Article 98: (Kensey Amaya)

Patents and the decline of science and technology in Venezuela

In May I posted information published by the National Science Foundation (NSF) that discussed science and engineering in Latin America. In it they reported that Brazil, Argentina, and Mexico have been trending upwards in technology development to become "high-tech exporters". Not surprisingly Venezuela ranked the lowest of the countries scored, mainly because: "[it] suffered because it was considered the riskiest or least attractive site for foreign investment". Instead of stimulating foreign and domestic investment and encourage technology development, the Chavez government has made decisions that adversely affect Venezuelans competitiveness and economy while currently they are taking steps to further discourage innovation. Specifically within the constitutional reform, to be voted on December 2nd, a modification to article 98 is planned. The original article states:

Cultural creation is free. This freedom includes the right to invest in, produce and disseminate the creative, scientific, technical and humanistic work, as well as legal protection of the authors rights in his works. The State recognizes and protects intellectual property rights in scientific, literary and artistic works, inventions, innovations, trade names, patents, trademarks and slogans, in accordance with the conditions and exceptions established by law and the international treaties executed and ratified by the Republic in this field.

Modified article 98 - text changes are underlined

Cultural creation is free. This freedom includes the right to cultural diversity pertaining to invention, production and dissemination for creative works, scientific, technological, and humanistic, including the legal protection and rights to the author for their work. The state recognizes the rights of all to participate in the cultural community, enjoy the arts, and participate in scientific technological progress, and enjoy their benefits.

The most concerning aspect of this reform is that it limits protection to cultural diversity, to the exclusion of any protection that may be strictly intellectual or economic. In addition, the term "cultural diversity" is non-specific, how should one define it or interpret it? More than likely the interpretation will be left to the court system which is controlled by Chavez.

A simple interpretation of the new article suggests that most science and technology would not be protected since most do not contribute to cultural diversity. There are countless examples of how this will affect Venezuela, from books to merchants with the sole goal of bringing everything under state. State control has proven to be inefficient and a hindrance on scientific and technological progress, the participation of the private sector and intellectual property protection is essential for it to flourish.

It is clear that the Chavez government is reforming and will interpret the new article in a way that will significantly decrease intellectual property rights and severely limit patent protection. In the words of National Assembly member Carlos Escarra these are economic (i.e. capitalist) rights not cultural rights. Cultural rights constitute art, poetry, and literature whereas "inventions" have economic benefits. Apparently, Escarra fails to realize that art, music, and literature do have economic benefits to the inventor, through the sale of their work.

It is unfortunate that the new reform is designed to decrease patent protection since it is well established that patent protection, along with property rights and decreasing state bureaucracy play key roles in spurring innovation and economic development, ultimately leading to decreased poverty. This is not a new concept, but Chavez seems intent on creating a society based on a barter system and where some of the most important technological advances, such asOrimulsion is being phased out while giving the Chinese the technological knowhow for production while collecting little to no royalties.

The proposed reform to article 98 is simply putting on paper what the Chavez has been doing for years, either directly or indirectly though his actions. To see how Venezuela has declined in technological innovation we can look at the number of U.S. patents awarded to individuals in Venezuela (see graph below).



In the graph we see that Venezuela averaged about 32 patents a year from 1993 to 2002. From 2002 to 2006 the number patents dropped sharply to 15 after hitting a 13 year low of 10 in 2005. The most probably explanation for this sharp drop in patents is Chavez's decision to purge PDVSA of political opponents, particularly those such as the PhD investigators at PDVSA research institute (INTEVEP), where 66% (108 out of 164) were fired. The loss of highly skilled/educated individuals comes at a huge loss to the State, making it less competitive, reducing innovation and investment, resulting in a less diverse economy and loss of potential revenue. The loss of these investigators is particularly damaging to PDVSA since it accounts for the bulk of the economy and requires technological innovation to stay competitive among the other oil companies. Sadly this loss is long term since the time and investment required to create a highly skilled worker with a PhD is high, approximately 5 years of education and $300,000 not counting the experience needed post PhD. Making the Venezuelan situation worse is that most of these skilled workers have left, and/or have been prevented from working in Venezuela, thus they have emigrated and sought jobs with other petroleum companies taking their knowledge and skills with them. So who loses? Venezuela.

Over the years we have seen how Chavez has made decisions that adversely affect innovation in Venezuela, now the Chavez government is poised to modify article 98 which will further discourage investment and innovation that will not only affect the oil industry but the wider economy. The Venezuelan chamber of franchises has already stated that modification to article 98 will negatively affect that business sector, which has seen significant growth recently and now accounts for 2.2% of the GDP.

The modification of article 98 is an obvious decision by the Chavez government that will only lead to decreased technological innovation in Venezuela. However, this is only one decision, although a significant one, among many that Chavez has made during the past 10 years that will adversely affect Venezuela for many years.

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Kensey writes his own blog, Venezuela US topics, and he can be reached there also for further questions.

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The transition to the Socialist Constitution: Katy

Introduction: This post does not review a specific article but does examine the "Transitional Statutory Provisions", and as such is equally as important than any article since it will define how and when the new constitution will be applied.

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By Katy (who can be contacted at Caracas Chronicles). Originally published here.

If Venezuelan voters approve the proposed Constitution, the Reform project has included a number of “Transitional Statutory Provisions” to be implemented right after the vote. Reading them gives us a hint of what the Constitutional reality will be on December 3rd if the “Sí” option wins.

1. Legislative priorities – “We prioritise all and everything”

Assuming the Constitution is approved, the National Assembly will proceed to modify the laws necessary to establish a socialist economy. Its first priority will be to pass Organic laws in matters such as the promotion of the socialist economy (or is that the destruction of the private economy?), the regulation (or is it pillage?) of the Central Bank, the creation of the National Fund of Popular Power, the downgrading of municipal power, regulation of oil and gas, regulation of social security, regulation of pensions for informal workers, anti-monopoly legislation and annuity payments for workers on payroll.

What this hints at is that the National Assembly will go to work quickly to begin implementing the laws that back economic reforms on practically everything. Communal councils will begin receiving loads of cash, and state and local government will see their resources dwindle. Chávez will be in complete control of the Central Bank and its reserves. Informal workers will supposedly begin getting a pension fund and the oil and gas laws will be changed. The curious thing is that many of these laws are already part of Chavez’s enabling package, which makes the emphasis on how they will get to work quickly rather odd.

The last bit on the list of laws to be changed is the Organic Education Law. The immediate discussion and passage of this new law will be a chance for the government to steamroll a demoralized opposition and impose its control over private education once and for all.

Other laws that will be prioritised include Organic laws for the territorial (dis?)organization of the country, for the Foreign Service (to make them what, more chavista? Is that even possible?), a reform of the penal code to include sanctions against torture (don’t we have that already?) and an organic law for the justice system (see comment on Foreign Service law).

What this amounts to is that the National Assembly will “prioritise” absolutely everything in its grasp. In other words, they will leave no stone unturned, and there’s no way of telling which stones they will overturn first.

2. Perks – “Fellas, come back to Congress whenever you want”

One of the Transitional articles includes a provision that any National Assembly representative elected December of 2005 can reclaim their seat after having served in any position in the Executive Power. In other words, if Chávez fires you, you still have a job to go back to, unlike now, where you have to settle for any old Embassy he might throw your way.

3. Indigenous representatives and annuity charges – “Oh, let’s do our job”

Eight years after approving the current Constitution, there are still many provisions in it that have not been regulated. The Assembly, in a curious act of devilishness, has included a number of provisions that regulate articles in the established Constitution but are not part of the group of articles being considered for reform.

An example of this is Article 92, which says all workers have a right to their annuity payments, or “prestaciones sociales.” The Assembly has decided to include in their Transitional Provisions an article explaining exactly how workers will get their annuities. It says workers will earn annuities according to their last salary, and that this right will last for ten years (the writing is very vague on this one, pardon but I don’t yet have my Ph.D. in Chavistology to make ends or tails of it). The purpose of this seems to be to ensure workers’ annuities do not suffer because of the change in the workweek.

Another example is Article 125 of the current Constitution, which is not up for discussion and simply says that indigenous people will have their own representatives. Transitional Provisions explain exactly how indigenous representatives will be elected, bypassing the need for a special law in that regard. They also say that the demarcation of indigenous lands, something that according to the existing Constitution should have been done a long time ago, will have to be done… in the next two years!

The indigenous lobby must be thrilled with all this attention they’re getting. Too bad it amounts to not much.

4. Deferring to other people – “The following things will be handled by the people who are supposed to handle them according to existing legislation.”

Somehow the National Assembly saw the need to specify that things that specific people are in charge of handling specific things under existing laws, and that these things will continue to be handled by those people under existing laws, unless they (the Assembly) change their minds. If this sounds to you, as it does to me, as complete mumbo-jumbo and a total waste of paper, then maybe we didn’t go to enough law classes to understand the “intricacies” of the judicial “sciences.”

For example, the Provisions delegate to the CNE any authority to decide the details of how elections are to be carried out while new electoral laws are passed. In other words, it includes a paragraph saying that the CNE is in charge of elections until we change the laws, which is totally and completely obvious to me.

Furthermore, it specifies that, until new legislation is brought forth regarding empty lots of land, the administration of said lands will continue in the hands of Chávez under the guise of whatever the hell he decides is his will on a particular day, ermm, sorry, “existing legislation.”

The provisions also specify that the matters of “professional titles,” and “professional associations” will continue to be guided by existing legislation. Again, oddly enough, this is referring to an Article (105) that surprisingly! exists in our actual Constitution, which says something completely banal about how the law will regulate the requisites people need to earn a professional degree and associate with colleagues and, doubly surprising! is not even one of the articles being considered for the reform.

Finally, the Comptroller’s office and the regulations that govern its functioning are supposed to continue working under existing legislation. In other words, the Comptroller and his cronies can continue keeping their heads in the sand just fine.

5. The economy again – “Oh, in case it wasn’t clear by now, Chávez will run everything for as long as he wants”

There are separate provisions specifying that Chávez will have immediate power to modify key things about our economy. It would seem like the fact that Chávez has an Enabling Law with an actual expiration date is not enough, since the Transitional Provisions effectively hand over power to Chavez “until laws are passed” which could perfectly be never.

Insofar as laws are not approved, Chávez will be able to begin the transition to a socialist economy by decree. Chavez will also be able to fund Communal Councils immediately, until an Organic Law for the Popular Power is approved.

6. Decentralization – “Bye-bye suckas!!”

As was expected, a number of the transitory provisions deal with the immediate dismantling of decentralization.

The changes to the Constitutional Entitlements (Situado Constitucional), by which state and local governments are entitled to a certain percentage of the national budget, will come into effect with the Budget Law of 2009. In other words, decentralization has exactly one year before it ceases to exist.

Furthermore, it hands over to Chavez the power to create the Federal District of Caracas, remove current Major Mayor (no pun intended) Barreto and pass all administrative and bureaucratic tasks to the new Federal District authorities. Oh, I forgot, “as long as a new law isn’t passed”, which could be never. In other words, Chávez becomes the king and sole decider of the Federal District as well.

Finally, it says the State has one year to transfer all the power stipulated in the reform from the different local governments to Chavez.

The idea is clear: we have exactly one year before the decentralization experiment is part of history.

7. Presidential elections in 2012 – “Wait – Chavez resigns at the beginning of his fourth period?”

Curiously enough, the Provisions specify that the new, seven-year presidential term will only come into effect once the current one is done. In other words, there will be Presidential elections in 2012 and not 2013.

This is a surprise to me. If my calculator is correct, that means that elections following that will take place in 2019, for a term that would begin in early 2020. That means that if Chavez plans on staying until 2021, he’s planning to resign after the start of that term?

Wait, maybe they’re confused just like they were with the changes in the clock. Maybe Chavez wants to stay until 2030. But wait – elections would take place in 2026 and then in 2033. How would he only stay until 2030? Is he planning to die that year? Is he going to resign? Is he planning on changing the Constitution again in the future? Should we expect a change in 2010 saying the Presidential term is now TEN years instead of seven?

However, the article itself is written in quasi-grammatical fashion, as is usual with these shamefully uneducated lawmakers. It says, “Fourteenth: The presidential term established in article 230 of this Constitution will be applied once the current presidential term has expired.” Putting aside the issue that Presidential terms are not “applied”, it seems like there’s a wee-bit of a gray area there, but I find it unlikely that they will come up with nonsensical interpretations of this article. Then again, stranger things have happened.

8. State of exception – “Oh, I almost forgot, your rights will be taken from you whenever we say for as long as we want, starting now”

It’s been said before, but it begs repeating. The law passed in 2001 that regulated when, how and for how long the State can decree a “State of Exception” - see Musharraf (2007) – will cease to exist as soon as this Constitution is approved. In other words, if in the days after the Constitution is approved the government decides to enact an unlimited State of Exception, we will be in true legal limbo since there will be no law to regulate it – meaning, no law that says what the State can or cannot do during those “exceptional” times.

In this scenario, the National Assembly makes clear that it would not be violating any laws by enacting a State of Exception since, well, States of Exception will be completely unregulated. When the government begins to censor newspapers at will, it will have the law on its side.

Furthermore, the State of Exception will be for as long as the government wants it to be. Say, did you know that people in Egypt have been living under a State of Exception since 1967? Did you know that Hitler enacted a State of Exception following the Reichstag fire in 1933, and the German Constitution was effectively suspended until the war was over? Did you know that Syria has been in a State of Exception since 1963? Just thought I’d throw that out there. It’s amazing the kind of stuff you can learn from Wikipedia.

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Article 70: Virginia

Article 70 - 1999 Constitution

Means of people’s participation and involvement in the exercise of their sovereignty, in political affairs, among others, are: the election of public officials, the referendum, the consultation of public opinion, mandate revocation, the legislative, constitutional and constituent initiatives, the open town council, and the citizens’ assembly, whose decisions shall be binding. Means of participation in social and economic affairs are: the citizens’ service bureaus, self-management, co-management, all forms of cooperatives, including those of financial nature, credit unions, community enterprises, and other forms of association guided by the values of mutual cooperation and solidarity. The law shall establish conditions for the effective functioning of the means of participation contemplated under the present article.
(underlined sections are removed from the reformed article)

Article 70 Reformed

Means of people’s participation and involvement in the direct exercise of Their sovereignty, and FOR THE CONSTRUCTION OF SOCIALISM are: the election of public officials, the referendum, the consultation of public opinion, mandate revocation, the legislative, constitutional and constituent initiatives, the open town council, and the citizens’ assembly, THE DECISIONS OF THE LATTER BEING BINDING, THE COUNCILS OF POPULAR POWER (COMMUNAL COUNCILS, WORKERS COUNCILS, STUDENTS COUNCILS, FARMERS COUNCILS, AMONG OTHERS), THE WORKERS DEMOCRATIC MANAGEMENT OF ANY DIRECT OR INDIRECT SOCIAL PROPERTY ENTERPRISE, THE COMMUNAL self-management, FINANCIAL AND MICRO-FINANCIAL COMMUNAL ORGANIZATIONS, COMMUNAL PROPERTY COOPERATIVES, COMMUNAL credit unions, NETWORKS OF FREE ASSOCIATED PRODUCERS, VOLUNTARY WORK, community enterprises and other forms of association constituted to develop values of mutual cooperation and SOCIALIST solidarity
The law shall establish conditions for the effective functioning of the means of participation contemplated under the present article.
(sections in capital letters are new in the reformed article)

The section in parenthesis was modified by the National Assembly in the following way:

…/…THROUGH THE COMMUNAL COUNCILS, WORKERS COUNCILS, STUDENTS COUNCILS, FARMERS COUNCILS, ARTISAN COUNCILS, FISHERMEN COUNCILS, SPORTS COUNCILS, YOUTH COUNCILS, ELDERLY ADULTS COUNCILS, WOMEN COUNCILS, DISABLED PERSONS COUNCILS, AMONG OTHERS…/…

And the last paragraph will say: A NATIONAL LAW, instead of ‘The law”

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In order of appearance, this is the second article in the proposed reform presenting socialism as an exclusive system framing the activity of the government and of the citizens. “Means of people’s participation and involvement in the direct exercise of their sovereignty, and FOR THE CONSTRUCTION OF SOCIALISM”.

Taking into account that article 2 - part of the Fundamental Principles which cannot be altered by a constitutional reform- says that political pluralism is held as a superior value of the legal order and actions of the State, the first question the new article 70 poses is: Which article describes the means of participation of the people for purposes different from the construction of socialism?

There is no such article.

Does that mean that participation for other purposes will be considered unconstitutional? Let’s see:

“The government is and shall always be democratic, participatory and pluralist”, says Article 6 and “the organs of the State emanate from and are subject to the sovereignty of the people”, says article 5. The protection of the democratic exercise of the will of the people is guaranteed in article 3. All three also being part of the unalterable Fundamental Principles.
Furthermore, article 21 says that “all persons are equal before the law, and, consequently any discrimination with the intent or effect of nullifying or encroaching upon the recognition, enjoyment or exercise, on equal terms, of the rights and liberties of every individual shall not be permitted”.

Moreover, article 22 says that “The enunciation of rights and guarantees contained in this Constitution is not to be understood as negating others inherent to individuals, not expressly mentioned in such enunciation. The absence of a law regulating these rights shall not adversely affect the exercise thereof.”

The content of articles 2, 3, 5, 6, 21 and 22 clearly lead to the conclusion that the words ‘FOR THE CONSTRUCTION OF SOCIALISM” are superfluous and useless. And that is not even considering that the alluded socialism, (if it is the same as the so called ‘21st century socialism’) is nothing anybody can agree or disagree with, since it has only been defined in terms of what it will not be. It is something yet to be invented.

But this conclusion is only valid if the interpretation of the constitution is performed by an autonomous and impartial Judicial Power, one where its members are endowed with the honesty, capability, probity and excellence mandated by the constitution. With a Judicial Power under the control of the Executive and where the president of its Supreme Tribunal (twice fired from the Judicial system for illicit actions, in 1989 and 2003) is a member of the presidential committee for the constitutional reform (which makes her a judge and a party in the issue), the intention of the reform of article 70 of reducing the political rights of citizens to a single alternative becomes evident.

Another modification in article 70 is the elimination of co-management as a way of participation in social and economic affairs. Now there is no distinction between political, social or economic means of participation and only self-management is mentioned as a form of workers involvement in enterprise management. Is this an improvement? It depends on what kind of enterprises will the workers be allowed to manage themselves. Would Petróleos de Venezuela (PDVSA) for example be managed from now on by the company workers? Well, no. The article makes it clear that only in the restricted realm or environment of what is ‘communal’ the workers may have any involvement. The term ‘communal’ would be related to either Communes (political entities with forms of self government equivalent to parishes) or Communities, (a new micro political division that is being introduced by article 16 which can only be explained as an obsession to micro manage the lives of the people.- Mousqueton-Article 16). The alleged increase in participation and power transfer to the people, used to advertise the constitutional reform would be manifested only in matters of little transcendence, matters with virtually no significance in the national context.


Then what is the meaning of ‘THE WORKERS DEMOCRATIC MANAGEMENT OF ANY DIRECT OR INDIRECT SOCIAL PROPERTY ENTERPRISE’? Perhaps PDVSA falls into the category of Social property? Well, no. Direct Social Property will be “what the State assigns to Communes or Communities or Cities”. Indirect Social Property is something “exercised by the State in the name of a Community”, according to the reformed article 115. Again any enterprise management where the workers will be in charge will not be anything over which the State doesn’t have full control. Nowhere in this reformed article it is said that the workers will have something to do with Public Property, the one that ‘belongs’ to State Entities. One can foresee that it is in the latter category where PDVSA belongs.

Notably missing among the means of participation listed in the new article 70 is the exercise of popular control over the State entities through ‘contraloria social’.

The effort of the National Assembly to make this article attractive by adding Fishermen, The Young, Women, Disabled people etc, to the list of the Councils of Popular Power (where they were already implicitly included with the words ‘among others’), denotes the disregard and disrespect of the servile group of legislators (that represents less than 20% of the electorate) for the citizens, condescendingly underestimating intelligence. Why? Because the Popular Power, as described in the reformed article 136, is not exercised by electing any communal, woman, elderly or student leader in any election. It is exercised by “being part of communes, communities and cities self-government.”

The National Assembly was careful to emphasize that no form of self-government at any of the micro-levels where participation is graciously allowed could ever create special legislation.
They had to include the word ‘National’ to qualify the type of law that will establish the conditions for the effective functioning of the means of participation.

Another reduction of the people’s rights is the transformation of the formerly binding decisions of the Open Town Councils (Town Meetings), into non-binding in the reformed article 70.

There is no way to know how “SOCIALIST solidarity” deviates from the universally understood concept of solidarity. But if the deviation follows the same pattern as “revolutionary justice” or “revolutionary democracy” from their respective original concepts, we can expect a result with no resemblance whatsoever to what the term pretends to invoke.

Finally, voluntary work now is characterized as a means of participation. Since it is incomprehensible to consider it as a political, social or economical right, it is feasible that some National law will make it a duty or a condition to exercise some fundamental right.

Article 70 is under TITLE III of the constitution, which refers to Duties, Human Rights and Guarantees. The proposed modifications imply a substantial reduction of the people’s rights,
which is contrary to the principle of progressiveness, contemplated in the 1999 constitution.

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Article 90: Manuel T.

Old Article:
Working hours shall not exceed eight hours per day or 44 hours per week. Where permitted by law, night work shall not exceed seven hours per day or 35 hours per week. No employer shall have the right to require employees to work overtime. An effort shall be made to reduce working hours progressively in the interest of society and in such sphere as may be determined, and appropriate provisions shall be adopted to make better use of free time for the benefit of the physical, spiritual and cultural development of workers. Workers are entitled to weekly time off and paid vacations on the same terms as for days actually worked.

New Article:
With the intention that workers have enough time for their integral development; day-shift work hours shall not exceed 6 hours per day and 36 hours per week, and night-shift work hours shall not exceed 6 hours per day and 34 hours per week. No employer shall force its employees to work overtime. Moreover, it (the subject in the Spanish version is tacit, so I’m guessing it refers to the employer as well) shall program and organize the mechanism for the better enjoyment of workers’ free time in benefit of their education, and human, physical, spiritual, ethical, cultural and technical development.

Workers shall have the right to a weekly rest and paid vacations in the same conditions as regular work shifts.


Well, where do I start? First and foremost, I see no reason why such an article should be in the Constitution. Whether you agree or not with constraining work hours, the Constitution is not the place for this kind of stuff. This could be written in a regular law, if anything.

Before going to the economic analysis of imposing a shorter work shift, let me point out some details of the proposed article. The new article encourages employers to “program and organize the mechanisms for the better enjoyment of workers’ free time in benefit of their education and integral development.” I guess employers know better what’s in the best interest of their employees, do they? Let’s say you have a couple of more hours to do what you please during the day. What would you do? In principle you would choose whatever it makes you happier (in the broadest sense of the word). I hope you agree with me on this. As far as I know that could include going home with your family or to the library, a museum, school, the gym, the church, yoga class, or even your favorite bar. If you feel that you need more education, you would enroll in classes at the nearest college (or any educational institute that suits you), or simply go to the library and pick up a couple of books in Accounting or Philosophy. If you think that you’re a bit out of shape, you would hit the gym, take yoga class, or go hiking to the mountain more often. And so on. More importantly, perhaps, if you think that you have a poor “integral development” (whatever that means) , probably you would do your best to improve in that direction. I don’t see a reason why you wouldn’t. If a couple of more hours daily are what you needed, then you’re all set. Unless one argues that you are shortsighted and myopic, and therefore don’t know what’s best for yourself. Generally that’s not the case. I think everyone one of us has a pretty good idea of what we want, of what makes us happy and better person, right? So, why would our employer organize something for us to do in our free time for our benefit? Plus, if we believe that each one of us has different goals, preferences and constraints, then a one-size-fit-all employer-organized free-time program would not work for all its employees. Unless you think everybody should be and do the same, and their individual differences do not matter.

I personally believe that this little twist in the proposed article does not aim the (shrinking) private sector but the (growing) public one. I can imagine some governmental institution coming up with the idea of organizing one-hour daily workshops on (presumably) some topic of interest for its employees, say “The New 21st Century Man”. I can also imagine that participation in this type of events will not be exactly voluntary.

I also think that this addition to the article is to some extent irrelevant for all practical purposes. Nowadays, the government already coerces its workers to participate in certain extracurricular activities. Thus, I don’t see how they would not organize a “The New 21st Century Man” workshop if they wanted to even without the proposed reform. Now you could say that if they haven’t done it yet, why they would do it after the constitutional reform. Obviously, the “revolution” is moving forward (or is it backward?), and with it, we’ll see all sort of new things.

How about the economic consequences of the proposed article 90? In general, a tighter constraint on work hours cannot make anybody better off as long as we assume that the length of the work shift is an endogenous variable of the economy. Nowadays the limit is 8 hours. Some people may choose to work less than that. Don’t you think that if everyone were better of by working 6 hours daily they would have done that? But they didn’t. So it must be that they are fine with working 8 hours. Of course, you could argue that our evil entrepreneurs are forcing their employees to inhumanly work that much. But I wouldn’t give much credit to that argument because that would mean that there exists a huge market failure that workers and unions wouldn’t have let pass that easily. I have never heard unions seriously complaining about the shift length. If that market failure existed, it’d be in workers’ best interest to fix it. However, for quite some time they were happy with the 8-hour shift. Oh, it could be now that Chavez not only realized of this failure but also came to the rescue of the people. Right!

Now, let’s analyze the short-run consequences of the new article 90. Bolivarian revolution wisdom would tell you that the people is going to benefit with this because they will be able to enjoy more leisure (which everyone agrees is a good thing), at least those who have a job, and earn the same amount (as far as I know monthly salaries are not going to be initially cut because of the shorter work shift). However, there is no free lunch. Something’s got to give. So, what’s the cost of this? First of all, everything else equal, total output (GDP) is going down (1). In particular, private sector output will take the biggest hit. Public output will not suffer that much because it is largely inefficient. However, the quantity (and perhaps quality as well) of the few public goods and services the States provides will fall and taxpayers will get less for their money.

Thus far we have made a big assumption, namely, employment does not change. Bolivarian revolution wisdom would tell you here that employment is actually going to increase because firms are going to hire more people to make up for the difference. Oh boy! I beg to differ. In fact, employment (unemployment) is going to fall (increase). Why? Keep in mind that our evil entrepreneurs are profit driven whether you like it or not, right? Given prices, salaries and employment constant, when firm’s output falls, so does its profits. Remember that its wage bill is constant up to this point. So, what does this firm do? It has several alternatives. One is to adjust the number of workers. Let’s try first with hiring new workers. I can assure you that it ain’t happening. Why? Well, if it were profitable to hire a new worker now, it would have been profitable to do so before. Since the firm didn’t hire any new worker before, then it must be that it wasn’t profitable to do so and it still isn’t now.

The firm then has two other options, keep the same workers or fire some of them. If there were no firing cost and other restrictions to firing, some firms would probably lay off some of its workers because possibly some workers might “bring to the table” less than what they are paid, that is, their productivity is less than their salary. With firing restrictions, firms would lay off less people or even none if these restrictions are cumbersome enough.

Another alternative that firms have is simply to increase prices and, hence, more inflation. This is a way to adjust real wages down which would mitigate the drop in workers’ productivity. When real wages fall, the negative impact on employment explained above is reduced.

For some firms price adjustment is not an option because either they face government price controls or international competition. Some of these firms might see their profits go towards the red side, and have only one alternative. That is, to shut down. That means that unemployment will rise.

Therefore, in the short run, shortening work hours by law will only bring a combination of more unemployment, inflation, and a drop in real wages. Everyone will be worse off. For the unemployed, it will be more difficult to find a job. Some workers will be laid off and the rest, the lucky ones who kept their jobs, will be poorer.

The long-run analysis is a bit more complicated. However, I can point out some bad consequences of this measure. First, since workers are less productive, private investment will fall further, which will have a negative impact of job creation and long-run unemployment. Moreover, Venezuela will be even more dependent of oil and the public sector will more important. You could argue that the drop in private investment will be offset by increasing public investment. That could be, but in any case, public capital is going to be less productive because of the shorter work shift. So, to produce the same amount of public good it will take more public investment, meaning that there will be more taxes and less consumption.

In the long-run, this measure could also have an important negative effect on human capital accumulation. Since workers are going to be less productive (both because of the shorter shift and because of a lower capital stock), their real wage necessarily has to go down. That has a negative impact on the return to schooling, which will dampen the accumulation of human capital and, in consequence, workers’ productivity further.

In summary, putting more limits on work hours is not going to make anyone better off. I cannot think of anybody who would benefit from this. Moreover, the poor are the ones who are going to be hurt the most.

1) Why? Assuming employment does not change, if everybody works fewer hours, they are going to produce less. Unless you come up with some crazy argument in which workers will put more effort on those 6 hours up to the point where their average daily productivity remains the same. If that’s the case, why didn’t they do it long before?

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Manuel contributed this piece from a well known Spanish campus.

He can be joined at: venezuela. constitution. trap @ gmail. com

-The end-

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Article 167 (AIO)

Article 167 is notable more for what was removed than what was changed or added. Before I start though, take a look at this. Are bolivars green? How about bolivars fuertes? It’s a telling statement about what Chavismo seems to think matters in terms of government revenue…

Here is the original article (translation courtesy of www.constitucion.ve , please blame them for the poor grammar):

Are revenues of the States:
1. Those deriving from their property and the management of their assets.

2. Charges for the use of their goods and services, fines and penalties, and any charges allocated to them.

3. Proceeds from the sale of State-owned commodities.

4. The resources to which they are entitled by virtue of constitutional revenue share (situado constitutional). The revenue share is equivalent to up to 20% of total ordinary revenues as estimated annually by the National Treasure, which is to be distributed among the States and the Capital District as follows: 30% of the aforementioned percentage in equal shares, and the remaining 70% in proportion to the population of each of such entities.
During each fiscal year, the States must invest at least 50% of the amount to which they are entitled by way of revenue share. During each fiscal year, the Municipalities of each State shall be entitled to at least 20% of the revenue share and of all other ordinary revenues of the State corresponding. In the event of changes in the revenues of the National Treasury that require an adjustment to the National Budget, the constitutional revenue share shall be adjusted in the same proportion.
Principles, rules and procedures with a view to ensure the proper and efficient use of the resources deriving from the constitutional revenue share and the share of the Municipalities therein shall be established by law.

5. Any other taxes, charges and special contributions that may be allocated to them by national law for the purpose of helping to develop the state treasuries.
Laws creating or transferring tax revenues to the States may offset these allocations by means of changes in the other revenue categories indicated in this article, in order to preserve interterritorial fairness. The percentage of estimated ordinary national revenues allocated to the constitutional revenue share shall be no less than 15% of estimated ordinary revenues, taking into account the financial position and sustainability of the National Public Treasury, without neglecting the ability of the state administrative authorities to provide adequately for the services for which they are responsible.

6. Resources deriving from the Interterritorial Compensation Fund and from any other transfer, subsidy or special appropriation, as well as those allocated to them as a share of national tax revenues, in accordance with the pertinent law.

Here is a summary of changes in the proposed Article 167. Sections 1-3 were unchanged, as were the parts of 4-6 that aren’t addressed here. (And I kept some of the poor grammar.):
Are revenues of the States:
4. Minimum raised from 20% to 25%. Distribution now includes Federal Territories, Federal Municipalities, Communes and Communities. Proscribed ratio deleted.
Municipality minimum share raised from 20% to 25% (of state total).
Deleted: “In the event of changes in the revenues of the National Treasury that require an adjustment to the National Budget, the constitutional revenue share shall be adjusted in the same proportion.”
Deleted: “la participación municipal” in use of revenue share.
5. Deleted: “The percentage of estimated ordinary national revenues allocated to the constitutional revenue share shall be no less than 15% of estimated ordinary revenues, taking into account the financial position and sustainability of the National Public Treasury, without neglecting the ability of the state administrative authorities to provide adequately for the services for which they are responsible.”
6. Deleted: “Resources deriving from the Interterritorial Compensation Fund.”

First, minimum distribution of revenues has been increased, both for states and for municipality portion of that state revenue. This sounds good on the surface. However, the phrase that was deleted ensures that states will not get what appears to be their full share, at least in terms of share of total federal government expenditures.

The Venezuelan government has, for several consecutive years, created a budget, then gone and passed additional expenditures later in the year. (Often more than once.) I’d like to tell you how much that has been the last few years, but the Ministry of Finance for some reason doesn’t make that little fact easily available on its website. (Perhaps they don’t want us to know?) If you don’t think it’s a big number, consider this: the budget is drafted with an estimate of oil revenue, which is typically low. In 2006, for example, the budget value was $26. Average oil price for the year was $56.45 – 117% above the budgeted value. Since oil income is somewhere around half of national income, states can expect to lose about a quarter of what should have been their revenues. And a quarter of 25% off leaves them with 18.75% of oil income, less than the 20% they would get without the reform.

And that 25% does not include one of Chavez’s biggest pet projects: Fonden. I don’t know quite how much money that fund has supposedly received since it was created, but it’s quite a few billion (not that there are any transparent accounts if it anywhere). Let’s say it’s been 10 billion – that’s 2 billion that should have gone to the states already but didn’t. So there are two mechanisms which will ensure that states will get a larger share of the pie, but guarantee that the pie will be much smaller than it used to be.

Finally, the money distributed also has to be shared with “Federal Territories, Federal Municipalities, Communes and Communities,” not all of which exist or are even defined. Nor does it say what share those entities will get. Since there is no longer a set ratio, any of those could theoretically get all of it. I won’t predict that as a possibility, but note one fact: the new version gives no description of how those funds will be split up. Any guess who gets to decide?

Section 5 removes the minimum amount that the states could receive under any circumstances. In other words, while they used to be guaranteed 15% of total estimated ordinary revenue, there is no longer any certainty of that. Given the size of additional expenditures each year and the Fonden, it’s easy to believe that state share will end up well under 15%.

Section 6 removes the “Interterritorial Compensation Fund” from potential state revenue. Honestly, I’m not even sure what this was, but it evidently was money just for the states, and this makes one more source of their revenue dry up and go away.

So the net result of this reform will be for less money to go directly to the states, and more money to stay with the federal government. This certainly doesn’t preclude the feds from spending money on specific states, including on important projects. But it does create a system which appears designed specifically to facilitate political patronage, which has been one of the best friends of Latin American caudillos of every stripe for the last 200 years.

So the governors (and mayors, plus whatever the name of a commune leader will be) who are seen as the best at their job will be the ones who can secure the most federal funds for their areas. And the ones who succeed at that will probably be the ones who are best at sucking up to Chavez. Is that a skill that anyone really wants in an elected representative?

Our cartoon friends who help us understand the old Constitution tell us that “Los recursos son fundamentales para el desarollo de los estados” – “resources are fundamental for the development of the states.” If that was so true, then what motive does Chavez have for giving them fewer resources?

It’s quite simple: all of the funds that would have been transferred to the states remain under control of the federal government, and with fewer controls and more discretion than before. In other words, Chavez has more money at his disposal and fewer restrictions on how it gets spent.

Thanks to this reform, because even more government resources will depend on Chavez, he will be able to make himself seem even more indispensable than ever.

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This is the second article reviewed by AIO
aninterestedobserver at yahoo dot com

Original article published here.
Spanish version to be announced
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-The end-

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Articles 318, 320 and 321 (Miguel Octavio)

The proposed Constitutional Reform includes three articles that have to do with monetary policy, the Central Bank and international reserves, so that it makes sense to discuss them all at the same time, as I will do in this post. The Articles to be modified are 318, 320 and 321.

Let's start with Art. 318, which has the most extensive modifications. So extensive in fact, that it is not even worth looking at the original article except to note that the current Constitution grants the Central Bank "exclusive, obligatory and…autonomous" power over the country's monetary policy.

In contrast, the new text as proposed for Art. 318 says:

Article 318. The national monetary system has to tend to achieve the essential goals of the Socialist State and the well being of the people, above any other consideration.

The Executive Branch and the Venezuela Central Bank, in strict and obligatory coordination, will fix monetary policy and will exercise the monetary competence of the National Power.

The specific objective of the Venezuelan Central Bank, jointly with the Executive Branch, is to attain price stability and preserve the internal and external value of the monetary unit. The monetary unit of the Bolivarian Republic of Venezuela is the Bolivar. In the case that a currency is established in the framework of Latin American and Caribbean integration, that currency that is the subject of treaties subscribed by the Republic can be adopted

The Venezuelan Central bank is public law entity without autonomy for the formulation and exercising of the corresponding policies and its functions will be subordinated to the general economic policy and the National Development Plan to reach the superior objectives of the Socialist State and the greatest sum of happiness for all of the people.

For the adequate fulfilling of its specific objectives, the Central Bank of Venezuela will have among its functions, shared with the National Executive Power, those of participating in the formulation and execution of monetary policy, in the design and execution of foreign exchange policy, in the regulation of the coinage, credit and fixing interest rates.

Since they are so closely related (and maybe even repetitive), I will also list Articles 320 and 321, underlining what is new:

Art. 320 The state shall promote and defend economic stability, avoid the vulnerability of the economy and watch out for monetary and price stability of the economy, to insure social well-being. Equally, it will watch out for harmony in fiscal and monetary policy for the achievement of macroeconomic objectives (Two whole paragraphs disappear)


Art. 321:

Within the framework of his function as administrator of international reserves, the Head of State will establish, in coordination with the Venezuelan Central Bank and at the end of each year, the level of necessary reserves for the national economy, as well as the amount of the excess reserves, which will be destined to the funds earmarked by the national Executive Branch for productive investment, development and infrastructure, financing of the "misiones" and overall, in the integral, endogenous, humanist and socialist development. (The FIEM,
the macroeconomic stabilization Fund disappears)

The first consequence of the proposed reform is that as I mentioned before, the Venezuelan Central Bank will no longer be independent.

What that does mean?

There are roughly two ways of establishing monetary policy: You either have a Central Bank, like most countries do or you have a Currency Board, which is rare. In the Currency Board model, like Hong Kong, the currency in circulation exactly matches the reserves of the country.
The money is "backed" by the reserves, which may include gold, monetary instruments and investments. In the Central Bank model, you have a group of people who establish the policies to intervene in the monetary, currency and interest rate markets.

Central Banks are usually independent. That is, while the Government has representatives on the Board of the Central Bank, they function independently and can make independent decisions. The reason for this is that economic studies have proven that when Central Banks are not independent, the short-term political goals become a priority over the stability of the currency and prices. Thus, most countries have found this to be the optimum, if not perfect solution. As an example, if an election is coming up, the Government may not care if it spends too much, because it makes people feel that things are going well, but in the long run this creates inflation.

Thus, the first negative aspect of the reform is that the Venezuelan Central Bank will no longer be autonomous or independent, but will have to reach all decisions jointly with the Executive branch, allowing politics to get in the way. Of course, this has already happened, since all member of the Board of the Venezuelan Central Bank have by now been named by Hugo Chavez, the Central Bank has not even complained about this change in the Constitution and policy has become less and less independent in the last few years.

In the last few years, economists in the Central Bank have resisted some of Chavez' policies and forcing the Central Bank to implement them, but in most cases Chavez has gotten his way in the end.

However, in the end, the policies set by the Venezuelan Central bank have not been that great or independent in the last few years. Despite the mandate by the Venezuelan Constitution to maintain price and currency stability, the Venezuelan currency has devalued from Bs. 573.25 the day before Chavez took office to Bs. 2,150 (official rate) or Bs. 5,600 (parallel rate). Why? Because monetary policy has been out of control as the amount of Bolivars in circulation has gone from US$ 5.5 billion to US$ 62.5 billion, a factor of 12, while in the same period international reserves have only doubled [editor's emphasis]. That is why the currency continues to drop, to devalue constantly. In some sense, Articles 318 and 320 are repetitive, since some of the goals outlined in them are exactly the same, the goal of price and monetary stability and harmony, which is already mentioned in Article 320. This shows in part the level of improvisation in writing the proposed reforms.

Thus, up to a point, the changes in Article 318 and 321, simply formalize and institutionalize the policies that have been carried out in the last few years, which will simply allow the Government to do what it needs for political reasons, which economic studies have precisely shown does not work in the medium and long term.

These three articles also prove that the proposed reform of the Constitution violates the procedure for changing it, since in these articles everything is secondary to the aims and goals of establishing a Socialist State, something Venezuelans have never voted on. This should require a Constituent Assembly, as Art. 342 specifically says that a Constitutional reform can only be done when the fundamentals and structure of the Constitution are not changed. What could be more fundamental that restricting the country to being a socialist State?

We could also say that Art. 321 could also have been included in either Article 318 or 320. Essentially it incorporates into the Constitution the concept of "excess" international reserves. This concept "invented" by our current Minister of Finance Rodrigo Cabezas, says that once a year the Government will "determine" what is the optimum level of international reserves and any "excess" will be taken away from the Venezuelan Central Bank and given to funds for investment, development and infrastructure. This concept has no economic basis and sealed the progressive devaluation of the currency when it was first implemented. If it was absurd to make it into a law, like it was in 2004, it is simply irresponsible to incorporate this level of detail and precision into the Venezuelan Constitution.

Again, this simply institutionalizes what the Government has been doing in the last few years. For three years in a row, the Government has withdrawn these supposed "excess" reserves and given them to Fonden, which by the way has not really fulfilled its mandate to invest those funds in infrastructure and development.

Additionally, the Macroeconomic Stabilization Fund disappears from the Constitution. That fund, if well managed, could represent the best option for the country to avoid the boom and bust cycles of oil prices, which will certainly repeat one day.

In conclusion, the changes to Art. 318, 320 and 321 of the Constitution, formally remove the independence of the Central Bank which has been somewhat questionable in the last few years anyway and place monetary policy right in the hands of Hugo Chavez. This is exactly the opposite of what economic theory suggests a country should do, it subordinates monetary policy to social and political goals, and bodes badly for the future of inflation and the currency in Venezuela, as even valid structures to dampen the effect of oil fluctuations are eliminated.

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Miguel Octavio writes The Devil's Excrement since late 2002 and can be contacted there directly.

This text originally published here.

A Spanish version of this text will be available soon.

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