Original art by @modográfico

I’m obsessed with these stories about Metro de Caracas workers who can no longer afford to work. They’re fascinating as human interest stories, yes. But that’s not why I’m obsessed. I’m obsessed by their strategic implications. Because, these aren’t stories about the Metro de Caracas at all; they’re the tip of an iceberg. Absenteeism is the big Venezuela story of 2018.

If Metro workers can’t afford to work, workers throughout the economy can’t either. But what happens in a country where no one can afford to work anymore? That’s the early challenge hyperinflation poses, and it’s one whose answer is far from clear.

To grasp why, you need to understand what’s different about the Venezuelan hyperinflation, what sets it apart from the classic Latin American hyperinflations of the 1970s and 80s.

It’s not the run-up: like all hyperinflations, Venezuela’s took hold after a long period of persistent high inflation. Price rise in the 5-50% range per month has been with us for some time, and that’s the usual pattern: countries don’t tip from low inflation to hyperinflation at once they do so after high inflation has become “normal”.

Absenteeism isn’t an annoyance. It’s workers’ only rational reaction.

Now, the typical pattern in Latin America was that countries tipped from persistent high inflation to hyperinflation in large part due to wage indexing. To compensate for fast rising prices, labor unions bargained successfully for automatic cost-of-living adjustments indexed to the monthly inflation rate. If last month’s inflation was 15%, you need to hike up my salary 15% this month to make up for it.

It’s easy to see how wage indexing can tip a persistent-high-inflation situation into hyperinflation: it creates a positive feedback loop between prices and salaries that naturally tends to spiral out of control. Under wage indexing, rational expectations are that governments will be forced to print ever larger sums of money to cover automatically upward wages a situation that defeats the original purpose. Wages always lag behind the rate of price rise. It’s a terrible idea.

What’s bizarre about the Venezuelan case is that the economy has tipped into hyperinflation without any plan of wage indexing at all. In fact, with the Consumer Price Index no longer officially published, it’s not even clear what a labor union would ask for wages to be indexed against. There’s no index.

So now prices are doubling every 30-odd days and salaries aren’t even pretending to keep pace. That’s what makes the Venezuelan hyperinflation so corrosive there isn’t the pretense of an attempt to protect purchasing power over time. This is most visible in the parallel-exchange rate value of wages, which has crashed to now laughable levels. Who can work for 5 cents a day? But that’s what the minimum wage amounts to these days.

What happens in a country where no one can afford to work anymore? That’s the early challenge hyperinflation poses.

That being the case, absenteeism isn’t an annoyance. It’s workers’ only rational reaction. It’s the only way to cope with a situation where the cost of actually turning up to work exceeds any imaginable measure of the benefit received. That’s why you need to pay attention to the Metro worker no longer able to afford laundry for his uniform.

Those Metro stories are about the Venezuelan economy writ-large. Amid hyperinflation, without wage indexing, rational workers won’t turn up to work. They can’t. They know that under the firing freeze (inamovilidad laboral) they can’t be fired even if they don’t show up. And they need to spend that time hustling for side-income. There’s no other way to feed the kids.

Now where exactly is the threshold where absenteeism causes the public sector – and much of the private – to stop operating, even marginally? And what happens inside the Armed Forces, where it’s a crime for soldiers to go absent without leave, but where remaining in service means condemning your family to hunger?

I don’t know the answers to those questions. But they are the big riddles facing Venezuela in 2018.

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35 COMMENTS

  1. These are good questions I suspect might be the most probable cause for the demise of the regime, the same way the Soviet Union collapsed.

  2. “they know that under the firing freeze (inamovilidad laboral) they can’t be fired even if they don’t show up. And they need to spend that time hustling for side-income.”

    Right. And that’s part of the sinister Castro-Chavista Master Plan:

    – Force Millions of people out the country, mostly educated opponents: Less people to feed, less people to police, lots of $$$ coming back in countless Remesas. 5 Million of the best, gone by the end of 2018. Check.

    – Keep impoverishing the remaining people, usually under-educated, more docile Chavistas. Make them more and more dependent on BOGUS government jobs, from where they can’t be fired. And more dependent on miserable crap claps, bonuses and freebies. Thus, they’re Hooked. Se jodieron. Check.

    – Force them to look for alternative forms of income. Yes, that’s part of the sinister Master Plan. What income, pray tell, doing what? They are unprepared, no skills, no experience and the economy is destroyed. Picking potatoes in the Llanos, Cuban style? Nahh.. more Guisos, of course. What can they do? A little bachaqueo on the side, sure. Buy and sell coffee or diapers, whatever. But millions of people can’t fill the streets doing that. The internet? Most can people would eat the mouse if it was edible, before attempting to explore what a right-click can do. Prostitution? Check. Become cachifas, for whom? The clase media is gone. Therefore, the “absentistas” become crooks, in countless Guisos, properly enabled by the Tropical Kleptocracy. They participate in multiple “alcaldias” or “popular programs”, phantom “operativos”, corrupt Workers’ Unions, food scams, ‘vivienda” or construction scams, carnet de la patria scams, anything. Check.

    Thus, an entire nation of complicit crooks is created, de izquierdazo en izquierdazo, de tigre a tigre, mordida tras mordida, segunta pa’ti, segunda pa’mi, sancocho aqui, sancocho alla, y mañana ya veremos. No time to think, or rebel and organize an opposition. They’re hooked, complicit. Everyone at all levels depending on the next Chavista “program” or “inventando, chamo” rebuscandosela, as Cubans still say with a hilarious accent in Miami: Resolviendo.. “Resobbviendo, papa”. Check.

    The entire economy is a scam, “empleo informal”, where neighbors end up stabbing and robbing their own neighbors, looting and stealing every chance they get. They become vulgar street thugs, by the Millions, as we see everyday more and more of. At the very least, they become openly complicit, and totally dependent on the criminal regime, bordering on becoming criminal themselves: perfect scenario for the Castro-Chavista Kleptocracy to flourish and perpetuate itself in power. Soon 20 years, Check.

    Part of the Castro-Chavista Master Plan: Involve “el pueblo” in countless scams. Clearly, a highly successful Cubanization of Kleptuezala is in its final stages. In about 1 generation, people get used to it. Se acostumbran, chamo. They get used to “rebusques”, illegal stuff, inventing scams in the streets or participating in any dirty program the gobielno throws at them, so they’ll vote for them with tied hands. They get used to begging, scraping, dubious barters, anything.

    Hyper-inflation? No problem: Hyper-Guisation, mi pana.

    • As always, spot on criticism. I would like to believe otherwise, but just walk out on the street and this is what you will see if you are actually in Venezuela. Just the daily kick in the nuts.

      Poeta, now is the time to start betting Quico a hamburguessa whether this shit will fall or not in 2018.

      I hope Quico will win–really I do– until then we are well past Kleptozuela and have already entered into Cubazuela territory for some time now.

    • On this Master Plan idea, I think the reality in Cuba needs a little more attention. Following a period of starving employees, the Cuban government was forced to let in the private sector. Rather than show up for work, Cubans were doing their own businesses: posadas, room rentals, theft from government factories, black market sales, prostitution, drugs, you name it. A huge part of the productive economy was the black market, in which the rules of supply and demand, profit and loss rule the day.

      Rather than continue down a path of starvation wages for everyone, with nobody actually working in the formal economy, what the Cuban government was forced to do was start regularizing that black market economy. Such changes were necessary for its own survival as a dictatorship, if no longer as a strictly communist state.

      I don’t think the relationship with Chavismo changed or reversed any of that. If anything, the process has sped up.

      So reality has thrown a wrench in the Cuban “Master Plan”. That notion is now decades out of date. It is not the communist state that existed under the Soviet Union. It is a dictatorship with an anachronistic economic model in transition and which trots out socialist bromides with no authority or authenticity. It is not the monolithic and fearsome exporter of revolution that people want to make it out to be. The Old Guard are all dying or dead. They are not chavismo’s trusted ideological partners in some great ideological enterprise: they’re there to make a buck, and if they can’t -which appears to be the trend- that’s going to dilute their interest in 20th Century Venezuelan Socialism a lot.

      All of which is to say: know the enemy, keep it in a little perspective and don’t just accept it on its own terms, and that can be more persuasive for people who need persuading.

  3. My sources are reporting the sighting of military trucks moving people around the cities. This is a clumsy way of addressing the transportation crisis. I can only pity the elderly or parents travelling with children attempting to climb into the bed!

    But it does show that the military in charge are aware of the Venezuelan crisis. They are trying to keep the dream (and probably personal racket) of Chavismo alive as best they can. It won’t work. Chavismo is like cancer and as such it is in a ghastly terminal phase.

    As it goes, Venezuela is becoming Mega-Haiti, resource-less, depleted of youth and talent. A super slum.

  4. In 2014 a group of about 1500 private sector, mostly non-union container truck owner operators shut down Canada’s largest port by ceasing to work. They did so because they could not afford to work, due in those circumstances to a phenomenon of undercutting in the industry. They tabled a list of demands that the provincial and federal governments granted after less than a day of negotiations.

    1500 truck drivers who can’t afford to work, or a similar group or groups, including Caracas metro workers, could negotiate the end to the Maduro regime and a transition to democracy in Venezuela. That is one possibility given the situation you describe. It is no accident that the leader of the Polish Solidarity movement worked in a shipyard. There are plenty of historical examples of this type of thing happening.

    • “1500 truck drivers who can’t afford to work, or a similar group or groups, including Caracas metro workers”

      It would have worked if transportation syndicates haven’t been among the most crawling boot lickers that have been ever in Venezuela, instantly siding with the regime at EVERY strike that’s ever happened since 1999, with the pathetic excuse of “If I don’t work I won’t eat!”

      Now, most of them are unable to work again because they can’t buy a tire or another part for their piles of junk.

  5. Ah. You see in classic hyper-inflation, it assumed that there was still a private economy in which goods and services were bought and sold. This doesn’t appear to be the case here. Here, they want 100% of the population to sit around and wait for their CLAP bag. 100% dependant on the generosity of the state to survive. Zero private economy.

    It’s the perfect prison.

    This is going to end up being worse than Cambodia’s experiment with Pol Pot’s perfect socialism.

  6. Venezuela went into hyperinflation because of a lethal mix: wholesale printing of money and ever decreasing production of goods. Wages became irrelevant to the equation.

  7. Is the military still eating full meals?

    … I suspect a direct connection between that and the longevity of the regime. Even while the famines have visited North Korea, they’re the group that was always fed first. Sure it’s against the law to jump ship while in the military anywhere, but if you’re passed out zzzz due to hunger, which hungry officer will give the order to stand?

    How can you march in a straight line while keeping an eye of whether or not the others have shown up for work?

    • A high school friend of mine who had to retire from the Guardia National (Socialist) told me that during the Christmas crisis of the Pernil, the government sent a truck load to Fuerte Tiuna, the main military garrison in Caracas. The wives of the generals bought them by the dozen, and there are about 600 generals! However, the junior officers could not buy one!

      Then there is the blatant murder of Oscar Perez. He was a rebellious security officer that attempted to surrender to his fellow security officers and instead was murdered under orders of the government. That, again, ought to give the junior officers some pause.

      I summarize that all not is well in the military.

  8. Wage indexing is a consequence of hyperinflation, not a cause. It might introduce inertia in the process and, as result, make it more difficult to stop but is not the underlying cause of HI.

    Additionally, what we observe is lack of wage indexing in the formal sector and, in particular, the public sector. This is especially true for low-skill workers that earn low or minimun wages. For informal workers and high-skill formal workers, I’m sure there is indexing. Ask a doctor or a lawyer how much they have adjusted their fees in the last few weeks. Many of them just follow the dollar.

    There are a number of reasons why we don’t see generalized wage indexing. It has to do with depression the economy is in, the price control, the lack of strong unions, and the effect on the public wage bill. A combination of those, in my opinion, explain why low-skill and public-sector wages have lagged so much behind.

  9. Wage indexing is a consequence of hyperinflation, not a cause. It might introduce inertia in the process and, as result, make it more difficult to stop but is not the underlying cause of HI.

    Additionally, what we observe is lack of wage indexing in the formal sector and, in particular, the public sector. This is especially true for low-skill workers that earn low or minimun wages. For informal workers and high-skill formal workers, I’m sure there is indexing. Ask a doctor or a lawyer how much they have adjusted their fees in the last few weeks. Many of them just follow the dollar.

    There are a number of reasons why we don’t see generalized wage indexing. It has to do with the economic depression, the price controls, the lack of strong unions, and the effect on the public-sector wage bill. A combination of those, in my opinion, explain why low-skill and public-sector wages have lagged so much behind.

  10. “You Wouldn’t Work a Whole Day for Five Cents Either”

    A week ago Monday I tried to find some guys to help me with the handling of 4500 kilos of corn I’d sold over the weekend. The client was on his way from Barcelona. . One of the guys basically said, “the money’s not worth it because it doesn’t buy anything”…….not even asking me how much I was willing to pay for the work.

    So in addition to all the other problems this country is facing, it’s now no longer worth it to even work, or even ask how much the pay will be.

    I’ve been saying for some time now, this is the year. Something big happens this year because the country cannot continue to exist as it is.

  11. In hyperinflation how do producers and sellers of goods price their products when they cant predict from oneday to the next whether what they charge will be enough to cover the costs of reposition , they must overprice their products tremendously just to make sure that what they charge will be enough to replace the goods they buy to produce their stuff , which in turn just adds up to the effect of hyperinflation , if on the other hand you try to forcibly control price increases then you force the producer to go broke close their doors because what they charge doesnt allow them to cover all of their costs .

    this is a loss loss proposition , staying home may be the only thing to do …!!but then how do you survive??

    • Hi Bill, it is surreal, you just drive down the street here and more than 50% of the businesses are closes, especially retail. Anything related to food are the only businesses that are are open. I went to a retail chain today, Venezuela’s Kmart: Dibbs. It was like a bomb hit it. I checked in my bag in security. I looked around with a dazed and confused look because there was absolutely no inventory…and the employees just laughed at me because they knew why I was so shocked.

      Really this is unsustainable.

      Here is a great video of a Chavista tetona breaking the silence and claiming what is going on is unsustainable. Great drive thru Maturin video talking about this disaster.

      https://www.youtube.com/watch?v=sJFsM6h55Ss

      Hope your right MRubio. I pray every night that this nightmare will end.

  12. No one would work for 5 cents a day or, as MRubio points out for any amount of money of a worthless currency because it is irrtional. But it is just as irrational to vote for somone who presided while the currency became worthless and food became critically scarce. But some here say that Maduro could still win but the problem for him and the Chavistas is that no one will believe a Madduro victory even if it is legitimate because voting for Maduro is jyst as irrational as working for five cents a day.

  13. Quico: I listened with interest to the webinar. I submitted a question that wasn’t raised, upon which I would still like your thoughts:

    “Given that chavismo has spent decades in ideological anti-capitalism as a form of politics without creating viable, surplus-producing socialist economic structures, do you see a danger that recent, renewed emphasis on otherwise irrational price controls is the final political act preliminary to abandonment of all market structures with the intent to replace them with a grandiose transformation to a command economy?

    In the absence of a surplus to fund such a transformation, would that transformation be better or worse than an actual belief that the price controls are a solution to shortages?”

    • I just think we’re well past the time for “grandiose transformations”. These guys are treading water, bewildered by the shitstorm their mismanagement and corruption has brought about. They’re focused on survival, one day at a time, and their decision-making is happening on a much more compressed scale.

      The last of the grand ideological thinkers (Giordani, Marea Socialista, Hector Navarro) left the government in 2014. It’s just thugs and military men riding the tiger now.

      • Thank you.

        I am not reassured by either scenario. Ideological anti-capitalism is not an economic system in itself, as decades of chavismo has demonstrated.

        Yet, I still hear grandiose plans for radical economic transformation from Maduro (and others), like Maduro’s March 2017 speech regarding the Great Sovereignty Supply Mission, plans to transition immediately to a “pos-rentista” economy, plans to transform Caracas from a city with a government to one or more communes, etc., etc.

        As bolivars become meaningless even to the regime as a means of directing resources, and the regime remains ideologically retrained from reforming currency, I fear that the regime will turn to schemes of mass social mobilization as form of economic transformation. Indeed, I think that is somewhat evident in the militarized PDVSA already. The fidelista tools–the Party, the military, the Potemkin villages of the misiones, etc., the colectivos–are already in place.

        Perhaps it is bluster arising from what Rafael Ramírez condemns as “improvisation.” But the question remains, what does the regime do if it retains or consolidates political power when its price controls and hyper-inflationary spending fails.

  14. …”They can’t. They know that under the firing freeze (inamovilidad laboral) they can’t be fired even if they don’t show up”…

    Don’t forget that public companies ignore the inamovilidad laboral, so they can fire whoever they want, specially if they speak out.

    The most affected sector is probably education, even for venezuelan standards teachers have the worst salaries

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