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Is Hugo Chavez reinventing the mercantilist system?

By Aleksander Boyd

The longest lasting legacy of the European colonizing powers to South America (apart from languages) is undoubtedly mercantilism. Hernando de Soto's study about the mercantilist model (masterly presented in his book "The Other Path") compares and contrasts European and Latin American models. Stressing on the Peruvian model, de Soto's shows how society has invented new ways to bypass the copious red tape and paraphernalia imposed by the government which deter humble entrepreneurs of starting legal businesses. As a case study, he commissioned a research team to go through all the necessary permits and legalities to set up a company. It took them 289 days to get through the bureaucratic web to commence operations.

Established businesses and cartels on the contrary have developed an outstanding capacity to permeate ministries and political circles of power to further their interests. Thus, the ability to court government officials in order to get contracts has taken special relevance in detriment of the normal activities which characterize enterprises namely research on new products , national and international expansion and so on. Little can do ordinary citizens without a vast network of contacts to counteract such mesh. Society has been swift to react though, the solution being informality. In view of the intricacies and costly procedures, thousands of individuals have obviated official obstructions and launched illegal businesses of all sorts. From public transport to construction, informals are taking control of all segments. The most notorious setback is the inability to raise capital owing to the fraudulent nature of the ventures. So any given informal business can grow as big as the owner's willingness goes to risk more of its money. Some individuals have recourse to create dozens of small businesses rather than a unique big company, minimizing losses in case of bankruptcy. De Soto cites amongst others a very interesting definition of mercantilism by Ekelund and Tollison, "is the supply and demand for monopoly rights through the machinery of the state..".

Venezuela has not escaped this model, furthermore until very recently powerful holdings exerted ignominious pressure over economic activity. Having done so for quite a long time, the privileged ones had no significant problems with the newcomers which translated in a high mobility society, the incipient class equally able to win favours and contracts from the government.

When Hugo Chavez and his famished terrorist friends irrupted the scene the balance was broken for not only have they shattered the reigning relative calm, moreover they have destroyed minutely the country's economy. Contracts can not be granted to the old business elites -or the new ones for that matter- simply because nothing is being planned or built, there are no infrastructure projects, import and export are reduced to the minimum and the economic activity is stagnant. The new class -made up mainly of family and personal friends of the president- are surreptitiously fighting each other for the crumbs. Sources report gunshots and constant quarrels inside PDVSA's buildings between PPT (Rodriguez Araque's faction) and MVR personnel who have been assigned posts by the president.

The mercantilist system is meant to redistribute the wealth of the country to its citizens, however history proves that such is not the case. Only a handful of people have benefited from mercantilism in Latin American countries. Total destruction of a country's wealth does not make part of any system known to date. Hugo Chavez' policies have to be revised in detail for we might be witnessing the birth of a branch of mercantilism. Two examples are depicted on de Soto's book with respect to the transition from mercantilism to market economies; the English (characterized by a peaceful and very progressive transition) and the violent model (exemplified by France, Spain and Russia). None of the cases showed the systematic destruction of the country's wealth at the hands of the government, let alone as the main task of the president.

In sum, it is of paramount importance to study the Venezuelan case. What system is the Venezuelan president trying to impose or invent? Who will be the beneficiaries of such system? If the present admin does not observe the mercantilist system anymore (redistribution of wealth by the state which has been inexorably linked to communist systems) nor does want to comply with market economy's policies, what sort of system is governing the country? Has the destruction of a nation's wealth been defined as a system?



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