I am not going to discuss the early Chavez years polices that brought us to this cliff. You all know about political expropriations, rampant populism, waste of resources overseas, etc... What was lost then is lost and cannot be rebuilt just like that. What interests me are the reasons that do not allow the remaining producers to, well, produce. The problems are thus: very low worker productivity, huge administrative costs caused by the regime's policies, unreasonable taxes (I am not writing excessive, I am writing unreasonable), impossibility to get all the supplies, services and raw materials you need to be able to produce.
Low worker productivity
You cannot have 15 years of "proletariat" speech, of hatred to the capitalist oppressor, of plentiful of rights for the workers without any obligations, and what not without consequences. To this you add the new labor law decreed in 2012 to help Chavez reelection and basically there is no way you can have productive workers. Even the good ones, the ones that believe in the company, that believe in bonus, promotions and other incentives of modern capitalism are dragged down by those who for all practical purposes are sabotaging their work, .
The point here is that it is nearly impossible to fire someone making no more than 4 minimum wage, representing in production services at least half to 2/3 of the personnel. To fire someone you need to catch him raping a secretary during office hours or have her recorded on tape stealing from the cash register. Technically if you give a "double" severance package and get the permit from the "inspectoria del trabajo" (local labor ministry delegation) you could fire anyone. But the Inspectoria never grants its permission (unless it is a state company asking for it, as you would expect in a dictatorship). The only option you have is to negotiate with the trouble maker a sum that goes well above legal severance pay. And the difference is described as bonus to the worker for excellent services, since it is not legal to fire...
I let you guess how this increases labor costs, including increased costs from demoralized workers that see the creep getting away with murder. Of course, in 90% of the cases the trouble matter is a chavista or pretends to be.
It is imperative to have a labor force that works again. We are not in the early XIX century of human exploitation. There are plenty of laws now protecting the health of the worker, ensuring decent wages, protecting them from all sorts of abuses. But if you want to be competitive in the world you need workers to also do their share.
My suggestion here is that the regime changes the no-firing policy for a no reduction of payroll. That is, you can fire whomever you want, at double cost, BUT you need to hire a replacement in, say, 2 months. The commie regime would certainly refuse that because it is a way to accept the return of some meritocracy. However, speaking from ground zero, I can assure that "constant payroll" would increase in a matter of months productivity by as much as 20%, helping inflation control.
Huge administrative cost provoked by the regime needs to control it all
The best example for that is that NO TRUCK with food items or supplies for the manufacturing of food can take up the road without permit from the government. It is incredible that the regime accuses the opposition to promote contraband at the borders SINCE the only way to circumvent SADA and other organizations of that ilk is through regime internal complicity. And that complicity can only come through the army that patrols the roads.
But there also many useless regulations that create costs. Rather than go into the details let me tell you what is actually the worst outcome: constant inspections. They are very costly because the state inspectors are very arrogant, demand that all activities be stopped at least on administrative level so that they can be attended immediately and at will for any item they wish to see. Never mind that if the inspectors come from Caracas you have often to pay for all of their expenses...
These inspections have only one purpose: scare the private sector, put political pressure on business owners, try to subvert the mood of workers when inspectors manage to find an irregularity. Reducing them or making them more sensible could increase productivity by, my guess, 5%. It also would reduce costs in that most business now are paying administrative workers, and lawyers, strictly to deal with the morass of paperwork demanded. I suggest that a company that passes an inspection should be exempted for at least one full yer before there is a return of the given bureaucracy, except, of course, for the sanitary inspections. Today companies like Polar are inspected and reinspected and rereinspected through the year....
Unreasonable taxes
In Venezuela taxes are excessive for the development level of the country, but there plenty of ways to lower the bill. This is not what I have in mind. What bothers me are unreasonable taxes. Let's discuss the LOCTI, the law that forces business to invest part of their receipts in technological development.
For this blogger the LOCTI may have been the only "good" law that Chavez ever promoted. Companies were supposed to invest a percentage of their receipts, not their earnings, on technological development. That investment had to be approved by the regime's corresponding office but you were reasonably free to present your project, or give your money to a campus of your choice or pay for training for your workers. If none of them applied to you, then you could give it to the state that would invest in research or higher education.
The law worked so well for a couple of years that the regime had to change it. See, everybody understood that being forced to invest in technology was not a bad thing, and that it could make you more competitive and productive by international standards. Ourselves did three projects approved, one supporting a researcher, one to buy a heavy analytic laboratory equipment and one for a series of course for our administrative personnel. And we were duly inspected and pass the inspection with flying colors, proving that not only we did do the investment but we put it to work and even increased payroll.
What did the regime do? It forced everyone to put the money with the state and ONLY if your project was approved you would receive the funds. In the last 3 years we have not been able to have anything approved IN SPITE of our favorable track record. And as far as I know NONE of my customers have had their projects approved.In other words, LOCTI became a mere new tax that nobody knows where it is spent. Though we are all sure that corruption benefits from it.
My suggestion is that there is a need to review some laws that have become abusive ways to tax business. For example, bringing back LOCTI to its original purpose would update reasonably fast the technology of the business still alive. make them more competitive, more productive. I would be willing to bet that LOCTI back to its old self could have by itself a 5% hit in productivity in less than two years at a minimum cost for the state.
Impossibility to get raw material, supplies and services
The three points that I mentioned above would cost little to the country and would allow productivity to increase a lot just within a year, while allowing a better control of inflation (bringing it down to lower two digits is another story, but we have to start somewhere, don't we?).
The big problem we have RIGHT NOW, is that inventories of raw materials are low. Ourselves have no inventory for about half of what we could produce and no more than a month for what we can produce. When we reopen in two weeks we will be able to produce at 25% only, for a couple of months at most. It is that simple, and that simple for all business in Venezuela today.
We cannot solve easily this situation as oil prices are down, as the regime fiscal situation is a mess, as there is simply no $$$$ to buy raw materials outside as we produce very little of them here. I will discuss that in a following post. However there is something simple that the regime could do right now to help restart the economy. Absolute priority for the few $$$$$ available should be for food, medicine and spare parts. Forget about TV, travel, new cars, whisky, Italian panettone and the like for a couple of years. The only imports for the next year should be raw material for;
- a few targeted food items that can start fast. For example I can vouch that poultry and pork production could be sufficient within a year. Within two years we could get back in onions, tomatoes and few other vegetables if local producers were allowed to bring the supplies they need (privatize Agrosileña?). We could ban imports of pasta but allow freely import of wheat to do all the pasta we need here.
- raw material for medicine manufacturing (we can do a lot of generics already, we only need the regime to allow for those imports). And medical supplies of course, as our big ticket item that could be provided for easily by cutting half of the oil we send to Cuba.
- spare parts of any type. No more new trucks or cars for a year but at least all the spare parts the ageing transport system needs.
That is it, the only three things that can come in for at least a year. We need workers to be fed, cured and we need stuff to be distributed across the country. I know, it sounds very primitive, very fourth world. But that is what chavismo turned us into. No?
Conclusion
I am not inventing the wheel here. But I am offering simple measures, that would have a relatively low cost for the state and that would allow production to jump start. I am willing to bet that if the above is applied in the next three months in a year from now we can end the recession. That is the advantage of a destroyed economy, when you start from 0, such as after a war, growth is fast. And chavismo has been like a war. We are now in a post war recovery if the regime changes, if its only objective is not anymore corruption and looting.
One can always dream.
The point here is that it is nearly impossible to fire someone making no more than 4 minimum wage, representing in production services at least half to 2/3 of the personnel. To fire someone you need to catch him raping a secretary during office hours or have her recorded on tape stealing from the cash register. Technically if you give a "double" severance package and get the permit from the "inspectoria del trabajo" (local labor ministry delegation) you could fire anyone. But the Inspectoria never grants its permission (unless it is a state company asking for it, as you would expect in a dictatorship). The only option you have is to negotiate with the trouble maker a sum that goes well above legal severance pay. And the difference is described as bonus to the worker for excellent services, since it is not legal to fire...
I let you guess how this increases labor costs, including increased costs from demoralized workers that see the creep getting away with murder. Of course, in 90% of the cases the trouble matter is a chavista or pretends to be.
It is imperative to have a labor force that works again. We are not in the early XIX century of human exploitation. There are plenty of laws now protecting the health of the worker, ensuring decent wages, protecting them from all sorts of abuses. But if you want to be competitive in the world you need workers to also do their share.
My suggestion here is that the regime changes the no-firing policy for a no reduction of payroll. That is, you can fire whomever you want, at double cost, BUT you need to hire a replacement in, say, 2 months. The commie regime would certainly refuse that because it is a way to accept the return of some meritocracy. However, speaking from ground zero, I can assure that "constant payroll" would increase in a matter of months productivity by as much as 20%, helping inflation control.
Huge administrative cost provoked by the regime needs to control it all
The best example for that is that NO TRUCK with food items or supplies for the manufacturing of food can take up the road without permit from the government. It is incredible that the regime accuses the opposition to promote contraband at the borders SINCE the only way to circumvent SADA and other organizations of that ilk is through regime internal complicity. And that complicity can only come through the army that patrols the roads.
But there also many useless regulations that create costs. Rather than go into the details let me tell you what is actually the worst outcome: constant inspections. They are very costly because the state inspectors are very arrogant, demand that all activities be stopped at least on administrative level so that they can be attended immediately and at will for any item they wish to see. Never mind that if the inspectors come from Caracas you have often to pay for all of their expenses...
These inspections have only one purpose: scare the private sector, put political pressure on business owners, try to subvert the mood of workers when inspectors manage to find an irregularity. Reducing them or making them more sensible could increase productivity by, my guess, 5%. It also would reduce costs in that most business now are paying administrative workers, and lawyers, strictly to deal with the morass of paperwork demanded. I suggest that a company that passes an inspection should be exempted for at least one full yer before there is a return of the given bureaucracy, except, of course, for the sanitary inspections. Today companies like Polar are inspected and reinspected and rereinspected through the year....
Unreasonable taxes
In Venezuela taxes are excessive for the development level of the country, but there plenty of ways to lower the bill. This is not what I have in mind. What bothers me are unreasonable taxes. Let's discuss the LOCTI, the law that forces business to invest part of their receipts in technological development.
For this blogger the LOCTI may have been the only "good" law that Chavez ever promoted. Companies were supposed to invest a percentage of their receipts, not their earnings, on technological development. That investment had to be approved by the regime's corresponding office but you were reasonably free to present your project, or give your money to a campus of your choice or pay for training for your workers. If none of them applied to you, then you could give it to the state that would invest in research or higher education.
The law worked so well for a couple of years that the regime had to change it. See, everybody understood that being forced to invest in technology was not a bad thing, and that it could make you more competitive and productive by international standards. Ourselves did three projects approved, one supporting a researcher, one to buy a heavy analytic laboratory equipment and one for a series of course for our administrative personnel. And we were duly inspected and pass the inspection with flying colors, proving that not only we did do the investment but we put it to work and even increased payroll.
What did the regime do? It forced everyone to put the money with the state and ONLY if your project was approved you would receive the funds. In the last 3 years we have not been able to have anything approved IN SPITE of our favorable track record. And as far as I know NONE of my customers have had their projects approved.In other words, LOCTI became a mere new tax that nobody knows where it is spent. Though we are all sure that corruption benefits from it.
My suggestion is that there is a need to review some laws that have become abusive ways to tax business. For example, bringing back LOCTI to its original purpose would update reasonably fast the technology of the business still alive. make them more competitive, more productive. I would be willing to bet that LOCTI back to its old self could have by itself a 5% hit in productivity in less than two years at a minimum cost for the state.
Impossibility to get raw material, supplies and services
The three points that I mentioned above would cost little to the country and would allow productivity to increase a lot just within a year, while allowing a better control of inflation (bringing it down to lower two digits is another story, but we have to start somewhere, don't we?).
The big problem we have RIGHT NOW, is that inventories of raw materials are low. Ourselves have no inventory for about half of what we could produce and no more than a month for what we can produce. When we reopen in two weeks we will be able to produce at 25% only, for a couple of months at most. It is that simple, and that simple for all business in Venezuela today.
We cannot solve easily this situation as oil prices are down, as the regime fiscal situation is a mess, as there is simply no $$$$ to buy raw materials outside as we produce very little of them here. I will discuss that in a following post. However there is something simple that the regime could do right now to help restart the economy. Absolute priority for the few $$$$$ available should be for food, medicine and spare parts. Forget about TV, travel, new cars, whisky, Italian panettone and the like for a couple of years. The only imports for the next year should be raw material for;
- a few targeted food items that can start fast. For example I can vouch that poultry and pork production could be sufficient within a year. Within two years we could get back in onions, tomatoes and few other vegetables if local producers were allowed to bring the supplies they need (privatize Agrosileña?). We could ban imports of pasta but allow freely import of wheat to do all the pasta we need here.
- raw material for medicine manufacturing (we can do a lot of generics already, we only need the regime to allow for those imports). And medical supplies of course, as our big ticket item that could be provided for easily by cutting half of the oil we send to Cuba.
- spare parts of any type. No more new trucks or cars for a year but at least all the spare parts the ageing transport system needs.
That is it, the only three things that can come in for at least a year. We need workers to be fed, cured and we need stuff to be distributed across the country. I know, it sounds very primitive, very fourth world. But that is what chavismo turned us into. No?
Conclusion
I am not inventing the wheel here. But I am offering simple measures, that would have a relatively low cost for the state and that would allow production to jump start. I am willing to bet that if the above is applied in the next three months in a year from now we can end the recession. That is the advantage of a destroyed economy, when you start from 0, such as after a war, growth is fast. And chavismo has been like a war. We are now in a post war recovery if the regime changes, if its only objective is not anymore corruption and looting.
One can always dream.
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