President of Venezuela Hugo Chavez is a source of irritation for the leaders of free countries. Financed by high oil prices Mr. Chavez has meddled in the internal electoral processes, sometimes successfully, of Bolivia, Ecuador, El Salvador, Mexico and Peru among others. He has established alliances with Iran and other rouge states of the Middle East. “An avowed Marxist, Mr. Chávez is in the process of destroying his country. Of this there is no doubt. But he is also an international menace, and a rich one at that. He has been using his oil wealth to sow revolution, à la Fidel Castro, in South and Central America. Did we mention that he's a dear friend of the Iranian government?” (O’Grady 2007).

In short, Chavez has been a destabilizing force around the world attempting to subvert democratic rule and capitalism and to instate the so-called Socialism of the XXI Century in Venezuela and elsewhere. In Venezuela, the so-called Bolivarian Revolution in 2007 has nationalized utility companies in the electric sector, renationalized the largest fixed telephone company and shut down a TV station with the broadest audience.

The aim of this paper is to cast light on the political economy determinants behind the advent and popularity of Hugo Chavez. This research shows that the Venezuelan economy was a growth miracle from 1920 to 1957 in particular during the decades of the forties and fifties. However, starting in 1958 and with the dawn of democracy in 1959, political leaders acting in complicity with some members of the private sector, started to undermine the institutions that protected private property. This erosion of economic freedoms continued unabated and was conducive for the free election of Hugo Chavez. Under Chavez, economic freedom has continued to decline and not surprisingly, political and civil liberties are seriously in jeopardy.  Thus the Venezuelan economy from a growth miracle became a growth disaster. This is a story of an economy that went from riches to rags provoked by a governmentally owned oil wealth that engendered perverse incentives coupled with a lack of political and entrepreneurial leadership.

Growth Miracle

According to (Jones 2002, 216-219) who uses data from the Penn World Tables Mark 5.6 that updates (Summers and Heston 1991), Venezuela’s GDP per worker relative to the U.S. in 1960 was 0.837. That is Venezuelan workers on average earned almost 84 cents for every dollar made by average American workers. To put this indicator in perspective in 1960 Canadian workers earned 79.7%, Swiss 82.5% and Australian 78.8% of American workers. 

To reach such a high plateau necessarily the Venezuelan economy had to grow at very high rates during the preceding decades and the best available evidence is consistent with this hypothesis. Official and reliable data from the Venezuelan Central Bank commenced in 1950[1]. According to central bank data during the 1950-57 period the Venezuelan economy exhibited an average real per capita growth rate of 5.4% similar to the growth rates experienced by the Asian Tigers during the 1960-2000 period.  Moreover, the accumulated growth rate of the Venezuelan economy for the 1950-57 period was 87%, not only higher than of any Latin American country but surpassing the accumulated growth rate of West Germany which was of 76%. Thus the German Miracle paled in comparison to the Venezuelan Miracle.

Moreover, the best available evidence provided by (Baptista 2006) and (Sanchez-Coviza and Olcoz 1966) suggests that Venezuela’s GDP expanded during the forties at rates in excess of 10% annually. These same scholars estimate high growth rates for the decades of the twenties and even the thirties.

Growth Disaster

Jones (2002, 4) using data from the Penn World Table classifies Venezuela as a growth disaster because between 1960 and 1997 real income per capita experienced a growth rate of minus 0.13 percent. According to (Barro and Sala-i-Martin 2004, 4), out of 112 countries with known data from 1960 to the year 2000, sixteen countries endured average negative growth rates. Fourteen out of sixteen countries belonged to the Sub-Saharan region, two were Latin American, one, Nicaragua suffered a civil war and the other one was Venezuela rich in oil, gas, carbon and iron and with no major internal turmoil.

Using data from the World Development Indicators published by the World Bank and based on the author’s calculation and fellow researcher’s Hugo Montesinos, Venezuela’s growth rate of its real income per capita during the sixties averaged 1.46%, seventies minus 0.76%, eighties minus 1.88%, nineties minus 0.08% and during the presidency, thus far, of Hugo Chavez from 1999 to 2006 minus 0.06%. However, the growth rates from 2004 until the present have exceeded 10% annually due to high oil prices.

What Happened?

The discovery of oil in 1918 provided substantial impetus to the Venezuelan economy. However, private international companies handled all aspects of the oil business. That is, the Venezuelan government did not commit the mistake of attempting to manage the oil business.  The Central Bank acted as a Currency Board defending an irrevocable fixed exchange rate to the dollar.  The marginal tax rate on individual income was 12% in 1957 and consolidated public sector absorbed 22% of GDP. Moreover, government consumption represented 12% of GDP and the rest was spent building the country’s basic infrastructure. The overall fiscal budget was generally in surplus. Tariffs on imported goods were relatively high, 20%, nonetheless other impediments to trade like quotas, antidumping or safeguard laws did not exist. There were very few state owned companies. Virtually no price, interest rates or exchange rate controls existed. Although political and civil liberties were very restricted, the judicial system administered justice impartially, particularly in the area of business and economics. The cities of the country were safe and corruption was centralized, located at the highest level of government. Thus, the damage of corruption to growth was not as severe when it is widespread across governmental bureaucrats.

According to Escovar and Faria (2005) the index of economic freedom for Venezuela, on a scale from 1 to 5 where one is the freest, was 1.5 in 1950 and 1.6 in 1955[2]. This suggests that the Venezuelan miracle was not just driven by oil. A set of economic institutions were in place that guarded private property and contributed to channel the oil wealth efficiently through out. To the extent, that the manufacturing, construction and service sectors were expanding at rates greater than overall GDP.

Even though during the fifties Venezuela enjoyed high levels of economic freedom, several governmental decisions started to erode them. In 1950 de dictatorial government of Perez Jimenez nationalized CANTV, the telephone company. A few years later founded SIDOR, a state owned steel company, built dams to generate electricity and also established various hotels across the country with the intent of developing a tourist industry. In addition, founded a state owned petrochemical company called Instituto Venezolano de Petroquimica and set up numerous regional “development” banks. This tendency towards state owned companies was implicitly justified on the apparent success of centrally planned economies like the Soviet Union.

Perez Jimenez government was overthrown in 1958 and a democracy with universal suffrage and freedom of the press was established in 1959. These events are consistent with the notion of economic freedom, growth and wealth destabilizing dictatorial regimes, (Barro 1999 and Glaeser et al. 2004). That is, citizens after savoring economic freedom also want to enjoy political and civil liberties.

Democratic leaders, however, accelerated the downfall of Venezuela towards socialism and mercantilism. Romulo Betancourt was elected in 1959 and started a Land Reform aimed against the existence of large extensions of land, latifundium. New “owners” of the redistributed land were given titles of use but not full ownership titles. Betancourt’s government established a Soviet style central planning governmental office called CORDIPLAN. During his tenure OPEC, a cartel, was founded by one of his cabinet members, an oil state owned company was created called CVP and international oil companies were barred from new concessions. That is, if these companies discovered new oil they were not allowed to extract it.

Betancourt devalued, (confiscated average Venezuelans labor fruits), the currency from bolivares 3.30 to 4.50 to the dollar and implemented exchange controls. In addition, he increased overall government expenditures, in particular consumption outlays. Tripled income tax rates from 12% to 36% and exacerbated its complexity and gradualness creating numerous brackets. Years of successive fiscal deficits made their first appearance and have become a staple of Venezuela’s public finance

Price controls were generalized. A notable example was rent controls which wiped out the rental dwelling market and contributed to foster today’s slums. Lastly, limited European immigration, which was major source of innovation and transformation of the Venezuelan economy.

Not withstanding the fatal wounds to the Venezuelan economy inflicted by Betancourt, the following government of Raul Leoni cemented the import substitution policy that ended up increasing the cost of living to Venezuelans and misallocated resources. Leoni also fortified and augmented the syndicated labor force. Rafael Caldera succeeded Leoni and did not reverse the socialist and mercantilist policies of his predecessors. He made the Venezuelan economy more inward looking forcing all private companies to be owned in its majority by Venezuelans.

In 1974 Carlos Andres Perez was elected president of Venezuela. His government like Betancourt’s provided a big thrust to socialism. The central bank, founded in 1939, was 51% owned by the government and 49% by the private sector. The government of Perez bought the stake owned by the private sector and placed several of its cabinet members on the board of the central bank wiping out in practice its independence. In addition, Perez nationalized the oil and iron industry and established new state owned companies financed with high oil prices induced by the Arab oil embargo and by a very lax U.S. monetary policy. In spite of tripling fiscal revenues due to oil boom, the government started a debt rampage also used to finance governmental enterprises. Finally, clear signs of corruption surfaced in the judicial system.

The following government of Luis Herrera doubled external debt and in 1983 devalued the bolivar to more than 7 bolivares per dollar. Devaluation has remained a common place policy and today the official exchange rate is Bs 2,150.00 per dollar and in the so-called parallel market hovers around Bs 4,000.00. Herrera established exchange rate controls that were a source of substantial amount of corruption.

In the late eighties Venezuelans elected for the second time Carlos Andres Perez. The government signed an agreement with the International Monetary Fund and under the banner of market reforms continued to devalue; inflation never broke the floor of 30% and implemented new taxes like the VAT in spite of poorly provided government services and that government owned the commanding heights of the economy.

Needless to say, the ill-conceived policies of the IMF were very unpopular and contributed to disillusion people with market reforms engendering a constituency for price and interest controls and no more privatizations.  These sentiments played a major role on the election for the second time of Rafael Caldera who went back to all sort of controls. The economy was on an unsustainable path and Caldera ended up signing another agreement with the IMF characterized by inflation, devaluation and a new tax to bank financial transactions.

A simple way of summarizing the problems afflicting the Venezuelan economy is that peoples’ right to the pursuit of property is severely limited. The following rights, all related to the protection of private property, are denied to Venezuelans. a) The right to earn on a hard currency. b) The right to pay low taxes. c) The right to spend your income on the cheapest good produced on any part of the world. d) The right to convert the fruit of your labor into any currency of the world. d) The right to work in any activity deemed legal. e) The right of entrepreneurs to charge whatever price they consider suitable. f) The right of bankers to charge the interest of their liking and to extend or deny credit to anyone the feel it is appropriate. g) The right to contract freely in the labor market. h) The right to a well functioning judicial system that protects property rights and punishes violators of these rights.

Given the systematic violations of these property rights it should be unsurprising Venezuela’s condition as a growth disaster. The lack of performance of the Venezuelan economy, the attendant increase of poverty coupled with the idea that IMF recipe is equivalent to capitalism fostered propitious conditions for the advent of a populist government a la Hugo Chavez.

A Poverty Trap

Clearly what ails Venezuela is socialism and mercantilism. An unmistakable manifestation of socialism is that the commanding heights of the economy, oil, steel, gas, coal, electricity, water, are owned by the government and the numerous interferences of the government with the workings of free markets. Obvious expressions of mercantilism are prohibitions that common citizens face to import sugar, milk, rice, sorghum and used cars, among others, from most countries such as the U.S. New cars, clothes and shoes for example face a stiff tariff of 35%. The existence antidumping and safeguard laws that are typically abused by inefficient entrepreneurs in connivance with government officials.  Finally, import quotas that are granted to domestic producers after the internal production has been sold.

Socialism and mercantilism mutually reinforce each other because both have in common the destruction of free markets. The philosophical pillars of socialism reject free markets as an efficient mechanism to allocate scarce resources. Mercantilism negates free markets for utilitarian reasons. That is, entrepreneurs seek shelter from competition manipulating government and the latter grants impediment to trade in exchange for private benefits, and power.

There are numerous events where the interaction of socialism and mercantilism contribute to induce inertial forces that maintain a perverse status quo. For example, Chavez coming from a socialist perspective frequently disparages the Bush government initiative of free trade. Many entrepreneurs in the country take solace from Chavez’s criticism because trade barriers will not fall precluding competition. Similarly, when Chavez vilifies capitalism, inefficient entrepreneurs take comfort because capitalism will not come to Venezuelan shores and therefore they will not have to reckon with competition.

Another case of this unholy alliance between socialism and mercantilism is the alleged tendency for the local currency to become overvalued. Numerous economists indicate that the bolivar is overvalued, which is a code word for devaluation, that is, for the need to rob the people of their hard earned work. The government benefits from devaluing the currency because dollars obtained through exports of oil can be exchanged for more bolivares, and non competitive entrepreneurs also benefit because of the destruction competition due to the higher price of imported goods.

Complex taxation, regulation and labor laws also promote socialistic and mercantilist objectives. Socialists thrive in complexity under the conviction that complex rules achieve cosmic justice, (Sowell 1999). Well established, most likely big companies love complexity because it serves as access barriers, eliminating potential competition from smaller companies that cannot survive under convoluted rules. It is revealing that leaders of Conindustria, a guild of managers from the Venezuelan industrial sector, never advocate for the need to reduce the cost of doing business in Venezuela.  Usually, they plea for a “competitive currency” and for the reduction of imports, “justified” on the grounds of employment creation.

Direct beneficiaries of socialism and mercantilism are conspicuous Venezuelans with substantial influence in the media and in the political decision making process. Consequently, it is very difficult to extricate the economy from such an impoverishing self perpetuating equilibrium. This I would suggest is a condition that plagues most Latin American countries explaining why most economies south of the Rio Grande remain stagnant or show pyrrhic growth rates.   

Collective Action Problems

It is well known that public institutions are non rival, that is, are subject of joint consumption. For example the benefits of a good judiciary system is a public good, not only non rival but also non excludable. In other words, it is very difficult to impede access of consumers once the good is produced. By the same token, the benefits of free trade, the benefits of monetary freedom, and the benefits of simple and low tax laws, among others, are public goods.

The Neo Classical explanation for underproduction of these goods is market failure and therefore the need for government intervention. That is, the free market mechanism fails to produce an “optimal” amount the good, hence the need for a governmental solution.

The market fails due to consumers’ inability to display collective action in spite of being consumers the ultimate beneficiaries of the public good, (Olson 1977) provides a seminal explanation along this lines[3]. Consumers are beset by problems of a) group size, b) free riding and c) rational ignorance.

a)      Group Size. Basically the number of consumers is too large to be able to organize them efficiently. Consumers are beleaguered by the same problems that afflict participants in the prisoners’ dilemma game. It is difficult to communicate and to establish binding agreements.

b)      Free Riding. Once the public good is produced everybody benefits whether one contributes or not to its production. Since contribution is costly consumers expect others to contribute. If most consumers react in the same way no one contributes, consumers attempt to free ride, and no collective action is undertaken.

c)      Rational Ignorance. It is costly to become informed about good economic policies. If the benefits from becoming informed do not outweigh the costs, people remain ignorant about policies that will benefit them hindering collective action.

In short, consumers remain indifferent, in spite of policies inimical to their best interest, and will not exert lobbying efforts or pressures before public officials. On the contrary, beneficiaries of perverse policies will do whatever is possible to preserve the status enjoying the benefits of protection, also a public good but dispersed to a much smaller group. In this fashion public goods such as the benefits of free trade or of a stable currency are under produced.

An alternative interpretation is that under production of the aforementioned public goods is rooted not in market failure, but in the government’s inability to fulfill its most important mandate: to protect peoples’ natural rights among them the right to pursue property. In other words, the Venezuelan government has failed to produce the benefits of free trade, stable currency, low taxes; transparent justice among others because of an ill advised interference on the economy.

The Venezuelan government is the ultimate responsible for the erection of trade barriers, currency devaluation and forcing Venezuelans to use exclusively the bolivar. Ironically, government intervention is the root cause of failure to produce optimally public goods.

Likewise, one of the major duties of government is to provide a sound justice system. Corruption and lack of independence of Venezuela’s judicial system is another example of ultimately government failing its people. The same goes for complex regulation, rigid labor laws and lack of personal security.

The Foundation of Freedoms

Parliamentary Democracy was born in England as a result of a Coasean bargain between the crown on one side and nobles and the people on the other, whereby funds were provided to the King in exchange for protection of basic freedoms (Pipes 1999, Glaeser and Shleifer 2002, 1208)[4]. That is, the crown needed the people to survive because the most important owners of land and creators of wealth were the people who consented to be taxed for a price: protection of property with the ensuing freedom. 

The Venezuelan institutional arrangements, and of OPEC countries, are not conducive for the dawn of stable democracies because governments are patrimonial. That is, the sovereign is also the owner; hence there is no binding check on the Leviathan. It is revealing that most OPEC countries are secular or religious autocracies and perhaps not coincidentally, oil is owned by government. The light of democracy in Venezuela, another OPEC country, is also waning. This is a manifestation of the “natural resource curse”, (Sala-i-Martin and Subramanian 2003, 5). A revealing illustration, of perverse outcomes rooted in Venezuela’s patrimonial government that bypasses the will of the

people, is provided by (Alvaro Vargas-Llosa 2006):

Chávez buys influence through oil. It is a form of blackmail: At OPEC, Chávez fights for increasing prices, making life hard for poor countries that import oil, and then offers those very nations oil subsidies they have no choice but to accept. That is what happened with the 14 Caribbean countries that make up the Caricom group. He also sends 100,000 barrels of oil to Cuba daily; and 200,000 barrels to Bolivia every month in exchange for soy, poultry and political subservience. And he has bought $3 billion worth of Argentine bonds to entice President Kirchner's loyalty. Chávez is denying his nation its wealth from oil, somewhere between $40 billion and $50 billion a year. His annual "aid" budget totals more than $2 billion. He sponsors 30 countries, including some in Africa, in order to buy their vote for a seat at the U.N. Security Council.

Further, under socialist institutions people live off the state. Peoples´ energies are channeled to penetrate the state through political entrepreneurship seeking wealth transfers from government and not procuring wealth creation. The addiction of the people to governmental largess induced by socialist institutions is exacerbated by mercantilist institutions. The most influential entrepreneurs in Venezuela have accumulated wealth by virtue of various impediments to trade implemented by government. When entrepreneurs supplicate for governmental protection because their farm or industry has been invaded by outsiders or workers, it falls on deaf ears because public officials know that those businesses exist thanks to governmental favors. Moreover, the plea is not legitimate because business owners want protection of their property, which is very reasonable. However, the barriers to competition enacted at the behest of these same business owners-rent seekers constitutes a confiscation of property of common citizens by forcing consumers to buy more expensive domestically produced goods. Interestingly, in patrimonial governments, businesses are captured by government.

How can Venezuelans be weaned from government? This is akin to asking, how can mercantilism and socialism be withered? Or how can capitalism be established in Venezuela?  These questions have a two part answer. The first part deals with the institutional arrangements that ought to be implemented. The second part addresses the issue of how to bring about those institutional arrangements.

Regarding the issue of optimal institutions I will only suggest broad institutional reforms that will make government accountable to Venezuelan citizens. This necessitates the distribution of all oil taxes to all Venezuelans eighteen years and older. In this fashion the government is revenue-starved and to obtain income via taxation it has to negotiate with the people. The people will consent on taxation demanding in exchange, however, protection of individual liberties and quality of the few goods that most likely citizens will allow the government to generate, like justice, police protection and national defense. Moreover, most shares of state owned companies ought to be devolved to all citizens. A portion sold to international and local investors who will bring know how management.

What kind of taxes? Taxes that fall on consumption, ideally a flat rate on all goods and services bought. In this way all Venezuelans experience the cost of government and if tax rates increase everybody pays more taxes diminishing opportunities for class warfare which are frequently provoked by graduated income tax schemes. Other advantages of consumption taxes are that they are easier to administer, more difficult to evade, discourage spending therefore increasing savings and absence of taxes on income stimulates production and work effort.

Further, one of the most pernicious taxes is the corporate income tax because for corporations taxes are a cost and as such it is transferred most likely to consumers in the form of higher prices. Thus, when consumers purchase goods they are unknowingly paying corporate income taxes. Thus the corporate income tax acts as an anesthesia of the pain induced by the mere existence of government.

Thus the main aim of this proposition is to dismantle socialism. As Vernon Smith put it in relation to another OPEC country: “A central issue in Iraq—as well as the U.S. and other countries---remains whether the people control government thorough through voting and taxes or the government controls the people through a monopoly on natural resources,” (Smith, 2003). Looking at the problem in this light apparently the curse is not the existence or not of oil but who owns the oil, politicians or the people.

The question of mercantilism is addressed by a unilateral, perhaps gradual, reduction of trade and non trade barriers. This outcome will take place if governmental policies are subjected to the best interest of consumers which is to enable them to access with their income to the cheapest good available.

In relation to the question of how to bring about a new institutional order characterized by the primacy of consumers in Venezuela, in my opinion the bottom line is leadership. However this leadership is either political or entrepreneurial.  Example of political leadership in Latin America is Pinochet in Chile who, with the help of the “Chicago Boys,” was able to turn around the economy adopting institutions that increased economic freedoms. Dictatorships, however, are no panacea for growth[5]. Examples abound of dictatorships in Latin America and other parts of the world that have failed to bring about reforms capable of igniting high and sustained growth.

Democracy, on the other hand, is not critical for growth either, (Snowdon, 2006, 15). There are many democracies around the world that are rich and poor suggesting that the correlation between growth and democracy is zero. Under democratic rule to increase economic freedom I see as crucial the role of efficient entrepreneurs who would lobby governments for policies and institutions that are in their best interest which is aligned with the interest of consumers, if these entrepreneurs are efficient. Similarly, these efficient entrepreneurs will finance dissemination of economic freedom enhancing policies in the media, enabling consumers to overcome the rational ignorance problem. In short, efficient and non myopic entrepreneurs would compete against rent-seekers entrepreneurs for good economic policies, (Becker 1983 and 1985). In this way efficient entrepreneurs groups, attempting to further their interest which is aligned with consumers best interest, will undertake collective action substituting for the difficulties of consumers to organize efficiently.

This competition among pressure groups lobbying government has important historical roots. Corn Laws and their repeal in Britain is a case in point. In 1804 under pressure from landowners was introduced in Parliament a Corn Law that sought to protect farmers’ profits imposing a duty on imported corn. On May 15, 1846 the repeal of the Corn Laws was passed at the request of Prime Minister Sir Robert Peel whose wealth came from his family’s textile mills. Manufacturers’ fearing higher wages wanted to eliminate tariffs on imported corn. In other words, manufacturers’ defending their own interest were also furthering the welfare of Britain’s people. Hence, not necessarily altruistic motives were behind Robert Peel’s political action. Peel was defending his personal interest, and those of industrialists, and it happened to be aligned with the interest of consumers. This account is consistent with the view of Buchanan and Tullock that people are people and as such we are always pursuing our self-good and not necessarily the common-good, (Buchanan 1999 and Tullock, Seldon and Brady 2002).

Similarly, looking into President George W. Bush’s initiative of a Free Trade Area of the Americas (FTAA), is this initiative driven by American consumers that want to buy less expensive goods or by entrepreneurs that to export more would like to see the U.S. government lowering its trade barriers to induce other countries to do the same? Moreover, is President Bush backing this initiative out of concern for American consumers’ pocket or political supporters’ wallet width? The point is that this is a situation where efficient entrepreneurs lobby government for policies that better their lot but also American and Latin Americans consumers’ welfare.

Needless to say, the best antidote for less lobbying activity, which detracts entrepreneurs’ valuable time from truly wealth creating endeavors, is a small government with little intrusions in the economy. However, given the current size and intrusions of government a way to reduce government is implementing policies that increase competition, partly induced by the collective action of efficient entrepreneurs. I would hypothesize that the size of the U.S. government today would be much larger if it were not for the backing of efficient entrepreneurs that support the view of limited government.

In Venezuela, and in the rest of Latin America, freedom fighters need to organize efficient entrepreneurs as an effective lobbying coalition that competes against traditional elite families that have a stranglehold on government and media. To do this financing is necessary to undertake media campaigns, workshops and forums to help mobilize and organize entrepreneurs that do not burden consumers, using government as an intermediary, to survive.  

Conclusions

This paper has shown that up to the fifties the Venezuelan economy exhibited high levels of economic freedom which is consistent with the miracle growth rates that Venezuela experienced between 1920 and 1957. Not surprisingly, these high levels of economic freedom served as a catalyst for the introduction of democratic rule increasing Venezuelans’ levels of political and civil liberties. This is another example of a positive correlation between economic and political freedoms, (La Porta, Lopez-de-Silanes, Pop-Eleches and Shleifer 2004, 452-453) and consistent with the Lipset-Barro hypothesis that prosperity tends to inspire democracy, (Lipset, 1959 and Barro 1996, 1997 and 1999).

The inception of democracy brought more redistributionist policies and greater influence of rent-seeking pressure groups that had the effect of undermining economic freedoms to the extent of instigating on average negative growth over the period 1960-2006. This is an example of growth-retarding features of democracy, (Barro 1996, 2). As expected, lower levels of prosperity have induced social unrest and created an environment conducive for the emergence of a populist leader who blames “capitalism” for peoples’ impoverishment.

Thus myopic and self-serving political and entrepreneurial elites are responsible for this flagrant case of government failure. Even more worrisome is that judging by the discourse of political leaders and opinions to media outlets of most pundits we have not learnt our lesson. That is, there is no consensus among leaders of the opposition that we urgently need to dismantle socialist and mercantilist institutions.

Barring an external intervention to oust Chavez, leaders of the opposition need to convince average Venezuelans that without Chavez their living standards are going to increase.  To do this convincing and consequently overcome the poverty trap of mercantilism and socialism, this paper suggests organizing efficient and far looking entrepreneurs to push the agenda of capitalism, through their interaction and lobbying with the media and politicians, in a true exercise of leadership. Latin America in general and Venezuela in particular needs efficient entrepreneurs to form an effective pressure group that fights for the implantation of capitalism not necessarily out of altruism but because it is in their best interest.

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