Caracas Chronicles

It had to come to this. The renationalized SIDOR Steelmaker has started hitting up the Central Bank for emergency loans.

The BsF.2 billion bailout announced today is a throwback to the insane economic policies of the 1970s and 80s, when Venezuela dug its own macroeconomic grave by devoting more and more of its scarce oil-revenues to propping up loss-making nationalized companies. This economically senseless scramble was responsible for much of the calamitous collapse in living standards between 1975 and 1995. 

What’s tragic is the Institutional Alzheimer’s inherent in all this.

Few economic phenomena have been more thoroughly analyzed than the way bailing out loss-making, State-owned companies distorts mangers’ incentives – the so-called "soft budget constraints". Gone unchecked, they lead to chronic losses and the increasing waste of scarce resources to the detriment of the kinds of public services that only the state can provide.

A massive number of studies have been written on the basic mechanism. It’s literally one of the best understood dynamics in contemporary political economy. It’s bat-shit crazy that, in this day and age, a government that pats itself in the back as centered on "the needs of the poor" would waste hundreds of millions of dollars in covering the financial losses of a state enterprise that, until recently, was privately owned.

And, it’s unconstitutional, to boot (c.f., Art. 320.)

It might all be slightly more comprehensible if it wasn’t the case that this very same company, running this very same steel mill, already went through this cycle: throwing up chronic losses and bleeding the treasury dry for decades ahead of its eventual privatization (and transformation into a profit-making private firm) in the 1990s.

And while I’m ranting, let me say this: folks love to rail against the evil, heartless, neoliberal "Washington Consensus" – a phrase that long ago morphed from an analytical category into a term of abuse. But it’s worth stopping to remind ourselves that the whole reason the Washington Consensus was formulated was the dawning realization that there’s something terminally fucked up about an economic strategy that causes you to raid funds you might have used to pay for life-saving surgeries, and devote them instead to propping up the balance sheets of loss-making nationalized firms…especially given that, in too many cases, those firms only make losses because they’re nationalized, and so their managers know they can count on getting bailed out no matter how calamitous their financial performance may turn out to be. 

We’ve been over this, folks. The whole notion that making sure that the state can keep spending Bs.3 to make Bs.2 worth of steel is a "National Strategic priority" didn’t make any sense the first time around, and it doesn’t make any sense this time around either, coño!

In revolutionary times, every day is a good day to forget something, though.