The Opposition Reacts to the Minimum Wage Hike

The minimum wage hike is a thorny issue for the Venezuelan opposition, pitting its populist instincts with the demands of economic rationality. So how did they do? Not great.

The difference between nominal and real variables are one of those things we make sure to teach 18-year old economics undergrad in the first semester of their first economics course. If your wages go up from 100 to 150 in the same period prices have gone up from 100 to 150, you’ve had a nominal wage hike of 50% but a real wage hike of nothing at all.

Who knows how much heartache Venezuela would’ve saved itself if somebody had taken 10 minutes to explain this to Hugo Chávez back in Yare in 1993…(and to his lawyer…and to his lawyer’s layabout husband.) Instead, we’ve had a massive 34 minimum wage hikes since 1999, thirteen of which were approved during Maduro’s three years in power.

But while we long ago stopped expecting any better from the government, some of us still hope against hope that somebody in the opposition will say something that makes a bit of sense about the economy, at least now and then. The Minimum Wage hike is an interesting test case in this regard, because it’s the classic measure that pits a surface kind of plausibility (who wouldn’t like a fatter paycheck?) with some fairly obvious adverse consequences. So how they talk about the minimum wage hike is a pretty good test case in the fight between vestigial populism vs. economic rationality for the soul of MUD

So, how did they do?

Maria Corina Machado, leader of Vente and author of the combustible “expropiar es robar” catchphrase, claimed that the 50% raise of the minimum wage is a “mockery” (“burla”) —  “hambre pa’hoy y también pa’mañana”. She adds: “with these irresponsible thieves in power, the bolivar is worth less with every minute that goes by.”

The ‘burla’ theme seemed pretty popular. Henry Ramos Allup, President of the National Assembly and quintessential face of Acción Democrática, also described the latest minimum wage raise as a “burla” and said it would bring higher inflation to the Venezuelan economy.

According to Ramos Allup, the solution for this and every other economical and social problem is Maduro’s Recall and the agendas of all political parties agree on the same thing: the recall must be achieved this year. A for pivoting-to-your-message, Henry.

Both statements about the raise of the minimum wage lack substance, but are —in general terms— pretty much right: in a scarcity economy, not having enough bolivars in your pocket actually ranks pretty low in the list of things limiting your access to consumption.

So what do our friends over in Voluntad Popular have to say about the minimum wage hike?

So, apparently, hiking the minimum wage is terrible for the Venezuelan economy, and it should’ve been hiked more.

Lawrence Soteldo, Voluntad Popular’s coordinator in Merida, said: “although it is true that Venezuelans need more money to get by, they know that money is pulverized by inflation”. He added that the wage hike increase is another direct attack on businessmen who want to produce, create jobs and contribute to the development of the country.

It seemed pretty reasonable, until he added that if the Central Government really wants to help people who are starving and in need, then they should approve a minimum wage of at least Bs.500,000. So, apparently, hiking the minimum wage is terrible for the Venezuelan economy, and it should’ve been hiked more.

David Smolansky, a member of the national board of Voluntad Popular and mayor of El Hatillo, said the “problem [with the latest raise of the minimum wage] is not only that it was an increase of only BsF 7,500, the problem is that while facing the highest inflation in the world no wage hike is enough. Stop deceiving people and stop increasing the salary when there are no resources”.

If I’m not mistaken, this arroz con mango means that even though the raise is not big enough, there are no resources to pay for it.

Moving along the multicolor political spectrum, we reach the deep yellow folks of Primero Justicia.

Deputy José Guerra —an economist who worked as Manager of Economic Research at BCV— recently claimed that the minimum “wage increase is diluted with inflation” and added: “there is no doubt it will generate more inflation”.

At the precise moment Maduro announced a 50% raise of the minimum wage on August 12th, I thought: “isn’t that sort of what Capriles proposed a year ago?”

Henrique Capriles Radonski bashed the increase and tweeted —more or less: “Food inflation of 1,000%! Isolated increases don’t solve the problem. Maduro keeps on mocking the country and its workers! #Recall2016”.

But at the precise moment Maduro announced a 50% raise of the minimum wage on August 12th, I thought: “isn’t that sort of what Capriles proposed a year ago?” In July 2015 Capriles proposed a general wage increase of 50% to tackle inflation — I kid you not. At the time, José Guerra had his back, tweeting: “As a worker, I defend the wages increase proposed by Capriles because purchasing power has fallen drastically”.

And let me tell you, Capriles’s proposal was not part of some comprehensive macroeconomic adjustment plan. It was just populism: a “plan” to “tend to the current economic crisis and end the year”.

When he was running for his seat in the Asamblea Nacional, José Guerra —as MUD’s economic spokesman— stood up for the need to respect property rights, to promote local production, to gradually unify the exchange rate, to return expropriated companies to their former owners, a law to protect wages and pensions and an immediate 50% increase of all wages.

This is to me rather confusing and in some ways irresponsible: if businessmen are struggling to pay the increases of the minimum wage and of the food vouchers, how can anyone expect them to pay an immediate 50% increase of all wages? It’s no minor detail.

This type of double-standard brings to mind the infamous “Plan [Tomás] Guanipa” to dollarize wages.

After the minimum wage raise announcement on August 12th , Tomás Guanipa piped in: “there is no sense in raising the salary, if shortages, inflation and the domestic production deficit are not brought under control by the Executive Branch”.

All pretty reasonable, until he added that the law to protect wages the opposition is promoting in the National Assembly, will protect “directly and immediately the purchasing power of families and workers. Our proposal is to place a dollarized benchmark that will be paid to workers in Bolivars”.

In other words: the wages will not be raised in lockstep with productivity, they will be indexed to the the loss of value of the bolivar against the dollar.

Let’s not forget: raising wages for reasons other than an increase in productivity will inevitably result in more inflation and jeopardize the sustainability of domestic industry -which, according to Conindustria are currently working at 36% of their installed capacity as it is.

Most opposition leaders argue that the raise of the minimum wage is nothing compared to ever increasing inflation. Though this is completely true, it usually steers the discussion in the wrong direction.

Many choose to forget the negative effects of a minimum wage existence and adjustment and keep pushing for even steeper wage raises, because the required economic measures entail political costs in a never ending electoral cycle. No parece haber mala fé, but the current crisis requires resolute action, with some desperately needed measures that may not be the most popular.

“What should the minimum wage be to cover the basic food basket?” is a pretty popular question amongst journalists nowadays.

But it’s the wrong question.

The real question should be: “what can we do to protect the purchasing power of the Bolivar?” Once we get over the traditional “stop printing inorganic money” —an old shibboleth I use more than I would like to admit— the discussion can get really interesting.

Wage hikes are just one of many economic discussions that the opposition must face con seriedad. Superficialities and double-standards must become a thing of the past. The opposition’s difficulties on a question like this point to a group still too wedded to its populist groups to really get serious about economic governance: one shudders to think how they’d handle it all in power.