April 7, 2008

The Economics of Quítate Tú Pa'Ponerme Yo

Quico says: Francisco Rodríguez has become something of a force of nature in the field of Chávez scholarship. While most of us bullshit at excruciating length, FR brings creativity and rigor to the task of documenting the effect chavismo is having on Venezuela's economy and society.

His latest, a paper entitled The Price of Political Opposition: Evidence from Venezuela’s Maisanta co-authored with Chang-Tai Hsieh, Daniel Ortega (of IESA, not that other one) and Edward Miguel, sets out to measure a phenomenon we all "already" knew about but hadn't been able to prove: the impact of political discrimination on personal and corporate income in the Chávez era.

At the heart of this paper is some startlingly innovative research design. Turning the government's main tool for political discrimination - the Maisanta Database - on its head, the research team crossed its data with income data from the Venezuelan Household Survey by "exploiting the fact that most individuals in both datasets are uniquely identified by their gender, date of birth, and parroquia of residence."

This allowed them to isolate the specific impact of signing for or against the government on individuals' incomes, and lo and behold, they found statistically significant and robust evidence that signing against Chávez cost the average opposition supporter 3.8% of his or her income and massively increased their risk of unemployment.

Among other results, the team documented big shifts in sectoral employment, with a 6.1% reduction in government supporters' propensity to work in the private sector and a 5.7% reduction in government opponents' propensity to work in the public sector.

For firms, the research design was even more ingenious. They sent a small army of flunkies research assistants to pour through public registries in Caracas, Maracaibo, Maracay and Valencia so they could assemble a little database of company board members. They then matched that with the Maisanta Database to construct an index of how pro- or anti-Chávez each corporate board was. That allowed them to regress various indicators of firm performance against their board's scores on the pro- or anti-Chávez scale.

The results were pretty clear: pro-government firms have far easier access to Cadivi dollars than pro-opposition firms. Output and profits grew faster in pro-government firms, but labor productivity fell, indicating that pro-Chávez firms are more politically favored but less efficient than anti-Chávez ones. And oppo firms were paying 40% more in taxes than pro-government firms, suggesting that Tax Enforcement is politically selective.

Though fiendishly clever, this research design does have its limitations. Neither the personal nor the corporate analysis can account for the Arias Cardenas Effect: people who signed against Chávez but then saw the way the wind was blowing and made amends. Anecdotal evidence suggests that Chávez is quite willing to forgive these folks, with Gustavo Cisneros and Omar Camero being the paradigmatic examples. There's no data to differentiate the round-trippers from the hasta las últimas consecuencias oppositionists: one suspects the effects found would be even larger if there were.

The final section of the paper estimates that political polarization itself made the Venezuelan economy as a whole substantially less efficient, with Total Factor Productivity declining 5% in response to political discrimination. (If I'm reading this right, that means that for the same level of total capital, labor and natural resource inputs, the economy generated 5% less in output after the Maisanta List than before.)

On one level, you could say these results are prime candidates for publication in the "Well Duh Journal of International Economics", or perhaps the "Annals of Painfully Obvious Results". But in a country where everybody bullshits and nobody researches, there's something satisfying about having the actual figures.

For Venezuelan newpaper readers, there's nothing new here, but in broader theoretical perspective, this is crucial work. Rodríguez, Hsieh, Miguel and Ortega document a key process I keep trying to write about: the way the petrostate mobilizes its resources to create a socio-economic elite in its own image. And, academically speaking at least, the more detail we can get on the precise mechanics of this elite-generation process, the better.