March 6, 2009

Zombie Capitalism

Quico says: We're in the midst of a Nationalization Blitzkrieg right now: Cargill, Polar, Bodies and Smurfit Kappa have been targeted this week alone, and it's easy to guess there's a lengthy backlog of targets.

You could be forgiven for thinking this is it, the start of a drive towards mass nationalization of basically everything. You'd be wrong. Food Minister Felix Osorio stresses that the government has no intention to do away with the private sector, explaining they don't mean to take over every company, just the bad companies.

Which, in many ways, is worse. Because, how are you to tell whether the government will one day decide your company is bad? You can't. And given that you can't, why would you devote scarce resources to investing in a business that could be taken from you at any time? You wouldn't.

Instead of Socialism, what Venezuela is getting is a kind of Zombie Capitalism: a capitalism of the damned, run by firms that can't invest, can't grow, and can't decide. A schizophrenic capitalism where the state blames the profit motive for all of society's problems in one breath and gives assurances that it has no intention of doing away with private enterprise in the next. A panicky, insecure capitalism where firms get to remain private "por ahora" but managers are keenly aware that they're deeply reviled, endlessly scapegoated, and that they could be expropriated at any time, for basically any reason, and with no prospect of a fair appeal.

Venezuela's businesses are expected to operate under the most inflexible labor market regime in the world. Rather than running their companies, managers spend their days searching for wiggle room within the multiple regulatory straitjackets that have been placed on them: an interminable thicket of pajeric rules and regulations that force their hand over almost every major and many minor business decisions.

Venezuela's private sector isn't dying; it's undead. Firms aren't free to do any of the normal things firms do that generate social welfare. They can't strategize, or innovate, or invest, or create jobs and economic dynamism. But they can't just out-and-out die either, because if they stop operations then they certainly will be expropriated. In fact, all they can really do is keep on lumbering onward like the hyper-controlled, totally emasculated zombies they've become.

In many ways, proper socialism would be far preferable. At least the old Eastern Block, socialist elites grasped that with great power grabs come great responsibilities. As my Hungarian friend always says, the commies knew that if they were going to take away people's economic freedoms, they would have to offer them economic security in exchange. In Hungary, they called this "sausage socialism": as long as you did what you were told, you were guaranteed a job for life and a nice sausage for your dinner each evening. To people whose parents had lived through the deprivations of war, this really wasn't such a bad deal: Hungarians love sausage, apparently.

If you're stuck with Zombie Capitalism, you have no such luck. The chavista state neither washes nor lends out the washtub. It undermines the private sector's ability to create jobs able to provide people a living, but it refuses to take up the slack, taking responsibility for everyone's livelihood.

If, as Winston Churchill is said to have quipped, Capitalism distributes wealth unevenly while communism distributes misery evenly, Chávez has them both beat: Zombie Capitalism spreads misery, unevenly.