The Foolishness of Blaming Wealthier Countries Why Your Country Suffers

Washington Times

It's really entertaining (while it can also be frustrating) dealing with economic neanderthals from my own country. Such people operate on what I call "Pinoy Pride Economics", never mind its high socio-economic post (read here). 

I ended up remembering the now-defunct Philippine Anti-Fascist League old page (and the new page is barely getting any views), which I believe is run by a group of Gen-Z brats blaming the USA for Venezuela's plight. I went Googling and found out that six years ago, President Nicolas Maduro showed he might be the champion of blaming other countries for his own country's poverty. 

This incident was a massive blackout that hit Venezuela in 2019. The news from CNN gives this detail why Maduro might win any blame contest if there was one:

As the March outages left the country in the dark, Caracas saw dueling protests by supporters of Maduro and of opposition leader Juan Guaidó, who has been recognized as Venezuela’s interim president by more than 50 countries, including the United States.

Then, as now, Maduro blamed the blackout on hostile attacks, accusing the United States of sabotaging power plants and the electricity grid.

The US denied the charges, and pulled all diplomatic personnel from its embassy in Caracas. Meanwhile, Guaidó and his supporters accused Maduro of mismanaging the income from the country’s massive oil reserves and failing to maintain public infrastructure.

Guaidó repeated such criticisms on Twitter on Monday, calling the recurring blackouts a “latent humanitarian catastrophe” and lambasting “the corruption and incapacity of the regime.”

I could laugh all I want that To Lam ate a gold steak (all the while, cringing over Noodle Bae's imprisonment) or Vietnam Youth Union members having iPhones and MacBooks. Chances are that To Lam requested someone to take his picture by Karl Marx's grave, with a brand new iPhone. I'm not laughing whenever I remember that Maduro ate an expensive steak while his people starved! Vietnam has an abundant food supply for its people, despite being a Socialist state. What about Venezuela? Venezuela operates based on its pride and prejudice (read here). 

What did Maduro do? Rather than take responsibility, he chooses the easy way out by blaming the USA for the nth time. I'm not saying that the USA is so pure and innocent either. Take, for instanc,e the Iraqi War was a disaster that the USA could've avoided. I also didn't like how the USA was meddling with the Philippines during the COVID-19 pandemic. It's because the USA was actually doing terribly with COVID-19 responses, compared to the neighboring Asian countries of the Philippines!

Think about Venezuela's lousy state industrialization, is also responsible for its failure. The Economics Observatory (but I'm now mentally prepared for people who'll just call it "evil capitalist propaganda") reveals these findings:

Before the collapse (1999 to 2013): bad macroeconomic policy

Presidents Hugo Chavez (1999-2013) and Nicolas Maduro (2013-present) implemented exactly the wrong kind of macroeconomic policy during the 2000s and early 2010s when Venezuela’s economy was booming due to the global commodity ‘supercycle’ – a prolonged period of high and rising prices of grain, metal, oil and gas.

Government spending was deeply pro-cyclical. Instead of saving at least some money for bad times during the good times – as Norway, Saudi Arabia and virtually all other oil exporters have done – the Venezuelan government ran double-digit fiscal deficits as the economy boomed. Government spending far outpaced income from taxes and other revenues.

To finance these unnecessary shortfalls, they raised the external debt sixfold by saddling the state-owned oil company and government with over $100 billion in obligations.

The country also became increasingly reliant on the central bank printing money after gutting its independence, a dangerous monetary policy. A central bank printing money to finance government deficits is highly inflationary. It works as a tax on savings and wages via higher consumer prices, disproportionately affecting the poor.

Government spending during the oil boom was extremely inefficient. Subsidised gasoline in Venezuela was not just the cheapest in the world but often virtually free. This led to an estimated 100,000 barrels of petrol worth over $10 billion per year being smuggled across the border to Brazil and Colombia each day, where it could be resold at a profit.

Electricity subsidies were also vast, leading to losses and underinvestment in the sector. In total, subsidies are estimated to have cost over 10% of GDP in some years, accounting for over half of the fiscal deficits.

At the same time, the all-important oil industry was starved of investment funds and badly mismanaged as technical experts were replaced with political allies. Oil production in fields with high-quality crudes operated by the national oil company, Petróleos de Venezuela, S.A. (PDVSA), fell rapidly.

These losses were masked by production gains in lower-quality fields operated by joint ventures with foreign oil companies. As such, the profits and sustainability of the country’s largest export were undermined, with overall production falling from around three million barrels per day (mbpd) at the turn of the century to 2.3 mbpd before the crisis began in 2014.

Before the collapse (1999 to 2013): bad microeconomic policy

Presidents Chavez and Maduro also championed extremely destructive microeconomic policies. Their governments asserted heavy-handed control over the economy and were overtly hostile to private markets and private property. Government intervention was meant to spread prosperity and lower living costs, but instead it crippled the domestic non-oil economy.

From 1999 onwards, the government expropriated broad swathes of the economy, often without compensation and on national TV broadcasts, crushing business confidence and investment.

Over a thousand firms and several million hectares of land were nationalised in the agriculture, banking, cement, iron, oil, manufacturing, retail and telecommunications sectors. Most of these businesses have closed and those that haven’t closed operate at fractions of their peak output. 

In 2003, Venezuela also imposed capital controls and a byzantine system for foreign currency purchases. There were one or more official exchange rates where the government subsidised dollar purchases and demand vastly outstripped supply, as well as a black market with its own free-floating exchange rate determined by market forces. 

The system was deeply distortionary. An entire industry of non-productive ghost companies cropped up to lobby the government for subsidised dollars (to resell them on the black market for an immediate profit).

At the same time, legitimate value-adding businesses were unable to get reliable access to the foreign currency needed to operate. Many genuine businesses also specialised away from productive activities towards securing cheap dollars. 

Worse yet, the government set prices for thousands of retail goods by decree: from rice and chicken to soap and toilet paper. Price caps were often too low, so producers could not cover their costs, leading to shortages, smuggling and bankruptcies.

The government also capped profits in 2011 and enforced the caps with draconian inventory seizures and jail time for workers and executives. Punitive labour regulations also made firing employees extremely risky, costly and time consuming.

Taken together, this web of anti-market measures hamstrung domestic production, making the country extremely reliant on imports, even for products that Venezuela had previously exported, such as rice. The country also lost an estimated $300 billion to corruption through its foreign currency system and other schemes, which it could have instead saved for periods of lower oil prices. 

The collapse (2014 to the present): denial, emigration and hyperinflation

Oil prices are volatile and when they plummeted from $100 to $40 per barrel in the summer of 2014, Venezuela was drastically unprepared. Due to the aggressively pro-cyclical fiscal policy during the prior decade, the government was highly indebted and did not have meaningful savings. As result, the shock was amplified rather than cushioned.

To continue paying down the $100 billion plus in debt incurred during the boom, the government was forced to cut foreign exchange allocations for imports more aggressively than the fall in export revenues. It was all for nothing, as the country defaulted on its debt a few years later anyway.

As oil prices sagged, Maduro ignored calls to repeal currency, price and profit controls. Instead, he doubled down on intervention. The government continued to assign dollars at subsidised exchange rates to cronies and political allies, even though the country barely had any dollars and could not afford the vastly inefficient system.

Venezuela had become extremely dependent on imports, so when they collapsed from over $80 billion in 2012 to around $10 billion in 2017, the recession became a depression.

Even as GDP contracted for the third and fourth consecutive year (by a colossal 17% in 2016 and 16% in 2017), Maduro refused to rationalise economic policy. The fiscal deficit widened to record levels as taxes and the oil industry collapsed.

Instead of cutting spending, the government began to finance an ever-greater share of the budget with money printing from the central bank. The money supply was regularly expanded by 20-30% per month, pushing Venezuela into a hyperinflationary spiral. 

To maintain inflation-adjusted spending as inflation climbed, the government decided to print more and more local currency to pay for it. As it did so, inflation accelerated even faster in a vicious cycle. Prices rose 50% per month by November 2017, marking the formal start of hyperinflation. 

Over the next four years, as inflation torched what was left of domestic industry, an untold number of businesses were forced to close and millions of Venezuelans left the country. The majority of emigrants went to Chile, Colombia, Peru and the United States, mostly on foot. Estimates suggest that over 7.7 million people have left the country since the start of the crisis.

By the end of the decade, the Venezuelan economy had contracted 61% in per capita terms. This was already the 15th largest economic crisis in modern history and the largest outside war, revolution or state collapse.

The collapse (2019 to the present): sanctions

In 2019, the United States led an international effort to oust Maduro from power after his six-year term expired. The ‘maximum pressure’ campaign involved recognising congressman Juan Guaidó as Venezuela’s legitimate president and imposing sanctions on Venezuela and its national oil company, PDVSA.

The primary sanctions from 2019 froze the country’s assets in the United States and cut it off from the US oil market. These were serious but more significantly, US President Donald Trump imposed secondary sanctions on PDVSA a year later, subjecting any othercountry or company that did business with PDVSA to US sanctions. 

Secondary sanctions cut Venezuela off from formal global oil markets and forced PDVSA to sell its products on the black market to partners that charge high mark-ups in exchange for ‘laundering’ the sanctioned oil.

The impact of these secondary sanctions was immediate. Venezuela’s oil production – which was already down 50% after years of underinvestment – plummeted further. Headline oil production fell from 1,500 thousand barrels per day (kbpd) before primary sanctions to a low of 337 kbpd in June 2020 after secondary sanctions. This has since recovered to 850 kbpd today.

GDP per capita bottomed in 2020 once the economy had contracted 73% from the start of the crisis and has been flat or up slightly on the recovery of the oil sector and emigration.

While sanctions made by the USA are indeed real, the real truth is that Venezuelans aren't moving away, just to avoid the effects of the sanctions. It's because even before the US sanctions, the state of Venezuela was already having bad economic policies. Sure, I'm not to keen on supporting the USA (or any country for that matter blindly), Venezuela 

Unfortunately, the Philippines has people who think like Maduro does, by blaming wealthier countries for the Philippines' lack of progress

Some time ago, I wrote an article saying that the Philippines will never get richer by blaming its richer Asian neighbors. I was laughing while writing that article, because I could remember the typical problem of presidentialism, where blaming others is often key. Blaming the previous administration is often the best way to escape responsibility. What I would want to address, though, is the problem whenever I hear Filipino economic neanderthals also blame the richer Asian neighbors for the Philippines' lack of progress.

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I don't know if I should be laughing or cringing when I think of Flor Contemplacion Crybabies. Those fools have been spreading fake news for 30 years (read here)! Come on, the Singaporean justice system is a lot more accurate than the Philippines! It was also in the 1990s when the Vizconde Massacre case happened. The crime happened in 1991 and the trial only started in 1995. It's sad to hear that Lauro Vizconde died believing in a lie. I don't blame Lauro for believing he had justice. However, looking at how the trial unfolded, Atty. Amelita G. Tolentino (who was a judge back then) even denied the DNA test. A DNA test could've already traced who raped and murdered the late Carmela Vizconde! Why cry out #JusticeForFlor all the while, innocents in the Philippines get accused of a crime they could've never committed! Hubert Jeffry Webb was in the USA when the crime happened, backed up by documents! Flor was convicted based on evidence.

As I talk about the need to learn from Singapore, I get a lot of personal attacks, genetic fallacies, false dilemmas, or, in short, what's often labeled as the "Poor Filipino Logic". One of the worst fallacies done is often the Filipino vs. foreigner false dichotomy (read here). It often bridges with the stupid idea of "Stand by your fellow Filipino, no matter what." That's what plays on whenever Flor Contemplacion Crybabies celebrate Flor's heroism, not just in March, but even during National Historical Month, in August! Seriously, how can schools even allow Buwan ng Wika programs to continue painting Flor as some martyr in Singapore? Even worse, I've heard of some stupid Filipino economic neanderthals, who even blame Singapore for why the Philippines is still poor. An even dumber myth I heard (and it can be disproven) is that the late Ferdinand E. Marcos Sr. made Singapore rich by depositing some of his money there. However, that myth can be disproven when the late Lee Kuan Yew revealed that Marcos attempted to borrow money from Singapore! LKY was smart enough to know that he wouldn't see the money again! I made a mistake in lending money I never had back. LKY probably also had that experience, which was why he knew not to lend Marcos money!

This reminds me of how Makabayan Bloc also has the bad habit of blaming the USA and China for the Philippines' woes. Take this statement by Kabataan Partylist Laguna's blog as an example of blame gaming:

It believes that the Philippines, as a semi-colonial and semi-feudal country, is plagued by a system which allows foreign and big business interests to dominate, while the majority of our countrymen are left poor and hungry. We are living in a society where foreign subservience, peasant landlessness, and rampant corruption are the top three ills. To that end, Kabataan Party-list strives to galvanize the Filipino youth in upholding, protecting, and defending our interests and in harnessing our full potential as a sector.

The statement is what LKY would call "third world mentality". In short, Kabataan Partylist may also be blaming richer countries for the Philippines' lack of progress. That's why whenever Kabataan Partylist makes a statement, I like bringing up the Ho Chi Minh Communist Youth Union aka the Vietnam Youth Union (read here). The Communist Party of Vietnam changed its ways since Doi Moi. The late Nguyen Vanh Lin and the late Nguyen Duy Cong aka Do Muoi, changed the way Vietnam was run. Do Muoi even asked LKY how Vietnam can increase its FDI inflow. Today, Vietnam has become an even better FDI hub than the Philippines (read here). That may explain why the Communist Party of the Philippines sympathizers (as well as its legal fronts) may not have friendly relations with Vietnam!

Can the Philippines blame (insert country) for why the costs of goods and services are high with low value? The answer is no because the Philippines' Filipino First Policy actually discourages badly needed FDI. The Philippines may not prohibit FDI, but the excessive policies are discouraging further FDI (read here). Even worse, you've got people who wish that the government should "nationalize public services" or even "nationalize everything", even when Venezuela serves a a cautionary tale. Instead, they choose to blame the USA for Venezuela's plight. As discussed earlier, Venezuela can never blame the USA for its plight!

Just to say it, blaming others for one's own failures goes nowhere. The Philippines can never get richer doing that. Venezuela has been doing it and failed. China under Mao Zedong and still failed. Mao tried to self-industrialize China and failed (read here). If the Philippines wans to improve, the solution isn't to hate the wealthier countries but learn from them. As Warren Buffett would say it, "Surround yourself with people better than you."