Sunday, 27 January 2008

Ideas for the Venezuelan Economy


This is part of all the ideas for Venezuela

Street vendors usually earn little, but there are some who earn a lot. There are many of them who are just working for some big fish who earn a lot. They usually sell imported products and they pay no taxes. The government must demand a tax declaration from anyone selling and so find out who the ones making the money are. As usual, the more you earn, the
higher the percentage you must pay. Some of the street vendors, believe it or not, make much more money than normal owners of shops who do pay taxes. The government needs to have programme for offering illegal vendors a way into legality.

Taxes for land tenancy needs to be increased substantially (specially for big landowners)
and the taxes need to be distributed to projects for the poor in the same region.

All Venezuelans should be able to find out how much their politicians are paying in
revenue taxes.

The Venezuelan government needs to increase taxes for a series of luxury goods like:
    • whiskey and other alcoholic drinks
    • cigarettes
    • yachts
    • guns
    • luxury cars

Luxury goods coming from abroad must be taxed very heavily. It is incredible and a real shame that the consumption of whiskey in poor Venezuela is higher than in Scotland and that is just one example of many about our eternal "nouveau rich" mentality.

The Venezuelan government should liberate the currency exchange. The extremely overvalued Bolivar is badly hurting all producers in Venezuela while exacerbating the dependency on imports.

Representatives of the Venezuelan government needs to meet at least once a year with representatives of universities and industries to discuss for one day about how to make Venezuela a more competitive country. Each group should publish its conclusions and these data should be made available to the public.

Universities should promote courses within careers such as industrial engineering and computing where we can get develop competitive advantage on the middle term.

The government should help in the finance of spin-offs coming from the universities, specially if those spin-offs are aimed at exporting technology from Venezuela.

The Venezuelan government needs to stop financing the rich and promoting smuggling: the price of petrol needs to rise substantially. The current price in Venezuela is simply too low. Several governments have tried without success to increase petrol prices. Carlos Andrés Pérez tried it in 1988-89 and that was one of the causes of the riots of what came to be known as El Caracazo. Other governments tried it as well to no avail. Chavez announced at the beginning of 2007 that he would no longer finance the rich and he would increase oil prices. He then recanted, everybody seems to have forgotten about the idea. What is happening?
    • Venezuela is losing vast amounts of money from the petrol subsidies
    • The country is collapsing due to the craziest traffic in the world
    • A huge amount of subsidized petrol is being smuggled out of the country
    • Venezuelans are on top of petrol consumption and thus of per head pollution in the world
Take a look here at how we stand in the world with our petrol prices:

(the Y axis is dollar per gallon)

As you see, we have the cheapest petrol on Earth. Only Iran and Turkmenistan are somehow close to us and still petrol is much cheaper in Venezuela than in those countries: 0.17 dollars per gallon in Venezuela against 0.29 dollars per gallon in Turkmenistan or 0.33 in Iran (or 0.38 in very poor Nigeria, 2.36 in Mexico or 7.30 in Italy)

Sources: Wikipedia

The government needs to inform well in advance about how it will compensate the poor for the rising prices and how it will ensure prices are not passed to the poor: public transportation must be subsidized, only private vehicles should be affected.

The government needs to establish clear targets to make Venezuela less dependent on oil and the president must declare every year what has been accomplished. She or he must state the percentage of Venezuelan exports that are not related to oil for the previous year.

Oil is not going to last forever. We are probably reaching the Oil Peak. Venezuela needs not only to diversify on income, but to save for the years of the lean cows. We should set a fond based on the experience of other countries such as


The Venezuelan government should stop spending time in insulting other governments and start working together with other countries from the South in demanding a fairer trade with the North: EU and US need to reduce subsidies to their exports and taxes to imports from the South, else Venezuela and the other countries need to take measures to balance the unfair trade. Right now the EU and the USA are dumping lots of products into the markets of poor countries while closing their markets to exporters from the Third World.


  1. Regarding TAX EVERYBODY, INCLUDING STREET VENDORS WHO EARN ENOUGH I support taxation via devaluation as a means of ensuring that *everybody* pitches in by an equal percent. By creating money, the government is, in effect, devaluating everyone's money. If this is done on a daily basis, even a small devaluation produces huge income for the government because now the number of "taxpayers" includes money launderers, foreign holders of our currency, and tax evaders.

    After all, it is the same for the government to have you pay 10% of your money to them, than to simply make the money in your pocket worth 10% less. The government ends up with the same buying power, and we end up with the same buying power, but we all saved ourseves all the costs and troubles of a taxation system. (Note how this proposal is about devaluating *instead* of taxing, not *in addition to* taxing). In fact, this would put all the tax-related workers in the nation producing at something else, so it's like an injection of educated workers into the economy, while saving the nation all the time and cost spend in dealing with taxes.

    It's transparent, simple, and easy to police by the citizens.

    Also noteworthy is that the nation would become a fiscal paradise, bringing a huge and constant influx of monies from all over the world, rendering almost imperceptible the amount that each citizen would even feel the daily devaluation.

    Naturally, I tie my support to this proposal together with the "daily, equal, unconditional cash distribution for every citizen" proposal. Together, the proposals give everyone the same *amount* while taking from everyone the same *percent*, thus eliminating poverty while having everyone contribute, progressively.

  2. Torres, thanks for your contribution. I will go back to it during the weekend. I am an absolute layman in economics but I will give it a thought, how it could work and how it could fail.

  3. Regarding 2.2. TAX LAND IN A FAIRER WAY I suppport the proposal of dealing with land the same way of dealing with broadcast frequencies, or geostationary satellite postions: concession fees, which should go up as demand goes up, and down as demand goes down, given that supply for these is fixed. A single Title Management Office centralizing all these title assignments would make sense. Having the titles made public online would greatly help reduce any lags in the show of demand for calculating fees.

    Once again, transparent, easy, and easy to police by all citizens.

  4. Regarding 2.4. INCREASE TAXES FOR LUXURY GOODS, this also becomes moot, as per 2.1. If what is wanted, however, is to "control" these items instead of just "tax" them, then this should be achieved through legislation, not taxation.

  5. Regarding 2.5. MAKE VENEZUELA MORE COMPETITIVE VIA EXPORTS, I support the proposal of making Venezuela have an open Free-Trade Agreement with all. Make Venezuela a two-way Duty-Free nation. The only checks at the points of entry and exit should be for controlled goods and their corresponding paperwork, nothing else.

    Clearly, the currency exchange rate must be free-floating. The exchange rate is a thermometer measuring the demand of any given currency. The same way one would not mess with a thermometer to control a fever, one should not mess with the exchange rate to control a market demand.

  6. Torre, I am sorry I won't have much time to answer until the weekend, but here I disagree.
    Venezuela would be the first country following such a blind free trade policy. Give me a break, the US, Europe, Japan, every single region/nation that has developed preached like hell free trade for others, but they were and still are incredibly protectionist. It is great if we have real free trade BOTH WAYS, but for that a lot of preparation is needed.

    Other countries would use Venezuela as a new Congo.
    First we need to build some industry, first we need to get our people some solid, basic education, which they do not have.
    Else, the best thing we can expect is to be everybody's else's sweatshop and they will screw up the country in such a way that sooner than later we will have massive riots and back to square one with a new, incredibly protectionist government.

    Please, give me an example where things as you propose have worked.
    As I said: the US was one of the most protectionist nations on Earth, it still is, it just does not put tariffs on bananas (I think) or oil because it cannot get enough. Same for the EU.
    But oh, lo and behold if someone tries to put some tariffs on their textiles or their machines!

    As for currency: I am for letting it float, but we should have done it years ago. As it is, we need an extra plan, well-designed measures. Fine for me if the luxury yachts Venezuelan rich have cost so much more, or everybody's whiskey, but it is not fine if out of the blue, hospitals do not have the dosh to
    buy material that is only produced abroad.
    So: let the currency float, but before doing that, have a real plan with complete details about how you will keep basic services going on.

  7. Above all, remember to keep all my suggestions within the context of having cash distribution proposal implemeneted (which guarantees zero poverty for life for every citizen, regardless of anything else).

    Regarding my supporting free-floating currency exchange rate as much as free trade, keep in mind that this is within the additional context of the taxation via devaluation proposal, so the more of our money they take in exchange for their products, the larger brunt of the devaluation they will absorb for us.

    But aside from that, take a real moment to think about every country in the world seeing Venezuela as a fiscal paradise, as well as a duty-free market! The competition would no longer between Venezuela and another country over a particular product; it would be between all countries trying to step over each other to sell their products in Venezuela. The ramifications of something like this are astounding, but let me focus on one angle: An investor would see the immediate benefit of *producing* in Venezuela, rather than importing because his having to be competitve in Venezuela just for someone else to turn around and export his product cheaper than he can to another nation is a losing proposition. So investment, not imports, end up being the name of the game.

    You want industries in Venezuela, but I shudder to think why anyone would think the government has to be the one to be behind that. This would not only bring industries like crazy, it would make the demand for industrial land skyrocket, also benefitting the land concession fees.

    Basically, competitiveness boils down to having something that is more desireable than what anyone else has. A Duty-free, fiscal paradise certainly makes Venezuela desireable, and because government can be less efficient and less costly with such a setup, Venezuela would be more competitive. The key is to make sure the benefits from such a setup do not disappear into the dreams of a few; this key is accomplished by the cash distribution together with the taxation via devaluation.

  8. I've been thinking about your last comment while waiting for a reply, and two things have been nagging at me:
    1) using fees as a way to control price of goods, as a way to control the trading of certain goods
    2) using natural resource income as a way to pay for the investments you seem to suggest need be made

    My issue with number 1 is that if you need to control the number or the flow of certain goods, I believe that that is best accomplished through laws, not through their price. Remember, price is an indicator, a measure of a tacit negotiation between price and demand. Though affecting price definitely affects the market, using it as a form of control of the market is a no-no, as well as inefficient and corruption-prone, and mediocrity-fertilizing, analagous to exchange rate controls, by the way.

    My issue with number 2 is how unprogressive it is. For example, The Venezuelan government exporting 3million barrels of oil per day, let's just say at 30USD per barrel, is equivalent to 9USD per Venezuelan per day! But if you don't give each Venezuelan his daily 9USD from the oil you *must* spend the 90million daily USD in such a way such that the poorest receive the bulk, otherwise it's not progresssive. From our history, you would be in a bind trying to find examples demonstrating that the investments you suggest truly get goods and services representing a value of most of those 90million daily USD to the poorest.

    One final comment regarding other nations subsidizing some of their imports and exports, the way to beat those controls is by no means attempting to counter-subsidize. There is just no way Venezuela can outsubsidize USA. The only way would be to export to other nations that we can outsubsidize, but USA is probably also exporting there! I say, let the market handle it. There is no way a politician sitting in office will make better and more dynamic decisions about such things than the owner of a business dedicated to that. You are right that the floodgates cannot simply be opened overnight; the market could not handle the abruptness, but you must agree that the end-goal should be a free market, the same way your aim is a free exchange rate. Right?

  9. "Please, give me an example where things as you propose have worked."

    Sorry, I haven't found that these proposals have ever been tried anywhere. They are truly Venezuelan proposals, made with Venezuela in mind, and, especially, at heart.

  10. Firstly: I am afraid I need another week more as I am into some big work.
    But briefly this:
    "you must agree that the end-goal should be a free market, the same way your aim is a free exchange rate. Right?"
    Yes, the goal would be a free market, even those there is hardly any free market on Earth. The closest we have to that is within the EU. What happens over and over again is that the big powers tell us in Latin America WE are the ones who should have this free markets for them and they have the free market for our bananas, our coffee and our oil.

    We definitely cannot offer bigger subsidies but then I am not thinking about exporting if we don't have a competitive advantage already, but about generating more and more products for internal consumption that could start replacing those from abroad.
    We cannot open up the markets right away. The issue is what speed should we take, how to control that opening.

    1) Start freeing the currency exchange but organize a system whereby hospitals and the like get their extra costs payed by the state. The state will have anyway more money from the Bolivars it gets for its petrodollars
    2) Increase taxes for imported goods there are some chances of replacing, specially if we know those products are being dumped to us.
    I will follow this weekend. Sorry.


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