing that should be privatized.

      • People who steal electricity HAS the money to pay for it, otherwise the squatters (aka invaders) wouldn’t have 60-inch smart tvs and absurdly powerful sound systems booming requetón in their ranchos.

        Besides, nowadays the average electricity bill stands roughly on 700 Bs, people’s minimum wage’s 11.000 Bs, yes, you’re working three days to pay the electricity of the whole month, deal with it.

        The only ones calling for “renacionalization” would be the parasites who want everything granted, who deserve the hate-campaign that chavizmo has unloaded on venezuelans during 17 years.

  7. Well, you cant privatize anything under the current model – you would be a complete idiot to buy any utilities in Venezuela right now and have the government be the one setting the prices.

    Apart from that, privatization is not a panacea, and its virtues have been oversold a lot by one side of the ideological barrier. But well, that is the problem in, say, Europe, the situation in Venezuela is that hell yes a lot of privatization should be taking place. But even in the areas where, I think, it should not be taking place or it is not optimal, what it is very much needed is to make the utilities INDEPENDENT. The mania of Chavistas that every single thing should be part of a “hierarchy” of control by political means and that all national companies are, basically, party projects, needs to die.

    PDVSA is for getting oil out of the ground and into the markets and get the profits taxed. Not a tool of the new socialist transformation into rubble.

    Same for electrical distribution or water or … you can have public ownership of those utilities IF you realize that DOESNT MEAN they are political institutions. They have charters to do stuff and all they should do is that stuff. Need to calculate proper prices (floating ones!) for their services so they can stay afloat by themselves, need to hire people to do work, not to make client networks… need to be independent, depending only on themselves.

    Fat chance with the Chavistas still around.

    • Jesus what you say makes a lot of sense , if fact its at the heart of a solution to many of our troubles , you have to reform the state so that those activities which can be run on a purely autonomous technocratic basis protected from political meddling are entrusted to organizations which are structured and run on a strictly technocratic basis …..like they do in many OECD countries . The Central Banks , The judiciary , The Army, the Civil Service even in the most traditionally politicaly organized countries are separated from the dominance of partisan politics

      The political bodies within the State have a function which is to set general guidelines and goals for the operating bodies of the state in charge of ports , highways , public utilties to carry out the activities themselves as if they were businesses only that their main object is not making money but using it in the most professional and efficient way possible for the benefit of the population.

      Recognizing this divide is essential if we are ever to achieve a decent form of governance.!!

  8. We have had prior experiences with Privatizations and even though they were fought tooth and claw by practically everyone ( not excluding those bidders who didnt want the business to go to someone else ) they were succesful in becoming well managed , efficient , and self funding . Sidor and CANTV come to mind . Dont see why the experience cant be repeated , of course with more difficulty and opposition than in the past , specially from the Labour Unions (which are as corrupt as the govt officials managing these companies ) . Remember that to make the corrupt ineficient port facilities managed by local govts (they had to get rid of over 10.000 reposeros) the Union leaders had to be bribed by the govt .

    The main barrier will be that many of these operations require huge amounts of investments to make them profitable and rates and prices will have to be sufficient to justify those investments so their cost to the public will have to be hiked considerably making them unpopular.

    The other barrier is that sometimes the investment is so huge that only the govt can do it , things like el Guri would not have been built by private enterprise ……., yet another that there are areas where its not luchrative to provide the services so that the rates from the luchrative areas have to be used to cross subsidized the non luchrative areas . ( unless the decision is taken that they dont get any services) .

    I see mass privatizations as inevitable just to keep our noses above the water , the drag of a much eroded public finances means that everything that can be privatized will HAVE TO BE privatized …provided the incentive is there to transform them into bona fide commercial operations , aside from the benefit to the public that can pay for them to recieve decent services and goods !!

    Where a monopoly is inevitable in the US they have controlled tariffs that allow a well run operation to function as business with regulated margins (modest profits but more secure than if you have regular competition) , thats no problem provided the regulator is reasonable and not into the business of bribing people for votes….(the utilities make their money by improving their productivity so they furnish the service at a lower than standard cost) .

    In some cases having the State as a non operating minority partner makes things easier …..

    • Yet american companies who do not face competition also result in bad service and high prices. An example of this is the cable television companies that initially carved out territories that did not have to compete with each other. It was absolutely awful to deal with those companies, though competition in recent years has improved the situation.

      • The only remedy to a market system when there is a surfeit of competition is either to create conditions to bring in new players to create that competition or external regulation ………….

        For example businesses building and running gas/oil pipelines in the US (where geographically only one pipeline is commercially viable) are considered ‘Common Carriers’ (legal monopolies) and thus have to apply tariffs which some govt agency approves and which only allow them enough income to cover the costs of a well run operation plus a relatively modest margin of profit . This doenst stop them from improving the productivity of their operations to increase their margin. (which to everyones benefit) .

        This system works beautifully………..!!

  9. First, few things can function in an economy with an unstable currency. Even a private corporation must know total costs vs. total expected revenues in order to settle on a price. Second, 2 or 3 generations of South/Central Americans have grown-up under the media-inspired myth that government can solve their problems. Personal responsibility/initiative has thus become secondary in the minds of the young. The strange guy speaking to you on the tele, with silly portraits and colorful flags hanging in the background, has your best interests at heart, or so you were taught in school. It’s Orwellian, ingrained in the new generation’s DNA. Private corporations – bad. Government enterprises – good. Destructive Marxist dogma first brought to the continent through the Cuban Revolution, spread to every school and university in South/Central America. Cuba as the model for these new ideas. Even though THAT revolution was an utter, dismal failure, the lesson is purposely ignored. “Look away at what was actually accomplished. Nothing to see. It’s not the results which are important here, but the meaningful intentions.” So we are told. If a narcissist like Castro (insert Chavez here as well) centers his government around the poor and downtrodden, standing hour-after-hour on that podium, he must therefore really care about them. Good intentions, not actual results. What his Cuban Revolution actually accomplished, seems unimportant to many in academia and media. The same with the Bolivarian Revolution. There are NO obvious facts which can negate their dogma, None. Not the lack of medical supplies, not the lack of clean water, not the record-setting inflation rates, not the crime rate, or even the poverty rates. If during a television show, you stand on a street corner and hand-out a few free Haier refrigerators to the poor, that’s all that matters. Your intentions were good, everything else is irrelevant.

  10. I’m all about privatization. BUT privatization of monopolies like utilities have to be done carefully.
    Even in the US water and wastewater utilities are primarily municipally owned and rates are calculated to cover cost with no profit.
    Private water utilities are very regulated and their profits are calculated based on the level of assets that the utility have invested. The return on those assets AKA rate-of-return is also negotiated with the Public Utility Commissions.

  11. That’s part of Chavez legacy. Privatization is Evilistic.

    The conversation needs to be about:

    – how can we involve private sector in industries not related with commodities exportation?
    – how can we use technologies for avoiding cases of corruption and fraud between private sector and government?
    – how can private sector just trust Venezuela for investments?
    – how can we build a system for collecting relevant data about what could venezuelan society do for building their own future?

    We don’t know nothing about our country. Everything is speculation because almost nothing is being measured.

  12. If Maduro says “we’re opening the electricity sector to private investment”, expect all shares going to “Inversiones 3286 c.a.”. At this point we can’t expect anything from the revolutionaries except getting hold of the few sources of income (in $ and Bs) the state still has.

  13. Article in Tal Cual (online) today about dollarization of the auto industry. The gist of I got is that assemblers will sell in dollars, and use those in lieu of divisas to purchase parts and supplies. They are also allowed to export. This apparently includes companies in which the Venezuelan government holds a majority interest. I have no idea, but I’m guessing that right now the export market is probably better than the domestic. This is change for the better.

    Regulated natural monopolies like power, water, telecomm (internet) have been the norm in capitalist societies for some time, but always private companies. The role of government is to provide a stable and predictable environment in which individuals can pursue their own best interests. As soon as government gets into businesses, it is no longer government. And over-regulation just makes things difficult, things like telling businesses what they can and cannot do, what they must pay, plans they must set up – that’s a major complaint in the U.S., that the burden of “compliance” hurts the economy.

  14. I think privatization is not a magic fix for stuff and that the fact that a government owns companies doesn’t mean they cannot be efficient. In China many companies are publicly owned and some are efficient and some are inefficient, it is down to how professional is the government when it comes down to administrate it.

    but sure, maybe Venezuela should let private companies take care of many things and stop the nationalization of businesses although I think utilities should remain public for their particularities.

    Just like a government can be incompetent in the same way a company with a monopoly can abuse its position with public utilities and you can research about enron if you don’t believe me.

  15. I like Deng Tsiao Ping famous phrase ‘ I dont care about the colour of a cats skin provided its good at catching mice ” , it so happens that the way our state is currently run and organized public services rendered by public bodies are much less competent and efficient than privately held and operated ones , thus the preference for privately run operations ….. pure common sense.

    However it is in everyones interest that we create a state that can be managed and operated with the same efficency of a private business ……..and that can be done by separating the purely political functions of the State from those which can be run technocratically as autonomous public BUSINESSES even if it doesnt produce profits ……..for example any one had a look at the US Army Corp of Engineers …….., the end object of these organizations is that they produce a result or work which is as good as might be done by a commercial enterprise and which maybe the latter are not interested in pursuing!!

    But we currently have a bigger problem , not only do we lack competent professionally run public organizations , not only are they corrupt , but they DONT HAVE ANY MONEY….so privatization is the only way out to at least try to get decent public services ……

  16. Juan,

    I agree with you. At the same time I am aghast when I see how very little time anyone involved in this is willing to spend in educating people.
    Academic people in Latin America are sometimes too arrogant to be willing to explain in simple terms how the economy/politics work.
    The few politicians who do understand things either do not have the courage or are simply short sightened and keep telling us since around 2002 “first we need to win the elections and get to power, then we will explain”.
    It seems as if they are as willing to explain as the technocrats who were with CAP in early 1989.

  17. How do you fix anything when the labor laws allow you to show up for work only when you want to because you can’t be fired. It’s going to take a lot more that privatization. You’re going to have peel back so much more.

  18. There is a certain imperative that operates effectively regardless of political or ideological persuasion. It’s called: living off what you produce, and it’s already got a head start over all the other possible program strategies. Labor unions and political forces are not going to be able to overcome the persistent reality that unless production is paramount, there isn’t going to be any way out of this quagmire.

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