How Not to Run Venezuela
|November 17, 2013||Posted by Fred Foldvary under Editorials|
One of the problems with bad government policy is that interventions breed further interventions, until the economy comes to a crisis. For example, high inflation is followed by price controls, which results in shortages and an absence of goods. The response of the government of Venezuela has been to force sellers to sell at prices below costs, and that makes them shut down. The shop owners are even put in prison, which then stops further private investment.
Venezuela suffers from the curse of natural resources, whereby a government that obtains much of its revenue from the ownership and sale of oil uses the revenue to provide welfare, while its policies stifle growth. Some governments, such as Alaska and Norway, have avoided this curse and used natural resources to build up an endowment fund. But others, such as Nauru and Venezuela, have used the resource revenue for consumption, rather than investing in their economy or allowing the private sector to flourish.
Long ago the royalty of Spain squandered its resources of precious metals stolen from the Aztecs and Incas, and Spain became a weak country that lost its last New-World colonies in a war with the USA, and then fell victim to civil wars. But as the German philosopher Hegel observed, government do not learn from history. The temptation to exploit resources cannot be resisted by the rulers unless the culture is strongly democratic.
Governments that cause shortages and higher prices from their interventions typically blame speculators, hoarders, and lenders. Of course if people see that toilet paper is disappearing from the shelves, they will seek to hoard it. The prime cause is not the hoarding but the interventions into market supply and demand.
The economic disaster in Germany during the Great Depression resulted in the takeover by the Nazis. In many Latin American countries, the failed policies of democracies led to military coups. Venezuela is heading into a crisis, and it will end badly, possibly with economic depression and the end of democracy.
Just as the laws of physics and biology cannot be changed, governments cannot change the laws of economics. Market prices perform a vital role in the economy, and interventions prevent prices from doing their jobs, causing shortages, unemployment, and poverty.
The economic policies that generate prosperity have been known since the French “laissez faire” economists of the 1700s, who prescribed the “impôt unique,” a single tax on land value, with no taxes or arbitrary restrictions on enterprise and trade. Henry George analyzed this policy more thoroughly and launched the global single-tax movement of the late 1800s and early 1900s.
But even though Adam Smith, founder of British classical economics, understood the French economists and wrote that a tax on ground rent is best, the economics profession has failed to follow the logic. Even when special interests corrupted the field, individual economists could have pierced the corporate veil, but instead they succumbed to an anti-land intellectual culture.
The late Cesar Chavez could have been South America’s greatest president and a truly second Bolivar had he followed Georgist rather than socialist doctrines. If he had equalized the benefits of land, including oil resources, by collecting its rent, and removed taxes from production and labor, he would have liberated Venezuela and inspired Latin America to follow him. Instead, by attacking private enterprise and then mopping up with greater interventions, he and his successor are driving the country’s economy into ruin, despite its great oil wealth. Matilda would today run away from Venezuela rather than into it.
Followers of Henry George call it “seeing the cat” when a person achieves an understanding of the economics of progress and poverty. The opposition parties in Venezuela too have not seen the cat, and so could not provide a viable alternative to oil-funded welfare.
A few revolutionaries did glimpse the cat. The revolutions in Mexico and Russia had the slogan, “land and liberty!” But they only saw the whiskers, not the full cat. Only a tiny few people see the cat today. Many people are aware of the plundering of the planet, but democracy fails to stop it. I have written before that “ignorance, apathy, and greed” are at the core of the failed human condition. And nobody knows how this can be overcome.