The Opposition Reacts to the Minimum Wage Hike

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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. 

22 COMMENTS

  1. This is an issue the opposition has few good answers so. My guess is this is why the government keeps doing it. Calling it a mockery seems like the best way to go.

  2. This is a Catch 22 situation. In Venezuela, if you promise “blood, sweet and tears” (as needed), you will get no support from population.
    To disassembly the populist system, you have to reach power being a populist.
    So sad.

    • Not only in Vzla. Perus fujimori won attacking the economic plan of contender vargas llosa, and when he won applied the same plan. Its an inherent problem of democracy. Not saying there is any better ojo.

  3. If you refuse to tackle the fundamental economic problem for controlling inflation then the wage raise represents a temporary palliative for people who no longer have the income to survive …in that sense the wage raise is better than simply keeping wages on hold , but even then it creates almost as many problems as it attempts to paliate , one because it will in any event add to future inflation and because it places an even heavy burden on those businesses and organizations which have to raise the money to pay those wage increases are stuck with price controls which don’t allow them to raise it , and even if they are allowed those price increase they will add fuel to the inflation that’s becoming so destructive a feature of our everyday life…..so no easy way to address the issue in a way that does it justice and doesn’t sound like your siding with the mean escualido owners who just want to make it rich by keeping wages on a tight leash.!!

    On a personal note was surprised yesterday to see a almost empty city , few cars , abandoned restaurants and shops (those that open on sunday) , an air of desolation over the whole city!! life in the city is gradually dying , people explain to me that this is the result of people having no money to spend on anything so they have little incentive to do anything but remain shut in their homes!!

    • Regarding your last paragraph, you basically described life in a communist country. An once vibrant city turns into a desolate place.

      I will never forget when a professor told us how was his visit to Cuba in the 90s, he said that what distubed him the most was something that he never tought that would bother him, specially because he was a communist by the time of his visit: to walk quarter after quarter after quarter without seeing a single store, a single restaurant, a single place to buy something. It was as if everything was just dead.

      We take for granted this kind of thing, but we miss them later.

  4. Wage hikes are, in the last years in Venezuela, the most basic of bandaids.

    Problem is, it’s like trying to stanch a 12 inch wound with a 2 inch bandaid.

    The only way out of the spiral is to freeze wages and increase productivity. Easy to say here, hard to apply there given the scorched earth we are being left with.

    • “…freeze wages and increase productivity.”

      You are normally one of the more rational commenters here. Do you perhaps want to rethink that statement? Eliminating the possibility of improving an employee’s salary provides no incentive for said employee to work harder. We need to eliminate price and wage controls, not freeze them, if we want the market to begin functioning again.

      • The incentive for a worker to work IS the paycheck.

        Now, there could be bonuses and comissions that the worker earns as motivations to work harder, but if the worker has been hired to be a cashier, then he’s getting paid already for his work, he shouldn’t be entilted to get “extras” just because more customers went to the workplace, though the owner might choose to do so.

        The constant raises in the wages coupled with the choking controls on the enterprises’ income are what destroyed the economy, not the “freezing” of the employees’ wages, which are another cost for production, Roberto said explicitly that wages should be the ones frozen, not the sale prices.

        In any case, you could simply not use the so called freezing of wages, but simply NOT FORCING their continous convulsing and uncontrolled growth.

      • Looking back, you are right. But I should not so much re-think, as add to it.

        I meant for sweeping, across the board wage hikes, mandated by the government, not a total wage freeze. These are populist measures that do more harm than good, and are a consequence of not letting a more market based approach to the economy be the guidepost .

        I’m all for rewarding hard, efficient, work with a salary and working conditions that enable employees to rise to a good standard of life.

        In the coming years, raising productivity in Venezuela is going to be the hardest thing to accomplish, yet it really is, economically, the best way to begin to recover.

        Converting Venezuela to a market based economy, and getting rid of the multiple layers of regulation that interfere with the process is going to be quite the task as well.

  5. “According to Ramos Allup, the solution for this and every other economical and social problem is Maduro’s Recall”

    Sure, but they should already be proposing some specific agenda. What do you do to combat inflation? How do you provide food, a variety of products in the shelves, while not raising wages or producing anything locally? How to raise oil production? No specific answers anywhere from the opposition.

    Yes, the first step is to get rid of the Chavistas and Maduro. But I doubt the Economy and the Venezuelan crisis will get much better when that happens, and in decades to come. To reduce inflation, improve the economy, create affluence, bring products to the shelves, establish public security, reduce crime and murders.. that would take decades. And remember, the MUD are no Saints, they will also steal and cheat. As always in Vzla.

    Plus the austerity measures that need to be taken won’t be taken. Yes, you can eliminate the absurd exchange rates, price controls. But that won’t bring food to the table overnight. When an entire economy is messed up, and has been messed up for years, by thousands of incompetent and corrupt “officials”, you just cannot fix it overnight. The entire social fabric of Venezuela is largely corrupt.

    The cops, the guardia, the military, all corrupt. Not just the politicians. Sure, Capriles or Maria Corina or Leopoldo seem honest, but how could they control a million Thieves out there, everywhere?

    But I digress.. Minimum. What this article and others fail to mention is that it’s just bait for the people. The numerous “wage increases” from the criminal regime are nothing but mirages, tricks. You see, give poor people a bit more cash, and they’ll be happy, at least for a while. You calm them down, for a while. It’s a psychological move of sorts, while the Frog Effect takes place. You strangle them, slowly but surely. Cuban style. Eventually, people get used to their own misery, over time.

    After 18 years of Chavismo, the middle class virtually disappeared or got the hell outta there, The upper class also left the country long ago. And after a while, the former middle class gets used to eat cheaper foods, live in worse conditions, accept crime as a normal thing, stays home, no more restaurants. That’s the Cuban model. Kick everyone out, or force them to become sheep with hardship and repression, over the years.

    Now when Ramos Allup, or MCM, or Capriles or Leopoldo become Presidents, and the MUD holds power (which they already do to no effect in Congress) what can they do? Produce lots of products? More oil (all sold already to the Chinese for decades) Magically start growing beans, tomatoes, potatoes and vegetables. Jump start the Agricultural system which is dead? Recover el Banco Central de Venezuela, that is bankrupt and totally corrupt?

    The best they could do is get a massive Loan from the FMI, which entails vast austerity measures, plus interests. And half of that would also go to waste, MUD corruption. I love to listen to Ramos Allup, and how he criticizes the criminal regime now, but I’m afraid they have zero concrete solutions in years to come.

    • After kicking maduro and all the chavistas from power, specially the demented super marxist communist lunatics, the trust index for foreign investors will go up, just because there won’t be a bloody maniac braying every five minutes that he’ll order the expropiation of everything if he wakes up on the wrong side of the bed.

      “The best they could do is get a massive Loan from the FMI, which entails vast austerity measures, plus interests. ”

      There’s already an atricle in this page that completely debunks that moronic piece of leftist propaganda. get this in your thick skull, man: “ANYTHING IS BETTER THAN CHAVISMO, ANYTHING.”

      And no, it won’t be decades long as you say, it’ll be less than three years at most to fix the economy to better levels than in the times before chavismo came to power.

    • If I had “Juan’s” world view, I would have to kill myself and just get it over with. His kind of negativity neither clarifies anything, nor presents solutions. I agree with Ulamog. With minimally rational political and economic policies, Venezuela could be in much better condition than now within three years.

      • Yeah, and Venezuela is suddenly going to start producing everything, cows, tomatoes, growing crops, rice, fruits, pork, chickens, and they’ll become great fishermen too, overnight, after Chavismo is gone. They will also magically learn all about manufacturing, building cars and airplanes and all sorts of machines. And they will start producing 5 Million barrels of oil per day, which will have doubled in price internationally, hitting over 100$/barrel. Also, magically, they will educate an under-educated population, fix the school system and universities. Oh, and crime will disappear. No more choros in Petare or elswhere. Because the Police and guardia and jails will suddenly be honest, and very effective. There will be no more corruption anywhere, foreign investments will pour in, and the bolivar will be worth as much as the dollar.

        Dream on. You cannot undo decades of disaster in 3 years.

      • And 1 Million of the few educated professionals will return to ‘work for Venezuela’ and risk their lives for the ‘patria’ living in a country where nothing works, slowest internet will become the fastest, and public services that have never worked will be awesome.

        I bet 90% of the bloggers and readers here left Venezuela long ago.

        And I bet none of you are planning to ever return.

        When you have such massive brain-drain, the damage to the country is palpable and irreversible. It takes another Generation to replace you, the one million exiled professionals, and that’s if they had good education in Vzla.

        Plus you can’t fix one of the deadliest countries on earth in 3 years. Crime is everywhere, embedded in society. They could even deploy the corrupt military in the streets, and crime would not be contained. Because the military and police are corrupt criminals and thieves themselves. Not to mention drugs, try to stop that.. And Vzla is becoming a champion in drugs and crime. And now even the Farc is invading.

        And yes, a massive loan from the FMI would be required to alleviate the economy, and buy food in Colombia.. because we don’t produce anything. Problem is they – the MUD – would steal half of it. And they would impose tough austerity measures. Then the MUD would have to raise gas prices, no more freebies, no more “precio justo”, no more cheap products, no more bogus minimum salary raises . Guess what how the “pueblo” will feel about that.

        Like my friends who still somehow survive in that mess say “esta vaina se jodio, no es el mismo pais, y no hay quien lo arregle”.

  6. “…the current crisis requires resolute action, with some desperately needed measures that may not be the most popular.”

    And no will or wherewithal to do either. That, in British slang, is called a sticky wicket.

    Looks like a Phoenix scenario – or nothing but more of the same.

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