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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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

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Article 87 (AIO)

Introductory comment.

First of all, let me say that I think Bruni’s argument about the questionable constitutionality of this process is worth reading – if you haven’t, do it. Being a non-Venezuelan, I don’t think I’m really qualified to weigh in on the validity of that argument, but I don’t want the fact that I’m discussing an article to make it seem that I consider it a non-issue. (Speaking of that, check out this picture, with its caption about constitutional reform. Ironic, no?)

Second, I want to comment in general about constitutions. Being the most important aspect of a true democracy – since no one should be above the law, and it is the ultimate definition of that law, it therefore is more important than any person and their opinions – I believe it should contain only the most important, fundamental priorities. In other words, a constitution should always be short, because there are only so many things that deserve consideration as the highest priorities.

This is partly true because a constitution should only contain things that the government can reasonably guarantee, the things which should be considered basic, fundamental rights. The U.S. Constitution, for example (I’m not holding it up as a model for the whole world, but simply as a good example – if it were lousy, it wouldn’t have lasted 224 years and counting – and the one I know the best), promises “life, liberty, and the pursuit of happiness,” and pretty much everything in it fits into those categories. It doesn’t reach beyond the basics.

Any overly long constitution (350 articles, perhaps?) will necessarily get into one or two areas beyond the fundamental rights: things which should properly be enacted as law, not the constitution; and things that can only be described as a wish list. A good standard for the first might be whether or not it can sustain at least 2/3 support of the people indefinitely (if it can, maybe it should be constitution material; if not, take it to the legislature). For the second, it comes down to whether or not the government can manage to provide it or not. If it’s beyond its power, but makes you think “Wouldn’t it be nice if…?” then leave it out. (And too much of that is one of the reasons Latin Americans have spent so much time writing new Constitutions – because they didn’t like the “wish list” of the last one.)

That said, on to Article 87.

The old version (translation from www.constitucion.ve – and it’s quite easy to see what these pictures have to do with the Constitution. Not!):

All persons have the right and duty to work. The State guarantees the adoption of the necessary measures so that every person shall be able to obtain productive work providing him or her with a dignified and decorous living and guarantee him or her the full exercise of this right. It is an objective of the State to promote employment. Measures tending to guarantee the exercise of the labor rights of self-employed persons shall be adopted by law. Freedom to work shall be subject only to such restrictions as may be established by law.

Every employer shall guarantee employees adequate safety, hygienic and environmental conditions on the job. The State shall adopt measures and create institutions such as to make it possible to control and promote these conditions.

The new version:

All persons of working age have the right and duty to work. The State will develop policies that generate productive work, and will adopt social measures necessary for each person to achieve an existence which is dignified, decorous and beneficial for themselves and for society.

The State will guarantee that in all labor centers safety, hygienic and environmental, and social relations conditions are fulfilled in accordance with human dignity, and will create institutions such as to make it possible to control and promote these conditions.

In the application of these principles of co-responsibility and solidarity, the employer will adopt all necessary measures for the fulfillment of these conditions.

Work will be subject to the regime established in this Constitution and the laws of the Republic.

For the purpose of guaranteeing the exercising of labor rights of independent workers, such as taxi drivers, truckers, retailers, craftsmen, professionals and who are self-employed in whatever productive activity to support themselves and their family, the Law will create and develop everything with regard to a social stability Fund for self-employed workers, so that with the contribution of the State and the worker, the worker can enjoy fundamental labor rights such as retirement, pensions, vacations, rest, prenatal and postnatal care, and other rights established by law.

This article comes from the section called “De los Derechos Humanos y Garantías, y de los Deberes” – “About Human Rights and Guarantees, and about Duties.” Anything related to employment, with the exception of precluding slavery, seems to me to fall well short of that category. If one were to list things that should be guaranteed to all, a job would not be near the top of the list. Same thing if one were to list things a government could guarantee. Frankly, the only appropriate change for this article would have been to delete it altogether. Everything in the old version fell into those two categories: things that should be a in a law (why does any legislature need a Constitution to tell them what laws to pass?), or “wish list.”

On to the changes: the first big one is that the State will no longer guarantee the adoption of measures to help provide work, but will itself develop the policies for the same. In other words, more State intervention, which will do the opposite of facilitating job creation. Always has, always will. A certain degree of State intervention is very important, but I think Venezuela passed that point long ago, and just kept going. You see the same theme in the change about safety conditions, which were to be provided by the employer, and now are guaranteed by the State – with new institutions to “control” them. This implies a dependence on the State – is that the intent? Yet again when the State guarantees conditions about “social relations,” whatever that means. The employer’s responsibility will now be to fulfill “co-responsibility and solidarity.”

Another notable change is that the end result of facilitating work that is beneficial for society. And just who makes that determination? If it’s anyone but society itself, it’s going to be mistaken at times. A promise of “human dignity” is also added, also without definition.

“Work will be subject to the regime established in this Constitution and the laws of the Republic.” Can someone explain to me why this was necessary – if it weren’t included, then work would be supra-constitutional?

I'm very amused by the addition of several types of independent workers. This has got to be the first proposed Constitution in the world to ever mention taxi drivers! The proposed stability fund is potentially a good idea, but far too vague to even guess. Plus the idea is utterly worthless without a law, so it’s pointless to include.

There are some other little details, but the sum of the changes promise nothing concrete, except for additional State intervention. That intervention is vaguely defined to boot, which means that it could be quite excessive. Unfortunately, there is nothing here that gives any reason to think that anything employment-related will improve.

Finally, there is one deletion which is very intriguing: the sentence “It is an objective of the State to promote employment” has been removed! Why? Because “social relations,” “control” of employers, and “co-responsibility and solidarity” are more important? Because promoting employment isn’t “beneficial…for society”?

I suspect another reason: because this is the one thing in the original article that Chavez knows he can’t fulfill. He can guarantee more control, greater intervention, lots of activities with “social” purposes (but not necessarily results). But he can’t make it easier to create employment.

This isn’t just my opinion – the World Bank released its annual “Doing Business” report just this week. (Perfect timing!) Venezuela is 172 out of the 178 countries listed, ahead of economic luminaries Chad, Burundi, Congo, Guinea-Bissau, the Central African Republic, and the Dem. Republic of Congo. The nearest non-African country is Laos, at 164, and even Haiti – the closest in the Western Hemisphere – is out of reach at 148. Not only that, but Venezuela is 20 spots below Zimbabwe!

And when it comes to the criterion of “Employing Workers,” Venezuela is even worse off – they are tied for dead last in the entire world! So there you have it – Chavez has proposed no longer having to promote employment, which the World Bank says no one in the world does worse already. And nothing in the proposed Constitutional change gives reason to think it will be the least bit better.

AIO
aninterestedobserver at yahoo dot com

Published originally here.

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