Living Out Your Own Counterfactual

In his 2011 ProDaVinci interview with Rebelión de los Náufragos author Mirtha Ribero, Moisés Naím launched into a well-rehearsed little rant about the inevitability of economic reform when he came into government in 1989.

People didn’t understand or accept that there was no alternative. You could give speeches, you could grandstand, you could bleed for the poor, but in the end the reality is that we were out of money. That’s it. You didn’t have a state apparatus that could keep price controls in place, there was no way to keep handing out dollars through Recadi at an artificial rate, we could no longer keep protecting inefficient industries or bankrolling state enterprises that lost obscene amounts of money every year, or keep a giant and dysfunctional public sector that impoverished everyone. You had to take apart the control raj that was asphyxiating the economy and impoverishing and corrupting Venezuelans, and all these things were related.

It’s a key little rant, and still the most eloquent defense of the much-maligned neoliberal reform effort of the late 1980s.

The only problem is, it’s just not true. Of course there was an alternative.

Faced with strong inflationary pressures barely kept under lid by a dysfunctional exchange and price control regime, the government could have doubled down on controls, adopting more and more repressive measures to fight speculators.

Faced with a deliriously incompetent and loss making state-owned enterprise sector, the government could have stayed the course, come hell or high water.

Faced with an acute shortage of foreign exchange that made it impossible to provide dollars on anything like the scale business was demanding, the government could have just starved half the private sector of dollars, refusing to draw down reserves without actually adjusting the exchange rate.

None of these things were actually impossible. It’s just that, to a guy like Moisés Naím, the consequences of keepin’ on keeping on looked so dire, so extreme, they were as good as impossible.

But maybe there’s a failure of the imagination bound up in that “as good as”. Maybe where it all fell apart was in averting our eyes from the “what ifs”, thinking through the gory details of the alternatives to reform.

Take price controls. Even knowing that the state apparatus that implemented them was creaky and corrupt and entirely unfit for purpose, there was no law of nature saying the government had to repeal them. It’s just that doubling down on price controls would’ve seen scarcity spin out of control, forcing people to spend hours on end waiting in line to score one or two measly packs of harina PAN to the point where even Maracucho Superman was going to peel balls to find any. Sure, even then, continuism wouldn’t ultimately have done much to keep a lid on inflation, to say nothing of people’s salaries’ purchasing power, and sure, it would likely have fueled the rise of massive smuggling conglomerates devoted to taking the goods you keep subsidized across borders where they fetch several times the subsidized price – but was it literally impossible, as Mr. Naím would have it? Not at all.

Or take the state owned industries. Sure, refusing to bring a minimal level of rationality to their operations would’ve cost the nation dearly, but if they’d been bloody minded enough they could have just refused to revise the collective bargaining agreements for years and years after they’d expired, let inflation eat away at their buying power and just taken the resulting labor blowback like a man, even if it meant shutting down one state own firm after another and bred crazier and crazier corruption schemes that ended up costing the nation literally billions. Crazy bad policy? You betcha! Impossible? In no way.

Or take RECADI. Caracas wasn’t going to fall into the Caribbean Sea in 1989 if they’d just  refused to wind up the currency exchange control regime merely because they had 10 people asking for every one RECADI dollar on offer. It’s just that maintaining such a refusal would’ve seen the rise of an uncontrollable currency black-market. As the gap between dollar demand and supply grew, the street rate would’ve climbed first to two times the official rate, then to three times the official rate, then four, then five, six and, in time, seven times the official rate. Clearly, the distortions you would start to see at these kinds of official rate-street rate spreads would’ve tended towards the dadaist in their absurdity. At some point people would’ve started doing bizarre things like buying airplane tickets that cost thousands of dollars for flights they never intended to board just to send a friend to Aruba with a credit card to cash in on some of those impossible arbitrage margins. But, at the limit, if that had been what they really wanted to do, they could have done it.

So let’s just be scrupulously clear on what the extreme levels of economic degeneracy that we’re seeing these last few weeks actually means in terms of our political history and political economy. Because, in a way, we’re almost fortunate. We get a chance to see what lay just beyond the bend on the road not taken. Venezuela is living out its own counterfactual.

And so, to all those people who slammed the reforms of 1989 – to all those who said they were needless, destructive, mindless, unnecessary – history has taken the trouble show us the alternative in clear, crisp, compelling technicolor.

So no, Moisés, get it right: there was an alternative. And Venezuelans are living it every day.