June 13, 2008

The Making of the New Elite

Quico says: What does it take to 'make it big' in this society? What do the most ambitious people here feel they need to do to 'make it to the top'? How do you join the upper echelons of money, status and privilege?

Answer those questions and you'll understand much about what makes any society tick. Where the quest for success pushes the most driven people to act in ways that benefit everyone, society flourishes. Where the ambitious find they need to act destructively to "make it big", society flounders.

In an aristocratic order, the main thing you need to do to "make it big" is to choose the right set of parents. In a well-regulated capitalist order, your "ticket to the top" is success in business. In a petrostate, the ambitious are drawn to state power like moths to an open flame.

This, at any rate, was what was going to my mind as I watched Banesco's Juan Carlos Escotet (pictured above), Oswaldo Cisneros, Polar's Lorenzo Mendoza and Televen's Omar Camero palling it up with Hugo Chávez during Wednesday's extraordinary New Economic Plan Aló Presidente thingy.

The reason for their presence there wasn't much of a mystery. During his speech, Chávez pledged $1 billion over two years for "downstream development" in petrochemicals and other industrial sectors. He assured that the terms would be "soft" - a nudge-nudge-wink-wink way of guaranteeing that projects will not be subjected to rigorous viability studies, will face only "soft budget constraints" and are likely to continue to be supported long after it's become clear that they are hopeless money holes.

(La Gran Venezuela, anyone?)

If you know of any businessman who would decline a deal on those turns, send me his name: I want to put his name forward for beatification. In the real world, nobody's going to pass up a manguangua of such monumental proportions.

The problem goes well beyond the free cash. The reality that the petrostate creates is that businessmen can't "make it big" - or even make it at all - unless they become cronies. If you're in business in Venezuela, you need to be able to pick up a phone and get a sympathetic minister or vice-minister on the other end when the consumer protection agency comes knocking at your door, or when the tax guys come to do an audit, or when you apply for exchange-controlled dollars, or for building permits, or when you need capital, or a regulatory green light for any of a thousand of micro-level decisions the petrostate insists on regulating. In Venezuela, a businessman without government contacts is an orphan - helpless, weakly, and at the mercy of the government-connected competitors all around him.

What interests me is the way that last paragraph applies with equal strength to business-government relations in the Chávez era, the Punto Fijo era, the Perez Jiménez era, the Trienio, and the Andean caudillos era. For the last 94 years, ever since Zumaque I started spewing out all that black gunk all those years ago, that basic outline really hasn't changed.

What we're seeing today boils down to a rehash of a very old dynamic of mutual accommodation that has defined the Petrostate all along. The basic bargain (political support - or, at least, political quiescence - in return for the chance to make a ton of money) really hasn't changed at all.

What's most remarkable about this setup is the way new petrostate governing elites of every ideological stripe end up finding an accomodation with parts of the previous commercial elite, no matter how sordid its past.

Nothing new there: the Capriles and Bloque de Armas media conglomerates may have played a key part in sustaining the Perez Jiménez regime, but that didn't stop the new AD-Copei governing class from pacting with them once they took power, going as far as to get their respective patriarchs elected to congress in the 1960s and 70s. And now the pattern is replicated, bit by bit, in the Cisneros's stunning conversion from fascist conspirators to government pals within the last six years.

Of course, not all private groups are willing to pact, but they hardly represent a systemic problem: the state has any number of ways to ensure they wither into insignificance (c.f., 1BC). And certainly, new top level cronies arise exploiting their early access to the new state elite (c.f., Wilmer Ruperti.)

The new elite is an amalgam of new cronies and newly chastised old cronies, tempered through the exemplary the exclusion of the recalcitrant. Little by little, the competitive edge that access to state largesse affords ensures that cronies grow ever richer, all the while fully realizing that their wealth is entirely dependent on maintaining their good standing with the governing elite.

Over time, this process leads to the formation not just of a new, politically pliant economic elite, but also of a politically dependent middle-class. In some of the most provocative economic research I've seen on Venezuela in the Chávez era, a team led by Francisco Rodríguez has documented the way not just firms but also regular individuals' economic prospects are systematically enhanced if they support the Chávez government and depressed if they oppose it.

The underlying message here is that the petrostate makes its own elite. Within just one decade of chavismo, we've already seen the way the regime's stability is bolstered by the fact that those who have something to lose, those who have property, or influence or money or status at stake, have become, de facto, a conservative force in society, a constituency with a vested interest in keeping chavismo in power because its own privileges stem from and depend on chavismo's continuation in power.

Nihil novi sub sole.