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Política y economía en Venezuela

January 12, 2009

Los dos procesos más poderosos que afectarán este año a Venezuela llegarán simultáneamente a principios de 2009: el referendo constitucional para permitir que el presidente Chávez se postule para un nuevo período presidencial y los efectos de la crisis económica que golpeará a todos los países de América Latina.

Los dos están enlazados en forma inextricable. La orientación socialista de Venezuela ofrece al país la posibilidad de defender el nivel de vida del pueblo venezolano y la economía nacional contra las tendencias extremadamente negativas de la crisis financiera internacional. La victoria de la “oposición” y el fin de la orientación socialista del país lo expondrían al impacto total de la crisis financiera internacional, lo que implicaría una severa caída del nivel de vida del pueblo venezolano y un grave daño a la economía nacional.

Las razones para esta cruda y simple selección son fáciles de entender. La economía de Venezuela, igual que la de todos los países de América Latina, sufrirá el impacto de la crisis financiera internacional. Cada uno de los países más importantes del mundo se está viendo obligado a enfrentar esta crisis, y lo está haciendo, a través de aumento del papel del estado en la economía; por lo tanto, la orientación socialista de Venezuela ofrece la mejor oportunidad para confrontar la crisis económica actual.

En contraste, la “oposición”, debilitando o desmontando el papel del estado en la economía venezolana, provocaría, en primer lugar, enormes penurias para el pueblo, pues la crisis económica sería resuelta a sus expensas; en segundo lugar, dejaría la economía nacional de Venezuela debilitada e inerme ante la mayor crisis financiera de los últimos 80 años.

Por lo tanto, la victoria del presidente Chávez en el referendo es vital no solo por razones morales, políticas y sociales, sino por motivos directamente económicos. Por consiguiente, explicar la relación entre el referendo y la opción de Venezuela para enfrentar la crisis económica internacional también es crucial.

A continuación abordaremos en detalle las implicaciones de decidir entre defender los niveles de vida y la economía nacional de Venezuela, a través de la orientación socialista de la economía, o dejar que la población y la economía venezolanas sean golpeadas por la crisis financiera internacional, debido a las políticas de la oposición.

La razón por la que la orientación socialista de Venezuela es una ventaja decisiva frente a la crisis económica internacional se puede entender fácilmente. El núcleo de cualquier recesión, en particular una tan grave como la actual, es la caída de la inversión privada. En una economía privada, las compañías reducirán la inversión, lo que hará que la economía entre en una fuerte espiral descendente. Sin embargo, una economía socialista, como la de China o Cuba, no tienen que permitir que caiga la inversión. Por ende, la decisión entre seguir una orientación socialista en Venezuela, que significa intervenir en forma decisiva en el proceso de inversión para impedir su caída, o tomar otro camino diferente al socialismo y permitir que las compañías privadas arrastren la economía con ellas en su caída debido a la falta de inversión determinará el destino de Venezuela durante la crisis económica actual.

Las consecuencias de una recesión internacional en una economía dominada por la propiedad privada se muestran en las Figuras 1 y 2.

La Figura 1 muestra el desarrollo de los diferentes componentes del PIB interno de Estados Unidos en la crisis económica más clásica de todos los tiempos, la Gran Depresión en Estados Unidos después de 1929.

Figura 1


La Figura 2 muestra los componentes internos del PIB estadounidense al entrar en la recesión económica actual; la similitud entre los dos gráficos es evidente. La magnitud de la caída económica después de 1929, hasta ahora, es, sin duda, mucho mayor que la actual, pero el patrón de la recesión actual es totalmente clásico.

Figura 2



Analizando estas tendencias con mayor detalle se observa que durante la Gran Depresión, la caída del PIB (Producto Interno Bruto) de Estados Unidos fue de 29,7 por ciento. El gasto público en consumo aumentó durante la recesión. La caída del gasto en consumo personal después de 1929 fue muy fuerte, pero menor que la caída general del PIB. La fuerza motriz de la recesión fue el colapso extremo de la inversión en Estados Unidos, la cual se desplomó 73,9 por ciento con respecto a su nivel de 1929. Sin duda, éste fue el elemento más grave de la depresión, el cual, por efectos económicos multiplicadores, propagó sus consecuencias al resto de la economía.

La Figura 2 muestra el mismo patrón en la caída actual de la economía en Estados Unidos. El PIB estadounidense y el gasto del consumo de ese país siguieron aumentando hasta el segundo trimestre de 2008, mientras que el gasto en consumo final del gobierno estadounidense todavía sigue creciendo. Sin embargo, la inversión fija de Estados Unidos empezó a bajar después del primer trimestre de 2006 y para el tercer trimestre de 2008, había caído casi seis por ciento; una baja que se aceleró en forma significativa en el cuarto trimestre de 2008.

La razón por la que el descenso de la inversión impulsa el bajón de la economía es que los diferentes componentes de la “demanda” en la economía están controlados por mecanismos económicos muy diferentes. La inversión es el elemento estratégicamente más vulnerable, debido a la propiedad privada de los medios de producción.

· El nivel del gasto público en consumo está controlado por el estado y, por ende, se pueden tomar decisiones directas para impedir cualquier descenso. En este sector, la orientación socialista de Venezuela ofrece una oportunidad particularmente buena para mantener el nivel de la demanda durante la recesión internacional. En contraste, el deseo de la “oposición” de reducir los programas de protección social provocaría una fuerte caída de la demanda del sector del gasto gubernamental, lo que conduciría a una reducción del nivel de vida de la población y profundizaría de manera significativa las tendencias a la recesión de la economía venezolana.

· El consumo personal está determinado por el objetivo de la masa de la población de tener el mejor nivel de vida posible; el problema más fuerte que afecta el consumo personal es el nivel de ingreso y empleo, no el deseo de consumir. El compromiso del gobierno bolivariano de mantener los niveles de vida de la población venezolana y el uso de la política de estado para alcanzar esta meta, por ende, representan la mejor oportunidad de mantener la demanda de los consumidores. La política de la “oposición”, al no utilizar el estado para mantener el nivel de vida de la población, al crear condiciones en las que el desempleo aumentaría severamente y permitir la exportación de capitales, conduciría a un empeoramiento de las condiciones de vida de la población, lo que no solo es una situación no deseada, sino que provoca un descenso de la demanda de los consumidores, con la consiguiente intensificación de las tendencias a la recesión.

· No obstante, las decisiones sobre la inversión privada no están controladas por el consumo sino por las ganancias. Por consiguiente, la inversión no está controlada por los mismos mecanismos que controlan el consumo personal y público y puede caer prácticamente a cualquier nivel. Tal como ya se indicó, este descenso de la inversión es lo que conduce a la baja de la economía en una recesión. Un gobierno comprometido con la economía privada no puede intervenir directamente para detener el descenso de la inversión ya que los medios de producción están en manos privadas. Pero si el gobierno toma decisiones en el tema de la inversión fuera del control de los propietarios privados de los medios de producción, logra limitar o descartar el hecho de que los medios de producción sean privados. Por consiguiente, en circunstancias de crisis económicas profundas como la actual, si un gobierno acepta un marco en el que la propiedad privada domina los medios de producción decisivos en un país, no será capaz de detener el desplome de la inversión. Al contrario, si el gobierno está determinado a impedir que caiga la inversión, deberá contar con instrumentos suficientemente fuertes, en cuanto al peso del sector estatal de la economía, a fin de detener esta caída.

En consecuencia, si al enfrentar la grave crisis financiera internacional, los sectores decisivos de la economía venezolana están controlados por entes privados, y se sigue una orientación que no sea la socialista, no será posible detener la caída de la inversión ni la crisis económica; la economía venezolana entraría en una fuerte recesión. Por el contrario, el hecho de que en Venezuela importantes sectores de la economía estén bajo el control del estado y su orientación sea socialista significa que el gobierno puede intervenir directamente para mantener los niveles de inversión. Es por esta razón que la posición de Venezuela para resistir la crisis financiera internacional es mucho más favorable de la que tendría si su gobierno no fuese socialista.

Asimismo, estos mecanismos demuestran cómo un país con una economía de mercado socialista, como la China, puede intervenir para evitar, o limitar en gran medida, la caída económica, porque puede intervenir directamente en el proceso de inversión a fin de mantener planes de inversión importantes.

Las herramientas disponibles en este tipo de economías para evitar este tipo de crisis de la inversión son muchas y no se cuenta con ellas en una economía dominada por la propiedad privada. En particular:

· Las compañías estatales pueden recibir instrucciones directas de mantener o aumentar sus programas de inversión.

· Los bancos estatales pueden recibir instrucciones de mantener sus programas de crédito.

· Estos pasos ayudan indirectamente a las pequeñas y medianas empresas, que no deberían ser parte del sector estatal; es decir, la actividad del sector público también favorece al sector privado.

En una economía subordinada a la propiedad privada no se cuenta con este tipo de instrumentos. Por ende, las economías que actualmente están dominadas por la propiedad privada, como las de Estados Unidos y el Reino Unido, están pasando en estos momentos por los siguientes procesos negativos:

· Debido a la crisis financiera, las empresas privadas están reduciendo considerablemente sus programas de inversión, lo que profundiza la recesión.

· Los bancos privados anteponen los intereses de sus accionistas a los de la economía en general y, por lo tanto, reducen el crédito, lo que también conduce a una mayor recesión.

· Debido a esta incapacidad del sector estatal para impedir que caiga la inversión o que se mantengan los niveles de crédito de los bancos, la pequeña y mediana empresa cae en crisis.

La conclusión consiguiente es que para resistir la crisis financiera internacional, Venezuela debe contar con un sector estatal suficientemente grande para poder controlar el proceso de inversión en el país; es decir, debe tener una orientación socialista, lo que sería una parte decisiva de la acción en las tres áreas de la “demanda” en la economía. En este caso se requerirían acciones en estas tres áreas:

· Para evitar una caída general de la demanda, se deben mantener altos niveles de consumo personal.

· Se debe mantener el gasto social del gobierno y podría ser necesario aumentarlo a fin de complementar el alto nivel de demanda de los consumidores.

· Lo más importante, el estado debe tomar fuertes medidas para mantener y aumentar el nivel de inversión con el propósito de compensar la caída de la inversión privada provocada por el efecto de la recesión económica internacional. El objetivo de esta inversión, además de su efecto inmediato en el mantenimiento de la demanda en la economía, debe ser aumentar la eficiencia a largo plazo de la economía y mejorar la calidad de vida de la población. En la mayoría de los países, uno de los medios más eficaces para alcanzar esta meta es un marcado aumento del gasto en inversión en infraestructura (transporte, vivienda, comunicaciones, etc.).

En resumen, la política y la economía serán decisivas para Venezuela a comienzos de 2009. La victoria del presidente Chávez en el referendo, manteniendo la orientación socialista de la economía, permitirá a Venezuela enfrentar la crisis financiera internacional. Una victoria para la “oposición”, que permitiría que Venezuela recibiera en pleno rostro el golpe de la crisis financiera internacional, significaría una caída abrupta de los niveles de vida del pueblo venezolano y un grave daño para la economía nacional de Venezuela.

Politics and economics in Venezuela

January 12, 2009

The two most powerful processes that will affect Venezuela this year will come together at the beginning of 2009 – the constitutional referendum to allow President Chavez to run for a new term and the effects of international economic crisis which will strike every country in Latin America.

The two are inextricably intertwined. The socialist orientation of Venezuela gives to the country the possibility to defend the living standards of the Venezuelan people and the national economy from the extremely negative trends of the international financial crisis. The victory of the ‘opposition’, and the ending of Venezuela’s socialist orientation, would expose Venezuela to the full force of the international financial crisis with consequent severe fall in the living standards of the Venezuelan people and great damage to the national economy.

The reasons for this stark and simple choice may be clearly understood. Venezuela’s economy, as with all countries in Latin America, will be attacked by the international financial crisis. Every major country in the world is being forced to, and is, meeting this crisis by increasing the role of the state in the economy – Venezuela’s socialist orientation therefore gives the best opportunity to confront this economic crisis.

In contrast ‘the opposition’, by weakening or dismantling the role of the state in Venezuela’s economy, would, first , lead to enormous hardship for Venezuela’s people as the economic crisis would then be resolved at their expense and, second, it would leave Venezuela’s national economy weakened and defenceless confronted with the greatest financial crisis for eighty years.

The victory of President Chavez in the referendum is, therefore, vital not only for social, political and moral reasons but for directly economic ones. To explain the relation between the referendum and the choice for Venezuela in facing the international economic crisis is therefore also crucial.

The detailed working out of the implications of this choice between defending the living standards and national economy of Venezuela, though the socialist orientation of the economy, or of leaving Venezuela’s population and national economy to be struck by the international financial crisis due to the policies of the opposition, will now be considered.

The reason that the socialist orientation of Venezuela is a decisive advantage confronted with the international economic crisis is easily understood. The core of any recession, in particular a very serious recession such as the present one, is the decline in private investment. In a privately owned economy companies will cut investment – causing the economy to enter a deep decline. A socialist economy, such as China or Cuba, however, does not have to let investment decline. Whether Venezuela follows a socialist orientation, which means decisively intervening in the investment process to prevent it falling, or whether it fails to follow a socialist orientation, and allows private companies to drag the economy down through their lack of investment, will therefore determine Venezuela’s fate during the current economic downturn.

What happens in an international recession in an economy dominated by private ownership is shown in Figures 1 and 2.

Figure 1 shows the development of the different components of US domestic GDP in the most classic of all economic downturns – the Great Depression in the US following 1929.

Figure 1



Figure 2 similarly shows the domestic components of US GDP as it enters the current economic recession – the similarity between the two graphs is evident. The dimensions of the economic decline after 1929, so far, are of course far greater than in the current downturn, but the pattern of the current recession is entirely classical in its character.

Figure 2


Stating these trends in more detail during the Great Depression the fall in US GNP (Gross National Product) was 29.7 per cent. Government consumption spending increased throughout the recession. The decline in personal consumption expenditure after 1929 was severe but less than the overall decline in GNP. The driving force of the recession was the extreme collapse of US investment, which declined by 73.9 per cent from its 1929 level. This was by far and away the most severe element of the depression – which, by economic multiplier effects, spread its consequences through the rest of the economy.

Figure 2 shows the same pattern in the current economic downturn in the US. US GDP and US consumer expenditure continued to rise until the second quarter of 2008, while US final government consumption expenditure is still rising. However US fixed investment already started falling following the first quarter of 2006 and by the third quarter of 2008 US fixed investment had fallen by almost six per cent – a decline that will accelerate significantly in the fourth quarter of 2008.

The reason the decline in investment drives the economic downturn is that the different components of ‘demand’ in the economy are controlled by quite different economic mechanisms. It is investment which is the strategically vulnerable element due to the private ownership of the means of production.

· The level of government consumption spending is controlled by the state – and therefore direct decisions can be taken to prevent any decline. In this sector Venezuela’s socialist orientation gives a particularly good opportunity to maintain demand during the international recession. The desire to cut programmes of social protection by the ‘opposition’ would, in contrast, create a severe fall in demand in the sector of government spending – leading to a decline in the living standard of the population and significantly deepening the tendencies to recession in the Venezuelan economy.

· Personal consumption is determined by the aim of the mass of the population to have as good a living standard as possible – the most powerful issue affecting personal consumption is the level of income and employment, not the desire to consume. The commitment of the Bolivarian government to maintain the living standards of the Venezuelan population, and the use of state policy to achieve this, therefore gives the best opportunity to maintain consumer demand. The policy of the ‘opposition‘, by failing to use the state to maintain the living standards of the population, by creating conditions in which unemployment would sharply increase, and by allowing export of capital abroad, would lead to a worsening of the living conditions of the population – not only undesirable in itself but producing a decline in consumer demand that would also deepen the tendencies to recession.

· Private investment decisions, however, are not controlled by consumption but by profit. Therefore investment is not controlled by the same mechanisms as personal and government consumption and can fall to almost any level. As already shown it is this decline in investment which drives the economy downwards in a recession . A government committed to a privately owned economy cannot intervene directly to stop the decline in investment because of private property in the means of production. However if the government takes decisions on investment out of the hands of private owners of the means of production it, in fact, limits or abolishes that private ownership of the means of production. Therefore, in circumstances of deep economic crisis such as the present, if a government accept a framework of dominance by the private ownership of the decisive means of production in a country it will be unable to halt the investment decline. In contrast if the government is determined to halt the decline in investment it must have sufficiently strong instruments, in terms of the weight of the state owned sector of the economy, in order to prevent investment declining.

Consequently, if confronted with the severe international financial crisis, the decisive sectors of Venezuela´s economy are privately owned and controlled, and a non-socialist orientation is followed, it will not be possible to halt the investment decline and economic downturn – Venezuela´s economy would go into severe recession. The fact that in Venezuela important sectors of the economy are state owned, and it has a socialist economic orientation, on the contrary means that the government can directly intervene to keep up investment levels. This is why Venezuela is in a much better position to resist the international financial crisis than if did not have a socialist government.

These mechanisms also show the way in which a country with a socialist market economy, such as China, can intervene to prevent, or greatly limit, the economic downturn – because it can directly intervene in the investment process to maintain high investment programmes.

The weapons available in such an economy to prevent such a downturn in investment are multiple, and not possessed in an economy dominated by private ownership. In particular:

· State owned companies can be directly instructed to maintain or increase their investment programmes.

· State owned banks can be instructed to maintain their lending programmes companies.

· These steps indirectly aid small and medium enterprises, which should not be part of the state sector – that is the activity by the state sector also aids the private sector.

Such instruments are not available in an economy subordinated to private ownership. Therefore at present in economies dominated by private ownership, such as the US and UK, the following extremely negative processes are instead occurring.

· Due to the financial crisis privately owned companies are severely cutting their investment programmes, deepening the recession.

· Privately owned banks put the interests of their shareholders before those of the economy as a whole and thereby cut lending – again further deepening the recession.

· Because of this inability of the state sector to either prevent the investment decline or to maintain bank lending small and medium private enterprises are thrown into crisis.

The conclusion is therefore that to withstand the international financial crisis Venezuela must have a sufficiently large state sector to be able to control the investment process in the country – that is it must have a socialist orientation. This must be a decisive part of action in all three areas of ‘demand’ in the economy. This involves action in three areas:

· In order to avoid an overall decline in demand personal consumption must be maintained at a high level.

· Government social spending must be maintained, and increases may be necessary, in order to complement the high level of consumer demand.

· Most important, strong state measures must be taken to maintain and increase the level of investment in order to compensate for the decline in private investment due to the effect of the international economic recession. The aim of such investment, in addition to its immediate effect in maintaining demand in the economy, must be both to increase the long term efficiency of the economy and to improve the quality of life of the population. In most countries, some of the most effective means to achieve this is a sharp increase in spending on infrastructural investment (transport, housing, communications etc).

In short at the beginning of 2009 politics and economics comes together decisively in Venezuela. The victory of President Chavez in the referendum campaign, by maintaining the socialist orientation of the economy, will permit Venezuela to confront the international financial crisis. A victory for the ‘opposition’, by opening Venezuela to be struck by full force of the international financial crisis, would mean a sharp fall in the living standards of the Venezuelan people and severe damage to Venezuela’s national economy.

Es necesario aumentar la inversión para combatir la inflación

January 12, 2009

Las presiones inflacionarias en Venezuela son sin duda el resultado de una serie de factores específicos y complejos. Ahora bien, existe un parámetro macroeconómico esencial que, por sí solo, genera presiones inflacionarias significativas: el insuficiente nivel de inversiones en la economía nacional.

La experiencia histórica nos enseña que existe una relación estrecha y predecible entre la tasa de desarrollo sustentable de la economía y su tasa de inversión.

La inversión no puede financiarse sino mediante el ahorro. En los últimos cuatro años, la tasa promedio de ahorro en Venezuela ha sido alta, más de 35% del PIB. Esto equivale a la tasa de ahorro de una economía asiática de rápido crecimiento como Vietnam, Corea del Sur o China. Si todo este ahorro se utilizara en inversión interna se alcanzaría, según lo demuestra la experiencia histórica e internacional, una tasa de crecimiento de 8-9 por ciento anual.

No obstante, en Venezuela la brecha entre la tasa de ahorro y la tasa de inversión es enorme. En los últimos cuatro años, el nivel promedio de formación bruta de capital fijo ha sido apenas de 21 por ciento del PIB. En el 2007, la última fecha para la cual se dispone de cifras, se logró un 24 por ciento.

Figura 1

La experiencia histórica e internacional muestra que un nivel de inversión de 20-25 por ciento del PIB, como mucho, permite soportar de manera sustentable un crecimiento de alrededor de 4-5 por ciento. Sin embargo, la tasa promedio de crecimiento de Venezuela en los últimos cuatro años ha sido mucho mayor alcanzando 12 por ciento. Esta cifra sin duda que se ha aumentado de manera un tanto artificial durante la recuperación de los efectos de la huelga petrolera. Sin embargo, en los últimos tres años de los cuales se dispone de cifras, es decir hasta el 2007, el crecimiento económico anual ha sido de 10 por ciento.

Resulta evidentemente indeseable poseer una gran cantidad de ahorro ocioso que no se invierta internamente. Ahora bien, esto se vincula directamente con la política antiinflacionaria.

Sin duda que la disparidad entre una tasa de inversión que sólo contribuye a una tasa de crecimiento anual de 4-5 por ciento y un crecimiento mayor produciría presiones inflacionarias. Por ende, una manera eficaz de reducir las presiones inflacionarias, en el mediano y largo plazo, es aumentar la tasa de inversión.

Es muy posible, como lo demuestra el ejemplo de otros países (Vietnam, Corea del Sur, China, Singapur, Tailandia, etc.), mantener una tasa de crecimiento de 8-10 por ciento anual, pero esto exige que el nivel de inversión en la economía nacional se incremente a 30 por ciento o más del PIB, lo cual es perfectamente financiable con la actual tasa de ahorro de Venezuela.

Cuando se consideran los mecanismos que garantizan que los ahorros se empleen en la inversión interna, no existe evidencia que esto pueda hacerse de preferencia a través del sector privado. Por el contrario, todo indica que si fuera por este sector los ahorros del país se esfumarían con la fuga de capitales. El hecho de que, a pesar del alto nivel de ahorros de los últimos cuatro años, éstos no se hayan invertido confirma que no se puede confiar en el sector privado para garantizar que los ahorros se traduzcan adecuadamente en inversión nacional.

Así pues, el sector público venezolano debe emprender un vasto programa de inversiones que garantice que estos ingentes ahorros se traduzcan en una inversión mucho mayor en la economía nacional. Esta es una medida de estímulo anticíclico necesaria para incrementar la eficiencia de la economía y mejorar sustancialmente las condiciones de vida de la población. Al incentivar la demanda, este programa de inversión resultará asimismo crucial como medida antiinflacionaria en el mediano y largo plazo.

La forma más efectiva de mejorar la eficiencia de la economía nacional es la inversión en infraestructura, en especial transporte, comunicación y vivienda. Por lo tanto, una parte esencial de la estrategia antiinflacionaria debe ser aumentar el nivel de inversión interna en un 30 por ciento del PIB mediante un vasto programa de obras públicas en infraestructura.

Claro está que pasar de 24 a 30 por ciento del PIB el nivel de inversión, que a su vez posibilitaría un crecimiento del 8 por ciento, no puede hacerse en un solo año puesto que no se dispone aún de las estructuras necesarias que generen programas de inversión pública de esa envergadura. Un estudio concreto permitiría establecer cuán rápidamente podría alcanzarse este aumento decisivo de la inversión. La experiencia internacional indica que un aumento de 1 o 2 por ciento anual en la proporción del PIB que se dedica a la inversión sería razonable. En el caso venezolano, esto implicaría una aceleración en el nivel de inversión de 24 a 30 por ciento del PIB en un período de 3 a 5 años.

Un aumento de esta magnitud de la tasa de inversión no sólo es totalmente financiable sobre la base de los ahorros actuales, sino que resulta determinante para alcanzar numerosos objetivos económicos y sociales, entre ellos uno de los más importantes es el combate de la inflación en el mediano y largo plazo.

The need to raise the level of investment to combat inflation

January 12, 2009

There are evidently a number of specific and complex factors in inflationary pressures in Venezuela. Nevertheless one key macro-economic parameter undoubtedly would, by itself, produce significant inflationary pressures – this is the insufficient level of investment in Venezuela’s economy.

Historical experience shows that there is a close and predictable relation between the sustainable rate of growth of economy and its investment rate.

Investment can only be financed by savings. Venezuela, in the last four years, has had a high savings rate averaging over 35 per cent of GDP. This is equivalent to the savings rate of a very rapidly growing Asian economy such as Vietnam, South Korea or China. If all such a savings were used in investment in Venezuela’s domestic economy then, based on historical and international experience, a growth rate of 8-9 per cent a year can be sustained.

However there is a very large gap between Venezuela’s savings rate and its investment rate. The average level of gross fixed capital formation in the last four years has only been 21 per cent of GDP. In 2007, the last year for which figures are available, it reached 24 per cent of GDP.

Figure 1

Historical and international experience shows that such an investment level of 20-25 per cent of GDP is, at maximum, able to support sustainably an economic growth rate of around 4-5 per cent. However Venezuela’s average growth rate in the last four years has been far higher than this – averaging 12 per cent a year. This latter figure is undoubtedly somewhat artificially raised through recovery from the effects of the oil strike. Nevertheless in the last three years for which figures are available, that is up to 2007, the annual economic growth rate has been 10 per cent.

It is evidently undesirable itself to have a large amount of unused savings that are not being used for domestic investment. However it is also directly related to anti-inflationary policy.

A disparity between an investment rate that will only support a 4-5 per cent a year growth rate and far more rapid economic growth would necessarily by itself produce inflationary pressures. A decisive means to reduce inflationary pressures over the medium and long term is therefore to raise Venezuela’s investment rate.

It is entirely possible, as shown by the example of other countries (Vietnam, South Korea, China, Singapore, Thailand etc) to maintain a rate of growth of 8-10 per cent a year but this requires that the level of investment in Venezuela’s economy be raised to 30 per or more of GDP – an investment rate that is entirely financeable on the basis of Venezuela’s savings rate.

Considering mechanisms to ensure that Venezuela’s savings will be used in domestic investment there is no evidence that this will primarily be carried out by the private sector. On the contrary, the evidence is that, purely on the basis of the private sector ,Venezuela’s savings will be squandered in capital flight abroad. The fact that, despite the very high level of savings in the last four years, this has not been invested confirms that the private sector cannot be relied upon to ensure that savings are more adequately transformed into domestic investment.

The conclusion that flows from this is that Venezuela’s state sector must undertake a relatively large scale programme of investment that will ensure that the high savings level is translated into a much higher level of investment in the national economy. This is required as an anti-cyclical stimulus measure, to increase the efficiency of the national economy, and to substantially improve the conditions of living of the population. But, by boosting the supply side of the economy, such an investment programme is also a crucial anti-inflationary measure in the medium and long term.

The most effective means of improving the efficiency of the national economy is investment in infrastructure – in particular transport, communication, and housing. Therefore a decisive part of anti-inflationary strategy must be to raise the level of investment in Venezuela’s domestic economy to around 30 per cent of GDP through a major programme of state infrastructure investment.

Evidently such an increase in the investment level from the current 24 per cent of GDP to 30 per cent, which would then make an eight per cent growth rate sustainable, cannot be carried out in a single year as the necessary structures to deliver such a large scale of public investment programmes are not yet in place. It is a matter of concrete study how rapidly such a decisive increase in the investment rate can be achieved – based on international experience an increase in the proportion of GDP devoted to investment of one to two per cent of GDP per year would be reasonable. This would imply acceleration in Venezuela’s investment level from around 24 per cent of GDP to 30 per cent of GDP over a three to five year period.

Such an increase in the investment rate is not only full financeable on the basis of current savings levels but is crucial for very many economic and social objectives – among these is that it is one of the most important medium and long term anti-inflationary steps that are required.

Venezuela and China to create a high technology park close Caracas

January 12, 2009

The Bolivarian Republic of Venezuela endorsed an agreement with China’s Lanchao Group on the support and cooperation to put into operation a Technological Industrial Park, located in Miranda state.

The Ministry of People’s Power for Science and Technology, through the Corporation for Scientific and Technological Development (Codecyt), agreed on the creation of a bi-national working group to conceptualize, carry out and strengthen the foundation of research, development and innovation of high-technologies.

With this agreement, the Technological Industrial Park will promote training and technological transfer to meet the social and economic needs of Venezuela.

The Technological Park will be a specially equipped territory for high technology companies with innovating vocation.

Likewise, it will support the development of training, research and technology in the country.

Langchao Group’s representative Wang Miao said that “this technological park’s goal is to install a number of Chinese factories in Venezuela to achieve this country’s technological development.”

“In Venezuela and China, we are building socialism. Under this structure, and thanks to President Hugo Chávez, we are strengthening the technological and productive development,” added Miao.

In addition, Venezuela’s Deputy Minister of Science and Technology Luis Marano indicated that Venezuela and China have strengthened their cooperation relations, and a proof is the launching and operation of the first Venezuelan satellite.

“The People’s Republic of China is a good ally in the field of high technologies such as the Simón Bolívar satellite,” and the computer factory called Venezolana de Industria Tecnológica (VIT), stressed Marcano

“Langchao Group represents the Shandong province in China, a very important industrial province,” said Maracano.

Bolivarian News Agency (ABN) / January 12, 2009

The decline in US asset prices and the perspectives for the global economy

January 3, 2009

The fundamental assessment presented on this blog, for underlying macro and structural economic reasons, has been that the financial events of 2008 portend a deep world recession but not an economic depression of the type witnessed in the 1930s. This deep recession will be accompanied by a major strengthening of their positions in the world economy by China and India, and to a lesser extent Russia. [1]

To gauge the degree of seriousness of the economic crisis it is evidently merely necessary to consider the depth of the fall in financial markets. The decline in asset prices in 2008, as discussed in detail below, was fully comparable to 1929 – and greatly exceeds any fall seen in the period since. However whatever the similarities in financial markets the world macro-economic situation differs significantly to 1929.

In 1929 the US was not only the world’s largest but also the world’s most dynamic economy with the highest rates of savings and investment. When the US financial system entered deep crisis in 1929, therefore, there was no external economic force that could pick up either it or the world economy – no economic backstop. The financial implosion in the US in 1929, therefore, necessarily dragged the world economy down into the abyss of prolonged depression.

In 2008 the configuration of world economic forces differs significantly. China and India are today the world’s most dynamic large economies. with the world’s highest savings and investment rates and the most rapid economic growth. Furthermore China has sufficient economic weight, in terms of world savings, not to prevent international recession but to be a significant counterbalance to the situation in the US.

China’s savings and investment rates are not only far higher than the US as a proportion of GDP but are also now approximately equal to those of the US in absolute terms. India’s internal savings and investment rates, now at over 30 per cent of GDP, are also far higher than those of the US – enabling it to maintain significant economic growth in what is, in real terms, now the world’s fourth largest economy.

For the relative trends in US, Chinese and Indian investment rates see Figure 1.

Figure 1

The world has already been saved once from the consequences of US financial crisis in the last economic period. Following the 1987 US stock market crash the export of financial resources from Japan, carried out via an ultra-expansionary monetary policy, played a crucial role in stabilising both US and world financial markets. Whether Japan was wise to purse these policies in the particular form it did, in light of the consequent Japanese ‘bubble economy’ and financial crash which commenced in 1990, is another issue, but it showed that there was now an ‘economic backstop’ for the US in the world economy in a way that one had not existed in 1929.

This economic strength of China, and to a lesser extent India, therefore significantly alters the situation of the world economy compared to 1929 – despite any apparent parallels on financial markets. Provided there are not disastrous economic policy miscalculations by the US, which of course are possible, international macro-economic fundamentals mean there need be no 1930s style depression. However there will be, instead, a deep recession of the global economy out of which China and India will emerge significantly strengthened in their relative weight in the world economy. This is therefore the conclusion which flows from consideration of international economic fundamentals.

Nevertheless, first it is possible that the US government will make disastrous economic miscalculations. The reason for this is that a rational economic course by the US administration requires it accepting its reduced role in the world economy – one in which the US is the world’s largest economy but no longer an unchallengeable economic superpower. It is possible therefore that there may be future, George W Bush type, US administration attempts to escape a rational economic outcome which may fundamentally destabilise the international economic situation – posing the risk of turning a recession into an economic depression.

Second, it is constantly necessary to check economic fundamentals against facts – the weight of individual elements may be misjudged or factors that were not taken into account may be operating. Macro-economic data that would verify, or disprove, an assessment of ‘deep recession but not economic depression’ is not yet available for the period following the decisive financial events of September 2008. However trends for financial markets are available. The end of 2008, therefore, represents a convenient opportunity to sum up the qualitative situation revealed by financial markets and to compare it to the assessment of economic fundamentals.

Considering first the area in which the financial crisis originally manifested itself, that is in US house prices and sub-prime mortgages, the decline of US house prices is now more rapid than at the time of the Great Depression following 1929. US house prices in October 2008 were 18 per cent lower than a year previously – the fall being 2.2 per cent in October alone. The rate of decline is still accelerating. The annual fall in individual US cities such as Phoenix, Las Vegas and San Francisco was greater than 30 per cent. The decline in the price of US housing assets at the end of 2008 totaled around $7.1 trillion.

Turning to shares, the fall in the Dow Jones Industrial Average in 2008 was 33.8 per cent – the worst annual fall since 1931 in which year the decline was 52.7 per cent. Share prices in the US financial sector declined by 57 per cent in 2008.

The most relevant, because most long term and fundamental, comparison continues to be that of the current decline in US share prices with the fall in US shares after 1929. Figure 2 confirms that the fall in US share prices, since their peak in October 2007, continues to far exceed the other major declines of the 20th century – either that following the beginning of the international recession in 1973 or the collapse of the dot com bubble in 2000. Only the fall in US share prices following 1929 is comparable to, or exceeds, those which have occurred over the last year. There is, therefore, no element of exaggeration to say this is the worst fall in financial assets since 1929 nor are comparisons to that date, in the financial field, unjustifiable exaggerated.

Figure 2

Considering the comparison with 1929, 31 December 2008 was 313 trading days after the peak of share prices during the current cycle on 9 October 2007. The Dow was 38.0 per cent below that peak. On the equivalent trading day following 1929 the Dow was 52.0 per cent below its peak in that cycle.

The wider based S&P 500 fell by 41 per cent in 2008, the worst decline since a parallel measure would have dropped by 47.1 per cent in 1931.

The slightly lesser decline of the Dow and S & P 500 in the current cycle, compared to 1929, is however primarily due to the relative stabilisation of US share prices since large scale state financial intervention commenced from late September 2008.

This relative stabilisation of US share prices ran in parallel with the improved conditions in interbank lending similarly created by huge state intervention – see Figure 3.

US Federal Reserve loans rose from $900 billion in September 2008 to $2.2 trillion by December 2008. Already projected Federal Reserve exposures range up to $5 trillion.

Figure 3

However, as may be seen from Figure 2, the most important difference between the present decline in share prices and that after 1929 is the duration of the fall. Following 1929 US share prices continued to fall for three years, with the worst decline being in the second full year of the drop in 1931. So far the decline in US share prices in this cycle has progressed for only just over a year before being halted, at least temporarily, by massive transfers of resources by the state.

Taking non-US stock exchanges in 2008, the UK FTSE 100 declined by 30.9 per cent and the FTSE All Share index fell 32.8 per cent – its worst annual fall since losing 55.3 per cent in 1974. The Germany Xetra Dax fell 40.3 per cent, the Paris CAC 40 fell by 42.1 per cent and the FTSE Eurofirst 300 suffered an annual decline of 44.7 per cent.

The Nikkei 225 index in Tokyo ended by recording a 42.1 per cent fall in 2008, worse than its previous biggest annual loss of 38.7 per cent in 1990. Korea’s Kospi index ended the year with a decline of 40.7 per cent.

The conclusion from these trends so far, therefore, is that massive state intervention succeeded in both reducing interbank interest rates and stabilising share prices during the final two months of 2008. But what is its capacity to fundamentally reverse the decline in asset prices that created the crisis in the first place – for, as noted elsewhere, it is the fall in asset prices which is creating the pressures to a liquidity crisis, and not a liquidity crisis that caused the fundamental decline in asset prices?

It is here that the other valid scale of comparison is that with Japan following the bursting of its national asset price bubble in 1990. As may be seen from Figure 4, the decline of the Japanese Nikkei share index after 1990 remains, in terms of duration, considerable worse than that of US shares following 1929. Japanese property prices, equally, remain deeply depressed 18 years after the bursting of the asset bubble.

Such experience indicates that there must, therefore, be no automatic presumption that there will be any V shaped recovery of share prices or asset values – i.e. that the fall in asset prices will be merely short lived followed by recovery. Contemporary, as well as historical, experience indicates that the depression of asset prices below their levels of 2007 may be of long duration.

Figure 4

Such economic processes create a new configuration between the state and the financial system.

Given the magnitude of the financial shifts it is evident that the international financial system is in intensive care with its artificial respiration system being currently powered by state finance. Nor, given the scale of the resources involved, is this situation likely to be reversed in the short term – any perspective that the state will be able to sell back, without huge losses for the taxpayer, the assets it has acquired in any short time frame are illusory. The economic rise of China and India is, therefore, being accompanied by a massive increase in the role of the state in the US and Western Europe.

The scale and pattern of the decline in asset prices means that a world economic depression can, as noted at the beginning of this article, be avoided. But a fundamental change in the configuration of the world economy cannot.

Notes

[1] In Latin America the outcome is not yet determined and will depend on the policies adopted.

The international financial crisis’s impact on commodity prices and Latin American financial markets

January 1, 2009

John Authers of the Financial Times has an excellent video analysis, in English, on the impact of the international financial crisis on financial markets in emerging markets in general and on Latin America in particular. It should be seen by anyone who doubts how serious the impact of the international financial crisis will be for Latin America – the relevant section starts one minute into the two minute twenty second video. The core of its analysis is on the relation between commodity prices and financial markets in Latin America and their extremely close correlation.

What happens in a recession – why Venezuela´s socialist orientation is crucial confronted with the international financial crisis

December 23, 2008

Venezuela´s socialist economic orientation is usually judged from the point of view of moral criteria – the improvement of the living standards of the majority of the population. But it also has a decisive practical aspect. The socialist orientation of Venezuela´s economy gives it by far the best opportunity to deal with the impact of the international financial crisis. In order to understand this it is vital to understand what occurs in a recession.
In the development of a recession, such as the one the world economy is entering, what is decisive is not consumer or government spending. What, above all, occurs in a recession is that investment declines or, in the most severe cases, collapses.
In order to illustrate this Figure 1 shows the changes in the main domestic components of US GDP in the most classic of all recessions/depressions – that in the US following 1929. [1]

Figure 1

As can be seen the pattern is clear. The economic decline in US was extremely severe – on a far larger scale than anything occurring at present. The fall in US GNP (Gross National Product) was 29.7 per cent between 1929 and 1933.[2] The 1929 US level of GNP was not regained for a decade – until 1939.
Looking at the components of this decline in GDP, however, a clearly differential pattern shows itself.
Government spending increased throughout the recession – not only after Roosevelt became president in 1933 but even under Hoover.
The decline in personal consumption expenditure after 1929 was severe but less than the overall decline in GNP. By 1933 US personal consumption expenditure had fallen by 19.7 per cent compared to the 29.7 per cent drop in GNP. Personal consumption expenditure regained its 1929 level by 1939.
But the collapse in investment was extreme, far exceeding the decline in GNP – explaining the difference between the drop in personal and government consumption expenditure and the drop in overall output
By 1933 US private domestic fixed investment had fallen by 73.9 per cent from its 1929 level. Or, put another way, by 1933, US private domestic fixed investment was only 26.1 per cent of its 1929 level. This was by far and away the most severe element of the depression – which, by multiplier effects, spread its consequences through the rest of the economy. Similar patterns are seen in any recession.
The reason for this differential decline is that while ‘demand’ in the economy may be spoken of in general, in fact the different components of demand are controlled by quite different mechanisms.
Decisions on the level of government spending are taken directly by the state and can therefore be relatively easily controlled – here Venezuela´s socialist orientation gives a good opportunity to maintain demand during the international recession.
Regarding personal consumption, the aim of the mass of the population is to have as good a living standard as possible. The most powerful issue affecting personal consumption is the level of income, not the desire to consume. [3]
However, private investment decisions are not controlled by consumption but by profit. Therefore investment decisions are not controlled by the same mechanisms as personal and government consumption – and can fall to almost any level. It is this decline in investment which is by far the largest in a recession.
Why, therefore, cannot a capitalist government intervene directly to stop the decline in investment? The issue here is private property in the means of production. If the government takes decisions on investment out of the hands of the private owners of the means of production it, in fact, limits or abolishes that private ownership of the means of production. Therefore, in such circumstances, if the government accept the private ownership of the decisive means of production in a country it cannot halt the decline in investment. Whereas if, in such circumstances, the government aims to halt the decline in investment it must have sufficiently strong instruments, in terms of the weight of the state owned sector, in order to prevent investment in the economy declining.
Confronted with the severe international financial crisis, if the decisive sectors of Venezuela´s economy were privately owned it would not be possible to halt the decline in investment. Venezuela´s economy would go into severe recession. The fact that in Venezuela important sectors of the economy are state owned, and it has a socialist economic orientation, means that the government can directly intervene to keep up investment. This means that Venezuela is in a much better position to resist the international financial crisis than if it were not a socialist government.
The practical consequences in terms of economic policy are clear. The core of givernment policy to deal with the international financial crisis must have three components.
Firstly, in order to avoid a decline in demand in the economy personal consumption must be maintained at a high level in the economy.
Second, government spending must be maintained, and increases may be necessary, in order to complement the high level of consumer demand.
Third, and most important, strong state measures must be taken to maintain and increase the level of investment in order to compensate for what will almost certainly be a decline in private investment due to the effect of the international economic recession.
The aim of this investment, in addition to its immediate effect in maintaining demand in the economy, must be both to increase the long term efficiency of the economy and to improve the quality of life of the population. In most countries, both China and the US being examples, the most effective means to achieve this is a sharp increase in spending on infrastructural investment.
Such counter-cyclical programmes will, of course, be even more effective if co-ordinated with Venezuela´s Latin American partners.

Notes
[1] The international source of demand is net exports. There was a drastic contraction of international trade after 1929 which seriously deepened the depression. However this does not affect the argument regarding the components of domestic demand dealt with here. Inventories also declined after 1929, adding to the recessionary effect, however changes in stocks, by their nature, are cyclical and again the concentration here is on the long term elements in economic shift.
[2] Gross National Product (GNP) differs from Gross Domestic Product (GDP) in that is equal to GDP plus net income earned from abroad. Long term US historical economic data is in GNP terms. The size of difference to GDP is, however, small and does not seriously distort comparisons to other countries GDP figures.
[3] In a recession personal consumers may decide to save more – among other reasons to protect themselves from the threat of future economic hardship or unemployment. However there are relatively effective mechanisms to tackle this, and in any case if the extra savings are invested by the government or companies no fall in aggregate demand takes place – the savings by individual are merely spent somewhere else in the economy. The biggest effect is the fall in income due to either declines in real wages or unemployment.

Qué ocurre en una recesión – por qué la orientación económica socialista en Venezuela es crucial ante la crisis financiera internacional

December 23, 2008
Por lo general, la orientación económica socialista de Venezuela se juzga mediante criterios morales: el mejoramiento de las condiciones de vida de la mayoría de la población. Sin embargo, también posee un aspecto práctico decisivo, en la actual situación, por ejemplo, como es la protección y el desarrollo de la economía en el contexto de la crisis económica global. La orientación socialista de la economía del país le brinda con creces la mejor oportunidad de enfrentar el impacto de la crisis financiera internacional. Para entender esto es fundamental conocer qué ocurre en una recesión.

En el desarrollo de una recesión como ésta en la cual está entrando la economía mundial, lo decisivo no es el gasto del consumidor o del gobierno, lo que ocurre sobretodo en una recesión es la caída de la inversión o, en el peor de los casos, su colapso.

Para ilustrar esto la Figura 1 muestra los cambios en los principales componentes nacionales del PNB de Estados Unidos en la más clásica de todas las recesiones/depresiones: la que se produjo en ese país luego de 1929.

Figura 1

Como puede observarse el patrón es claro. El declive económico de Estados Unidos fue extremadamente grave, a una escala mucho mayor de lo que se está produciendo en la actualidad. Entre 1929 y 1933 el PNB cayó 29,7%. Se requirió una década para volver al nivel que tenía en 1929.

Cuando se analizan los componentes de esta caída aparece un claro patrón. El gasto público aumentó durante la recesión, no solo después de la elección de Roosevelt en 1933 sino incluso durante el gobierno de Hoover.

La caída del gasto del consumo personal después de 1929 fue grave pero menos que el declive general en el PNB. Para 1933 el gasto por concepto de consumo personal del país se había desplomado en un 19,7% en comparación con el 29,7% del PNB. Fue en 1939 cuando el gasto por consumo personal volvió al nivel de 1929.

Pero la caída en la inversion fue extrema, superando con creces el declive en el PNB, lo cual explica la diferencia entre la disminución en el gasto de consumo personal y público y la caída en la producción global.

En 1933 la inversión fija interna privada había caído en un 73,9% en relación con su nivel de 1929. Dicho de otra manera, en 1933 la inversión fija nacional privada fue apenas de 26,1% de su nivel de 1929. Sin duda alguna, este fue el elemento más grave de la depresión y tuvo un efecto multiplicador en el resto de la economía. Patrones similares se observan en cualquier otra recesión.

La razón de esta diferencia en la caída es que mientras la “demanda” en la economía puede entenderse en términos generales, los diferentes componentes de la demanda están controlados por mecanismos muy distintos.

Las decisiones en materia de gasto público son tomadas directamente por el Estado, de manera que pueden controlarse con relativa facilidad. En el caso que nos ocupa, la orientación socialista de Venezuela constituye una buena oportunidad para mantener la demanda durante la recesión internacional.

En cuanto al consumo personal, el objetivo de la masa de la población es tener un nivel de vida tan bueno como sea posible. El tema que más afecta el consumo personal es el nivel de ingresos y no el deseo de consumir.

Las decisiones para la inversión privada no están motivadas por el consumo sino por la ganancia, de manera que las decisiones de inversión no están controladas por los mismos mecanismos que el consumo personal o público, por lo que puede caer a casi cualquier nivel. En una recesión es justamente este tipo de inversión el que se desploma a niveles más bajos.

Por lo tanto, ¿por qué un gobierno capitalista no puede intervenir directamente para detener el declive en la inversión? El tema aquí es la propiedad privada de los medios de producción. Si el gobierno le quita las decisiones de inversión a los propietarios privados de los medios de producción limita o suprime, de hecho, la propiedad privada sobre dichos medios. Entonces, en estas circunstancias, si el gobierno acepta la propiedad privada de los medios de producción decisivos para un país, no puede detener el declive en la inversión, de manera que si el gobierno quiere parar el declive en la inversión, debe poseer instrumentos suficientemente fuertes, en términos del peso del sector público, a fin de evitar que disminuya la inversión en la economía.

Ante la severa crisis financiera internacional, si los sectores decisivos de la economía venezolana estuvieran en manos privadas sería imposible detener la caída en la inversión, de manera que la economía del país entraría en una severa recesión. El hecho de que en Venezuela importantes sectores de la economía sean propiedad del Estado y tengan una orientación económica socialista permiten al gobierno intervenir directamente para sostener la inversión. Esto significa que Venezuela está en mejores condiciones para resistir la crisis financiera internacional, que si no fuera un gobierno socialista.

Las consecuencias prácticas en términos de política económica son claras. El núcleo de la política pública para enfrentar la crisis financiera debe tener tres componentes. En primer lugar, a fin de evitar la caída de la demanda en la economía debe mantener el consumo personal en un alto nivel. En segundo lugar, el gasto público debe sostenerse e incluso aumentarse, a fin de complementar el alto nivel de demanda por consumo. En tercer lugar, el Estado debe tomar fuertes medidas para mantener y aumentar el nivel de inversión a fin de contrarrestar lo que seguramente va a ser un declive en la inversión privada ocasionado por la recesión económica internacional. Además de su efecto inmediato para apuntalar la demanda de la economía, esta inversión debe aumentar la eficiencia a largo plazo de la economía y mejorar la calidad de vida de la población. En la mayoría de los países, incluidos China y Estados Unidos, la manera más efectiva de lograr esto es mediante un aumento drástico del gasto en infraestructura.

Este programa contracíclico será por supuesto mucho más efectivo si se coordina con los socios latinoamericanos de Venezuela.