October 23, 2009

Killing capital

Quico says: Hernando de Soto's conception of "dead capital" is one of the genuinely intriguing ideas spawned by the development literature in recent years. For de Soto, the problem facing the third-world poor is not just that they own too little, but that the things they do own are economically "dead."

In the absence of clear titles, the shanty where you live or the buhonero stall you sell from can't be used as collateral, or rented, or even sold. Because it can't do any of those things, it doesn't earn you an "in" into the formal financial system like the capital of the middle class or the rich. It's yours only in the sense that you can use it, nothing more.

But capital is much more than just the right to use the things that belong to you: it's the right to leverage them as tools for your economic empowerment and advancement.

Dead capital is the capital of the unfree.

What de Soto is getting at is an old idea in economics: that property is about more than just possession. Capitalism can only work when ownership carries with it a set of rights that include your ability to transact what you own, to borrow against it, to rent it or subdivide it or otherwise leverage it into a tool for attaining your goals. A major reason that the poor find themselves trapped in poverty, in this analysis, is that their property rights are partial and tenuous: they exclude many of the key features that turn mere stuff into living, breathing capital.

The debate in Venezuela's public sphere has too often missed this distinction between "property" and "property rights." Earnest chavistas have often pilloried the opposition for scaremongering, putting down their 2007 referendum defeat to a successful opposition scare campaign to convince people that the government was going to literally disposses them: kick them out of their ranchos or move cubans into their apartments.

"Nationalization is about the means of production," they'll argue, "about factories and farms and banks...not about people's houses!"

And while fears of reds knocking down your door may indeed be overblown, what can no longer be doubted is that even if chavismo won't take away your property, it sure is eager to truncate your property rights. They may let you keep your stuff, but your ability to dispose of the things you own in the way you judge most likely to bring your family prosperity is being aggressively fenced in.

This is the real story of Official Gazette No. 39,272. Without having to expropriate anybody outright, the Gazette truncates hundreds of thousands of caraqueños' property rights, eroding their ability to leverage their belongings into tools for their own economic empowerment.

What we have here is a kind of capital massacre: the willy-nilly deadening of a massive store of previously living capital. The second your apartment is designated a "historically protected site" it takes a massive step from the category of capital to mere belonging.

When historic-site status is conferred on entire swathes of Caracas at one go, what we're seeing is the indiscriminate degradation of thousands upon thousands of families' rights to dispose of what belongs to them as they see fit, and all for the most tenuous of public-interest reasons. The government kills capital, apparently, for fun.

"Well, of course they do," you may be tempted to say, "they're communists: railing against capitalism is their whole thing."

But that's not right either. Marxism, for all its faults, at least offers a coherent response to the question of how to generate investment in a post-capitalist order. By socializing the ownership of the means of production, the workers' revolutionary state itself acquires the tools to leverage the society's material base into a (hoped-for) better standard of living for everyone. You don't have to agree that this is a good or even a feasible solution to recognize it as, at least, a solution: a serious, internally consistent stab at explaining how to bring prosperity in the absence of individual property rights.

The problem is that chavismo fails to rise to the threshold of intellectual seriousness Marxism sets out. In Venezuela the state is eroding individual citizens' rights to leverage their property into capital without proposing any coherent alternative.

Rather than nationalizing all industry and accepting responsibility for the management of society's productive processes, the state has created a thicket of stifling regulations instead. Those regulations keep a truncated version of ownership in private hands while at the same time preventing private owners from doing the things capitalists normally do for society's welfare: invest, produce, grow and generate jobs.

They wash not, and yet they refuse to lend out the wash basin.

In Venezuela, capital is not being socialized; it's being hunted for sport.

October 22, 2009

Our future at fire-sale prices

Juan Cristóbal says: - Not content with issuing debt to finance capital flight, as they did a few weeks ago, the Chávez administration recently announced a new round of debt to finance even more capital flight, this time backed by the third-world thrift store that is PDVSA. One small problem stood in its way: not enough buyers.

Investing in Venezuela is way too risky even if you earn an infinity rate of return.

So what does the government do? Why, sweeten the debt emission deal, of course!

Yesterday, PDVSA said they would not change the conditions. The Central Bank chief parroted that line. But since they have no credibility to save any more, today they did the exact opposite and announced a heavily edulcorated new set of incentives to get people to buy their bonds.

The new rules exempt the interest earned from holding the government's debt from taxes. With this measure, the government ups the ante: not only is it encouraging you to take you capital abroad, it's actually paying you to do so.

The rules also say that holdings of these Boli-delicious, guapo-doble-con-queso bonds will not count toward bank holdings of foreign currency. As you may recall, a few months ago the government decreed to place a limit on the percentage of their capital Venezuelan banks could keep in foreign currencies. This caused a lot of scrambling among bankers who, wouldn't you know, held a lot of foreign currency.

Well, in a reversal, banks can now hold these PDVSA dollar bonds and not have it count. And bankers who buy the bonds will be eligible for a free weekend at the Margarita Hilton ...

Apparently, the constant threat of nationalization wasn't enough to keep them on their toes. Now the government has to sweet-talk the banks into buying their debt.

But that's how it is. We've gone to this proverbial well so many times, nobody wants to lend to us any more. Cuz you know the government's finances are in desperate shape when it has trouble pimping its papers to the Victor Vargases and Arne Chacons of the world.

What El Sistema teaches us about social policy

Juan Cristóbal says: - The well-deserved, near-universal praise heaped on Venezuela's Youth Orchestra Program ("El Sistema") is a source of pride for all Venezuelans. And yet, reading the latest article to sing its praises, this time courtesy of The Toronto Star, I was left wondering: what is it about El Sistema that makes it so succesful?

Simple. It's José Antonio Abreu.

Of course, Abreu is mortal, and we would be selling the program short if we were to place its success on his shoulders, condemning it to oblivion once he is not there anymore. It's the parents, the musicians, the government - they all keep the train humming along.

But through it all, the fact is that Abreu has been persistent, leading the ship since the mid-70s.

It's hard to imagine El Sistema having this kind of impact without someone there, day in and day out, with a vision, navigating the perilous waters of political turmoil, oil-price shocks and a society that is, at times, at war with itself.

Abreu never set out to make this program for political gain. He doesn't appear to have wanted it as publicity, or to gain fame, or to boast in international forums. In his own words, "those of us who have been involved from the start were never really aware of what we were doing."

All he set out to do was create orchestras.

That concentrated focus has, almost miraculously, allowed him to gain the favor of governments left and right. He has sold his foundation as a Venezuelan institution, and has worked to resist being framed by either side in the current political squabbles. He has involved the communities, the parents and the local authorities, making them all have a stake in the outcome.

El Sistema could only work because of what it is not: a government program. Although the government supplies much of the funding, and the current administration has shamelessly tried to appropriate the fruits of their labor, El Sistema is not the product of the State.

It's the product of a single man's vision and the tireless work of hundreds of thousands of ordinary Venezuelans. It is not the fruit of some politician's imagination. It is not a three-headed bureaucracy run by a random army general who is replaced every six months. It's not a cash-distribution scheme concocted on the fly to help win an election.

This isn't to say that government social programs can't work. They can, and do. It's government programs run by the Venezuelan state which have proven to be ineffective and inefficient. They could be made to work, as long as they learn some lessons from successful experiences such as El Sistema.

Think about it:
  • clarity of vision,
  • persistence and permanence of its leadership,
  • resistance to using the program as something it is not intended to be,
  • positioning of the program above day-to-day politics,
  • minimizing of direct State involvement,
  • involvement of the community no matter what their political views.
All those things make El Sistema work. All those things are lacking in Venezuela's Misiones. Is it any wonder The Toronto Star is not raving about Misión Ribas?

With no electricity, nobody can hear your cadenas

Juan Cristóbal says: - The two short videos are fascinating. In a few short minutes, you can see Chávez the deranged (hiring "planes" to bomb the clouds and create rain), Chávez the amusing (telling people three minutes are more than enough for showering, saying that's what he does, "and I don't stink"), Chávez the authoritarian ("why do people need hot water? why do they need jacuzzis?"), and Chávez the loose-tongued, Freudian-slip communist ("what kind of communism are we building here?").

My apologies, but they are in Spanish only.

The stuff about the showers, in particular, is another manifestation of a tendency we don't talk about enough: for Chávez, Venezuela's problems are Venezuelans' fault. They have nothing to do with him.

No food in store shelves? You're all shopping too much. No electricity? You bunch of wasteful pricks. No water? Get out of your jacuzzis! No dollars? Stop drinking Scotch and we might come up with some.

It used to be his Ministers' fault, or the IVth Republic's, or the Empire's. But those scapegoats doesn't seem to be working anymore.

Now, it's all your fault ... yours, and the weather's!

October 21, 2009

Your apartment is their heritage









October 20, 2009

Evita G. officially loses it...

Quico says: Read this and tell me Eva Golinger hasn't lost her marbles completely.

I can't even piece together what the specific offense she's accusing MM of was in the first place. Seriously!

October 19, 2009

No good, two-timin' SOB...

Quico says: OK, I admit it: I haven't been posting very much recently cuz I've been...gasp...two-timin' this blog!

The shame!

The other blog project is, erm...a lot different.

The final frontier

Juan Cristóbal says: - Loyal reader Kepler has a post on his blog about Amazonas state. It's well worth a read, if anything for the links and the work he has put in mapping demographic and political trends in the state (inasmuch as there can be "trends" in a crimson-red state such as this).