Neoliberalism's Way-Venezuela's Right Choice?

 

Amidst a turbulent economic climate, Venezuela faces a significant funding gap of US$ 17.670 million for essential public services. Additionally, substantial capital expenditure is required to bolster the country's energy infrastructure, encompassing the oil, electricity, and hydropower sectors.

 

Venezuela's current political climate, characterized by limited democratic participation, presents a challenge determination of what economic policies to follow. While the country grapples with the erosion of institutions, rising inequality, and capital concentration, the Venezuelan opposition is debating its economic approach. This debate centers on two main options:

 

1.     Neoliberalism: This entails market liberalization, reduced government intervention, and privatization of state-owned assets.

2.     State Capitalism with Neoliberal Features: This model would involve a more prominent role for the state in the economy, alongside some market-oriented reforms.

 

The Venezuelan opposition views the International Monetary Fund (IMF) and the World Bank, multilateral financial institutions, as potential partners in achieving macroeconomic stabilization. These institutions could offer development loans and provide guidance on fiscal, trade, investment, and labor policies.

 

The loan conditions likely stipulate a reduction in state control over the economy, manifested through decentralization of power and streamlined business regulations. This would pave the way for increased trade openness, characterized by minimal tariff barriers facilitating the free flow of goods and capital across national borders. Additionally, the terms might advocate for a tax shift, lowering business taxes while potentially raising consumption taxes. This approach could lead to a rationalization of the public sector workforce, potentially resulting in a leaner social safety net encompassing social security, education, and healthcare.

 

There appears to be a contradiction within the Venezuelan opposition's economic stance. While they advocate for free-market principles, neoliberalism itself depends on a capable state to establish and enforce market-oriented institutions and regulations as professor Jon Kofas stated in his book: Neoliberalism, Inequality, And Authoritarianism.

 

Furthermore, the proposal to weaken the state structure to empower the private sector raises concerns. A private sector reliant on substantial government handouts, even in the form of reduced regulations and privatized services, might struggle to achieve long-term sustainable growth.

This approach could also lead to practices associated with crony capitalism, such as corporate welfare, bailouts, and the prioritization of corporate interests in domestic and foreign policy decisions.

 

An economic development plan opposed to domestic deregulation and international trade liberalization can create an environment conducive to fostering nascent domestic capitalism through import substitution industrialization (ISI). The initial phase will involve establishing a robust industrial base, communication infrastructure, and a well-developed education system.

 

To attract foreign direct investment (FDI) and foreign capital, streamlining bureaucratic procedures and establishing a clear legal framework are crucial. However, the core of the industrial structure should be a strong domestic foundation comprised of a significant number of small and medium-sized enterprises (SMEs). These SMEs can be nurtured through government subsidies and facilitated access to bank credit.

 

The plan outlines a land reform initiative that promotes the transition from state-owned land to private ownership by smallholder farmers. This aims to incentivize agricultural production and increase overall output. However, it's crucial to couple this with support programs for these new landowners.

 

While import substitution industrialization (ISI) can be a driver of initial industrialization, strict economic regulations can hinder long-term growth. A more balanced approach might involve promoting agricultural productivity alongside trade liberalization and investment in human capital.

 

Attracting foreign direct investment (FDI) from multinational corporations (MNCs) can play a role in fostering a skilled labor force through technology transfer and knowledge sharing. This can contribute to a more competitive domestic industry in the long run.

 

The plan should prioritize establishing a credible and stable national currency. This can be complemented by financial instruments such as concessional loans to stimulate economic activity.

 

Professor Jon Kofas highlights the contrasting approaches taken towards post-war economic development. Countries like Western Europe, Japan, South Korea, and Taiwan pursued developmentalist policies with a focus on import substitution. This strategy aimed to build domestic industries and reduce reliance on imports. In contrast, many developing nations in Latin America and Africa undertook structural adjustment programs encouraged by the IMF and World Bank. These programs often emphasized macroeconomic stabilization, trade liberalization, and reduced government intervention.

 

Kofas argues that the United States provided greater financial assistance for reconstruction and industrialization to some countries, like those in Western Europe and East Asia, compared to others in Latin America and Africa. This difference may have influenced their economic development paths.

 

It's important to note that the IMF and World Bank's policies have evolved over time, and the extent to which they prioritized austerity measures can vary by country and circumstance. Additionally, the relationship between military spending and economic development is complex.

Poor Rich Countries

‘And do you think that we should lay the country’s destiny on my perception?’ Marcio asked, ironically. ‘To redefine your national plan.’
‘It seems that my plan doesn’t sort out the real problem,’ said Raul Menendez.
‘Well, we have inherited all the chaos created by Orallez,’ commented Nuria.
‘I’m completely aware of you are in the spot. You need to unload the government’s finances of the burden of the bulged red-tape. But if you throw onto the streets all those people, so you will create a major problem if they don’t have where to go. And if you instrument a plan for the private sector to absorb them, so the economic factors tell you not to intervene in the economy.’
‘These jerks like the American system, but they don’t learn from them. There you see that the government now watches and put its hand on the economy,’ told Raul Menendez. (1)

It is a paradox –a complex one– of being rich, or a potential one, but being actually poor. This condition brings us into memory the title of the book: "Father rich Son poor". And also, the idea makes us think this: the head of the family did not instruct his descendants with the secrets of how he had made and kept his fortune. But, this is not the case to which I attributed the title to this article. When I had sat down to write this piece I did with my mind on those countries –especially the Latin American ones- whose potentiality is limitless owing to the fact of having a considerable wealth in natural resources, but they are those which terribly face serious hardships in their economies and societies.

In spite of having a considerable potential wealth by their innumerable natural resources –some of them are worth in the international markets enabling some countries have their gross income coming from exporting one or two of those resources; these haven't able to develop their economies and their societies which face extreme poverty, rather misery.

Before this dramatic reality, these countries -through the last century- adopted several rules and even radical changes in the economic model to vary this awful condition of underdevelopment in an attempt to grant prosperity to societies. So, we have the postulates of Cepal that orientated –in the fifties- the economic model through the substitution of imports for national production forcing the process of industrialization in the countries, which had to eliminate the barriers that impeded industrialization in the sixties; the same ones that in the seventies looked for diversifying their capacity of exporting and to bring equalization into their society. However, in the sixties and seventies, some countries did not adopted these principles issued by Cepal, and they opted to change their economic model by switching from their particular capitalism into socialism and even communism.

After the evident failure of the postulates of Cepal, some countries adopted the tendencies of the moment that was neo-liberalism in the nineties, so that they applied an adjusting program to their economies (which it had had an impressive success at macro level but with a big social cost). So, the majority of them abandoned their programs and shunned neo-liberalism. Then, they went back into retrospective tendency labelled now as New Socialism or Socialism of Twenty Century, which is not defined and have elements of socialism, but in practice it is a sort of neo-liberalism exercised by the State.
Obviously, as in the past, this brings as consequence debacle and entanglement of economies.

 ‘And what do I have to do?’ The president demanded.
‘It is hard. You have to change Venezuelan mentality. Before coming along oil, this country was physiocratic. I mean our growth was defined by agricultural production. So the Venezuelan was not used to the concept that work created value. His idea of his yielding was the outcome of his work. And all of a sudden, we have an industry where is introduced the terms of productivity and revenue. Then, we talk about a lucrative economy, but we still thought as a physocratic one. So we have the concept of rentable and lucrative in conflict. Our system works thanks to the state’s intervention. In some period –according to the government’s vision, the state has become almighty. And this happens when all the powers concentrated in the government’s hands at the time. So the habitants of this country perceive that their economic future or activity is tied to the state’s structure. And, in order to have a position in the system –I mean a profitable one, or to keep their fortune is a key factor to be linked with the state.’(1)


What the governors nor the voters have considered is the real reason of their underdevelopment, which it is the disassociation of wealth with work and it comes since the Conquest.In these countries, especially the Latin American ones, where there was no colonization just conquest –and it differs from one to another, are those in situation of underdevelopment.The colonist is a man along with his family who has settled down in a new land to work on it to create better conditions or a new way of living that he does not enjoy in his own country.

The conquer is the man who has come to the new land looking for wealth, and he is in search of treasures to be a lord, because in the Spain then work was despised and this disqualified a man in the social rank, so to be in the Court nobody could live from the work of their own hands.This kind of man was who set foot on the Latin American land. And, he did not come with the idea of work and equality. So they embarked themselves on the adventures that led them to treasures, and they left work to aborigines who did not understand what work was like, because they lived off hunting and fishing –activities that were not paid and without scheme.

As the aborigine could not stand the burden of the daily labour the slaves were brought, who associated work with curse since for them work was slavery -which was not paid off and restrained their freedom.

The solution to their underdevelopment condition is not the adoption of an economic model –sometimes divorced from their culture heritage. It is just the change of attitude of their society.

They have to modify their conduct pattern, which have been based so far in that character of the Spanish literature: el picaro, who ideated the most astute things for not working and considered the government as a great loot which has to be taken by assault.

Once these countries have societies with a high appreciation of that through work comes wealth –and not matter the kind as long as this is a legal one- and politicians whose ideas convey development and honesty, their society will evolve from poverty into prosperity.

 (1) Excerpts from Through Existences by Oliver Frances