The 4 Most Urgent Reforms for Venezuela’s New Congress

By: Contributor - Jan 4, 2016, 10:29 am
Venezuela's democratic opposition must make the most of its majority in Congress and set the country back on track.
Venezuela’s opposition must make the most of its majority in Congress while it can. (HoyVenezuela)

EspañolRecent parliamentary elections in Venezuela saw the opposition Democratic Unity Roundtable (MUD) win a supermajority in the National Assembly. With the MUD winning 109 of the 164 general seats, and all three of the indigenous seats, they are in position to bring about substantial change in Venezuela, at least on paper.

In theory, the supermajority that the MUD holds in the National Assembly has a vast array of powers at its disposal that can establish some form of stable political order in Venezuela.

According to the Venezuelan Constitution, some of the most notable powers that the MUD can exercise include: (1) the power to enact and abolish “organic” laws (Article 203); (2) the revocation of any State of Emergency powers declared by the government (Article 339); and (3) the ability to reform and amend the Constitution (Article 343).

From day one, the opposition should give the following reforms top priority:

1. The Elimination of Price Controls

The rampant scarcity of basic goods, such as toilet paper, is no coincidence; it is a direct result of the price controls implemented by Hugo Chávez and Nicolás Maduro during their time in power. Basic economics dictate that when the government places an artificial price ceiling for a certain good or service, it will generate an increase in the demand for said good or service.

The problem is that supply does not adjust accordingly to meet this demand. This leads to shortages, as more consumers demand the good while suppliers have no incentive to meet this demand because of the artificially low price.

To solve this dilemma, price controls must be abolished, in order for prices to reach their natural equilibrium and be able to allocate resources more efficiently. The MUD can correct this by abolishing the Fair Prices Act, and then start hacking away at the other remaining price controls.

2. The Elimination of Currency and Capital Controls

Since Chávez came into power, Venezuela has maintained a byzantine system of exchange rates to purportedly strengthen the bolívar and prevent the flight of capital. If we include the black-market rate, Venezuela currently has a total of four different exchange rates.

CADIVI (Commission for the Administration of Currency Exchange ) was first implemented in 2003 by Hugo Chávez for the purpose of stemming capital flight by limiting the amount of foreign currency Venezuelans can buy or use in daily transactions.

This system would later evolve into CENCOEX (National Center for Foreign Trade) and other variants such as SIMADI and SICAD.

Unsurprisingly, many multinational corporations, such as Ford, have shut down operations in Venezuela due to the dollar shortages caused by these controls. These controls have also affected the airline industry, where there is now a shortage of plane tickets.

This has converted the border town of Cúcuta, Colombia, as the go-to airport for many Venezuelans that must travel by bus just to find an airport that has tickets available. More than just a form of financial control, currency and capital controls are a form of social control. These restrictive policies are just some of the many that are designed to limit Venezuelans’ travel options and keep them caged in.

The MUD must strive to repeal the “organic laws” that established these controls. As in the case of price controls, markets must be allowed to function freely, so that dollars can come back into the economy and international companies can restore their normal operations in the country.

3. Opening up the Border

A state of emergency was implemented in response to a supposed attack by Colombian paramilitary groups near the Colombian border that injured three Venezuelan soldiers. In despotic fashion, the Venezuelan government then decided to deport over 1,000 Colombians living along the frontier, and close the border between the two countries.

This manufactured conflict with Colombia served the dual purpose of creating foreign boogeymen (Colombians) to rally against, as well as a pretext to close the border. This shutdown is not only meant to keep Colombians out, but also to keep Venezuelan locked in.

A truly free society is one that values the free movement of people and respects private property. The state of emergency declared by Maduro, and the subsequent deportations, are direct assaults on these two principles. If the MUD truly stands for freedom, they must lift the state of emergency and reopen the border at once.

4. Constitutional Reform

From its inception, the Venezuelan Constitution of 1999 was an ill-conceived political document. This constitution granted the state far-reaching powers, and institutionalized Venezuela’s despotic regime. The power of 21st-century socialism is its apparent democratic and legal legitimacy.

Operating under the guise of a democratic system, 21st-century socialist regimes receive an aura of legitimacy from the international public. Even the most heinous measures implemented by the Venezuelan government are respected by international audiences due to their “legal” status.

Therefore, what Venezuela needs is constitutional reform. The MUD must push for reforms that can transition Venezuela’s political system into a system of “market-preserving federalism” that allows for competing administrative units below the federal level.

A true federalist system allows states and municipalities to have a strong degree of autonomy, so that they can compete for the most talented labor and access to capital. In sum, the MUD should do everything it can to modify or even replace the current constitution with one that embodies a genuine system of federalism

With these reforms in place, Venezuela can at least have a bit of breathing room in these turbulent times. That said, these reforms are only the beginning of a more extensive set of policy changes that will turn Venezuela into a society that operates under sound, free-market institutions.

The road to reform will not be easy, since the Chavista political establishment will surely push back against these measures. Nevertheless, the MUD must stay strong and stick to its principles.

The fight to retake Venezuela has just begun.

The Year We Opened Our Eyes to the Scourge of Zoning

By: Nick Zaiac - @NickZaiac - Jan 4, 2016, 8:50 am

As we take a look back, we can safely say that 2015 was a year of populism in Washington. News cycle upon news cycle documented the rise of presidential candidates Donald Trump and Bernie Sanders. It saw widespread minimum wage increases. It saw a highway bill which included no long-term solution for how to pay for the nation's infrastructure, amid populist rage against both a gas-tax increase and increased tolling. The political year ended with two Republican-led houses of Congress passing the most irresponsible, gimmick-filled spending increase since the TARP bailout. The people have spoken, and they have chosen to kick the can down the road. Yet, while the nation's legislators were ignoring important fiscal reforms, the Washington consensus on regulatory issues was changing. More environmental regulation is on the horizon. We know that. To keep it from destroying the economy, we need to generate growth by reforming something else, and 2015 was the year we figured out what regulations our economy could no longer afford. Occupational licensing will see reform in the states in the spring after a White House study made the case for a shift in policy. While voters are generally resistant to privately run toll roads, we saw state after state turn to the private sector to build the roads. The future is clearly a world of desocialized infrastructure. It is Washington against the populist base in the battle over immigration reform, as Jeb Bush's failure to gain traction with his entirely reasonable, modest reform plan made clear. 2015 was also the year we realized that zoning is a problem. In April, University of Chicago economist Chang-Tai Hsieh and University of California economist Enrico Moretti released a paper with a stunning figure: "We estimate that holding constant land availability, but lowering regulatory constraints in New York, San Francisco, and San Jose cities to the level of the median city would expand their work force and increase U.S. GDP by 9.5% (page 34)." In other words, converting land-use regulations in three very expensive cities to the that of the average city would increase the entire country's GDP by nearly 10 percent. That's almost unparalleled growth for modest but politically toxic reform in three cities, and that means the cost to the economy of not fixing this issue is high. So, we understood there's a problem, but the question was how to fix it. Law professors Roderick Hills and David Schleicher proposed a return to comprehensive urban planning as a way to combat anti-building, NIMBY influence. Yet others disagreed. Dartmouth's William Fischel thought the mechanism might be too delicate, and that the anti-building sentiments would reassert themselves once again. Fischel himself made waves with the release of his book Zoning Rules, which I reviewed for the PanAm Post in June. In the book, Fischel makes clear how daunting reform will be, since land-use rules are organic and populist to their core. The rules are popular and unobjectionable to normal people, and they create value for home-owning voters. In November, Jason Furman, chairman of the President's Council of Economic Advisers, joined the conversation. In a speech to the Urban Institute, he presented a paper laying out how zoning exacerbates inequality and hurts productivity. That same month, the Mercatus Center's Emily Washington and SUNY Purchase economist Sanford Ikeda released a study outlining the specific zoning tools which make housing less affordable. The problem is real, and there's a lot at stake, including the growth we give up by not letting agglomeration economies work their magic: smart, prosperous urbanites serendipitously meeting each other and coming up with new ideas that move the economy forward. On December 23, Steve Randy Waldman posted a piece attacking those seeking to deregulate the nation's housing market. The article is worth reading, and raises a number of concerns, to which others have responded. The debate over how to fix land-use rules continues, but the direction is clear: more housing in the nation's most productive places, and pick the low-hanging fruit for economic growth. Indeed, 2015 was the year we realized zoning is a problem, and hopefully, 2016 will be the one when we figure out how to fix it.

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