Tag: Carlos Andrés Pérez

All Within the State: Understanding the Cuba – Venezuela Nexus III: Fidel’s Revenge Part I

Richard Barnes

“My entry to Caracas has been more emocional than my entry to Havana, because here I have received everything from those who have received nothing from me.” — Fidel Castro, January 23, 1959, Caracas, Venezuela

As explained in the prior post, on that seemingly propitious visit, Fidel Castro was eventually Spurned by Rómulo Betancourt, who then proceeded to defeat Castro’s efforts to subvert and overthrow his democratically elected government as well as to disrupt the next elections where the Venezuelan people elected Raúl Leoni, who also successfully blocked Castro’s nefarious efforts against Venezuela.

In early 1992, Hugo Chávez led an attempted leftist military coup against the elected president, Carlos Andrés Pérez. In November of that same year, from prison, he led yet another coup attempt. Both attempts failed but not before the deaths of at least 150 people, although historians believe several hundred were killed.

Records indicate that preparations for these coups actually began in the 1970’s under former Communist guerrilla fighter, Douglas Bravo. He initiated an “infiltration” strategy with the objective of taking power via the Venezuelan military. In the early 80s, Chávez joined in this enterprise, having founded a “Bolivariano” movement with the same objectives. Such reports help explain former president Rómulo Betancourt’s concerns and his working to organize a coalition of Latin American armies to fight Castro in the 1970s. His plans never came to fruition as his health deteriorated followed by his death in 1981.

Unsurprisingly, according to officially unconfirmed reports, as well as the excellent (but poorly edited) history, El Delfín de Fidel, Castro was behind and helped organize much of this subversive activity, even placing sleeper agents in Venezuela in the late 80s to foment unrest. His intent was to use Chávez as the face of the coup so as to avoid retaliation by the United States. 

By then, Castro desperately needed financial succor, as Cuba had entered its “special period” when aid from the Soviet Union had been severely reduced. Venezuelan Major Orlando Madriz Benítez reported that Castro also worked to falsely assure President Pérez that there was no truth to reports of an impending coup. Infuriatingly, but also credibly, in addition to Castro, future president, Rafael Caldera also knew of the coup. Castro and Chávez were to have ensured he would have been named interim president as had been the case with leftist Wolfgang Larrazábal after Marcos Pérez Jiménez was overthrown 34 years earlier.

This explains why Caldera pardoned Chávez in 1994, a mere two years after the coup attempts. This freed a man who at least twice had plotted to overthrow the elected government and who went to jail with the blood of many on his hands. That same year, 1994, he flew to Cuba where Castro had organized a massive reception.

And here was the inchoate, yet palpable incunabula of Castro’s inadvertently prophetic statement, “I have received everything from those who have received nothing from me.” For here, Castro and Chávez, in a firm, mutual embrace agreed to proceed on their common path of “the anti-imperialism of our era….” 

By 2009, ten years after Chavez’ first inauguration, fifteen years after his pardon and portentous visit to Havana, Cuban functionaries were present throughout the whole of the Venezuelan territory as the face of multitudinous “social programs”. By then, Cuba jointly administered the Venezuelan ports (some would drop the word jointly), she had ensconced herself firmly in the army and navy and was well on her way to management of Venezuela’s internal security apparatus, including identification documents and passport control. And there is much more.

But Cuba did not do this for free. She was receiving over 100,000 barrels of oil daily, in addition to hundreds of no bid contracts for projects and services at astronomically priced rates. So great was the financial impact that as Venezuela sank from positive to negative GDP growth, Cuba rose from negative to positive.

So, Castro’s words in 1959 can be read as a prophecy of what was to come a generation later when indeed the Venezuelan people will have begun giving “everything” to Castro while “receiving nothing from” him.

However, actually, they did receive “something” from him, as we will discuss in future posts.

Hugo Chávez as unrepentant leader of a military coup, February, 1992.
Newly elected Hugo Chávez in 1998, four years after his pardon by outgoing president, Rafael Caldera (right). Chávez was inaugurated on February 2, 1999.
Fidel Castro receives Hugo Chávez shortly after the latter’s pardon by President Rafael Caldera.

Illusions and Picaresque

Richard Barnes

Carlos André Pérez is usually known as the Venezuelan president who, in the early ’90s, sought to apply some sound economic policies on the country and steer it away from her headlong rush into Socialism. However, his attempts were clumsy, sudden, and, at the time, gave the concept of free markets a bad name in Venezuela. His approach caused large riots and even Hugo Chavez’s attempted coup in 1992. 

What is less remembered is his first term in the late 1970’s whereby he expropriated the iron and petroleum industries and plunged Venezuela further into the Socialism that alarmed him a mere decade later.

Shortly after his first inauguration in 1974, I walked into an elevator in Ciudad Guayana and saw someone standing at the buttons asking “qué piso?” I thought he was joking. But no, he was one of thousands who now were “employed” thanks to a presidential decree which compelled building managers/owners to install a flesh and blood “operator” in each elevator which, up to then, was perfectly controlled by a mere push of a button with the floor’s number inscribed. 

With one “presidential decree” we were all thrust to the 1935 Waldorf Astoria, sans the luxury, with uniformed elevator operators handling the controls, only these controls were push button automatic, not manual.

It “looked good” in the sense of, “Wow! Look at all these new jobs!” But an elementary school kid could also see what was not seen: the other jobs or capital improvements that were set aside in order to budget for unneeded elevator push buttoneers.

This is illustrative of how the “seen” does not necessarily reflect reality, but rather an illusion.

A few years ago, McKinsey & Company, the well-known and highly regarded global consulting firm, published a paper, Where Will Latin America’s Growth Come From?, which delved into the reasons why seeming economic growth in that massive and resource-rich continent was actually an illusion, or at most, was less than met the eye.

One of several disquieting indices is that Latin America (Mexico, Central and South America, and the Caribbean) whose sovereignty exceeds 13% of the earth’s area, constitutes a mere 7% of the world’s Gross Domestic Product (GDP). The comparable figures for The United States are 6% and 15%, respectively, an almost perfectly inverse relationship: half the sovereignty and double the GDP.

In addition, there is little if any measurable economic growth in Latin America. While global annual growth averaged 3.5% in the last three years, Latin America’s averaged 1%.

For the most part, McKinsey’s conclusions and recommendations are rather predictable, not to say pedestrian.

For example, the report criticizes the weak enforcement of “stringent regulations”. Which is it: weak enforcement, or stringent regulations? Why not take the more politically incorrect position of recommending the lifting of Latin America’s sclerotic regulatory empires?

McKinsey rightly, but inconsistently, criticizes the monstrous labor laws that make it very difficult for employers, and employees, to act freely, whether this means firings or re-assignments. 

And here is an eye-opener: 

“Service sectors, too, suffer from poorly enforced regulations that encourage informality and therefore constrain productivity growth. Informality arises as many firms have strong incentives to avoid becoming formal because of high taxes, poor auditing capabilities, and low levels of sanctions. Inefficient informal players stay in business and prevent more productive, formal companies from gaining market share, constraining overall productivity. ….the substantial cost advantage that informal companies gain by avoiding taxes and regulations more than offset their low productivity and small scale, and distorts competition. Regulations are therefore needed that reduce the cost of formal employment … and raise the risks of noncompliance (for example, better monitoring and prosecution of informal operations)….” (emphasis mine)

Bravely spoken.

In sum, what McKinsey skates around is that there is an “informal” (underground) economy in Latin America that is not measured and that avoids the implacable obstacles and barriers to business set up by the bureaucratic Latin American regimes. This underground economy is so efficient and pervasive that it depresses the “regulated” economic performance. 

Would it not make more sense then, to imitate and replicate that “informal” economy? To find why it succeeds? To reduce the regulations that ensure it continues unabated? But no, McKinsey recommends tossing a massive wet blanket on that economy and bringing it to heel along with the rest of the slow-moving, molasses of business that operates under “stringent” regulations. 

In other words, “inefficient” informal players hinder more efficient formal ones, according to the report. Could it be that the “informal” players are very efficient? They’ve figured out how to make a living by setting themselves free from the heavy regulatory load imposed by clueless bureaucrats and politicians who believe that forcing the hiring of employees to push elevator buttons will increase employment overall. 

Could it be that such “inefficient” informal players cannot be measured since they are underground, after all?  I wonder what Latin America’s true GDP is. Could McKinsey apply its considerable talent and figure out a way to measure Latin America’s informal (underground) economy and incorporate it to the conventional measurements? 

When it comes to Latin America, I believe the standard measurements are an illusion.

I have utmost respect for McKinsey and such consulting firms in general. Having cut my teeth at Arthur Andersen I do appreciate the hard work and effort required to prepare a report addressing a business entity, let alone a massive region of the world. However, the professions do tend to have conventional views, despite their reputation as beings who know how to “think outside the box.”

But modern consulting firms take far too little account of the folks who, because of circumstances (regulations and obstacles) imposed on them, must either die or learn pretty quickly to live by their wits.

This brings us to the picaresque, whose etymology hearkens to Spain.

We will look at this term and its implications to Latin America next time.

(The McKinsey report has other observations worthy of further discussion. We’ll return to it in future posts.)

Manual controls: when elevator operators were needed.
In 1974, pursuant to a presidential decree, elevators in Venezuela henceforth had to be operated by an elevator operator employed to push buttons like the above.
It is not unusual for street vendors such as the above (Quito, Ecuador) to put their children through college selling mangoes. Instead of more regulations to discourage these hard working folks, how about less regulations to encourage them to become “legit”? 

How Socialism Ruined Venezuela

Richard Barnes

Researching for the series on ranchitos, I came across a well-written piece published in 2017 by the Mises Institute, and set it aside for future publication in this blog.

While not “all in” on Austrian economics, I certainly will refer to any publication whose narrative accurately reflects the course of the Venezuela miracle and catastrophe of the 20th and early 21st centuries. 

I vividly recall sometime-heated conversations in the early 1960’s regarding the course that Rómulo Betancourt was taking, although I did not understand the substance of the matters being discussed. I smile when remembering an aged aunt’s utter hatred of Pérez Jimenez and adoration of Betancourt and his party. She was an energetic firecracker and I miss her. My godmother ( Madrina ) was equally fervent for the other major party and just as energetic. 

However, looking back and considering those and subsequent years, one must become aware of the ever-increasing size and power of the state over the lives of Venezuelans, far beyond anything its dictators were ever able to accomplish.

The article below was written by Venezuelans with an expertise in economics. The writing is lively and informative and, aside from a few very small quibbles, trustworthy. The link to the article is below.

Enjoy.

How Socialism Ruined Venezuela, by Rafael Acevedo and Luis B. Cirocco

In order to understand the disaster that is unfolding in Venezuela, we need to journey through the most recent century of our history and look at how our institutions have changed over time. What we will find is that Venezuela once enjoyed relatively high levels of economic freedom, although this occurred under dictatorial regimes.

But, when Venezuela finally embraced democracy, we began to kill economic freedom. This was not all at once, of course. It was a gradual process. But it happened at the expense of the welfare of millions of people.

And, ultimately, the lesson we learned is that socialism never, ever works, no matter what Paul Krugman, or Joseph Stiglitz, or guys in Spain like Pablo Iglesias say.

It was very common during the years we suffered under Hugo Chávez to hear these pundits and economists on TV saying that this time, socialism is being done right. This time, the Venezuelans figured it out.

They were, and are wrong.

On the other hand, there was a time when this country was quite prosperous and wealthy, and for a time Venezuela was even referred to as an “economic miracle” in many books and articles.

However, during those years, out of the five presidents we had, four were dictators and generals of the army. Our civil and political rights were restricted. We didn’t have freedom of the press, for example; we didn’t have universal suffrage. But, while we lived under a dictatorship, we could at least enjoy high levels of economic freedom.

A Brief Economic History of Venezuela

The economic miracle began a century ago, when from 1914 to 1922, Venezuela entered the international oil race. In 1914, Venezuela opened its first oil well. Fortunately, the government did not make the mistake of attempting to manage the oil business, or own the wells. The oil wells were privately owned, and in many cases were owned by private international companies that operated in Venezuela. It wasn’t totally laissez-faire, of course. There were tax incentives and other so-called concessions employed to promote exploration and exploitation of oil. But most industries — including the oil industry — remained privatized.

Moreover, during this period, tax rates in the country were relatively low.

In 1957, the marginal tax rate for individuals was 12 percent. There was certainly a state presence, and the public sector absorbed 20 percent of GDP. But, government spending was used mainly to build the country’s basic infrastructure.

The area of international trade was relatively free as well — and very free compared to today. There were tariffs that were relatively high, but there were no other major barriers to trade such as quotas, anti-dumping laws, or safeguards.

Other economic controls were few as well. There were just a few state-owned companies and virtually no price controls, no rent controls, no interest-rate controls, and no exchange-rate controls.

Of course, we weren’t free from the problems of a central bank, either. In 1939, Venezuela created its own central bank. But, the bank was largely inactive and functioned primarily defending a fixed exchange rate with the US dollar.

Moving Toward More Interventionism

Despite the high levels of economic freedom that existed during those years, government legislation started to chip away at that freedom. Changes included the nationalization of the telephone company, the creation of numerous state-owned companies, and state-owned banks. That happened in 1950 [telephone company was nationalized in 1953]. The Venezuelan government thus began sowing the seeds of destruction, and you can see the continued deterioration in the level of economic freedom in the decade of the 1950s.

In 1958, Venezuela became a democracy when the dictatorship was overthrown. With that came all the usual benefits of democracy such as freedom of the press, universal suffrage, and other civil rights. Unfortunately, these reforms came along with continued destruction of our economic freedom.

The first democratically elected president was Rómulo Betancourt. He was a communist-turned-social democrat. In fact, while he was in exile, he founded the Communist Party in Costa Rica and helped found the Communist Party in Colombia as well. Not surprisingly, as president, he started destroying the economic institutions we had by implementing price controls, rent controls, and other regulations we hadn’t had before. On top of that, he and his allies created a new constitution that was hostile to private property.

In spite of this — or perhaps because of it — Betancourt is almost universally revered in Venezuela as “the father of our democracy.” This remains true even today as Venezuela collapses.

Of course, compared to today, we had far greater economic freedom under Betancourt than we do in today’s Venezuela. But, all of the presidents — with one exception — who came after Betancourt took similar positions and continued to chip away at economic freedom. The only exception was Carlos Andrés Pérez who in his second term attempted some free market reforms. But, he executed these later reforms so badly and haphazardly that markets ended up being blamed for the resulting crises. [Pérez nationalized the oil and iron industries early in his first term (1974-1979). That eventually drove my family from El Pao. Pérez redivivus (1989-1993) attempted to rein in the whirlwind he had unleashed, but to no avail.]

The Rise of Hugo Chávez

Over time, the destruction of economic freedom led to more and more impoverishment and crisis. This in turn set the stage for the rise of a political outsider with a populist message. This, of course, was Hugo Chávez. He was elected in 1998 and promised to replace our light socialism with more radical socialism. This only accelerated the problems we had been facing for decades. Nevertheless, he was able to pass through an even more anti-private-property constitution. Since Chávez’s death in 2013, the attacks on private property have continued, and Chávez’s successor, Nicolás Maduro, promises only more  of the same. Except now, the government is turning toward outright authoritarian socialism, and Maduro is seeking a new constitution in which private property is almost totally abolished, and Maduro will be allowed to remain in power for life.

A Legacy of Poverty

So, what are the results of socialism in Venezuela? Well, we have experienced hyperinflation. We have people eating garbage, schools that do not teach, hospitals that do not heal, long and humiliating lines to buy flour, bread, and basic medicines. We endure the militarization of practically every aspect of life.

The cost of living has skyrocketed in recent years.

Let’s look at the cost of goods in services in terms of a salary earned by a full college professor. In the 1980s, our “full professor” needed to pay almost 15 minutes of his salary to buy one kilogram of beef. Today, in July 2017, our full professor needs to pay the equivalent of 18 hours to buy the same amount of beef. During the 1980s, our full professor needed to pay almost one year’s salary for a new sedan. Today, he must pay the equivalent of 25 years of his salary. In the 1980s, a full professor with his monthly salary could buy 17 basic baskets of essential goods. Today, he can buy just one-quarter of a basic basket.

And what about the value of our money? Well, in March 2007, the largest denomination of paper money in Venezuela was the 100 bolivar bill. With it, you could buy 28 US dollars, 288 eggs, or 56 kilograms of rice. Today, you can buy .01 dollars, 0.2 eggs, and 0.08 kilograms of rice. In July 2017, you need five 100-bolivar bills to buy just one egg.

So, socialism is the cause of the Venezuelan misery. Venezuelans are starving, eating garbage, losing weight. Children are malnourished. Anyone in Venezuela would be happy to eat out of America’s trashcans. It would be considered gourmet.

So, what’s the response of our society? Well, it’s the young people who are leading the fight for freedom in Venezuela in spite of what the current political leaders tell them to do. They don’t want to be called “the opposition.” They are the resistance, in Spanish, “la resistencia.” They are the real heroes of freedom in our country, but the world needs to know that they have often been killed by a tyrannical government, and all members of the resistance are persecuted daily.

This is not surprising. As Venezuelans, our poor understanding of the importance of freedom and free markets has created our current disaster. We Venezuelans never really understood freedom in its broader dimension because when we enjoyed high levels of economic freedom, we allowed the destruction of political and civil rights, and when we finally established a democracy, we allowed the destruction of economic freedom.

But there is reason for hope. Along with the Mises Institute we do believe that a revolution in ideas can really bring a new era to Venezuela. On behalf of the resistance and millions of people in our country, we thank the Mises Institute for this opportunity to briefly tell the full history of Venezuela. 

Thank you very much.

https://mises.org/library/how-socialism-ruined-venezuela