Condemned to success

I have my contact at the alumni network of Sloan MIT that is very "pendiente de Venezuela" and thanks to this person I receive timely Whatsapps of relevant Venezuelan stuff from MIT that I thoroughly enjoy.

Such as the following YouTube video (135 views when I first saw it today and mine is the 10th thumbs up).

If you can spare 40 minutes or so its worthwhile to watch. This fellow, Roberto Rigobon, is a Venezuelan born professor of Applied Economics at the MIT Sloan School of Management and his insight into the "How did we get here" and into the "What's next" is worth a hear.

Below is my transcript of an excerpt of his talk as part of J-PAL's "Data, Decisions, Public Policy" lecture series.

Note to self: Crude oil production took off in Venezuela in 1922 with the successful drilling of an oil well in Zulia that drew 100 thousand barrels a day. By 1928, Venezuela is the world's second largest producer of crude oil (290 thousand b/day) and the world's leading exporter (with 275 thousand b/d). I am quoting "Industria Petrolera Moderna" where it claims that crude oil production peaked in 1970 at 3 million 7 hundred and 80 thousand b/day.

"Venezuela was since 1928 until 1970, the first oil exporting country of the world."

I also watched the documentary series "Reventón I", "Reventón II" and "Reventón III" many years back —and now I am quoting from memory— it struck me that between this nearly 50 year period where Venezuela crowned the world's oil exports, the value of the barrel of oil was roughly averaging at $2.00 and a fraction of this value was retained by the Venezuelan state as taxes, what have you. The oil industry in Venezuela was then nationalized in 1974 and as a result of conflict in the Middle East, oil exporting countries' use of production quotas and the creation of the OPEC oil cartel, oil prices increased seven fold. So a lot money began to pour into the Venezuelan state.

In the video Roberto Rigobon offers the following values for the price of a barrel of Venezuelan crude oil and poverty levels between 1965 and the election of Hugo Chavez in 1998.

1965: Price increase from $1.30 a barrel to about $3.00

1973: Increase to almost $25.00 a barrel

1979: Fluctuated up and down to settle at $40.00 a barrel

1981: Oil prices falls to $8.00 a barrel. "Massive shock to the economy."

1965: Venezuela has the 3rd largest per capita income with oil prices at $1.30

1981: Predating the plunge in price of oil, Venezuela's poverty level is 3%

1998: Poverty level in Venezuela is 29%. "Massive degree of incompetence."

2012: Last official poverty level in Venezuela is 45%

2019: Poverty level is: "No clue", which may mean to an economist like Roberto Rigobon anything between half the population and almost everyone left in the country outside of its capital Caracas.

Friendly reminder to self: When Hugo Chavez came to power, the barrel was what? $30? After the state oil company strike (PDVSA after which thousands of worthy professionals were purged and fired from) and after Chavez resurrection to power 3 day's after a coup in 2002 it became what? $60? $80? $100? I remember it peaking at what? $110-$120? Its there documented somewhere.

My point being that in the last 20 years under the Chavez-Maduro regime, never had so much oil dollar revenue poured into the country, never has so much hard currency been squandered by the government, mismanaged and mere all out stolen from the state treasury.

Poverty level today is unprecedented and the monthly minimum wage is less than $6.00 a month, hyperinflation in the millions of percent, more than 3 million Venezuelans have emigrated, thousands simply walking across the border to Colombia at a rate of hundreds every day fleeing a humanitarian crisis.

Roberto Rigobon (min 26:51): "I think the biggest challenge is when that transition takes place and I hope it takes —the sooner it takes the better— because I think that we need to actually restore access to very basic things. When people ask me 'what will you provide to people?' my list is: Food, medicine, electricity and water. You understand that this is what we used to think in the Middle Age. When we were in the 1200 [AD] those were the problems our governments had, how to provide this —well not electricity [laugh]— but very basic goods and we just cannot provide in Venezuela right now. So we need to actually change this.

So we need to provide a vision: 'What is the country we are going to build?' Not necessarily what we are going to destroy. That's the first point.

It has to be very heroic. In the sense I have a very friend, this is a statement from a very close friend but his view is that we actually have to feel that we have the opportunity to create a nation from almost zero. And that therefore that we have the challenge to be able to do that. How many of us will actually pay to have the chance to rebuild the electricity production of a country from zero? I mean, just think about CO2, we might actually be able to deal with it from the design, from the ground up. So there's a lot of opportunities that hopefully people like you and J-PAL and that are all over the world would have the courage to take on and tackle those challenges and solve and provide good advice about how to build a better country.

Hopefully the Venezuelans that are there feel proud about the possibilities of what we can build if we can move.

The biggest challenge unfortunately is that the day the transition takes over we have truly no idea about the state of the economy, nor how much power we will truly have. So for example, I am working closely with a professor in Harvard, his name is Ricardo Hausmann and we are kind of trying to think about —with a lot of help of other people, there's a lot of people helping here— questions like for example: 'How many pensioners do you have?' We have no idea. And its not like the numbers are between 3 million and 3.1 million. No, no, no, no, no, no. The numbers are between 3 million and five and a half. We have no idea and the reason is because one year there were five and a half million people collecting, the following year only three and a half. So either two million people died or I mean like, what happened to the others? We have no clue.

'How many employees in the government?' Any number between two million and four and a half million. You understand the level of uncertainty is just humungous. When we ask people: 'How much will it cost to repair electricity?' Well, point five billion or seven billion? So can you give me a range that sounds like normal? By the way, our GDP in the country is about 50 billion dollars. So this is 10% of the GDP will be devoted to repair electricity, or 1%? Its a big difference! We have no clue, we have no clue.

Furthermore, we have no clue about the support of law enforcement. So when the new president comes and stands in and says: 'I am the new president elect' will the police say: 'OK you are my president'? Will the military say: 'Yes, you are my president'?

Truly to me, what I am obsessed is governability. Is that once the transition takes place, how on earth do we make it to the following week? How do we make it to next Friday? And I know this sounds a little short termish, I know it sounds short termish but truly, truly we have people that require food, medicine, water earning six dollars a month they cannot afford it, and I cannot pay them more.

So this is one of the very few instances in which a country has to stabilize a country with inflation. It just like a bizarre case in economics. I don't think actually I have ever found it because we need wage inflation in dollars. We need —six dollars is not the opportunity cost of the Venezuelans— but right now we cannot afford that just out of subsidies.

So Venezuela will need a lot of international help. Not military help, its actually actual help, people that are willing to put resources and the way that I think about it is that we, as the international community, were purchasing the right and the option to build a better country. And I think that is actually worth a try. 

I do think that Venezuela is condemned to success." (Min. 31:54)

Do you have an hour to spare & learn about "Venezuela: How did we get here, and what's next?"

Applied Economics professor @MITSloan @RobertoRigobon explains

Part of @JPAL_Global @JPAL_NA Data, Decisions, Public Policy (D2P2) lecture serieshttps://t.co/6OJdM8e00Z via @YouTube

— Juan(E)Mayoral🇻🇪🇵🇷🇺🇸🇲🇽🇪🇸🇫🇷🇭🇺🇨🇴🇮🇳 (@Quintajayuya) June 3, 2019