Isegoria

Venezuela has the world’s largest proven oil reserves and yet the country has run out of gasoline:

The socialist government has lost the capacity to extract oil from the ground or refine it into a usable form. The industry’s gradual deterioration was 18 years in the making, tracing back to then-President Hugo Chávez’s 2003 decision to fire the oil industry’s most experienced engineers in an act of petty political retribution.

The near-total collapse in the nation’s oil output in the ensuing years is a stark reminder that the most valuable commodity isn’t a natural resource, but the human expertise to put it to productive use.

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“Drivers who operate gas-powered busses prefer to keep them parked so that they can suck out the gas and later resell it,” says Andrés, a public bus operator in Caracas, who asked that we only use his first name.

“[My] bus runs on diesel. It uses 16 [or] 17 gallons daily. Nowadays, we have to wait in a long line to fill up,” he said. “The gas stations even have national guards who ask for bribes before they’ll fill up the tank because the 40 liters that the government gives us isn’t enough.”

Andrés is allowed special access to fill up his tank because he provides an essential city service. But earning the equivalent of just $200 a month, he struggles to make ends meet. So he keeps his bus parked and extracts gas from the tank to resell on the black market, earning about $8 per gallon. To put that into perspective, the average Venezuelan subsists on less than $10 per day.

The little gas that is still available comes via periodic shipments from Iran. But the Venezuelan government doesn’t officially charge at most gas stations. It uses a quota system, so filling a tank can mean waiting in line for days.

David is a mechanic living in Caracas. These days he’s making a living by waiting in line to fill up his tank and then extracting the gas to resell on the black market.

“My business isn’t selling gas,” David says. “It is meeting the needs of my customers.”

“A lot of the clients from my repair shop are elderly people — people who can’t be standing in line for eight hours, or two days, or three days, or a week. I am the person who is sacrificing my time. Clearly, I have to charge for my time. We all have to make a living.”

Commenter Dwarkesh proposes this hypothetical to Bryan Caplin:

If I’ve inherited control of a traumatized dictatorship, and I want to turn it into a capitalist liberal democracy, how should I go about reforming things without causing things to fall apart like they did in the Soviet Union or Iraq?

Caplin offers his best guess:

Consider it a recipe, not an endorsement.

Step 1: Purge known hard-liners en masse, without warning, Godfather style.

Step 2: Swiftly liberalize the economy and civil society from this position of strength, while unequivocally affirming your monopoly on political power.

Step 3: During the same period, open up your society to foreign business, tourism, media, NGOs, etc.

Step 4: Once you’ve had 4–6 years of strong economic growth and rising international prestige, slowly relax your monopoly on power. Always make it clear that you are acting out of the goodness of your own heart, not under pressure from the opposition.

Step 5: After 15–20 years, you’re ready for your first competitive national election. Put strong post-reform protection for your supporters into the constitution so they aren’t tempted to derail your plan.

This convinced Dan Wang that China is the country with the most can-do spirit in the world:

Every segment of society mobilized to contain the pandemic. One manufacturer expressed astonishment to me at how slowly western counterparts moved. US companies had to ask whether making masks aligned with the company’s core competence. Chinese companies simply decided that making money is their core competence, and therefore they should be making masks. The State Council reported that between March and May, China exported 70 billion masks and nearly 100,000 ventilators. Some of these masks had problems early on, but the manufacturers learned and fixed them or were culled by regulatory action, and China’s exports were able to grow when no one else could restart production. Soon enough, masks were big enough to be seen in the export data.

It’s obvious that the authorities in Wuhan screwed up big, but it’s also the case that the central government organized an effective response to virus containment. It’s not just the manufacturers: the consumer internet companies leapt into action in a way that their US peers did not. Francis Fukuyama states that high-trust societies have “spontaneous sociability,” in which people are able to organize more quickly, initiate action, and sacrifice for the common good. On each of these metrics, I submit that China should receive high marks.

As every discussion on China grows more strident, and as every proposition about it has to be vested with sentiment, I submit that it’s all the more important to be able to see things as they are. That entails having coming to terms not just with a rise of its repressive capabilities, but also with its growing commercial and institutional strengths. US elites have abandoned the idea that China would liberalize nicely. They should put another idea to bed: that this authoritarian system, riddled with weaknesses, is on the brink of collapse. The country’s strengths are real and improving while the government becomes more nasty towards its critics and the rest of the world.

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It’s difficult to draw a clear line from tighter speech restrictions to worse economic outcomes. Greater censorship over the last decade has coincided with still-impressive levels of economic growth as well as the growing competitiveness of many more companies. And I think it’s worth considering that the authoritarianism of the late-Prussian and early-German state coincided with the creation of the modern research university as well as fantastic advances in chemistry, physics, and electrical engineering.

But there’s more on-the-ground evidence that ordinary people are growing nervous. In so many settings, one has to tread on eggshells in a public discussion in China, with organizers taking pains to remind audience members of sensitivities. Sometimes even in private, people beg off with an embarrassed laugh that they can’t discuss a subject due to unspecified difficulties. WeChat blocks sensitive keywords, which today includes “decoupling” and “sanctions.” It’s now inconvenient to use the app for professional conversations, and I’ve been pretty insistent to my contacts to use Signal instead. And since I brought up Germany, I wonder if the right analogy for China today is as a successful East Germany.

A February 2019 Harris poll found that roughly half of younger Americans would “prefer living in a socialist country”:

What many young people today don’t realize is that socialism is a machine for empowering insiders. Few insiders have ever been rewarded more assiduously than the nomenklatura of the Soviet Union. Few governments have been as gray — in every sense of the word — as the Brezhnev regime. A vast expansion of the American government, as imagined by today’s Democratic Socialists, would create its own privileged elite.

From its inception, by contrast, capitalism was designed for outsiders. Its original apostles, such as Adam Smith, argued that entrepreneurs needed freedom from the royal regulations that limited trade and the formation of new enterprises. When the government controls decisions to work or to start a business, political pull becomes a prerequisite for success. The whole point of economic freedom is that all people — not just the connected — can use their talents to help themselves and, potentially, to change the world.

These days, capitalism’s advocates often focus more on defending the status quo than on promoting outsider opportunity. If capitalism is to win over the young, that must change—and a new freedom agenda can help make that happen. In January 1941, Franklin Roosevelt announced his four freedoms (of speech and worship, from want and fear) that helped frame his objectives for World War II, which the nation would enter before the end of that year. Our contemporary outsiders would benefit from a renewal of four key freedoms: to build, to work, to sell, and to learn. The young need fewer land-use restrictions that make it tough to provide affordable housing in productive areas. They need fewer employment rules that limit their ability to find work, as well as fewer business regulations that suppress entrepreneurial energies. And — even before these other important things — they need new educational options that liberate them from underperforming educational monopolies.

In 1981, the social scientist Mancur Olson published his magisterial The Rise and Decline of Nations: Economic Growth, Stagflation, and Social Rigidities. Olson had already won acclaim for The Logic of Collective Action, which explained why some groups received an outsize slice of the political pie. In his new book, Olson turned to the question of why nations fail. His thesis: nations lost dynamism when insiders managed to stack the rules against disruptive outsiders.

Stable societies with unchanged boundaries, Olson observed, “tend to accumulate more collusions and organizations for collective action over time.” Instead of accepting rules that encourage overall growth, these collusive organizations — trade groups and labor unions were paradigmatic examples — fight to keep what they have, slowing down “a society’s capacity to adopt new technologies and to reallocate resources in response to changing conditions,” thus reducing economic efficiency. Decline follows.

Olson pointed to Japanese stagnation under the Tokugawa shogunate, when, “before Admiral Perry’s gunboats appeared in 1854, the Japanese were virtually closed off from the international economy.” Ruling Japanese society, he writes, “were any number of powerful za, or guilds, and the shogunate or the daimyo often strengthened them by selling them monopoly rights.” The guilds “fixed prices, restricted production and controlled entry in essentially the same way as cartelistic organization elsewhere.”

A second example: Great Britain, “the major nation with the longest immunity from dictatorship, invasion and revolution” and, consequently, Olson explained, suffering “this century a lower rate of growth than other large, developed democracies.” In Olson’s view, the weak performance resulted from limits on change established by a “powerful network of special-interest organizations,” which included labor unions, industrial groups, and aristocratic cliques. By the 1970s, after the conservative government of Edward Heath fell in a losing battle with striking miners, many deemed Britain ungovernable. Olson contrasted the British situation with that of postwar Germany and Japan, where the chaos and destruction of wartime defeat wiped away established industrial and retail groups, leaving the field open to newcomers like Soichiro Honda or the Albrecht family (creators of international supermarket giant Aldi), who could work economic magic.

Back in 2005, Bryan Caplan noted that Hong Kong has had the freest economy in the world and had since 1970, the earliest year covered by the Economic Freedom of the World data set:

Indeed, it’s higher now [in 2005] under the Communists than it was in 80’s! And it’s hard to deny that Hong Kong has been an economic miracle since World War II. So even though Hong Kong was not a democracy before the Communist takeover, it’s very tempting to believe that the people of Hong Kong would have voted to retain (if not initially adopt) the free-market policies they had.

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But it turns out that Hong Kong’s support for laissez-faire is only skin-deep. As soon as you ask people their opinions about specific interventionist policies — all of which, note the authors, “have either not been performed by the government or performed only very light or rarely,” they show their true statist colors.

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To be blunt, it looks like the lack of democracy under British rule was a key component of Hong Kong’s ascent. The policies worked wonders, but they never became democratically self-sustaining. In politics, people often resist policy change just because “things have always been this way,” even if the results were never very good. But free-market policies apparently labor under a greater political handicap. Even if “we’ve always left these things to the free market,” even if leaving things to the free market has worked in the past, it just isn’t enough to win over public opinion.

Countless market-oriented intellectuals idolize Hong Kong but I’ve never heard of, much less met, a Hong Kong libertarian. Google confirms my impression, returning no relevant hits for “Hong Kong libertarian.” I’d like to think, then, that Hong Kong’s problem was a shortage of libertarian intellectuals to transform freedom by default into freedom on principle. But sadly, I suspect that wouldn’t have been enough either.

Bryan Caplan doesn’t expect policies to get too much worse:

The same psychological force that thwarted the masses’ wishes before 2012 continues to shield us. What is that force? For want of a better term, ADHD — Attention Deficit Hyperactivity Disorder. Populist policy preferences go hand-in-hand with intellectual laziness and intellectual impatience. As a result, populist voters fail to hold their leaders’ feet to the proverbial fire — allowing wiser, elitist heads to prevail.

Take protectionism. Keeping imports out of our country is perennially popular. Never mind centuries of economics classes on the wonders of comparative advantage; the masses are convinced that cheap foreign products make us poorer. Given public opinion, then, it’s amazing that trade barriers are as low as they are. What’s particularly striking is that presidential candidates routinely make protectionist noises to curry favor with the masses. Once elected, however, they get convenient amnesia.

Why would vote-seeking politicians show so little follow-through? Because talking about foreign trade, titillating at first, gets old fast. And actually measuring the change in trade barriers bores the masses instantly. As a result, protectionist promises are cheap to break. The masses delight to hear politicians vow to get “tough on China,” but they don’t want to have to think about Chinese imports months after the election, much less monitor their leaders’ concrete efforts to cut China down to size.

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Emotionally, I look down on the public’s ADHD. When I get an idea into my head, it stays there until someone (possibly myself) argues me out of it. I’m a puritan. Once convinced something is true, I tenaciously act on it. But I’m the first to admit that these are conditional virtues. If you’ve genuinely figured out the right thing to do, determination and follow-through are wonderful. Otherwise, though, they’re a menace.

Mankind can and should shape up across the board, but it won’t. I’ll bet on it. And since mankind won’t discover a passion for rationality anytime soon, we should be thankful its ADHD isn’t going away either.

As a geographer, Jared Diamond has some thoughts on North America and Latin America:

In my undergraduate geography course, I have one session on North America and then a session on South America in which I discuss why North America is more successful economically. There are several factors involved.

One factor is that temperate zones, in general, are economically more successful than the tropics because of the higher productivity and soil fertility of temperate agriculture, which in turn relates to the public health burden. All of North America is a temperate zone. South America only has a small temperate zone. It’s in the far south in Chile, Argentina and Uruguay. Those are the richest countries in Latin America. The richest part of Brazil also lies in the temperate zone.

The second factor is a historical one related to the sailing distance from Europe to the Americas. The sailing distance was shorter from Britain to North America. It was longer from Spain to Argentina and still longer from Spain around the horn to Peru. A shorter sailing distance meant that the ideas and technology of the Industrial Revolution spread much more quickly from Britain, where it originated, to North America, than from Spain to Latin America.

Still another factor is the legacy of Spanish government versus the legacy of British government. One could argue why democracy developed in Britain rather than in Spain, but the fact is that democracy did develop in Britain rather than Spain, and so North America inherited British government and British democracy while Latin America inherited Spanish centralist government and absolutist politics.

Then still another factor is that independence for the U.S. was a more radical break than it was in South America. After the Revolutionary War, all the royalists in the U.S. either fled or were killed. So there was a relatively clean break from Britain. Canada did not have that break, and the break in Latin America was much less abrupt and came later.