Pasqualina Curcio “The Visible Hand of the Market”: An Invitation to a Debate of Ideas

Pasqualina Curcio: “La mano visible del mercado. Una invitación al debate de ideas”

Pasqualina Curcio is Professor in the Department of Economics and Administrative Sciences at the Simón Bolívar University in Venezuela. In her recent book “The Visible Hand of the Market: Economic War in Venezuela”, with a foreword by the prominent intellectual Luis Britto García. Here she explains the causes of the complex situation of the Venezuelan economy using solid econometric and statistical foundations that do not usually appear in the media. She shows that the “invisible hand” of Adam Smith does not guarantee the efficiency of the markets and much less the social welfare, even more so in countries subjected to an external economic war aiming to disrupt an alternative social-economic model.

 

What is the history of this book?

It began with a set of questions related to the differences of what was observed in reality and what was read in the media. While the media and students of the economy affirmed that, since 2013, we were in the worst crisis and that the economy fell precipitously, we noticed that while some basic goods began to be scarce, there was full employment, the unemployment rate was 6% in 2013, and it is still around 7%. There was no news of companies, especially those responsible for the production of goods, that were communicating that they had closed their doors. The book began due to the difference between what the media showed and the lived reality.

How to explain then the shortage of essential goods? How to explain the scarcity of those goods produced and imported by large transnationals, but the normal supply of the food produced by small producers in the field. How to explain that the goods that were not in the stores, but were in the illegal markets. Or how to understand the sudden and exorbitant increases in prices?

From that first work, in which we seek to answer all these questions using statistical figures and supporting ourselves in economic theories, we begin to work in detail on the phenomena that have been occurring, but which have no answer in these economic theories. Four works were written related to 1) the selective shortages that have been pre-programmed through the distribution network, 2) the inflation being induced by manipulating the illegal exchange rate, 3) the hidden commercial embargo, especially of goods such as medicines, and 4) the international financial blockade.

Aware that this is a topic that all Venezuelans should be aware of, the book written in simple terms. It relegated to footnotes the statistical and econometric results, as well as more technical explanations for those interested, and above all to substantiate mathematically and statistically what is exposed there.

Two themes run through the book, on the one hand the dismantling of what has been the classical theory of markets and the so-called invisible hand of Adam Smith. The book shows that, when one of the main assumptions of Smith’s theory is not fulfilled in reality, that is, instead of there being many buyers and sellers, there is concentrated big capital, it has the power to influence the markets, not only in terms of prices but also in deciding what and how much to produce and when to put on the market. This can generate destabilization, especially in the case of goods needed for health and life. Therefore, what exist are visible hands, big capital, monopolies and oligopoly that dominate the production and distribution of goods. Hence the title.

The second theme is the historical comparisons to what is occurring, since the Bolivarian revolution began, in Venezuela. The strategies historically used by imperialism to attack the peoples who decide to move towards a model of social justice, an alternative to capitalism. The strategies that big capital uses are not unpublished, nor improvised. With some modification, they were used in Chile 1970-73 during the Allende government, in Nicaragua in the late 1980s, in the USSR in the late 1980s, all in a covert manner. And in a formal, overt manner against Cuba through the financial and commercial blockade.

We intend with this book to demonstrate that the strategy of economic aggression, because it is veiled, seeks to generate confusion among the people by making it appear that the responsibility for what is happening lies with the government and the revolutionary socialist model.

The book is an invitation to the debate of ideas and to deepen the investigations about these weapons of economic war that big capital has historically utilized to sabotage alternative economic models.

 

Why does Luis Britto García affirm in the prologue to your book that without the need for foreign invasion or armed conflict an army of speculators is destroying the socialist project with impunity?

What Venezuelans have been living in recent years is part of a war in which conventional weapons are not used. They have used other devices, mostly undercover, that is, they do not show the face of the enemy. Among those unconventional weapons we have identified the planned shortage of selective essential goods. The responsibility for the production and distribution of goods that have been in short supply, including some food, hygiene products, medicines and spare parts, belongs to the owners of national and transnational capital. These are oligopolies, cartelized to alter the mechanisms of distribution of these products, generating shortages by not placing the goods on the shelves in a timely and sufficient manner.

They intend with this to generate a great social unrest, and above all to influence the political preferences of Venezuelans and undermine support for the revolution.

These same monopolies are those that set and speculate with prices, using as an excuse the supposed increase in the exchange rate between the bolivar and the dollar on the illegal markets.

In short, with that phrase Professor Britto shows the true face of the enemy of the Venezuelan people. It is not only the local political opposition, nor the current President of the United States, both respond to the instructions of big transnational capital, including financial ones. The real enemy is imperialism, defined as Lenin did, as the highest phase to capitalism.

 

In the conditions of a revolutionary process confronting imperialism and in a globalization like the present one, is it possible to compete perfectly in the markets defended by the followers of Adam Smith?

Not at all. Theoretically, perfect competition assumes that many buyers and many sellers must be present, that is, that no agent should have power over the market. In reality this does not happen, more and more, the capitals are concentrated in few hands, hands that are visible, and that constitute large monopolies that have the power to decide what is produced and distributed, how much and when. Therefore, they have the power to set prices and supply.

They use this power to maximize their profits, and in some cases, as we are living in Venezuela, it constitutes a weapon of war when it comes to essential widely used goods, associated with daily life and health. It serves to try to make a people bow down, and influence political preferences.

 

At various points in your book you make analogies with the events that led to the overthrow of Salvador Allende’s government, why?

Between 1970 and 1973, the President of the United States, at that time Richard Nixon, gave the instruction to “scream” the Chilean economy, he also said that he wanted to avoid at all costs that Allende would assume and consolidate in power so that he could not show the achievements of the socialist model. One of the mechanisms used to do so was the scarcity, also induced and artificial, of essential goods. As in Venezuela, long queues were formed at the doors of establishments to buy food, despite production and import levels of these goods never decreasing, on the contrary, they increased. The levels of production per capita between 1970 and 1973 were the highest, even higher than those recorded during the Pinochet dictatorship.

In Chile they altered, as they are doing in Venezuela, the distribution mechanisms. What does this mechanism consist of? The large monopolies responsible for the production, import and distribution of these essential goods do not place the products on the shelves in a timely and sufficient manner. This generates a shortage, and in the face of any shortage, and as written in the economy books, two phenomena are generated, queues and illegal markets. These companies divert goods to these illegal markets, with surcharges. That causes a lot of discomfort in the population. They did it in Chile, they are doing it in Venezuela and they did it in the USSR at the end of the 80s and in Nicaragua after 85.

In 1975, they commissioned a group of US Senators to prepare a report on the CIA’s role in the overthrow of Salvador Allende. This report, by the senators themselves, entitled “Covert Action in Chile”, showed how the US influenced the scarcities in the markets, financed right-wing political parties, used media propaganda, infiltrated the Chilean Armed Forces, pressured international banking to block loans to Chile. They even manipulated the value of the currency, generating an important breach between official and illegal exchange rates, with all the consequences that had in the economy.

The declassified documents also show the instructions given by Nixon to Henry Kissinger to prevent Allende from consolidating himself as President of Chile. By the way, those documents describe these actions against Allende as “economic war.”

It is a manual that has been applied repeatedly, with adaptations depending on the moment, the countries, even with the new technologies.

Despite the parallel, there is a great difference between what happened in Chile and what is currently taking place in Venezuela. This relates to the loyalty of the Bolivarian National Armed Forces to the people. Allende was betrayed by the Armed Forces. In the Venezuelan case, they have not only been loyal to the interests of the Homeland and the people, but has acted as a civic military union for defense against these economic aggressions.

 

You correlate in your work the shortages of essential daily products with the electoral campaigns and elections, what conclusions can be reached about that correlation?

By these unconventional weapons, we mean the planned and selective shortages through the alteration of distribution channels, the inflation induced by manipulation and publication of the value of the currency in illegal markets, and the international financial blockade. These have been used since the start of the Bolivarian Revolution in 1999, and have intensified since the physical disappearance of President Chávez and the beginning of the government of Nicolás Maduro in 2013.

These practices are more intense leading up to elections or during high political conflict, as for example, when the local political opposition calls violent scenarios in the streets.

Being covert practices, it is not recognized who is behind them. They use the media to confuse people so that they blame the Bolivarian government and especially the socialist model, and in this way influence people’s voting preferences. In this sense, it should be noted that the economic war has been amplified through a media war. The media has played a leading role in this unconventional war.

Before the December 2015 election when the opposition won the National Assembly, they intensified these actions, including the media campaign. In fact, the campaign of the opposition candidates focused on saying that they would end the queues and hunger.

However, more and more the Venezuelan people have increased their level of awareness and have been recognizing who are behind these disruptive actions, who from Venezuela do the work and execute the instructions of big capital and the US State Department.

That explains the results of the recent elections held on July 30 to elect the Constitutionalists of the National Constituent Assembly, and later the 24 state governors. In spite of the economic aggression, these last two elections have shown a high level of awareness by the Venezuelan people about what is really happening from the economic point of view. There has been a high turnout in the voting processes and a triumph of Chavismo, winning 18 governorships of 23.

 

What can explain that in Venezuela the foreign currency funds destined for importing necessities and for production by the private sector have grown substantially yet these are scarce?

It is part of the economic aggression against the Venezuelan people. Since the Bolivarian Revolution began, the private sector has received around $340 billion at a preferential rate to import final goods or inputs for production.

In Venezuela, 95% of foreign exchange is generated by the State through the export of oil, the other 4% by the export of minerals by the same public sector, while the private sector only generates 1% of the foreign currency.

In recent years, despite the private sector having received foreign currency, there has been a shortage of some products, which has no economic or administrative justification.

To provide an example, during 2014, when there was already a shortage of medicines, the private sector received $3.4 billion to import these goods. In 2004, the same sector received $900 million. That means the allocation almost quadrupled, and yet medicines are scarce. In 2004 there was no shortage of medicines.

Companies importing food, hygiene products, medicines, and spare parts have been receiving foreign currency from the State to cover their imports. They have even received more than what was historically assigned. Therefore, what the media alleges when it places responsibility for shortages on the Government, because it does not supply foreign currencies, is false.

The question we ask ourselves is why these large transnational corporations do not use their own capital, as they do in any other country, to cover their imports. Especially if they have been operating in the country for more than 70 years; they have a responsibility to the Venezuelan people. If indeed it were a problem of lack of foreign currency by the State, these companies could, through different financial mechanisms, cover said deficits and meet domestic demand. It seems that it is not the interest of these great capitals.

 

How does the parallel exchange rate influence this situation, a rate which takes as reference websites located abroad and the so-called “country risk”?

The manipulation of the parallel and illegal exchange rate is one of the main weapons of war that imperialism has used to attack the Venezuelan people. It is the most powerful.

Since 2003, a foreign exchange control has been established, through which the State assigns to the private sector foreign currency that the State receives as a result of oil. When establishing controls, it is expected that illegal markets always arise, which are marginal, since 99% of the foreign currencies are traded through the State.

Historically in Venezuela, the internal prices of the economy have used the exchange rate as a reference for its pricing. When there has been control, the reference has been the illegal exchange rate that is the highest observed in these exchange markets.

This is how importers, mostly monopolies, upon receiving the currency at a preferential rate from the State, acquire goods in international markets, which must be put on the domestic market in bolivars. When these importers convert, for example, foreign currency to bolivars, they do not use the preferential exchange rate they acquired them at, but the highest they observe in the market, that is, the illegal one.

If an imported spare part costs $100 the importer does not place it in the domestic market at 1000 Bs (the official exchange rate is 10 Bs / US $). When they carry out the conversion to bolivars, historically they have been guided by the illegal market.

Since 2006 they have been using websites where they arbitrarily set, without any economic correspondence, the value ​​of our currency. These manipulations have intensified since 2013. Currently, this website sets the exchange rate at 52000 BS / US $. The importer of spare parts will put the good on the national market at 5,200,000 Bolivars, instead of 1000 Bs. In this way they alter, from the origin, from the importation, all cost structures and induce inflation.

This weapon of economic war manipulates the value of the currency in these exchange websites, increasing the gap between the official and the illegal rates. They have done so arbitrarily and disproportionately, presenting a pattern that is attuned to political cycles and not the economic reality.

It is the most powerful weapon of the economic war because of the effects it has on the economy. It not only induces inflation and thus generates a loss of purchasing power, especially by the working class, with the consequences for the poverty levels of the population. It also has the effect of contracting the economy due to diminished purchasing capacity, depresses overall demand, which in turn has repercussions on the production levels of some sectors causing them to contract. This generates unemployment and starts a vicious cycle in the economy.

As for country risk, which is an index calculated by risk rating agencies, it places us as the most financially risky country, despite Venezuela has paid its debt commitments punctually, and that it is the country with the main oil reserve in the world.

Currently the country risk is over 3000 points, which means that Venezuela should pay around 30% interest to access international credit. The objective is to make financing more expensive and suffocate the Venezuelan economy.

This international financial blockade, like the other mechanisms of aggression, was also covered up until August 25 of this year, when Donald Trump signed the executive order formally making this a blockade against the Venezuelan people.

 

What errors has the Bolivarian government committed that have facilitated the actions of the speculators and how are they trying to rectify these days?

Although measures have been taken to counteract the aggressions, with the objective of protecting the population — for example the creation of the  CLAPs [Local Committees of Supply and Production] that transfers to the people the distribution of some essential goods, the increases of salaries to contain induced inflation, maintaining the levels of operation of social programs, including the delivery of housing, which, in spite of the aggressions, has not been paralyzed  — measures that intervene directly on weapons of war have also been lacking.

In this sense, the stricter supervision of the large monopolies responsible for the supply of goods, the control of foreign currency allocation so that that it effectively materializes in the importation of goods, and the supervision of the distribution channels are increasingly required.

Regarding the effects of inflation, the government has been adjusting wages to avoid the deterioration of purchasing power, a very important measure, however, measures are needed to avoid such manipulation of the exchange rate which in turn induces inflation.

In any case, it is important to recognize that these are very powerful weapons of war, massive because of their effects on the entire population, they are not improvised.