Caracas Chronicles

A few years ago, a group of experts identified the types of policies that most countries with high growth experiences had implemented. Their results, published in “The Growth Report,” are as close to a recipe book on growth as you’re going to find.

This is the sixth part in a series on what Venezuela can learn from that exercise. In Part II, I tackled the importance of inserting Venezuela into the global economy. In Part III, Quico discussed getting the macroeconomic fundamentals right. In Part IV, we looked at why you need a financial system that fosters savings and investment. In Part V, I discussed the importance of letting the market tell you what you’re good at. Here’s part VI:

Think of a country that has grown strongly in the last decades. Think China, Panama, or Peru perhaps. Maybe South Korea, Qatar, or even India. Heck, you could have even thought of Venezuela in the 1950s and 60s, or West Germany after World War II.

You know what I think about when I picture those countries? Not a single one of them has undergone an economic identity crisis during their boom times. Their politics, and the debate over policy, have been remarkably drama-free.

In high-growth countries, the underlying economic framework is never seriously in question. Politics may be contentious, but it’s as if politicians took the economy out of the boxing ring. Their “models” – now that the word is so in vogue – are accepted. It doesn’t so much matter whether the policy mix is right or not, as long as the main actors in the economy believe in it.

Governments in West Germany shifted back and forth between Christian Democrats and Social Democrats, but there was never a radical overhaul of the basics of the “German miracle.” In South Korea, the transition from the Park dictatorship to democracy took several decades, but the politicians left economic governance alone. Chile’s Concertación kept in place many of the basic policies inherited from the Pinochet boom years. Even in post-1979 China, the underlying model of Communist Party-led market-driven development is not really questioned, even when leadership changes.

This points to “consensus” as a basic ingredient for growth.

In fact, the correlation between political stability and growth has been documented since at least twenty years ago. However, correlation is not causation – just because people use umbrellas whenever it rains doesn’t mean that umbrellas cause rain. So, does low growth cause conflict? Or does conflict lower growth?

One can make the case for either one, but economists that have studied this tend to lean toward the latter, the case for conflict lessening growth. The reason is that conflict deters investment – which in turn means people have less capital to work with, and they invest less in human capital. Future productivity is hampered, and as we know, productivity is the key to long-term economic growth.

Now, “diminishing conflict” is not a policy prescription per se. One needs to look more closely at the drivers of conflict, and try to forge policies that lead us toward consensus. A detentè, if you will.

Good luck with accomplishing that in overly dramatic Venezuela.

In countries that grow, you don’t get the melodrama we’ve grown used to in Venezuela. In our country, we’re constantly debating the rock-bottom basics such as whether markets can be trusted to set prices, or whether most economic activity should be in the private or public sector.

Ours is a bankrupt country where the two sides can’t even agree that giving away oil for free is a bad idea, a country ravaged by shortages where we debate the merits of shutting down a border.

The fact that these things are still debated goes a long way in explaining why our country can’t grow. It also helps explain why people view economic policy as do-or-die: one glib decision by a crazy bureaucrat and your lifestyle goes down in flames. (If you don’t agree, ask Venezuela’s most important businessman about this.)

But once economic policy stops being a life-or-death debate, once we agree on a basic set of premises, things get much more civilized. Not only does this help growth, it might be a neccessary condition for growth.

The Growth Report says that sturdy political foundations are essential for long periods of economic growth. Growth should be “consciously chosen as an overarching goal by a country’s leadership.” Succesful economies have governments that “anticipate actions required to sustain the economy’s momentum,” and gives all sectors – opposition, business, unions – a stake in the success of the model.

This is easier said than done.

Much of what happens in our country is driven by ideology rather than serious, evidence-based debate. But ultimately, if we all want growth, then it shouldn’t be too difficult to agree on a certain set of premises: don’t spend more than you have, don’t print money out of thin air, save in good times for when bad times come, make a credible pledge that our children will be better off than we are, protect private property because it’s the basis for growth.

It’s basic, kitchen-table economics.

One of the tragedies that Hugo Chávez inflicted on our country was making craziness “in.” No theory, no matter how hare-brained, was too crazy to be deemed palatable. By making the outrageous ordinary, he destroyed any possibility of consensus in our society, at least in the near term. That is why we can’t even agree on whether inflation is an actual problem or not. As Rafael Osío Cabrices so eloquently puts it, ours is a nation that is not on speaking terms with itself.

This has to end. The basis for our future growth has to come from hatching coexistence between wildly different political factions – from being able to not only implement the right set of policies, but also convince the people waiting in the wings that rocking the boat too much is not the way to go.

For that, we need to shun the wackos. Finding partners on the other side of the aisle means talking to the ones that aren’t crazy and coming up with reasonable policies we can all agree with. Until we do that, we will continue to wander aimlessly from boom to bust, from revolution to counter-revolution.

Can this be accomplished in the context of what remains of our democracy? Perhaps we’ve already begun.

Democracies can preside over remarkable passages of growth – India, Australia, Ireland, even Chile. Growth is accomplished only if we find a way to bring everyone on board and agree on a basic set of permises – inside the opposition, first and foremost, but also inside chavismo. The new “model” has to be one where we agree on the basics, and we establish the mechanisms that allow us to correct course if we need to.

Right now this is practically impossible in Venezuela. But if we don’t start laying the foundations for future consensus … we are not going anywhere.