January 7, 2006

Thirteenth Century Socialism

Thanks to Katy for pointing to this typically flabbergasting bit of Chavez non-sense. In the context of a long-winded attack against evil, greedy, neoliberal roasters who obdurately refuse to sell coffee for less than it costs them to buy the beans and roast them, Chavez threatened to nationalize the coffee-roasting industry. Putting his most reasonable face forward, Chavez blamed hoarding by the roasters for recent coffee shortages, saying the government is willing to "pay them what the coffee is really worth" and stressing he would approve only "just" price rises.

It's all more than this poor economics grad student can bear. The whole line of reasoning is medieval...and I mean that not as some esoteric slur, but as a straightforward description. The last time this kind of argument enjoyed intellectual standing was roughly 750 years ago, when Thomas Aquinas was on the cutting edge of economics and his theory of just price held sway. Put another way, Chavista economics has been discredited for half a millenium, give or take.

Call it Socialismo del Siglo XIII.

Of course, as a pretext to nationalize random industries it will do just fine: pinch manufacturer's margins away through absurd price controls, and when they refuse to play along, slam them for greed and take over their industries. Can't fail.

January 6, 2006

From my inbox...

Translated: Endogenous Viaduct...don't be surprised, look at Vargas State...

Venezuela is now screwed...

Viaducto Chronicles

Yesterday, I had a good laugh about it, but all kidding aside the closure of the Caracas-La Guaira highway has staggering implications. The more I think about it, the more I realize what a mess this is. And it's not just a problem for Caracas and La Guaira, but for the whole country.

I have a feeling foreign readers will have a hard time grasping what a disaster this is, so I'll break it down for people who haven't been there...

As you can see in this Google Maps image, Caracas is built on a high valley, set off from the sea by a string of mountains.

Thing is, the port and the airport are both on the seaside. The highway that was closed yesterday was the only proper road linking Caracas with the coast. With that highway closed:

1-There's no easy way to get in or out of Carcas by air.
2-There's no easy way to supply Caracas by sea.
3-The hundreds of thousands of people who live by the seaside and work in Caracas can't get to and from work.

There are two alternate routes to get from Caracas to La Guaira, the main seaside town. The first is the "old road" - a two-lane road that follows along the tracks the Spanish built in the sixteenth century, basically a glorified donkey-cart path. Without traffic, it takes about two and a half or three hours to go from Caracas to La Guaira on the old road - but, obviously, if you re-route all the highway traffic, the old road will turn into one gigantic, neverending traffic jam.

Worse still, the old road is fringed by some of Caracas's most violent slums for most of the way, and is known as one of the most dangerous in the country. Being stuck in traffic for hours on end on the old road is a truly scary prospect.

The only alternative would be the Carayaca road, which serves a hill-top village between Caracas and La Guaira and takes about four hours to transit at the best of times. I've never been on it, but I understand the Carayaca road peters out into a dirt track for most of the way. I doubt it's suitable for heavy trucking.

In terms of air travel, I suppose people will have to start using the Los Caracas airport (which is a small, private airport on the south side of Caracas that was never meant to be used by large jets) or the Valencia airport - which, at 3 hours away by road, is now closer to Caracas than Maiquetia (!) Diosdado Cabello was even talking about rerouting air traffic to Higuerote and Ocumare del Tuy - come on, those aren't even airports, they're more like landing strips! All the options are bad, but I suppose something can be worked out. For sure the hassle quotient will be high, and airlines will take a big hit.

In terms of shipping, I suppose the port of Puerto Cabello will have to take most of the load - but again, it's neither big enough or close enough to really substitute La Guaira. And you have to bear in mind that La Guaira port served not just Caracas, but much of the country. With the highway closed, the port is next to useless, and the consequences will be felt far beyond Caracas.

The worst hit will be the huge number of La Guaira residents who work in Caracas. The Central Coast has increasingly come to be used as a suburb by Caraqueños looking for relatively affordable housing. It will be months before they can commute to and from work again. How will they get by? I have no clue...

January 5, 2006

My little joke, and Rangel's

It's a bit silly and probably a little cruel, I know, but I have this little joke I like to play when I go down to Maiquetia to pick up foreign friends or journos flying into Caracas for the first time. On our way up to the city, as we start going over the infamous Viaducto Uno, I turn to them and say, "you know, for years engineers have been warning that this bridge could collapse any minute." They usually turn to me, half-horrified, hoping for me to tell them I'm just kidding. "Are you serious?" they'll ask, and I shoot back: "Serious as a heart attack."

I've been playing that little joke for years - I think it helps foreigners to start to get a feel for what they can expect in Venezuela.

Today, though, Vicepresident Jose Vicente Rangel one-upped me. On the day the one and only proper road connecting Caracas to its port and airport finally had to be shut down because the viaducto's collapse is now judged to be imminent, JVR told journalists:

"It wasn't known that this could happen, and whoever says the opposite is speaking recklessly. This happened due to the weather in recent days which have shifted the hillside. Fourteen million tons of earth are pressuring the bridge. That can happen to any construction in any country on earth."

Condorito style...PLOP!

Handouts or Handcuffs: The Leftist-Populist Dilemma

Here's a quick theory about the level of authoritarian repression you're likely to see in Latin America's growing crop of leftist-populist regimes:

ar = 1 / pg

where ar stands for authoritarian repression and pg for populist goodies.

It's pretty simple: a leftist-populist regime's number one objective is to stay in power. Since it can't offer its supporters genuine progress, economic growth or long-term poverty alleviation, a leftist-populist government has two ways to cement its hold on power: it can buy people's support and/or repress dissent. The more money a leftist-populist government has to buy support, the less it needs to turn to authoritarian repression to keep its handle on power.

The theory explains why hard-up Castro needs to ban political parties and jail journalists to keep control of Cuba, while petrodollar flush Chavez can achieve the same thing by handing out goodies.

Needless to say, penniless leftist-populists that get shy about repression have a way of getting tossed out of office (e.g. Allende, Ortega, Lucio Gutierrez, etc. etc.)

If the theory holds, Evo Morales is likely to have to turn to much harsher authoritarian repression much sooner than Chavez has had to: Evo just won't have the kind of money that allows Chavez to keep control without mass repression. If he gets too cute and fails to crack down, you can expect him to get booted out, whether by the ballot or the bullet.

Thing is, no country in Latin America can count on the kind of revenue stream PDVSA allows, so this is one grim theory for the region. Schafik Handal, Ollanta Humala, even a resurgent Daniel Ortega would face much tougher resource constraints than Chavez faces. Perhaps only Lopez Obrador could really hope to buy allegiances quite as ecumenically as Chavez has done. In a few years time Chavez could come to look like a relative liberal in the leftist-populist set.

No volverá a pasar, número uno...

Not freaked out by the prospect of a Nuclear Chávez yet? This may be a good time to start...
CARACAS, Venezuela, Jan 4 (Reuters) - Thieves in Venezuela have stolen equipment containing radioactive material used in the oil industry, in the latest in a string of similar incidents, officials said on Wednesday.

Angel Diaz, head of the energy ministry's nuclear affairs department, warned the Cesium-137 material could cause contamination if exposed. The equipment, used in oil prospecting, was stolen last week in eastern Anzoategui State.

Authorities arrested three police officers in December after they were linked to the robbery of a truck carrying a device containing Iridium-192, used to check oil pipelines.

Two other capsules with Iridium-192 went missing in March through negligence in two separate incidents. Both of those capsules have since been found, one dumped in Lake Maracaibo in the west of the country.


January 4, 2006

Recipe for Misiones

Evo Morales has been swept into power, and he is soon to be followed by Chávez-clone Ollanta Humala who already seems to be benefitting from Mr. Chávez's (i.e. our) generous checkbook. So now seems to be a good time to go over the recipes for the much-ballyhooed Chavista misiones which will allow the new Presidents to appear as demi-gods to the PSFs, more interested in those appearing to help the poor rather than in actually helping them.

Misión Barrio Adentro
1. Import thousands of Cuban paramedics.
2. Disregard your own country's medical human resources.
3. Break your country's laws by allowing these paramedics to practice medicine unsupervised in your country.
4. Set them up to work in neglected poor areas, living with families and using some of these volunteers' living rooms as examination rooms.
5. Continue the neglect of your country's hospital and health-care infrastructure.
6. Denounce anyone who wonders why you don't create appropriate physical infrastructure for this Misión as a CIA agent.
7. Denounce anyone who wonders why you don't open the books of the Misión to see how much it costs the public as a CIA agent.
8. Denounce anyone who wonders if there are any books for the Misión as a CIA agent.
9. Denounce anyone who criticizes you for not using local doctors and instead relying on Cuban paramedics who may or may not have the necessary training and who operate illegally, as a CIA agent.
10. Denounce anyone who wonders why these Cubans are forcibly sent to Venezuela while their families are held hostage in Cuba, as CIA agents.

Misión Mercal
1. Set up a bunch of small supermarkets in neglected areas selling sub-par, imported food below cost.
2. Sell this food at a subsidized price to anyone who wants it, so the more a person consumes, the more that person will recieve in subsidies.
3. Expand your network to include middle-class areas.
4. Denounce anyone who wonders why a system that rewards those that consume more (i.e. are wealthier) with more subsidy money as a CIA agent.
5. Denounce anyone who wonders why middle-class people need subsidized food when that money could be spent in direct subsidies for poorer people, as a CIA agent.
6. Denounce anyone who wonders why the military staff managing Mercal demands Mercal providers to supply the government with buses to haul voters to the polls, as a CIA agent.
7. Denounce anyone who questions why the government needs to actually RUN supermarkets when trying to subsidize its poorest citizens (a worthy goal if any), as a CIA agent.
8. Denounce anyone who wonders about the sudden wealth of the Mercal generals as a CIA agent.
9. Denounce anyone who wonders if Mercal is a way of putting private supermarkets out of business as a CIA agent.
10. Denounce anyone who wonders why middle-men seem to be buying cheap stuff at Mercal and selling it to supermarkets at high prices as a CIA agent.
11. Denounce anyone who asks to see the books of Misión Mercal as a CIA agent.

Misión Cadivi
1. Subsidize the purchase of dollars.
2. Use these subsidies to keep private industry concentrated on getting subsidies from your government, and away from trying to unseat you.
3. Subsidize the wealthy who wish to travel overseas.
4. Subsidize the wealthy who wish to purchase stuff from the Internet.
5. Subsidize the wealthy who wish to withdraw cash from foreign ATMs.
6. Denounce anyone who wonders if directly subsidizing big businesses, wealthy Venezuelan tourists and foreign airlines is sound social policy, as a CIA agent.

Misión Robinson
1. Teach some people to read and write.
2. Proclaim the Unesco has declared your country illiteracy-free.
3. Deny any progress in literacy ever occurred prior to your arrival.
4. Denounce anyone who wonders why Unesco knows nothing about Venezuela being illiteracy-free, as a CIA agent.
5. Denounce anyone who still does not know how to read and write as a CIA agent.

Misión Identidad
1. Announce a massive plan to hand out ID cards and register people to vote.
2. Set up make-shift ID-card impression operations in sidewalks, bull-fighting rings and under coconut tress.
3. Don't ask for any corroborating data when handing out ID cards.
4. Nationalize and register to vote any foreigner who asks for it, making sure they know how to vote for you.
5. Deny indentity cards and passports to anyone who has dared to challenge you publicly.
6. Continue allowing your civil servants to enrich themselves by taking bribes for issuing passports.
7. Denounce anyone who wonders why Venezuela does not have a modern, reliable and accessible civil registry as a CIA agent.
8. Denounce anyone who wonders why thousands of people born prior to 1900 are registered to vote as a CIA agent.
9. Denounce anyone who wonders why there are voting centers where thousands of voters share the same last name and birthday as ... well, you know what.

Dedicated to all my Peruvian and Bolivian friends.

January 3, 2006

What would you rather have, a job or a misión?

To save or to consume? It's the most fundamental economic choice of them all. If you have $10 in your pocket you can buy beer or put it in a savings account. If you have a multi-billion dollar oil windfall you can hand it out to your political supporters or you can build infrastructure. Choices of this kind face economic agents up and down the line: Households face them, firms face them, governments face them, the rich face them, the poor face them, even Robinson Crusoe on his island would face them - everyone faces them.

But save...why would you save? Well, to invest. By investing, you can consume more later than you can consume today. The invest/consume decision is really about whether you'd rather consume a little bit less now or a little bit more later.

In terms of development, the reasoning is intuitively obvious and the empirical evidence is pretty well established. Poor countries that choose to invest less grow more slowly. Poor countries that manage to invest more grow more quickly.

In a sense, it's a tautology - just a fancy way of saying "countries that choose to consume less now and more in the future consume more in the future"...and it really is that simple...

Different countries at different times have found different institutional mechanisms to boost investment and each time the result has been a spurt of economic growth. Holland in the 17th century invented the stock market, which allowed far more efficient allocation of savings than ever before, boosting returns on investment and growth, and allowing this tiny sliver of northwestern Europe to become an authentic world hegemon for fifty years or so.

The Soviet Union in the 1950s invented crash-industrialization, where dictatorial violence was applied to force a massive reallocation of resources from current consumption to investment. In human terms, the results were terrible - in economic terms, Stalin's crash-industrialization drive led to one of the fastest episodes of economic growth in history.

My point here is obviously not to urge stalinist economic tactics, just to point out that the invest/consume decision is not limited to capitalist economies. Every economic decision-maker has to make it at every moment. And if the task is to launch a poor country on the road to self-sustaining growth, boosting the level of investment seems to be the trick.

This is a point that Harvard economist Dani Rodrik has made again and again in a series of very lucid recent papers.

Rodrik, a darling of the anti-WTO left, emphasizes that many different policies can achieve the ultimate goal of boosting investment. He stresses that there is no one-size-fits-all solution to the boosting-investment conundrum, that IMF-style policies often don't help, and that some of the most successful solutions out there (such as China's state owned Town and Village Enterprises) are very far removed from Western economic orthodoxies. And in this highly influential paper (co-authored with Venezuela's very own Francisco Rodríguez) - he argues that increased international trade (as well as trade openness) are consequences rather than causes of economic growth, which ultimately has to be sparked by an investment boom.

However much he may dissent from IMF orthodoxy, Rodrik's stress is always on investment as the key to unleashing a growth dynamic. (But only as a start-up mechanism, Rodrik doesn't dissent from the widespread consensus that launching a country into growth is a very different challenge from sustaining that growth.)

To my mind, Rodrik is perhaps the most lucid development economist out there today. I'm convinced by most of what he has to say...and I think any serious critique of chavista economics has to start with the simple realization that development policies succeed or fail depending on how they affect investment.

As I noted above, this is not a critique of socialism per se - socialism had an answer to the problem of how to boost investment (i.e. just decree it by dictatorial fiat.) But it is a critique of Chavez style populism - an economic "strategy" based entirely around handing out the state's revenue stream to sustain his supporters' current consumption. With even PDVSA, the state's cash cow, suicidally starved of investment, it's clear chavismo has no long-term vision for investing Venezuela's way to development.

In the end, though, investment means growth and growth means jobs. And it's a proper job with a proper income that allows people to make their way out of poverty. Chavez-style populism can offer people misiones, but only a concerted effort to boost investment can generate the jobs that people really need to stop being poor.

Which is why the best way to make the case against chavista populism is to put the consume/invest decision in the starkest possible terms. Ask people whether they'd rather have a job or a misión, and they'll choose the job every time...

Jackson Diehl on the hemisphere circling the drain...

WashPost op-ed columnist Jackson Diehl's take on the year to come from a gringo perspective...
Here's a sad but safe new year's prediction: U.S. relations with Latin America, which plunged to their lowest point in decades in 2005, will get still worse in 2006.

The year ended with a string of reverses. In a regional summit in Mar del Plata, Argentina, in November, President Bush was jeered by demonstrators and taunted by Venezuela's Hugo Chavez, who aspires to make Latin America anti-American and anti-democratic. He was seconded by Argentina's Nestor Kirchner, who in the past few weeks has moved from the hemisphere's camp of moderate democratic leftists toward Chavez's "revolutionary" embrace.

Then came the Chavez-backed victory in Bolivia of Evo Morales, a former llama herder and coca farmer who describes himself as Washington's "nightmare." Lacking any coherent policies of his own, Morales will probably take instruction from Chavez, Kirchner and Fidel Castro -- who at age 79 must believe he is finally seeing the emergence of the totalitarian bloc he and Che Guevara tried and failed to create in the 1960s.