Venezuela's Pride and Protectionism
 |
| The Telegraph |
Venezuela is an oil-rich country yet it's a very poor country. Somebody could go ahead and give every unthinkable reason such as "foreign investments caused it" (a blatant lie) and "It's because America had economic sanctions in Venezuela". Yet, the answer can be found in several causes such as corruption. Yet, China and Vietnam, which can be seen to still have a good amount of corruption, are far more successful. The answer also lies in one policy--economic protectionism. The very idea that a country that first world countries used "protectionism" to succeed is a lie as proven by Venezuela's ongoing crisis.
A common-sense examination of one root cause of Venezuela's continuing crisis
Forbes magazine mentions this in "What Do Investors Need To Understand About Venezuela's Economic Crisis?" by Nathaniel Parish Flannery on December 21, 2016:
Venezuela is far and away the worst-managed economy in the Americas. Advocates of unbridled populism and protectionism should take the time to look at Venezuela (and Brazil and Argentina) as examples of the path best left un-taken. While Argentina and Brazil show some positive signs and appear to be moving into a more positive dynamic in 2017, Venezuela remains the most fraught economy in the region. It is suffering through a double digit recession and triple digit inflation. The IMF estimates that inflation could top 1,600% in 2017. The country's currency, the bolivar, is subject to a non-sensical system of controls. Its black market dollar exchange value has plummeted so much that some vendors now resort to weighing stacks of bills rather than counting them. The country's beleaguered president, Nicolas Maduro, has taken some emergency measures to mitigate the crisis but mostly has proved to be incapable of demonstrating effective leadership. His latest move involves closing Venezuela's border with Colombia and announcing a surprise recall of the country's largest denominated bill, the 100-bolivar note. The decree caused panic among the public and in many cities sparked eruptions of looting and riots. Maduro's plan is to replace the 100-bolivar note with large denomination bills. Unfortunately his big bolivar bills have yet to arrive in Venezuela, further confounding the already problematic situation. To get a sense of the extent of the current crisis I reached out to Michael Baney, a Latin America analyst from Allan & Associates, a boutique political risk consultancy.
Of course, I expect pseudo-intellectuals, anti-elitists, and leftists to simply dismiss the source because Forbes is a capitalist magazine. Populism is a notion that strives to appeal to ordinary people and that their concerns are disregarded by the elite. An irony though since Venezuelan President Nicolas Maduro was shown to have eaten pricey "Salt Bae" steaks. Maduro ate steaks all the while Venezuelans have been eating . Maduro is rather obese (and the same is true for Mao Zedong and Kim Jung Un) while his citizens starve during that 2018 incident. Maduro's poor economic policies caused multiple blackouts. People ended up having long lines to purchase already rotten meat out of desperation. Yet, that meat that will fill their hunger will just cause health problems later on. Meanwhile, one must wonder if Maduro ever finishes the food that Venezuelans will long to eat. In fact, he was even caught sneaking an empanada while he addressed starving citizens. When will people ever see that Communism's so-called populism is nothing more than a sham? Communism has only benefited those in power for a very long time.
It's not even surprising to see that Venezuela's crops rot in spite of the rich oil reserves. Really, what happened? I thought that self-industrialization was their solution to a better economy. I would share an excerpt from Reuters that really makes me shudder and how Donald J. Trump also helped escalate the problem through protectionism:
LA GRITA, Venezuela (Reuters) - With millions of people hungry in Venezuela, acute fuel shortages are forcing farmers to let crops rot in fields or feed them to livestock since they cannot transport food to market during the coronavirus quarantine.
Irrigation systems are halted in the western Andean highlands and laborers cannot get to fields for harvest. The fuel shortages have worsened in recent weeks as Washington has tightened sanctions on the socialist government of President Nicolas Maduro.
Talk about wasted food all the while Maduro dared to eat delicious steaks last 2018. This is a lot of wasted capital. Farmers could've earned a lot of money with their harvests. However, they're forced to give it away for free, use it as livestock feed, or even let it rot. There was a bounty of harvest that could've solved the local food crisis but the fuel shortage wasted it. Trump's bad policy had helped it. However, it's not the sole cause of the crisis as even before it--Venezuela was already a crumbling socialist society with disastrous economic policies.
 |
| NBC News |
Venezuela's food shortage is anything but surprising. The photo above last 2018 already shows how protectionism hasn't done wonders either. The inflation and mass starvation in Venezuela isn't caused by U.S. sanctions. Let's face it Venezuela could've survived if it accepted foreign investments. Instead, its pride and protectionism have led to this grocery with very few choices. NBC News also shares this one which hardly looks like a fault of economic sanctions from the U.S. either:
As Venezuela’s economy crumbles, daily life has become a constant struggle, consisting of waiting in line for food and stretching a minuscule wage that each day buys fewer goods.
The country's monthly minimum wage of 1,307,000 bolÃvars — around $6.03 on the black market — is enough for two cartons of eggs, a kilo (about 2.2 pounds) of cornmeal and a box of pasta, or two liters of milk, four cans of tuna and a loaf of bread.
With extreme food shortages, hunger and malnutrition are on the rise. But even when food is available in stores, the average salary is not enough to feed a family.
Venezuela sits on the world’s largest oil reserve and was once one of Latin America’s wealthiest countries. But as hyperinflation continues to rise to levels not seen anywhere in the world, money loses more and more value.
This would be because of one thing--supply and demand. Venezuela's self-reliant industries can't produce enough food for Venezuelans. Venezuela just shows how the self-industrialized movement doesn't work. Yet, you still have people who say that it does. The prices of goods and services in Venezuela are caused by a scarcity of goods and too many Venezuelans to feed.
The migration crisis that's no surprise
It's really no surprise that according to openDemocracy--Venezuela has an immigration crisis. I don't know if I should compare this to Filipinos flying abroad looking for jobs. Venezuelans have been crossing the borders of Columbia as 95% of Venezuelans live in extreme poverty. Just reading this part of the article made me think about how bad protectionism is really to one's country:
Hunger is one of the main reasons people leave Venezuela. The Venezuelan Finance Observatory, an independent group of economic analysts, said that a shopping basket for a family of four cost 75% more in January 2022 compared to the same period two years ago.
Zairet has first-hand experience of this, saying: “It was almost impossible to buy things like rice, flour and sugar.” Before she finally left Venezuela, she says, she was making a daily journey across the trochas, or illegal crossing points, into the Colombian city of Cucuta, to sell sweets to drivers at the traffic lights. The trochas are notorious; both border guards and criminals extract money and goods from the desperate people crossing over. But Zairet felt she had no choice. In Colombia, basic food items were cheaper than in Venezuela. “If I didn’t go [to Cucuta], then we’d have nothing to eat,” she says. Soaring inflation means that a monthly salary in Venezuela is equivalent to between $1.50 and $4, only enough to buy a carton of a dozen eggs or one or two bags of flour.
Jorge Luis has seen thousands of caminantes pass through Pamplona in the two years since he arrived from Barquisimeto, a city in north-western Venezuela. A middle-aged former traffic policeman, he has taken it upon himself to stand outside the town’s hospital to direct traffic and keep an eye on people’s parked cars in exchange for a few coins. “That’s better than nothing,” he says. Luis also makes it a point to encourage the caminantes. “I speak with a lot of them and try to motivate them, to help them keep going.”
Colombia has been generous to the 1.8 million Venezuelan migrants it hosts, which is equivalent to 32% of all Venezuelan migrants in Latin America, according to the World Bank. In February 2021, president Iván Duque announced a new ten-year Temporary Protection Status (TPS) for Venezuelans already in Colombia. Luis is grateful but says TPS makes him realise he won’t be going home any time soon. He looks at his wife, who is selling hot tinto, sweet black coffee, from a small stand. The coffee’s aroma blends with the exhaust fumes of passing lorries and buses. Tears roll down Luis’s cheeks and his voice cracks as he remembers a Venezuela that no longer exists: “There was democracy in my country once, and I have good memories of those times. We were middle class. I worked for the government and my wife worked as a manager in a bank. We had good lives and didn’t worry about money. We even had two cars.” He adds, despairingly, “It’s like my country has been through a war, and I can’t see it recovering soon.”
Isn't it interesting that hardly do people move away from a free-market country to migrate to a country like Venezuela? Instead, we've got Venezuelans crossing over to Colombia. Colombia may have its problems such as the persistent drug problem. However, the 2022 Index of Economic Freedom reveals that Colombia is still better than Venezuela with these details:
Colombia’s economic freedom score is 65.1, making its economy the 60th freest in the 2022 Index. Colombia is ranked 12th among 32 countries in the Americas region, and its overall score is above the regional and world averages.
Economic growth turned seriously negative in Colombia in 2020 but rebounded in 2021. The five-year average growth rate was only 0.5 percent. A five-year trend of gradually declining economic freedom has intensified. Dragged down by score decreases in property rights and fiscal health, Colombia has recorded a 4.6-point overall loss of economic freedom since 2017 and has fallen from the top of the “Moderately Free” category to the middle. Trade freedom, monetary freedom, and investment freedom are strong, but government integrity and labor freedom exhibit weaknesses.
IMPACT OF COVID-19: As of December 1, 2021, 128,586 deaths had been attributed to the pandemic in Colombia, and the government’s response to the crisis ranked 43rd among the countries included in this Index in terms of its stringency. The economy contracted by 6.8 percent in 2020.
This is also said about Colombia's open markets in spite of problems like drugs and corruption:
Colombia has 15 preferential trade agreements in force. The trade-weighted average tariff rate is 6.8 percent, and 153 nontariff measures are in effect. In general, government policies do not interfere significantly with foreign investment. The financial sector remains resilient. Reforms continue to focus on and promote the development of capital markets by enhancing flexibility and competition.
The 2022 Index of Economic Freedom also says the following about Venezuela:
BACKGROUND
Venezuela’s modern democratic era lasted from the end of military rule in 1959 until the election of Hugo Chávez in 1999. His successor, Nicolás Maduro, completed the destruction of democracy and consolidated the authoritarian dictatorship in 2017. The deeply corrupt socialist regime’s policies have led to one of history’s worst economic depressions and Latin America’s worst migration crises. The regime has also bankrupted state-owned oil company PDVSA and is actively engaged in illicit trafficking. Following international censure of Maduro’s sham 2018 reelection, then-National Assembly head Juan Guaidó became interim president in 2019 in accordance with Venezuela’s constitution, but Maduro still exercises de facto control. Maduro has circumvented U.S. sanctions with the aid of Iran, Russia, and China.
OPEN MARKETS
Venezuela has three preferential trade agreements in force. The trade-weighted average tariff rate is 12.6 percent, and 134 nontariff measures are in effect. Private investment remains hampered by state interference, and hostility to foreign investment, coupled with threats of expropriation, persists. The financial sector is tightly controlled by the state, which often allocates credit based on political expediency.
Venezuela's biggest problem is its poor economic policies that include hostility to foreign investment. Meanwhile, Colombia's ongoing economic reforms may soon help it overcome its drug crisis. Besides, it may be no surprise that crime rates in Venezuela are much higher than that of Colombia. It's because poverty really helps crime breed. People who are starving will do anything to meet their basic needs. That's why illegal recruitments such as leftist groups and drug syndicates usually focus on the poor with the promise of monetary aid. If people are well-employed and there are many job opportunities--there will be fewer abusive employers and more people with valuable money. However, people will be forced to work for abusive employers or even work with crime syndicates when unemployment is at an all-time high. As a Filipino, it's something I've observed why some poor people behave the way they do. Some end up pickpocketing, robbing, and doing late-night thievery to feed their families.
The high cost of Venezuela's pride
The so-called "evil capitalists" have made many countries rich. Singaporean-Indian former United Nations diplomat, Kishore Mahbubani had the right to say that it's a third-world mentality at best to say that foreign investments rape resources and exploit labor. Instead, Mahbubani said that foreign investments bring capital, create jobs, and teach new skills. The late Lee Kuan Yew in his book From Third World to First had even mentioned how the "development economists" of his day taught that multinational corporations were "exploiters". However, Lee Kuan Yew (and his son Lee Hsien Loong) proved otherwise. Venezuelans are paying for the price of the pride of its authorities! Lee Kuan Yew even said these words on Page 56 of From Third World to First:
Our job was to plan the broad economic objectives and the target periods within which to achieve them. We reviewed these plans regularly and adjusted them as new realities changed the outlook. Infrastructure and the training and education of workers to meet the needs of employers had to be planned years in advance. We did not have a group of readymade entrepreneurs such as Hong Kong gained in the Chinese industrialists and bankers who came fleeing from Shanghai, Canton, and other cities when the communists took over. Had we waited for our traders to learn to be industrialists we would have starved. It is absurd for critics to suggest in the 1990s that had we grown our own entrepreneurs, we would have been less at the mercy of the rootless MNCs. Even with the experienced talent Hong Kong received in Chinese refugees, its manufacturing technology level is not in the same class as that of the MNCs in Singapore.
Reading about the power crisis in Venezuela made me think of the two major storms of my life--Ruping and Odette. Fortunately, the Philippines still has a higher economic freedom index than Venezuela. However, by protecting certain sectors from the competition, it has caused problems like slower restoration of electricity after those two storms. I'm fortunate to have the electricity returned last January and repairs have been going on. Meanwhile, blackouts in Venezuela and fuel shortages have caused even more problems. I was fortunate enough not to be eating rotten meat after the aftermath of Odette. However, the Venezuelans have been forced to do so even if a tornado didn't hit them. With this in mind, I believe that signing the Public Services Act of 2022 should actually improve the Philippine economic landscape beyond anything done during the terms of the late Benigno Simeon S. Aquino and outgoing President Rodrigo R. Duterte. As Andrew Masigan of The Philippine Star said, "Better late than never." However, I believe in better never late. Masigan called foreign investments the silver bullet for a weakened economy.
It doesn't take a Ph. D. in economics to understand the basics. As a graduate of the School of Business and Economics of the University of San Carlos--I could still use whatever knowledge I learned during my undergraduate days and graduate school days. Venezuela's problem lies on a supply and demand platform. I would say that Venezuela's pride in such as using import substitution or blocking imports to increase demand for local goods doesn't work. It's common sense when you think that high demand for local goods when the supply is small leads to inflation. I guess the high pride overcomes ones knowledge of basic economics. Printing more money proves itself to devalue the money. Raising salaries while decreasing the prices of goods will not be beneficial. It will only badly backfire because it will force businesses to operate at a loss. A huge price to pay when one clings to their pride. I guess they would rather let their people eat rotten meat than import meat. All the while, Maduro eats fine steaks while his people starve.
Lessons could've been learned from failures such as Mao Zedong's "Great Leap Forward". Mao's plan of self-industrialized China fell down. Yet, leftist groups still adhere to Mao like he's the hero that brought China to prosperity. History has proven it was Deng Xiaoping in his old age that made China go from a third-world country to a first-world country. Although Deng still called his movement a socialist or communist movement--he opened China to foreign investment. Deng saw how the economic zones worked and he decided to pursue more foreign investment. The reformer Do Muoi of Vietnam also did the same economic reform. Vietnam's openness to foreigners had caused it to become another successful Communist country. Mao's Great Leap Forward tried to produce steel and grain through unjust quotas and self-industrialization. The results aren't surprised that they failed. Mao tried to blame the sparrows which caused an ecological imbalance. History is repeating itself in Venezuela though I guess Maduro could care less if he's in power.
Venezuela should be a lesson in that pride. Pride always comes before the fall. Venezuela was once a promising country. Yet, pride had brought it down. That's why I believe Filipinos must swallow their pride and open up the economy to foreign investment. Foreign investment is good as long as there is proper regulation such as labor laws, proper taxation, and the fair competition act. A regulated free market and healthy competition are essential. Foreign investors are welcome as long as they follow rules such as paying taxes and obeying labor laws that local investors are required to follow. Then again some people are still obstinate as ever even after all the facts are given before them, am I right? I guess they haven't really tasted the "success" of Venezuela until they really go there for a vacation or better yet, migrate to Venezuela. They might find themselves crying when they find out that Venezuela's pride brought its fall, after all.
