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June 23, 2007

Three Freedoms: Civil, Economic, and Political

In the preface to the 2002 edition of Capitalism and Freedom, Milton Friedman wrote:
A final personal note: it is a rare privilege for an author to be able to evaluate his own work forty years after it first appeared. I appreciate very much having the chance to do so. I am enormously gratified by how well the book has withstood time and how pertinent it remains to today's problems. If there is one major change I would make, it would be to replace the dichotomy of economic freedom and political freedom with the trichotomy of economic freedom, civil freedom and political freedom. After I finished the book, Hong Kong, before it was returned to China, persuaded me that while economic freedom is a necessary condition for civil and political freedom, political freedom, desirable though it may be, is not a necessary condition for economic and civil freedom. Along these lines, the one major defect in the book seems to me an inadequate treatment of the role of political freedom, which under some circumstances promotes economic and civil freedom, and under others, inhibits economic and civil freedom.
Unfortunately, I don't think Milton Friedman had time enough to write in detail about the interrelationship of these three freedoms. If he did, I would be very happy if someone could point out these writings to me.

Over the past sixty years Venezuela has been a laboratory for these three freedoms or the lack of them. Since 1948 we have had two military dictatorships separated by forty years of quasi-democracy.

From 1948 to 1958 General Marcos Perez Jimenez presided over a military dictatorship. During these years political dissent was prohibited by drastic means including torture and assassination but there was economic freedom and a mixed bag when it came to civil freedom: Most citizens has their civil freedom but criminals were often executed without trial under what came to be know as the "Escape Law" (Ley de Fuga). Criminals were taken to a deserted road and told they were free. When they tried to run away they were gunned down. The official cause of death: "Shot while trying to escape." While this was most certainly a breach of human rights, most law abiding citizens were quite happy to look the other way because the streets were safe. Another civil right denied was the right to organize labor: labor unions were outlawed.

The ten years under Marcos Perez Jimenez was a time of prosperity, a time of economic and civil liberty with the exceptions mentioned above. Most people, opposition politicians excepted, remember that period of Venezuelan life with fondness. Stories abound about how honest the Venezuelan citizen was. Huge works of infrastructure were built including many four lane freeways and toll roads. During the time, Caracas was voted the "Capital of Modern Architecture."

The memories of prosperity under that military dictatorship in great measure contributed to the election of a military man in 1998. During the chaos that preceded his election a number of my friends were yearning for another military dictatorship along the lines of the Perez Jimenez regime. Be careful with what you wish, you might get it.

From 1958 to 1998 we had a period of quasi-democracy with eight elected presidents and one caretaker who took over from an impeached one. I call it a quasi-democracy because it was a democracy more in name than in fact. It was more akin to a two party dictatorship similar to the one in Mexico under PRI. Both political parties, AD and COPEI, were socialistic and as such they curbed economic freedom by various methods at various times including exchange controls, price controls, high import duties on goods supposedly manufactured in the country and given preference under industrial policy. They also instituted punitive labor laws that made labor expensive and lackadaisical. We had a good measure of freedom of speech as long as it was not against a vindictive president in which case the reporter could easily find himself in jail. I still suspect that presidential candidate Reny Ottolina was murdered by the state apparatus because he was gaining popularity by leaps and bounds. Reny, as we fondly call him, was the most popular TV host in the country and, as such, had better access to the people than most politicians did. If elected, he would have terminated the two party dictatorship and for this reason he had to be removed.

Of course, in a social democracy human rights were reintroduced. Unfortunately, the people who benefitted most from these human rights were the criminals who could now circumvent the law with impunity based on their newly acquired human rights. The law-abiding citizens lost their rights in the measure that criminals gained theirs.

AD and COPEI were more pragmatic than dogmatic and as they shifted to the center by the necessities of governing, they lost their more extreme members. Several factions such as MEP and MIR broke off from AD and went from government to inconsequence. During the 40 years of quasi-democracy the combined extreme leftist groups could never gain more that about 15% of the popular vote. Venezuelans do not want to be communists, pure and simple.

Democracies have the ability to improve themselves and the Venezuelan democracy was no exception. During its forty years of existence, government became less centralized, the vote became less controlled by the party leaderships. And all this happened despite a strong opposition from the political parties as their control over the country was continually diminishing.

The economy waxed and waned in response to the international price of oil. In fact, the waxing oil based economy was able to mask the economic disaster that the socialistic policies were sowing. Once the price of oil collapsed some five years after the Arab oil embargo and the accumulated reserves were spent, the economic mask fell away and the Venezuelan economy went into a tailspin. Since 1984 the Venezuelan bolivar has been devalued by a thousand fold, from 4.30 to around 4,200.00 to a US dollar. In truth, this devaluation can be attributed to both, the prior social democracy and the current military dictatorship.

In the third decade of the quasi-democracy, our president tried to import Reagan/Thatcher style economic policies which were working quite well in Chile. The privatization of the local telco, CANTV, went well. The removal of price controls went well enough. The hike in the price of gasoline at the pump didn't and it brought Carlos Andres Perez (CAP) down. CAP was impeached on trumped up charges: he was accused of stealing "black" funds, funds given to the care of the presidency for which no accounting is required. Even his own party turned against him in the vain hope of salvaging itself, a ploy that backfired. This was the beginning of the end for Venezuelan democracy, even in its "quasi" state.

In the next round of presidential elections Rafael Caldera was turned down by his party, COPEI, as party candidate. Being a demagogue, Caldera left his party and surrounded himself with all the misfits, with all the political failures (with all the German cockroaches, "el chiripero"), in a bid to win the presidency. Unfortunately, he succeeded. His government was the worst in a long list of increasingly bad governments. His government brought to an end Venezuela's experiment with democracy.

In 1998 Hugo Rafael Chavez Frias got himself elected for very much the same reasons Hitler came to power, a crumbling democracy combined with an economic disaster. Evil feeds on poverty.

To make a sad story short, Chavez, with the guidance of Fidel Castro, destroyed all the civil liberties the Venezuelans had, in economics he re-imposed state controls wherever he could including price control and exchange control. He re-nationalized the local telco CANTV as well as the Caracas electric utility company which had been private since its inception. Many other industries were compelled under threat of economic sanctions and even death, to sell at least half of the company to Chavez cronies. Military officer were given control over many state institutions and state owned companies. Practically all the petroleum professionals working at PDVSA, the state owned oil company, were fired because they were in opposition to Chavez. To complete this sad tale which ends in treason, now our military academy sports a Cuban slogan: "Fatherland, Socialism, or Death." Venezuelans much prefer life.

Once again, international oil prices are masking the economic disaster being sown by the socialistic/communistic policies. Back when the Arab oil embargo happened, there was no proximate economic incentive for the high oil prices. The incentive was political as the Arab states decided to use oil as a weapon of war against Israel and her allies. Back then The Economist forecast that in ten years the West would be able to break the back of Arab OPEC and the forecast turned out to be very accurate. This time around, the proximate cause for high oil prices is economic with the incorporation of the two most populous nations on Earth, India and China, into the world economy. Now it is no longer just breaking the back of a political cartel but a readjustment of the world economy which is consuming a lot more power than it did before. A more powerful approach is needed this time around to lower fuel prices. But I digress.

To conclude, over the past sixty years Venezuela has lived under a variety of combinations of the three freedoms, political, civil, and economic. Although in many cases, the freedoms were not universal, I will consider them as existing when the majority had them (even if a minority didn't) and as nonexistent when the majority was deprived of these freedoms (even if a minority had them).

Era          Civil   Economic  Political  Properity  Happiness
            Freedom  Freedom    Freedom              Index 1-5
1948-1958     Yes      Yes        No        High         5
1958-1974     Yes      No         Yes       Medium       4
1974-1979*    Yes      No         Yes       High         5
1979-1998     Yes      No         Yes       Low          3
1998-2007     No       No         No        Medium       2

* High oil price induced prosperity

The above table is not very fine tuned and, in any case, it is one man's opinion more than a scientific study. With that caveat...

It seems to me that the happiness index correlates best with prosperity. If people are prosperous they are willing to ignore their various freedoms. When they are not prosperous then they look for freedom to gain that prosperity. Let us not forget that the American Independence movement had its origin in economic issues, "No taxation without representation." Americans didn't mind the king as long as the king didn't take their wealth away.

Denny Schlesinger

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