Journalists Take Note: Economic Wisdom and Limits of the State

By: Contributor - Oct 9, 2014, 8:43 am

EspañolRecently I participated in an Economics Training Program for Journalists, organized by Cedice Libertad, a libertarian policy institute located in Venezuela. The Young-Cedice coordinator, Gerardo Núñez Schloeter, shared arguments for and against state planning, specifically given the dynamics of our oil-rich country.

In particular, the Cedice staff member explained that the state is not some abstract or mythical entity. Rather, it’s a group of individuals who hold power and make decisions that affect the members of a society in a given territory.

“State intervention in the economy is justified on existing market failures, such as monopolies and oligopolies,” he said. “So the state is intended to intervene [and correct these failures]. This view assumes that the state has the capacity to compile and systematize all the information of a nation. In contrast, the antagonistic view holds that only the market can adjust fast enough to the changing preferences of individuals.… Economies such as those of Cuba, the Soviet Union, and North Korea are examples of how complete economic planning fails.”

“That is why the operation of the free market is so essential. Not only to promote productive efficiency, but even more to foster harmony and peace among the peoples of the world.” ~Milton Friedman

The 1960s and 1970s offer one pertinent example. At that time, many Latin-American nations attempted a strategy to replace imports with domestic production. However, this Import Substitution Industrialization encouraged the creation of few competitive industries and many dependent on state controls for survival.

Cedice Research Assistant Núñez Schloeter went on to explain that the Venezuelan private sector was struggling in 1999, when Hugo Chávez took control. This misunderstood failure opened the door for the implementation of aggressive state planning by the now deceased president. Such controls and entry barriers to protect domestic should be limited with sunset clauses, Schloeter said, “but the controls to protect the domestic companies never stopped.”

He says that the state is simply not able to control each changing situation, which are valuable anyway in a modern economy: “How will the state meet the specific needs of fishermen from a village in Boca Uchire, in the east of the country … or how will the state make discretionary decisions that affect our workday?”

Finally, Schloeter noted that state control runs contrary to the equality and nature of human beings. There is no such thing as an omnipresent state, and when those in power manipulate economic outcomes, they lose their ability to mediate impartially.

Fergus Hodgson contributed to this article.