April 27, 2008

Rent-seeking as a Livelihood Strategy

Quico says: Thinking about the way the New Political Class has looted the proceeds from our current oil boom, it's hard to contain a certain moralistic rage. We see the extravagant lifestyles that the people at the very top of the petrostate game enjoy and, understandably, flip out. But I wonder if that doesn't obscure the more widespread reality of Bolibourgeois corruption, the way rent-seeking works as a livelihood strategy for thousands of Venezuelan families beset by economic insecurity. I'm sure if you bracket the top beneficiaries in the graft histogram and focus on the long tail instead, what you see is not so much rampant greed as a rational response to a given set of incentives.

The culprit here is economic insecurity. The Venezuelan middle class has never shaken the sense of precariousness Viernes Negro brought. With few exceptions, honest middle class professionals can't earn enough to sustain a stable, middle-class lifestyle. Typical salaries just will not cover the rent and the car payments and the supermarket bill and the DirecTV bill and the school fees and the occassional dinner-and-a-movie and the phone bill and...

These are not extravagant aspirations: just the basics any junior teacher might expect in a first world country. Most college-educated Venezuelans aspire to that lifestyle, but simply can't afford it.

Nor does their future look secure. With pension provision spotty, mortgages out of reach and savings facing negative real interest rates, Venezuelan professionals really don't have a lot of good options for securing a future for their families in the legal economy. The reality, for those aspiring to a middle class lifestyle, is that the "legit" route is a dead end.

The alternative is obvious: whether it's in the private sector (as, say, a Cadivi arbitrageur) or the public sector (as a corrupt official), you need a slice of the petrodollar pie. Given the low barriers to entry into the rent-seeking game, the low risk of detection, and the ubiquity of this kind of behavior, it's easy to see why the country's on course to a kind of Nash Equilibrium where everybody with half a chance is on the take. Where following the rules is for chumps, only chumps follow the rules.

Venezuelans have no time for the slow, patient build-up of mortgage equity and retirement savings you see in better-regulated societies: you don't really know how long your rent-grabbing opportunity will last, so basic caution dictates that when you see one, you take it. This may be your one chance to ensure yourself against the kind of hardship you've suffered in the past, your one go at differentiating yourself from all the economically insecure people all around you.

It's now or never. So your dominant strategy is to grab as much as you can as fast as you can. The few who manage to maneuver themselves into a position to grab a lot, grab a lot. The many who get into a position that allows them to grab only a little, grab only a little. But, in the end, everyone's grabbing as much as possible: when the chips are down, few Venezuelans will forgo the possibility to grab "their" share of the oil rents.

I'm no different: I'm typing this post on a computer Cadivi dollars bought. It may be a vanilla, by-the-book variant on rent-seeking, but rent-seeking it is.

There's an interesting contrast to be drawn here with the old Eastern Block. A good friend of mine from Hungary recalls growing up in an apolitical family in the 1980s. "We called it Sausage Socialism," she says. "As long as you kept your nose out of politics, you could be sure you'd always have a house, a job, and a nice sausage at the end of the day." Was there a small elite of very rich apparatchiks at the very top of Hungary's communist hierarchy? Of course! But was corruption a generalized practice, a widespread livelihood strategy? It really wasn't, because people didn't have this pervasive sense of economic insecurity. Sausage socialism made petty corruption not worth the risk.

Chavismo has failed to produce anything like the social safety net the old Eastern Block countries had. With economic insecurity rampant and rent-seeking opportunities plentiful, corruption comes to be seen less as a moral outrage and more as just "doing what's right by your family."

The cumulative outcome of all this is that long-tailed distribution: with a few very successful rent-seekers accumulating vast fortunes and a much greater number of small-timers trying to use the system not to get fantastically rich but just to ensure they can live the kind of stable middle class lifestyle they'd once thought their university degrees would guarantee them.

Beyond them, you'll find a bigger group of highly precarious aspiring middle class people who have no viable strategy for appropriating state rents, and then a huge mass of poor people entirely shut out of the system and squabbling over the crumbs that fall off of the petrostate banquet table, (mostly around election time, in the form of Misiones and other mass-based petro-rent handouts.)

Ressentment simmers within both groups. They'll tell you their anger is over the prevalence of corruption, but really what makes them mad is that they're out of the loop. They just don't have the connections it takes to really cash out. Because, in the petrostate game, it's the quantity and quality of your contacts with the petrostate elite that will determine where on that histogram you fall.

So long as the macroeconomy goes well and the oil boom keeps enough cash circulating, their exclusion from the baksheesh circuit will produce mostly latent discontent. But if there's one thing Venezuelan history shows conclusively it's that when the economy starts to sputter, the anger the Society of Accomplices generates becomes volcanic.