Venezuela’s Barriers to the Promise of an Information Technology Industry
Matthew R. Bloom
“I call petroleum the devil’s excrement. It brings trouble. Look around you. Look at this locura [madness]—waste, corruption, consumption, our public services falling apart. And debt, we shall have debt for years.”
- Juan Pablo Pérez Alfonso, Venezuelan founder of OPEC
Until the 1980’s,
Venezuela was viewed as an example of Latin American exceptionalism, it had
enjoyed economic diversity, variety of natural resources, democratic
stabilization, and the perception that it was free of class conflict that
plagued other Latin American countries. The model of exceptionalism in
Running on a
populist platform in1998, Hugo Chavez
was voted the president of
Chavez must free
Venezuelans from their reliance on oil exportation. This must be achieved by developing the
non-oil economy independent of the oil sector.
Chavez has implemented and encouraged the development of cooperatives in
both the business and agriculture.
Although cooperatives will facilitate the development of human capital,
they will not allow
Chavez makes no
effort to hide his rejection of traditional liberalized economic policies
advanced by of the IMF, the World Bank and the
embraces Chavez’s position against economic liberalization for several
reasons. First, it would be impractical
to propose policy that would unarguably be rejected by the person who sustains
the power to initiate policy. Second,
this paper proposes an alternative to Chavez’s current economic policy, which
appears to be a politically charged reaction against the failure of traditional
Western economic liberal intervention in
An essential part
of launching sustainable development for
The purpose of
this paper is two-fold. First, it will provide
economic justification for the position that Chavez’s interventionist
government can succeed in developing a non-oil economy. Second, this paper will identify the
opportunities and demonstrate how to establishing an IT sector in
next section of this paper provides a brief history and context for Venezuelan
development. This includes both an
explanation of the Dutch Disease and an identification of
The third section provides
development theory that Chavez should use as a guide for
The fourth section
explains why IT is essential to growth in today’s international economy and
The last section
of the paper describes what
For Hugo Chavez,
Bolivar was a
philosopher, in addition to being a military leader. He believed that the state should protect the
weak from the strong, but that the executive should be checked by a
Parliament. Similar to the
Venezuelan oil was owned primarily by foreign actors who fenced themselves off
Venezuelan, however, did not enjoy the benefits of the oil wealth. It was not until the Accion Democratica (AD), a social democratic party, promised to
enact democratic reforms and deliver benefits from oil wealth to all
Venezuelans that the people were able to realize any benefits from Venezuelan
oil. The AD was led by Romulo Betancourt and a
group of professionals, who had participated in student revolts against the
military dictatorship in 1928. They claimed to represent the workers and
peasants by arguing that Venezuelans must free themselves from foreign
influence and reclaim Venezuelan oil for the people. The AD also favored state intervention to
improve the livelihood of the Venezuelan people. In 1945, AD came to power by executing a coup
of General Isaias Medina Angarita. AD
asserted that the coup was necessary to establish democracy in
AD and two other
main parties, Comite de Organizcion
Politica Electoral Independiente (COPEI) and Union Republicana Democratica (URD) assent to power sharing
agreement in 1958 in order to establish a democracy and exploit the widespread
disapproval and lack of support of military dictator President Perez Jiminez. There were several political parties that
were prepared to take power, but AD, COPEI, and URD enjoyed the most popular
support. It did not matter that AD,
COPEI, and URD were ideologically distinct.
Instead, it mattered that they all had the common goal of establishing a
The Pact of Punto
Fijo’s points of agreement included power sharing, reliance on the state as an
engine for economic development, reconciliation of old antagonisms, and support
Nevertheless, there were problems that became apparent over time. Two of the problems resulted from the parties’ interest in maintaining the Punto Fijo unity. Thus, they avoided proposing policy that would create divisions among the ruling elites. First, the ruling elites used distributive policies to govern and preserve political support of the poor. It was easier to maintain the party unity by short-term distributive policies, rather than debate potentially divisive policy that would create long-term solutions. Second, the democracy became increasingly centralized since there was no meaningful dialogue regarding the limitations of government intervention. The distributive policies, however, were effective so long as both oil income steadily increased and political stability ensued.
By the early 1970s, the distributive polices had caused the Bolivar to be overvalued. Thus, private enterprise turned to state assistance to remain competitive in foreign markets. State assistance forced merchants, industrialist, and bankers and other businesses to maintain ties to the state to stay competitive in both, domestic and foreign markets. Both public and private society became increasingly corrupt the longer that private enterprise and government stayed in bed together. Further, public-private corruption was invited when the state nationalized the oil company in 1976.
Between the 1960s
and the early1980s, there existed several explanations for
explanation pointed to the benefits
Ricardo Hausman, the eventual economic collapse in the 1990s can be explained
by two costly mistakes of poor decision making the mismanagement of the 1973
oil windfall and second and the steep drop in oil prices in 1982. President Carlos Andres Perez began his term
in 1974 by investing the oil windfall in overseas funds. The investments had to cease because
state-owned enterprises sprang up everywhere soaking up most of the oil
windfall. The new state owned
enterprises quickly ran out of oil money and turned to contracting foreign debt
and borrowing from international markets to stay afloat. By 1982, the Venezuelan government was $28
billion in debt, which was almost six times the debt of the country. So, when oil prices dropped in 1983, the
state owned capitalism collapsed.
Leading to further economic decline,
Another change occurred when PDVSA, the state oil company, began to privatize because of the opportunity created by the liberalized IMF policy. The oil company allowed foreign private investors back into the Venezuelan oil industry for the first time since oil was nationalized in 1976. PDVSA also assumed the responsibility of overseeing oil contracts, which was previously done by the Ministry of Mines. At the same time, PDVSA’s paramount goal was to pay low taxes and to redirect oil revenue away from the state. The government complied with the demands of the oil company, and therefore the government’s share of oil revenues markedly diminished. PDVSA’s influence and power were swelling. The oil company’s liberalized policies regarded oil as a free gift of nature to international producing companies and foreign consumers. The average Venezuelan, on the other hand, had learned to rely on the oil wealth and felt alienated from oil which they had believed was rightfully theirs.
The new liberal economic policies put AD,
who had ruled for many of the years since 1958, in an awkward position because
they had traditionally been the party to govern through state interventionist
policies. Embracing liberal economic policies put AD on shaky ground with their
constituents who expected the continuation of short-term policies funded by oil
wealth. This signaled the end for AD.
While other candidates who exploited the unrest in the country made ambiguous promises, Chavez’s platform was most radical. Chavez not only rejected neoliberalism and privatization of the state oil company, PDVSA, but also rejected the alliances of the traditional political parties. Chavez was elected in large part because of a swell of support from the poorest demographics. He was inaugurated on February 2, 1999. Once in office, Chavez drafted a new “Bolivarian” Constitution that focused on economic and political rights of the people. The Constitution also reformed the state oil.
become increasingly more centralized during Chavez’s presidency. He remains a divisive figure in
Without its oil
Chavez recognizes that most of the problems facing
premises run through Chavez’s reforms.
First, he entitles economic rights to individuals via a welfare regime.
Second, he protects the free market, subject to state corrections of market
failures. Although improvements to
remaining economic problems facing
agricultural sector is inefficient and therefore not competitive in world
markets. In fact,
Finally, paternalism has plagued Venezuelan politics since the Pact of Punto Fijo in 1958. Equitable distribution of the oil rents and political power sharing was the premise behind the Pact of Punto Fijo. COPEI, the party of the elites, believed that rent distribution and power sharing with the more leftist regimes would quell the threat of violent overthrows suffered by previous regimes. This, however, meant that the oil rent was used to pacify the lower classes with welfare programs. The 1990s economic crisis provided a political opportunity for Chavez when the state adopted neoliberal policies, effectively abandoning its promised programs to the poor. This was devastating to the expectations of the Venezuelan people who relied on the government programs.
Chavez exploited the opportunity and promised the people that the state would reclaim the oil revenue from external investors and redistribute it the Venezuelan people who rightfully owned it. It was a winning political stance because 82% of the population, at the time, believed that it was the job of the state to equitably distribute the oil wealth. Chavez’s promises heightened Venezuelan’s expectations for their government to levels unseen. For instance, citizens send personal financial requests to Chavez and shove them in his pockets wherever he goes. Some of the requests are minor, such as roof repairs or meals. There are also major requests, such as money for needed surgeries or an apartment. Chavez often symbolically grants the requests in public to strengthen political support of the people.
paternalism is a serious problem that must be resolved to establish new
industries and achieve economic growth.
The people must learn to believe in the power of their own productivity
and ingenuity to provide themselves with economic prosperity, rather than
feeling entitled to wealth and services from the state. This reversal of attitude can be achieved, in
great part, by Chavez utilizing his charisma and support from the people to
force them to recognize their responsibility and potential. He could frame the citizens’ new role as a
necessary part in his oft-cited Revolution.
Before any of this can be achieved, however, Chavez must first recognize
that the non-oil sector should be the focus for
Chavez can achieve
this by initiating development policies that operate under the assumption that
No sustainable development strategy, however, will be successful unless it takes into consideration the inherent and rigid limitations imposed by the Chavez government, the Bolivarian constitution, and Chavez’s penchant for intervention. More specifically, the limitations include the constitutional right to all Venezuelans to “life, work, culture, education, social justice and equality.” Moreover, the policy must be consistent with the principle that the visible hand of the state should counter the weaknesses and imperfections in the market.
technology development should be Chavez’s primary development initiative. Increased access to IT should be an
attractive possibility for Chavez, because once established, it will provide
great benefits to
economic problems that
governments throughout the last century believed that the strength of oil
wealth alone could be exploited in various ways to create a diverse
economy. The country was often fooled
into believing they had achieved economic wealth when oil prices were high, but
the state, instead, had only created massive expenditure programs funded by oil
rent. Each successive administration promised to
restructure the economy and institutions.
Predictably, each successive administration failed to reform the
Venezuelan economy since they would only address the short term problems of the
constituents, which could only be funded by oil.
Another primary problem is rent seeking, which is the competition between public and private institutions to get a share of the national oil revenue from the government. Rent seeking results in corruption and wastes energy that could be directed at more productive activities for the economy.
The aforementioned economic conditions associated with the Dutch Disease commonly result in high poverty rates, income inequality, child mortality, child malnutrition, high incidences of political corruption, higher risks for authoritarian governments, higher sovereign debts, and higher military spending. There is also a strong correlation between high resource dependency and low human development. These evident problems compelled Juan Pablo Pérez Alfonso, a Venezuelan founder of OPEC, to refer to oil as the “devil’s excrement.”
The Dutch Disease has several explanations. One of the earliest explanations came from Jean Bodin, a 16th century French philosopher, who attributed the failed performances of resource-rich countries to sloth: “''Men of a fat and fertile soil are most commonly effeminate and cowards; whereas contrariwise a barren country makes men temperate by necessity, and by consequence careful, vigilant and industrious.''
More recently, the Nigerian Economic Minister, Nedadi Usman, echoed Bodin when he said, “Oil has made us lazy.”
There is, however, a deeper understanding of the causes of the Dutch Disease than mere laziness. First, resource rich governments often use the windfall of the resource to protect the people from international competition through needless protectionist measures. Second, dependence on oil tempts states to believe they are richer than they actually are. This leads to high spending that cannot be reversed when the natural resource market is down because of political pressures, which ultimately leads to external debt. Third, high resource dependence encourages corruption in the public and private sector. Fourth, the oil revenue goes directly to the government (when the oil is state-owned). This generates rent seeking, which is competition between public and private institutions for the oil revenue. This has the effect of weakening institutions and encouraging corruption. Fifth, high oil revenues diminish incentives to invest and save, leading to lower interest rates and less rapid growth.
High levels of
natural resources do not per se have
deleterious effects on a country’s economy and human development.
The most cited
More simply, oil
is distraction to governments and societies. It prevents countries from
investing energies and capital into other necessary, productive, and efficient
It was not until after World War II that the international community began to invest in developing other states on the scale that we are familiar with today. Since that time, development, in theory and practice, has gone through a significant evolution. It was first believed that undeveloped nations would succeed if only developed nations would successfully transmit their values and aid to underdeveloped nations. During the 1950s and 1960s, the Modernization Theory was applied to developing nations. This also was a one-size-fits all model. The working principle was that the success of developed nations stemmed from their methods, techniques, and ways of solving problems and delivering services. It was therefore believed that a developing state would succeed if the international community provided developmental aid in conjunction with the application of the practices and methods of developed states. These theories proposed the reallocation of surplus labor from agriculture to more productive non-agricultural pursuits, intricate planning models focused on flow of resources and sources of investment, and the utilization of technology to facilitate growth. These policies, which focused primarily on creating structural changes, led to import substitution, low generation of employment, and windfall profits for favored elites.
to the obvious failure of the Modernization Theory in the 1970’s, two similar
reactionary theories emerged in reaction.
The Dependency Theory stated that developing countries were trapped by
the foreign capital of the developed nations.
The dependency existed because developing countries were systematically
compelled to export their raw materials to the developed countries. The developing countries would then import
the same raw materials and other materials in a processed and manufactured
form. This circular dependency existed
because developing states lacked the means to process their own materials;
whereas developed countries had the ability to process raw materials for useful
products. Consistent with the theory of dependency,
Argentine economist Raul Prebisch concluded that
The other theory in response to the failure of Modernization Theory was the Center-Periphery Theory. Center-Periphery Theory expanded the Dependency Theory by postulating that developed countries progressed at the expense of the developing countries they once colonized. The center represents the industrialized developed countries. The periphery represents the agrarian developing countries. This theory argues that applied Modernization Theory results in the same exploitation of developing countries which resulted from colonization. However, both theories were widely criticized because they only state the problem, but offered little as an alternative model.
economists were unconvinced that Modernization Theory was completely
wrong. For instance, the
effectiveness of many of the ideas of the Washington consensus are still
debated, it remains widely believed among economists that openness to foreign
direct investment (FDI) and gradual deregulation of the private sector promotes
sustainable development. Partly due to the East Asian success, the
Financial crises in the 1980s forced many developing countries to turn to the International Monetary Fund (IMF) and the World Bank in order to borrow money to pay off external debts. The aid, however, was lent with policy-based conditions which required developing countries to generally cut public expenditures, as well as to create a more efficiency and transparency. In essence, this applied development model closely resembled a renewed modernization approach. Generally, these conditions only served to shrink the size of the developing state governments with little or no increase in efficiency or transparency.
Since the 1990s, the international community realized that many development models failed because they lacked flexible methods to address the unique factors of each state. The focus of development has shifted from economic growth to sustainability. The modern approach to development requires individualized approaches to each developing country based on social development, human development, environmental development, and economic development. On one hand, many principles of development theory predating the 1990s remain key tools of development, such as openness to trade, FDI, and export-orientation. On the other hand, sustainable development also requires human development, attention to institutions, and technological growth.
growing number of economists criticize the neoliberal policies supported by the
For all that is still debated, there are certain principles of development which appear to be effective. First, gradual institutional reform is more effective than reforming everything at once. Gradualism helps avoid corruption when transferring public goods into private hands and permits the proper regulatory agencies to form in order to respond to harmful externalities of reform. Second, although openness to trade is essential to economic sustainability, infant industry protectionism is essential in the early stages of a country or industry’s development. Early industry protectionism, however, must be strictly time-constrained by gradual reduction of state intervention. Third, continuous improvements in human development are essential to sustainable growth. Lastly, economic maturity and sustainability requires competence to adopt and adapt to new technologies.
information flows, communications, and coordination mechanisms are changing the
organization of society and production.
A country’s access and utilization of technology is highly correlated
with its level of development. For example,
Developed countries have followed alternative paths to development depending greatly on when each county became industrialized. The involvement of government varied accordingly. For example, there was no government involvement in countries that first experienced the industrial revolution. The industrial revolution was mostly the result of the investments and efforts of private individuals. However, the industrial revolution emerged in wealthier countries that had better institutions equipped to embrace and foster the growth of industry.
In contrast to the first industrialized countries, government involvement became more prevalent in countries that were less equipped for industrialization. Late comers to the industrial revolution benefited from intervening governments that nurtured the growth of industry. This was achieved either by direct investment in industrialization or by providing extensive regulatory frameworks for private enterprise. It was essential for the governments of the late comer to stimulate industrialization because they were forced to catch up to the already-industrialized economies. Similarly, developing countries are in a position where they must catch up to developed countries in order to enjoy healthy economies. It is therefore clear that there must be some governmental involvement to bolster and stimulate industry in a country.
Even the United
States, which has relatively open markets, used protectionist strategies up
until the end of World War II in order to catch up to the industrialization of
Britain and Germany.
Even in the face
of East Asian developmental success,
Infant industry protection was one of the keys to East Asian success. Free trade advocate, John Stuart Mill, supported the practice of infant industry protectionism:
“The one case, in which, on mere principles of economy, protecting duties can be defensible, is when they are imposed temporarily…in the hopes of naturalizing a foreign industry, in itself perfectly suitable to the circumstances of the country. The superiority of one country over another in a branch of production often arises only from having begun sooner. There may be no inherent advantage on one part or disadvantage in another, but only a present superiority of acquired skill and experience…[I]t cannot be expected that individuals should, at their own risk, or rather to their certain loss, introduce a new manufacture and bear the burden of carrying on until the producers have been educated to the level of those with whom the processes are traditional. A protective duty, continued for a reasonable time, might sometimes be the least inconvenient mode in which the nation can tax itself for support of such an experiment.”
Infant industry protection only works if it is supplemented by two conditions. First, firms must be required to satisfy time-constrained performance targets, including minimum export targets where the products compete with best practice. Industry protectionism has failed in the past where there were no performance-based conditions. Although infant firms needs industry protections to provide an artificial level playing field to reduce the risk of information spillovers, time-constrained performance targets provide incentives for infant firms to climb the steep learning curves of industrial production.
Second, industrial policy must coordinate inputs where the factor market fails to do so. This may require the coordination of new skills, technical and market information, risk finance, or necessary infrastructure. Hausman and Rodrik offer a simple example of coordination failures where someone wants to build and hotel on a beach. The hotel will not be profitable unless there is an airport built nearby. Neither structure would be built without the assurance that the other would also be built. In such an instance, the government should intervene to provide a guarantee to both investors that the other will be built.
Information spillovers and coordination failures are common market failures that act as barriers to potential growth-enabling industries, such as IT. Governments, however, have the power to alleviate these barriers by selectively curing the market failures specific to each product or activity. This requires sensitivity and discipline by governments to limit intervention to addressing market failures.
It is well settled that sustainable development models are not only difficult, but unique to each individual country. Generating extensive access to IT is imperative to sustainable development. Further, developing countries must become oriented towards exporting sophisticated products that developed countries export. Although export-orientation policies may lead to short-term instability, stability quickly returns and economies usually experience growth as the new industries acquire technological and managerial knowledge. Therefore, developing countries must invest in infrastructures and human capital that will promote technological adaptation and comparative advantage in new export-oriented industries.
Although developing countries have taken several paths to development, some countries have been more successful than others. Most recently, East Asian countries have been successful where the government has played a unique entrepreneurial role at the microeconomic level by providing necessary functions to the market where it otherwise failed. The success of the East Asian countries challenged the neoliberal Washington Consensus’ ideas regarding financial and trade liberalization. Although the crisis of many East Asian economies was invoked to prove the weakness of the East Asian model, the ultimate success of the model has caused even orthodox Washington Consensus economists to acknowledge the failings of certain liberalization policies.
The East Asian model of government involvement is distinct from both the relative hands-off approach of American capitalism, as well as the centralized approach of more socialist states. Developmental successes were ultimately reached where governments incrementally deregulated and reduced government involvement in the market when specific market goals were reached. Malaysian economist Jomo K.S. explains that the East Asian experience taught several lessons in successful development, none more important than the principle that responsible and efficient government intervention will advance development in countries that are disadvantaged in international markets.
First, the most
successful East Asian countries subsidized primary education, as well as
tertiary, or university, education. This
is contrary to the World Bank recommendation that developing states should only
subsidize primary education leaving the student to bear the costs of
post-primary education. For instance,
East Asian governments secured domestic reinvestment by encouraging corporate
savings and investments. This led to
high profit rates in corporations and firms.
The East Asian governments encouraged savings and investments by
subsidies, tax breaks, and other incentives for investments that the
governments favored. For example,
Third, in contrast to generally liberalizing financial markets, the East Asian governments attracted domestic investment and FDI by incentives which encouraged specific types of activity. According to the East Asian experience, venture capital markets are more suited to support emerging industrial and technological capabilities.
Fourth, in the late 1950’s, the strongest East Asian economies rapidly switched import orientation to export orientation policies in order to ensure international competitiveness. This was executed by providing infant industry protections conditioned on exporting certain shares of output within specified timeframes. The protections provided East Asian firms an appropriate timeframe to adapt to the specific activity and identify the externalities of the new technology or industrial activity. On the other hand, the short-term conditions acted as incentives for firms to push down production costs quickly, achieve international standards quickly and compete internationally against best practice. Not all firms did, but many firms did achieve international competitiveness quickly.
acknowledges two arguments no state should try to apply the East Asian
model. The first argument states that no
East Asian regimes are unique and impossible to emulate because they enjoy a
tradition of meritocracy influenced by Confucianism. This is an erroneous criticism because one
only has to look to
second argument Jomo acknowledges is that East Asian countries had very
different initial conditions that many developing countries do not share. This argument, however, fails to acknowledge
the initial conditions of most East Asian countries in the 1950s. For instance, in 1950,
Jomo does not claim that the East Asian model should be emulated by developing countries. Instead, the international community should learn from the resulting lessons the East Asian model provided development theory. Most notably, the East Asian experience proves that advocacy of absolute liberalization is no longer reasonable. The result is that development policy includes more variety of potential effective solutions to particular conditions.
most important lesson that should be learned from the East Asian model is that
government action has the ability to promote efficiency and cure market
failures. Although there are many cases
throughout history that prove the inefficiencies of government,
Although markets are efficient, they do experience failures. Markets have the ability to identify natural competitive advantages and allocate resources. Markets create incentives for people and institutions to act in ways that the market determines are efficient. Market failures occur when necessary inputs do not exist for an activity to be efficient. Neither people nor institutions will risk investing in an activity that lacks the necessary inputs. There are situations where a government has the ability to provide inputs that would make an activity efficient that would otherwise be inefficient. The East Asian practice of subsidizing higher education serves as an example of governments providing necessary inputs (i.e. human capital) for more efficient economic activities.
Curing market failures is difficult because it not only requires governments to be sensitive to market activity, but they must also react to specific failures. This requires high degrees of restraint and selectivity since it is impossible to address every market failure in every industry. This challenge does not lead to the conclusion that governments should not intervene. Instead, it means that governments should intervene so long as they allow the markets to dictate their economic policy. Moreover, the economic policies should only provide interventions that ultimately result in more efficient and productive economic activities, like technological growth.
Virtually all economists agree that export-orientation policy promotes development. Conventional wisdom traditionally maintained that countries should only export products where they enjoy comparative advantages. Conversely, Hausman and Rodrik present evidence that regardless of comparative advantage of an infant industry, the sophistication of a country’s export packages predicts its growth over the next decade. The evidence encourages developing countries to export more sophisticated export packages by implementing industrial policies that provide the necessary inputs to cure market failures.
There are several difficulties in creating sound industrial policy in order to support new export activities. First, a government must identify the coordination failures and information spillovers that are going to necessitate government intervention. There are more coordination failures and spillovers for newer industrial activities because most of the market failures will be unknown in advance. The government will most likely be involved in providing and coordination infrastructure, gathering and publishing objective market information, initially subsidizing private firms until cost structure is determined, and subsidizing appropriate training. This is a highly specific process that identifies the numerous inputs necessary to develop the new activity. It is best at this early stage of planning to acknowledge what capabilities the economy has presently and manipulate them for the purposes of developing the new activity.
Countries should look to their existing capabilities that can be exploited for the benefit of the new activity in order to simplify the enormous complexity of the numerous factors that must be coordinated. These capabilities include existing markets, physical and human capital, and institutions that were created for similar pre-existing activities. For instance, an existing garment industry has more similar capabilities to car part manufacturing and shoes than are the capabilities necessary for agriculture or mining. The differences between the necessary capabilities of a garment industry from the capabilities of agriculture are apparent when comparing the necessary infrastructure, trained labor force, regulatory needs, and property rights.
The way a developing country should specialize and diversify exports is explained through the metaphor of a forest. The forest is the world market full of products. There are rich parts and poor parts of the forest. Each product is a tree. The trees are spaced at distanced relative to the similarity of the products’ necessary capabilities. Firms are monkeys in the trees that exploit specific products. It follows that monkeys are able to exploit trees that are closer to them and have a more difficult time exploiting trees in other parts of the forest. Further, the rich countries have their monkeys in the rich forest and the poor countries have their monkeys in the poor forest. Sophistication of export packages entails developing countries having their monkeys move from trees in the poor forest to trees in the rich forest.
Hausman and Rodrik quantified the value of exported products (trees). Taking those quantified values, they determined the approximate value of selected countries’ export packages. Then, they predicted the speed that developing countries could increase the sophistication of their export packages by calculating the “open space” between the locations of countries’ monkeys and the unoccupied trees on the path to the rich part of the forest. It is more difficult to move to a richer part of the forest if there are few or no trees nearby.
it is more difficult to move from a sparse part of the forest to a rich part,
This raises the question as to the role of government in providing inputs for new industries. Henry H. Perritt, Jr. identified several inputs that government must provide since they do not have markets: inequality of bargaining power; “externalities” not taken into account by market trasactions; public goods; imperfect information; and natural monopolies. These are compliments to the market-based inputs and will hinder productivity of the activity if not specifically adapted to the activity. These non-market inputs cannot be applied neutrally to all sectors, but instead must adapt and conform to the needs of industries. This need leads to two problems: it would be unaffordable to address all the specific needs of industries and the necessary government interventions are only known as the industry matures. Therefore, Hausman and Rodrik conclude, governments must choose where intervention is most efficient and needed. Most importantly, governments should allow industries to evolve without interference, but governments should only intervene when maximum information is available.
Technology is essential to development in the modern world because it dictates the way global business operates, it creates more efficient production processes, and also improves the exchange of ideas across borders between individuals and institutions. Education, government services, market transactions, and firm operations are all made increasingly more efficient because IT has digitalized information storage and processing.
Technology is not only an end goal of development, but also the means to development.  This is evidenced by the clear correlation between a country’s access to IT and its GDP per capita. Barriers exist to developing countries that have low access to IT because of the initial expense of obtaining the necessary IT interfaces and infrastructures. The problem is exacerbated for developing countries because the high rate at which IT is progressing creates a target that is moving away from them. This problem is referred to as the “digital divide.” In spite of these obstacles, it is increasingly necessary to develop a competitive IT sector in order to maintain a sustainable economy. Such development requires a multifaceted approach involving high levels of coordination between national and international institutions, high levels of financial investment, and development of human capital.
experience in the
The best way to achieve this coordinated approach to IT development is through the oversight of by private and public institutions. It is preferable to rely on private institutions to provide technical management of the coordination process because they will be more flexible in responding to the needs of society. Public institutions should provide oversight to ensure that coordination is sufficient. It is the responsibility of these institutions to ascend to standard systems and common goals. The institutions should have involved roles in IT development through the form of regulatory agencies and private interest groups.
Access and development of IT sectors requires much financing. Developing countries should finance IT investments through government subsidies and incentives, private national wealth, and foreign direct investment (FDI). It is crucial that the investments do not result in excluding the poor from participation in national IT development or else inequities will grow wider and deeper.
Human capital must also be cultivated in order to support emerging IT. This not only involves education, but also the introduction of IT into society and schools. Education involves IT training at every level of society from preschools to continuing adult education for teachers and members of the potential workforce. Primary education should greatly increase the focus of mathematics and science. At the university level, governments should provide great incentives for students to study IT sciences at home or abroad, if conditioned upon return. Additionally, the universities should enhance their focus on IT development. It may also be necessary to attract foreign IT leaders in business, research and education to temporarily come to the developing country to create a national underpinning of IT competency.
introducing IT into society must provide IT access the poor in order to achieve
an equitable economic result from IT.
Information technology only benefits those who have access to the
appropriate hardware and software. Since
only high income groups can afford the appropriate interfaces, inequality in
developing countries will be intensified if IT accessibility is not provided to
the poor. Public institutions in
Lastly, the national objectives must be clear to the general public, business, and government. Otherwise, confusion would result in lack of motivation and administrative support. It will also be necessary for the government to cure IT market failures through subsidies or the creation of incentives. An example of an IT market failure would exist if too much investment was spent on video game consoles, but not enough on health care technology.
successfully developed the IT industries over time which resulted in
unemployment rates that have fallen as low as 4%, national debts transformed
into surpluses, and Ireland currently enjoy more foreign direct investment than
any other EU member. A poor economic situation is not the only
In the first half
of the 20th century,
In 1970, the IDA
was charged with the responsibility to further industrial development in
The incentive proved fruitful because
Much the success
of the local startups can be attributed to the human capital development in
science and technology that
It is not enough
to acknowledge that the grant and tax incentives, the scientifically educated
and technically skilled labor force, and access to the European market provided
the three primary attractions to foreign investors in
The Irish industrial policy was aggressive, but also patient. For instance, the creation of a new third-level educational landscape to provide the necessary human capital to satisfy the industrial policy was aggressive. Exploiting the current manufacturing capabilities at the early stages of industrial development, however, was patient and far-sighted because it allowed IDA to appropriately react to the conditions and opportunities of the developing industry. East Asian industrial policy exhibited a similar mix of aggressiveness and patience.
[Translating the English net into Spanish?]
government is going to play an important role in the industrial policy to
establish an IT sector. The government
should not apply the policies of
Like Norway, the first step to breaking the distraction with oil should be an impermanent independent committee whose primary responsibility is to create a long-term plan with two goals: (1) to create a system that effectively shields the oil revenue from politically accountable government officials; and (2) to provide a long-term regulatory scheme that that will ensure that future generations will benefit from current oil revenue. The appointments to the committee should include Venezuelans and specialized foreign consultants from various backgrounds.
The committee should be limited to only consider the most responsible investment and regulatory scheme to protect the oil revenue for future generations. In order to protect the present generation, the committee must create gradual plan to incrementally transfer oil revenue from the government to the secured investment fund. The gradual plan will minimize any negative economic consequences that will result from diminishing amounts of government spending.
The oil revenue must be administered by a third-party institution that is not politically accountable. The third-party trustee should be criminally liable for misuse or misappropriation of the oil revenue. The account should also be invested in various foreign investments. The regulatory scheme should provide strict and clear guidelines. Moreover, the long-term regulatory scheme should both preserve the benefit of the revenue for future generations and shield the revenue in a way that guarantees that the government will legislate and execute policies undistracted by oil. Lastly, there must be an independent committee with the power of bringing criminal prosecution to oversee the third-party institution that administers the oil fund.
The transition plan should be prepared and implemented at an aggressive pace in order to pressure the government and the Venezuelan citizens to be creative and involved, rather than complacent. An aggressive transition will address the paternalism problem directly because it will signal to the Venezuelan people that a fundamental change is occurring in government. It will be clear to the people that expectations of citizens are changing. Chavez must communicate to the people that securing the nation’s oil revenue from government officials is consistent with the Bolivarian constitution. There should be a corresponding public relations campaign both warning citizens that Venezuela’s reserves are going to be empty within fifty years, while simultaneously encouraging the people to prepare for a “Better Venezuela,” or a similar slogan.
Chavez must begin
to regard the people as if they are the hope and future of
It will be a great
hurdle to persuade Chavez to transfer the oil funds to a secured fund. Not only did he run for office on a platform
which promised to return the oil wealth to those who rightfully owned it, but
he uses oil revenue as the primary sources of revenue for his many social programs. Shielding oil revenue from government
officials is in the interests of
2005, Hugo Chavez said to a group of
Efforts to bridge
Chavez has turned to the private sector to promote further growth in the IT sector by a tax initiative that forces “large companies,” mining or energy sectors excluded, to spend 0.5% of their gross annual income on technological research and development (R&D) and innovation. The requirement can be satisfied by either giving the contribution to an institution approved by the Ministry of Science and Technology, or by investing in science, technology or innovation to benefit the company itself.
The market share
of internet service providers is primarily controlled by two separate
By first looking
to the duration of development in East Asia and
is a fundamental problem with Chavez’s grant distribution, which rewards any
type of labor or service regardless of its efficiency, profitability, or
competitiveness. It is intuitive that efficiency and
productivity breeds economic reward.
Chavez is going to have to make additional adjustments where he must
accept losers. Thus far, Chavez has no
competitive industrial programs. By
looking at Chavez’s current system of cooperative grants and small business,
funded by oil revenue, it is clear that it is more important that everyone be
working or contributing to a group, than they are productive and efficient.
Many grants are distributed without first providing any organizational plans. People also immediately abandon the projects
just to receive the grant money. Chavez has also implemented a series of
grants to encourage groups of citizens to form cooperatives in industries that
they choose, in addition to issuing small business grants. The cooperatives grants include skills
training in a trade. Upon completion of the training, the apprentice can choose
to work in the private sector or a cooperative.
There is a definitely merit to programs that increase human capital, and
there is no doubt that
Industrial grants should be given to
entrepreneurs who apply with promising plans for small start up IT businesses. The government must demand that profitability
and export standards are met within a period of time that places pressure on
the beneficiary of the grant to reach specified performance goals that are
consistent with the industrial policy.
Chavez should also promote R&D grants to educational institutions,
grants to manufacturing and technical industries to train workers, and grants
to manufacturers to transition current industrial sites. Chavez should embrace such performance-based
grants because they are similar to the cooperative grants that encourage
private parties to develop
against foreign investment does not lead to the conclusion that
There is one last
option that requires Chavez to realize the importance of an established IT
sector in light of the Hausman and Rodrik model. Assuming that Chavez understands the importance
Chavez has great
leverage in trade because of Venezuelan oil.
Therefore, Chavez should apply pressure to a trading partner who
manufactures hardware and software, such as the Netherlands Even if only one IT manufacturer in the
Netherlands were to move to Venezuela under favorable conditions, it would
provide a jumping off point for Venezuela to hold itself out as the Ireland of
Latin America. So long as
makes up 87% of
Potential hardware items to that Venezuela could manufacture include, but are nto limited to: cases/chassis; CD/DVD; central processing units; controller cards; display screens; graphics cards; hard disks; keyboards; loudspeakers; mice; modems; motherboards; network cards; power supplies; printers; RAM; scanners; sound cards; TV tuner cards; webcams.
Hausman and Rodrik’s model,
marketing and regulating the “Bolivarian” computer would provide
The Bolivarian education strategy also includes two other principles. First, the empowerment of students to become subjects to the national “endogenous development” is stressed. Second, temporary programs, called misiones, provide education to adults who missed an opportunity to a proper education under the Fourth Regime.
strategy distinguishes itself from conventional education systems that concentrate
on providing individuals with the tools and skills necessary to integrate into
society. The Bolivarian strategy shifts
the focus from training the individual to compete with everyone else. Instead, the Bolivarian strategy focuses on
teaching the power of collective empowerment.
This is realized by educational methods that encourage students to
develop a critical understanding of their communities and to seek solutions in
an organized way. Collective empowerment is closely tied to
Chavez’s belief that
Venezuelan education system includes four levels: preschool (3-5); basic education (7-15); middle education (16-17); and higher education (18+). More than 95% of Venezuelan children attend primary school, which is an increase from the 1990s when parents had to pay fees to provide their children with an adequate education. Chavez’s higher education policy is the most radical of the education reforms. In response to the financial barriers posed by the cost of attending universities, Chavez created several public universities and technical university institutes, which any Venezuelan may attend. Moreover, in order to cure the inequities of the Fourth Regime, a 20-week initiation program was created for adults who have not attended school for several years, but desire to attend university. University enrollment has increased significantly for all socio-sconomic classes in Venezuelan society since Chavez took office.
The role of the university was also reformed to promote the principles of the Bolivarian Revolution. First, Chavez has not allowed commercial agreements between corporations and Venezuelan universities because it would disrupt the role the university plays in society. Instead of commercial agreements with foreign companies, Venezuelan universities foster international cooperation through formal international exchanges of teachers, researchers and students. The shared objective is to strengthen policies that affect the common problems of the participated developing states. Cooperation between similarly situated states is believed to address the needs of developing countries better than cooperation with foreign corporate interests.
Temporary misiones, or missions, were implemented
to fill the educational gap for adults who were ultimately never afforded a
formal education experience under the Fourth Regime. The educational misiones are directed at adults who either are illiterate or lack
productive skills. The first mission was Mision Robinson, which
provided literacy classes to illiterate adults. According to Chavez, Mision Robinson was
successful and completely rid
Applying Chavez’s educational reforms
This is not like
the free education system in either
My primary criticism with Chavez’s educational reform is that collective empowerment will not reverse the imbalance of power with the traditional colonial power relationship. The reform, beyond the entitlement of education to all, is purely reactionary. Collective Bargaining is misplaced. The harmful nature of the colonial powers rests in their productive capacity, as well as their abundance of human capital. Both productive capacity and human capital are creatures of skills-based or professional educations. It does not make sense to reject an education model only because it was effective for a group that was historically dominant over the disgruntled person’s culture.
This problem seems to be a pattern of Chavez’s. He often seems to fail to identify the exact causation of a problem, but instead rejects every policy of the party he finds reprehensible. For instance, Chavez expressly rejects the Punto Fijo government. Yet, Punto Fijo’s economic sin was it’s inability to separate the oil from national policy, effectively cutting off consideration or development of potential aspects of Venezuelan society. Unknowingly, Chavez is just as distracted by oil. It doe not make Chavez any more responsible of a leader just because he spends more oil revenue on the poor than Punto Fijo did. Chavez would be more responsible if he had allocated the oil revenue to foreign investments, and correspondingly provided developed new industries and, thus, a more diverse economy.
Therefore, the problem with the Collective Empowerment is that it does not provide the Venezuelan people with a proper empowerment since they are discourage from markets. Markets may be less equitable than an interventionist government, but markets do identify the best, most efficient, and most powerful.
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 Assistant Secretary General for Economic Development in the United Nations' Department of Economic and Social Affairs (DESA) since January 2005.
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 The inputs for a new economic activity include, but are not limited to, physical installations and machinery, skilled workers, intermediate inputs, logistical systems to transport the inputs and deliver outputs, marketing systems, information gathering systems, property and contract systems, standards and regulations based on product characteristics, labor norms, financial rights and consumer protections, etc.
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 Drew, supra note __, (then follow “3. Government policy and the role of key institutions” hyperlink).
 Drew, supra note __, (then follow “4. Development of the electronics industry” hyperlink).
 Drew, supra note __, (then follow “5. Development of the software industry” hyperlink).
 The most important reason was the IRA’s tax incentives.
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 Dorta, supra note __.
 As of 2006, the average internet usage rate at an infocentre was $0.75USD/hour.
 Internet cards work just like phone cards.
 Dorta, supra note __..
International Market Research Report:
 Leopoldo Brandt Graterol, Internet Law-Venezuelan recently Enacted Law: The Innovation, Technology & Sciences Act, http://www.ibls.com/internet_law_news_portal_view.aspx?s=latestnews&id=1620.
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International Market Research Report:
George Wilpert, Chavez Announces that
 Venezuelanalysis.com, 50% of Government Software will be Open Source by 2007, March 5, 2005, http://www.venezuelanalysis.com/news.php?newsno=1535
International Market Research Report:
Humberto Marquez, “
Betsy Bowman & Bob Stone, “
 Parker, supra note __, at 68.
 Id.at 66.
 Id.at 67.
 Simon Romero, “Chavez Rattles Takeover Saber at Steel Companies and Banks,” The N.Y. Times, (May 7, 2007).
 Watts S. Humphprey, news@sei, http://www.sei.cmu.edu/news-at-sei/columns/watts_new/2002/4q02/watts-new-4q02.htm.
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 Ellner & Salas, supra note __, at 3.
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 Muhr & Verger, supra note 230.