Why would a government adopt harmful policies, and why would society go along?

Prof Ricardo Hausman asks this question taking the Venezuelan example:

When we hear of a catastrophe that has befallen a friend, we feel both empathy and a sense of vertigo. We wonder whether it could happen to us: Is this catastrophe the result of some peculiar characteristic that we fortunately do not share? Or are we also vulnerable? If so, can we avoid a similar fate?

The same logic applies to countries. On the weekend of July 16-17, Venezuelans were given the opportunity to cross the border into Colombia for up to 12 hours. It was an event reminiscent of the fall of the Berlin Wall. More than 135,000 people used this respite to go to Colombia to buy basic necessities. They traveled hundreds of miles and converted their cash for just 1% of the foreign exchange they would have received had they been allowed to exchange it at the official rate applicable for food and medicines. And yet they found it worthwhile, given the hunger, shortages, and desperation at home.

The international press has reported the collapse of Venezuela’s economy, of its health system, of personal security, and of constitutional rule and human rights. All of this is happening in the country with the world’s largest oil reserves, just two years after the end of the longest oil-price boom in history. Why? Could it happen elsewhere?

The particulars of any situation are always, well, particular, and hence do not travel well. But that can provide us with a false sense of security; properly viewed, Venezuela’s experience holds important lessons for other countries.

Venezuela’s crisis is not the result of bad luck. On the contrary, good luck provided the rope with which the country ended up hanging itself. Instead, the crisis is the inevitable consequence of government policies. In Venezuela’s case, these policies included expropriations, price and exchange controls, over-borrowing in good times, anti-business regulations, border closures, and more. Just consider this small absurdity: President Nicolás Maduro has refused, on several occasions, to authorize printing larger-denomination banknotes. The largest bill currently is worth less than $0.10. This has caused havoc in the payment system and in the functioning of banks and ATMs – a source of untold nuisances to the public.

So the relevant question is: why would a government adopt harmful policies, and why would society go along? The chaos into which Venezuela has fallen may seem to be beyond belief. In fact, it is a product of belief.

It is pretty much a history of quite a few countries. Really difficult to find answers:

The danger that Venezuela highlights – and that Britain may soon highlight as well – is the damage that dysfunctional belief systems can have on national wellbeing. While the particular chavistacreed that destroyed Venezuela will most likely end up collapsing under the weight of its own cataclysmic failure, the lesson for others is how costly it is to adopt a potentially dysfunctional belief system. When it comes to wholesale shifts in paradigms of belief, Venezuela shows how unaffordable such experiments may turn out to be.

Actually it is not really a right comparison.  Venezuela is a typical case of a Latin American country which always funds ways to mess up.

UK went in the other direction as the perceived benefits from sticking to the economic paradigm did not really work. Too few people enjoyed most of the benefits and as a result the lost out voted for the exit.

But yes the question about what shapes beliefs is a great one. How is it that in Latin America all these stories are so common?

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: