TCS Daily

When 'the Future Was in Venezuela'

By Carlos Ball - June 9, 2005 12:00 AM

MIAMI -- I first visited Miami with my parents in the early 1950s. Actually, we went to Miami Beach since Miami was then a small, backwater town, with little more than the airport and a fine conservative newspaper, The Miami News... long gone!

Miami has been built mostly by Cubans, Colombians, Mexicans, Central Americans, and other Latin immigrants of the 60s, 70s, and 80s. Many of them arrived without a penny, but were able to accomplish in this country what had been denied to them at home.


The Venezuela of my youth could not have been more different from what the country has become. In the 1950s there was more U.S. investment in Venezuela than in the rest of Latin America combined. By 1958, we had an income per capita equivalent to 76% of the U.S. per capita income, which placed Venezuela ahead of many European countries.

Not unlike Hong Kong later on, Venezuela in the 1950s had lots of immigrants, little political freedom, and great economic growth.


The Spanish Civil War, the Nazis, and the Second World War provoked a Diaspora of many nationalities from Central and Southern Europe. The prosperity of countries like Cuba and Venezuela was greatly enhanced by the immigration of hard-working people that soon felt very much at home in Latin America. In the 50s, quite a few of my schoolmates in Caracas were Italian, Portuguese, Spanish and from Eastern Europe. Many of the foreign engineers and executives working for the international oil companies stayed on after their retirement because Caracas was then a beautiful modern city, with a great Spring-like climate year around, hardly any crime, and low taxes. Only the climate and the beauty of Venezuelan ladies have not been destroyed by socialism.


When I graduated from an American college in 1962, I had several job offers from U.S. companies to stay here. I didnt take them seriously because the future was in Venezuela.


But he last time I was in Caracas, the European consulates were filled with the children and grandchildren of former immigrants wanting to go back to their old countries. In Uruguay, Venezuela, and Argentina, the drop in living conditions have been disgraceful. And in countries such as Brazil, Bolivia, Peru, Ecuador, and Paraguay, the apparent take-off of the 1990s didnt go very far.


In the 1960s and 70s most of the old Latin American military regimes were replaced by democracies. It was a time of great optimism and hope. After more than a century of life as independent nations, we finally had a chance to elect our governments. Unfortunately, most of our intellectuals and politicians were socialists that became strong followers of the nationalist dogma and social engineering then dictated by the U.N. Economic Commission for Latin America.


Even the U.S. Alliance for Progress, which replaced President Roosevelts Good Neighbor Policy, prescribed that foreign aid depended on tax increases by the local governments, very much what the International Monetary Fund keeps on pushing even today.


Practically all political parties, including the Mexican PRI, Venezuelas Acción Democrática, Chiles Christian Democrats and Argentinas peronistas strongly supported the so-called dependency theory enunciated by the Argentinean economist Raúl Presbich and the Brazilian sociologist Fernando Cardoso. It maintained that Latin America was poor because of unfair terms of trade: it exported cheap raw materials while importing expensive finished products from the U.S. and other rich countries. Their development strategy was economic nationalism, import substitution, government subsidies, and tariff protection for national industries.


Politicians everywhere pretend to ignore that a tariff is a tax on their own people. Since key positions in the multilateral agencies are usually filled by recycling former politicians and bureaucrats, high tariffs, import quotas, exchange controls, and periodic devaluations of the currency had the blessing of those international institutions.


Latin American businessmen quickly learned that success had little to do with serving the consumer and a lot with pleasing the authorities in charge of setting tariffs and prices, distributing subsidies, and running the development banks. In Venezuela, the 12 wealthy businessmen closest to President Carlos Andrés Pérez were nicknamed the 12 apostles. And through the hemisphere, innovation and technology became of little importance compared to having access and friends in the right places.


A very significant difference that is not often understood by analysts and even historians is that the old Latin American military regimes, as bad as some of them were, had no particular interest in economic affairs, and thus tended to be much less harmful to our national economies than the new leftist democratic governments.


The businessmen of my fathers generation fought hard to balance the excessive power of military governments, and since those generals were not too concerned with the economy, the central bank was run by private bankers, and Venezuela suffered no inflation because under the gold standard the bolívar was worth exactly one gram of gold from 1879 until 1961. But in the 70s, a Social Democrat administration politicized the central bank and nationalized the oil industry, two key economic decisions that started the slippery slope towards Chávez: the bolvar has been devalued 77,000% and total economic power now rests in the hands of politicians and bureaucrats.


Im using Venezuelas recent history to describe Latin American decadence because similar tragedies took place all over the hemisphere. Argentina, for example, erased 17 zeroes of its currency between 1971 and 1991.


We know that protectionism kills efficiency and hurts the poor. With political and economic power concentrated in the same hands, governments grew incredibly fat. Politicians soon decided that the so-called basic and strategic industries had to be run by the government. Those included not only oil, minerals, banking, telephones, and fisheries but also airlines and hotels. By 1982, the Mexican government owned more than a thousand corporations and in practically every Latin country corruption and black markets became a way of survival, unless you wanted to wait 2 or 3 years to have a telephone in your new house or office.


The justification for these policies was economic growth and a higher standard of living for the population, but exactly the opposite took place, and the middle class was devastated during what Mario Vargas Llosa has called the lost decade of the 1980s, when capital flight in Latin America reached some $92 billion.


The 90s brought the neoliberal revolution. The economic role of the state was to be reduced through privatization, welcoming foreign investments, eliminating import quotas, and reducing tariffs. Unfortunately, politicians wanted to extract as much cash as possible from the sale of public corporations and the best way to accomplish that was to sell them as private monopolies, either to friends of the presidential palace, like Carlos Slim of Mexico who became Latin Americas richest businessman, or to foreign corporations.


Efficiency generally improved, but private companies require fewer workers, prices increased sharply, and the common people soon hated the new system that they were told was called capitalism even more than the old, corrupt mercantilism. The result has been the new centurys backlash of extreme socialist and communist electoral victories throughout most of the Latin world.


Chile and El Salvador are practically the only exceptions, but I am skeptical of the Chilean future, seeing that Socialist President Ricardo Lagos has chosen to undermine the successful policies of the Chicago Boys by a brutal campaign to destroy the good names of those associated with the Pinochet regime. Allendes terrorists are now being officially converted into democratic martyrs, receiving monetary compensation for their patriotism and courage, while former military officers and civilians close to Pinochet are accused of crimes they did not commit. It can be done because the Socialists control the judiciary, and the American media plays along.


So now we have South America ruled by the likes of Chávez, Kirchner, and Lula. Lula succeeded Brazilian President Fernando Cardoso, the same Cardoso I mentioned before alongside Presbich, but who considered Lula too far to the Left. Kirchner has presided over the largest default and robbery in the history of the world, and Chávez, who was kept in power by the open support of the Organization of American States and of former President Jimmy Carter after a fraudulent referendum last August, is turning Venezuela into a new Cuba, but with billions of petrodollars to finance his uninhibited hate of free markets and the United States.


I believe that Washington has never being a very strong defender of free markets in Latin America, often giving the impression that capitalism is fine for this country and for Western Europe, but a different system is better applied south of the border.


On the other hand, the current Latin American situation is so alarming that perhaps we are approaching the day when the U.S. government will stop pushing its own protectionism through export subsidies and false anti-dumping measures, as well as discontinuing its support of labor unions-induced fantasies regarding environmental standards and a leveled playing field.


Yes, free trade is not enough, but Arthur Seldon, of the London Institute of Economic Affairs, has given us the key to understanding our most serious challenge: Political democracy is not enough. The market is a better guarantee of popular freedom. With the unilateral elimination of tariffs and quotas, the United States would once again show the world what individuals can accomplish when they are free.


Editors note: The preceding remarks were made at a speech delivered recently in Miami at the Heritage Foundations Resource Bank.



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