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.

America's Downfall

Before making an analysis of America’s downfall, I can sum up in this phrase: “free lunch for the poor, and taxes for the rich.” It resumes the idea of an interventionist and statist state, which under the premise of looking for welfare of its citizens distorts all the economic apparatus. 

America is being blood feed by Welfare State, where immigrants are no longer settlers, and these new incomers are looking for easy benefits granted by the State, and haven’t immigrated to come true the American dream. For this reason, it explains the fact of that seven out of ten Latin American voted for Obama in the 2012 election.

So, in part, the American dream of hard work and economic success have been replaced with Welfare State. Then, what America is cultivating for the future is people who repudiate work and are dissociated with the idea of work as generator of wealth.

Besides, America is sunk in higher taxes which affect profoundly income with distortion, the Government’s expenditure has no limits as the public debt, the Federal Reserve’s monetary police is based in huge expansion; and, on top of all this, there are numberless regulations for the free initiative, then companies and firms are strangled which prevents their expansion and curbs the new creation of employs.To evidence this, American government decides the number of the employer that companies or firms can have in their payrolls, and determines the kind of jobs that companies and firms can create according to the government’s regulations.

In conclusion, the government is the agent who set barriers to the companies and firms to produce, and it is the one element against work. So if an state doesn’t generate wealth through production, then this seeks it through high taxes and the issue of inorganic money through deficit. One consequence of this is that the high class, who are the owner of means of production, begins the search of stability and friendly financial conditions in other countries, because the stuck of the economy can lead to social disturbances.

To prevent America’s downfall is needed to unhook the American citizens from the magical thought that has impoverished the Latin American nations, and return to the former principles: hard work, economic success mirrored in the market, and no government’s intervention. 

In case that a Democratic candidate gains the presidential elections, then the American have a secure passage to the path of turning United States of America into United States of Latin American, so another hellhole country.

The Answer Lingers in Productivity

Nowadays some people argue on the reason for the critical situation of Europe in its economy, meanwhile others turn to study the factors that originated all this crisis in order to comprehend the chaotic economic condition.

An analyst having a reasonable level of intellect shouldn’t cast doubt over any other reason than the one linked to productivity, which turns to be uneven among the members of European Community. Before delving into the subject, it should be defined productivity as concept firstly.

Productivity by Alexander J. Field, The Concise Encyclopedia of Economics, gives this example if your bakery business buys flour and yeast, rents a shop and equipment, and pays for fuel, its contribution to GDP is not the sales price of the bread made, but the difference between gross revenues and purchased materials and services except hired labor. Your firm’s output is what you and your employees have added to the value of the materials and services purchased from other firms. He adds if you discover a way to rearrange your labor force and equipment so that production is more efficient, or discover a great new recipe for a loaf that is equally tasty but costs you less to bake, multifactor productivity in your firm may go up, increasing your output (value added) per hour even in the absence of any capital deepening.

Obviously this bakery would operate very different in any country member of the European Community. This is a revealing example the reason for the chaos that has been created.

According to Wikipedia, Productivity is a measure of the efficiency of production. Here it is possible to highlight that what determines the efficiency of production is human capital, and -some will argue that this is a key factor but not the only one- there could be others like technology.

However, this argument is refutable on terms of that it is not only the accessibility of the existent technology that a country whether might have or not; despite having a very high degree of technology but what determines its efficiency is the use of this and, there human capital comes along.

Wikipedia also says that Productivity is a ratio of what is produced to what is required to produce it. In Productivity by Alexander J. Field, The Concise Encyclopedia of Economics, the growth of productivity –output per unit of input- is the fundamental determinant of the growth of a country’s material standard of living.

This concept discloses the importance of labour productivity –which offers a dynamic measure of economic growth, competitiveness, and living standards. So if the labour productivity is rather variable from one country to another, no analyst or economist could expect to have the same indexes in both economies. One of the both will show clearly any increase or decrease in their numbers comparing with the other.

Here, two questions come along. If economies present enormous differences in their labour productivity how can these come together as one country in a community of members and even how could these countries associate them in a non-commercial barriers trade?

It is studied that human and social capitals together with competition have a significant impact on productivity growth. One paramount factor that exercises a determinant influence on human capital is culture –values and concepts with which a man is brought up, and which varies from one country to another. A relative example of disparate concepts from one country to another in Europe is the vision on work. For European southern countries this is appreciated as curse meanwhile for European northern ones work is the medium to create wealth and, therefore bring as result an increase in the growth of a country’s material standard of living.

In fact, we can find that EU’s GDP is shrinking as a proportion of world GDP. A deeper integration brings as consequence less competition among the member states, so the benefit is higher taxes and more regulation.

Therefore, it could be stated that for better job opportunities and higher quality education are need to improve labour productivity and boost growth, besides if the countries of a community don’t have the same vision about how wealth is created and their productivity index is uneven between them their union will have some countries bearing the burden of the less productive members and bringing chaos into their economies, plus don’t give any chance to those countries already in chaotic conditions take some rules on their own