Bryan Caplan  

Reply to Grier on Venezuela

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Kevin Grier replies to my reply to his MR post on Chavez. First, an apology:

Bryan: Why in the world would you say my post was "calculated to offend"? In all honesty I find that labeling offensive.
Sorry if the humor didn't come through, Kevin; my point was just that your argument would displease both Chavez supporters and Chavez opponents.

Now onto substance:

I'd like to ask you exactly what countries with strong economic growth in the postwar period have had populist revolutions and put in constituent assemblies to re-write the constitution?

I don't know country-by-country growth numbers and constitutional histories well enough to immediately answer. But if you expand your sample a bit, it's worth pointing out that Russia had very good growth in the decades before the 1917. (And while the Bolshevik victory was hardly what most Russians wanted, a fair election in 1917 would have put the just moderately less radical SRs in power). Pre-Castro Cuba was one of the richest countries in Latin America, though I can't say for sure if there was a Cuban growth slowdown before the revolution started. And Chilean growth pre-Allende was reasonably good as far as I recall. (Can anyone chime in on these last two points?)

In any case, part of my point was that populist pressures would probably have stopped pro-growth policies from being enacted in the first place. If Venezuela had better growth, maybe Chavez would never have happened; but that doesn't mean that a Venezuelan politician who advocated pro-growth policies would have been able to win and hold office.

Its a pretty common finding in the empirical literature that regime length and stability is related to economic performance.

So I've heard, though I wonder if these results would stand up if we put in revised estimates of economic performance in the Communist bloc - and including things like famine deaths in our measures of "economic performance."
None of this says that bad policy isn't often popular all around the world, but there is a big difference between that and the claim you seem to be making, that economic growth doesn't help incumbent regimes' popularity or stability.

I can easily believe that growth raises popularity all else equal. But does growth via unpopular policies raise popularity?

In general, the answer is "It depends on the unpopularity of the policy and the amount of growth." However, in equilibrium, politicians have already grabbed the low-hanging fruit - the mildly unpopular policies that bring substantial growth. At the margin, all we have left are policies that are so unpopular that the added growth they bring wouldn't compensate politicians who challenge the status quo.

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COMMENTS (3 to date)
Ben writes:

Your argument focuses too much on the aggregate growth rate.

In Latin America large parts of the population were (and in many countries still are) completely excluded from the benefits of economic growth. The political system has traditionally been controlled by small elites who often enforced the law very selectively to their own benefit (which means, inter alia, that there was very little security of property rights for poor people).

Under these circumstances, it is not too surprising that regimes are unpopular despite reasonable aggregate growth.

Whether - in the long run - the majority of the population fares better under regimes of the type of Chavez or Morales remains to be seen, but one can at least see why many people put their hopes in them (and I think this is the point that Kevin Grier was making).

JC writes:

Well it really depends on what you mean by pro-growth. Several pre-Chavez governments tried to apply 'reforms' but as Bryan points out they were deeply unpopular -- think back to when Carlos Andres Perez tried to raise the price of deeply subsidized fuel -- it resulted in widespread violent clashes and the death of hundreds (some say thousands) in riots.

But pro-market is not necessarily pro-growth when you have entrenched 'elites' and political bureaucracies that have concentrated resources and power for so long, in an economy that derives most of its income from oil and natural resource rents.

Venezuela has ALWAYS been built up around a sort of populism. The political parties that alternated in power divided up the rents by assigning them to particular groups that what promise loyal political support, always using popular rhetoric and promises. The end result was the building of immense Ministries and hundreds of 'autonomous' (in name) parastatal bureaucracies, including a few such as PDVSA that were professionally relatively well run but hoarded most of the rents. Along side that there were several large privately-held groups such as the telecommunications group (many who had built up their wealth mainly thanks to earlier massively profitable sweet deals on preferential access to foreign exchange, and later cashed in under later 'pro-growth and pro-market' reforms).

These enclaves and privileged groups control most of the country's resources. Most of the rest of the population is left out on the street looking in.

The question is how do you shake that up, to get new policies to seize those rents away from elites (be they private TV station owners who got rich in earlier scams, or from Ministries that could do the same job with a staff of 100 that they now do with a staff of 10000).

Chavez' popular appeal lies in that many Venezuelans saw him as an outsider who could shake this up. He would sweep away the old political party system built up on patronage and cronyism and that had failed repeatedly and so spectacularly over decades. He would shake up PDVSA to get it to release more funds for social projects, and he could challenge the private elites who seemed quite willing to use their widespread control of media to support a military coup to oust Chavez while he was still playing 9at least more so than now) by the democratic rules.

The sad reality however is that it's not at all evident that Chavez is the man to do this shake up. Is he firing workers at the overstaffed ministries and putting those resources to work in more valuable social projects, or is he just handing those positions over to his supporters? Is he investing PDVSA's oil rents wisely in new pro-growth projects, or is he mainly investing to consolidate his political power. I fear the latter.

P.S. -- to answer Bryan's question. My understanding is that Chile's overall growth in the decades prior to Allende's rise was quite anemic (considerably lower compared to say Mexico, and Brazil). The growth that happened later is at least partly due to the fact that Allende shook things up sufficiently (e.g. land reform) that when the military did impose market reforms later, markets where more dynamic (the first real boom was in the fresh fruit export sector, and it definitely helped competition that there were lots of small new properties to buy and rent where much larger estates once dominated). It also became harder for industry groups to lobby and capture government agencies for special enclave protection, not just because the government was military, but because the old established business power groups had been weakened which left room for new groups to emerge and compete. Harvard's Andres Velasco (and Chile's current finance Minister) has a nice paper on the political economy of this in a volume on Chilean reforms.

Nathan Smith writes:

In defense of the Russian SRs-- and I suppose of Allende's land reform-- there seems to be a Lockean case for giving land to its cultivators, who "mix their labor with" that land.

Of course, that principle, if regularly applied, would destroy the possibility of rental markets, which is bad. But on the other hand, often land title was never, historically, acquired in good Lockean fashion. The choice is between property rights for peasant cultivators and an aristocracy whose rights are ultimately rooted in some long-past conquest.

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