Caracas Chronicles

How much economic damage did the ¡Exprópiese! Era do to the Venezuelan economy? How much of the blame for the country’s GDP implosion should we assign to expropriation as such, and how much to the rest of the government’s crazy economic policy framework?

These aren’t rhetorical questions: the answer isn’t as obvious as it seems. Of course, nobody except a graduate of Patrice Lumumba University would confuse expropriation for sensible policy. But saying something is bad policy is not at all the same thing as saying it’s the main culprit for a given problem. These are burning practical questions with direct policy consequences.

The view of Primero Justicia is clear: Julio Borges’s flagship proposal for the new National Assembly is the Bill to Activate and Strengthen National Production – an ambitious plan to undo the legacy of the ¡Exprópiese! Era.

The Bill’s central idea is for the National Assembly to set up a commission to review the accounting of every nationalized farm and business in the country. If the committee finds that a given nationalized business has increased production, it stays nationalized. If it finds that it has decreased production, it auctions off its management to a new team of administrators who earn the right to buy the firm outright after one year, provided they can show they’ve increased production in that time.

It’s a beguiling idea: nationalized companies suck because the new managers are a bunch of funcionarios, bureaucrats with no skin in the game who don’t know what they’re doing. Put those same companies under the control of better managers who have something at stake, and they’ll do better.

That’s the pitch, anyway. But does it make sense?

I don’t think it does.

Why? Because Venezuela’s economic implosion has relatively little to do with microeconomic problems like who owns and manages firms. Venezuela’s mess is basically macroeconomic. In fact, we’re a textbook example of the Macroeconomics of Populism. 

In other words, Venezuela’s expropriated firms have gone into a productive deathspiral for the same reasons its private firms have: out of control spending leading to runaway deficits financed by printing money in the context of rigid price controls over everything, notably including currency.

 
In a perverse way, MUD needs the Constitutional Chamber to strike down this bill to save it from itself.

So let’s just think about what happens if you try to apply something like Primero Justicia’s National Production Law in the absence of serious macro reforms: first, you’re going to find that every nationalized firm has to be spun off to new private managers, because in the context of a hardcore recession lasting two years now, you’ll be hard pressed to find any firm – nationalized or not – whose production has gone up in real terms.

Let’s look at this chess game a few moves ahead, though. Now you’ve spun off all these erstwhile nationalized firms to new private sector managers and given them a year to turn them around.

They get into the office on the first day and find out half the machinery on the balance sheet has been sold off, the other half doesn’t work for lack of spare parts. They still can’t get dollars to bring in spare parts because the official dollar is still at Bs.10, DiCom isn’t really supplying all comers on the secondary market, and the black market rate remains unaffordable.

They’ll find that even if they could somehow sidestep all these problems to increase production, it wouldn’t be worth it, because Price Controls would bar them from selling at a profit. And they’d find that while the prices they can charge for products are frozen, their wage costs are still going up every couple of months as new, executive-branch wage increases are passed.

They’d find, in other words, that they’re running businesses that aren’t viable – and not because of anything they’re doing. They’re not viable because the macroeconomic climate is so hostile, virtually no business could be viable, no matter who’s running it. Within 12 months, they’d surely fail to increase production, and the firms they’d taken over would go back into state management.

I do grant that the National Production Bill is a decent piece of political salesmanship. It positions the opposition as pro-private property, worried about jobs and income, etc. The marketing it top notch, no question.

But just imagine – and I’m not suggesting chavismo is clever or imaginative enough to do something like this, this is a pure Gedankenexperiment – that the Supreme Tribunal’s Constitutional Hall does let this law take force, and you’re forced to implement it while Maduro is still in power. It’d be an enormous fiasco! Within 12 months, the Assembly’s Committee would be re-nationalizing firm after firm, each having failed to raise production, as promised.

In a perverse way, MUD needs the Constitutional Chamber to strike down this law to save it from itself.

Is this really what we were fighting for when we fought for control of the National Assembly?

Let’s be clear: there’s a high chance Venezuela is facing political transition this year. The new government, if it comes, will need to hit the ground running: on the basis of worked out plans and legislative strategies, of an actual idea of what they’ll do in month one, month two and month three. With a road map. Because once you’re in power, a marketing pitch is about as much use as an ashtray on a motorcycle.

There’s a discomfitting sense that the boring prep work it takes to get ready to run the country is not work the opposition is really interested in. That they still see what they’re facing as basically a sales job: a persuasion operation where you win the game if you win hearts and minds. It’s as though they’ve been out of power so long, they’ve forgotten what it means to prepare to govern.

I want to be proven wrong about this. Very much. I read the National Production Bill heartily hoping to be proven wrong – much like I read the Central Bank Law Reform Bill. I keep hoping behind one of these proposals, the opposition’s hidden technocratic heart will be lurking.

So far, no luck.