The two are inextricably intertwined. The socialist orientation of
The reasons for this stark and simple choice may be clearly understood.
In contrast ‘the opposition’, by weakening or dismantling the role of the state in Venezuela’s economy, would, first , lead to enormous hardship for Venezuela’s people as the economic crisis would then be resolved at their expense and, second, it would leave Venezuela’s national economy weakened and defenceless confronted with the greatest financial crisis for eighty years.
The victory of President Chavez in the referendum is, therefore, vital not only for social, political and moral reasons but for directly economic ones. To explain the relation between the referendum and the choice for
The detailed working out of the implications of this choice between defending the living standards and national economy of Venezuela, though the socialist orientation of the economy, or of leaving Venezuela’s population and national economy to be struck by the international financial crisis due to the policies of the opposition, will now be considered.
The reason that the socialist orientation of
What happens in an international recession in an economy dominated by private ownership is shown in Figures 1 and 2.
Figure 1 shows the development of the different components of
Figure 2 similarly shows the domestic components of US GDP as it enters the current economic recession - the similarity between the two graphs is evident. The dimensions of the economic decline after 1929, so far, are of course far greater than in the current downturn, but the pattern of the current recession is entirely classical in its character.
Stating these trends in more detail during the Great Depression the fall in US GNP (Gross National Product) was 29.7 per cent. Government consumption spending increased throughout the recession. The decline in personal consumption expenditure after 1929 was severe but less than the overall decline in GNP. The driving force of the recession was the extreme collapse of
Figure 2 shows the same pattern in the current economic downturn in the
The reason the decline in investment drives the economic downturn is that the different components of 'demand' in the economy are controlled by quite different economic mechanisms. It is investment which is the strategically vulnerable element due to the private ownership of the means of production.
· The level of government consumption spending is controlled by the state - and therefore direct decisions can be taken to prevent any decline. In this sector
· Personal consumption is determined by the aim of the mass of the population to have as good a living standard as possible - the most powerful issue affecting personal consumption is the level of income and employment, not the desire to consume. The commitment of the Bolivarian government to maintain the living standards of the Venezuelan population, and the use of state policy to achieve this, therefore gives the best opportunity to maintain consumer demand. The policy of the ‘opposition‘, by failing to use the state to maintain the living standards of the population, by creating conditions in which unemployment would sharply increase, and by allowing export of capital abroad, would lead to a worsening of the living conditions of the population – not only undesirable in itself but producing a decline in consumer demand that would also deepen the tendencies to recession.
· Private investment decisions, however, are not controlled by consumption but by profit. Therefore investment is not controlled by the same mechanisms as personal and government consumption and can fall to almost any level. As already shown it is this decline in investment which drives the economy downwards in a recession . A government committed to a privately owned economy cannot intervene directly to stop the decline in investment because of private property in the means of production. However if the government takes decisions on investment out of the hands of private owners of the means of production it, in fact, limits or abolishes that private ownership of the means of production. Therefore, in circumstances of deep economic crisis such as the present, if a government accept a framework of dominance by the private ownership of the decisive means of production in a country it will be unable to halt the investment decline. In contrast if the government is determined to halt the decline in investment it must have sufficiently strong instruments, in terms of the weight of the state owned sector of the economy, in order to prevent investment declining.
Consequently, if confronted with the severe international financial crisis, the decisive sectors of Venezuela´s economy are privately owned and controlled, and a non-socialist orientation is followed, it will not be possible to halt the investment decline and economic downturn - Venezuela´s economy would go into severe recession. The fact that in
These mechanisms also show the way in which a country with a socialist market economy, such as
The weapons available in such an economy to prevent such a downturn in investment are multiple, and not possessed in an economy dominated by private ownership. In particular:
· State owned companies can be directly instructed to maintain or increase their investment programmes.
· State owned banks can be instructed to maintain their lending programmes companies.
· These steps indirectly aid small and medium enterprises, which should not be part of the state sector – that is the activity by the state sector also aids the private sector.
Such instruments are not available in an economy subordinated to private ownership. Therefore at present in economies dominated by private ownership, such as the
· Due to the financial crisis privately owned companies are severely cutting their investment programmes, deepening the recession.
· Privately owned banks put the interests of their shareholders before those of the economy as a whole and thereby cut lending – again further deepening the recession.
· Because of this inability of the state sector to either prevent the investment decline or to maintain bank lending small and medium private enterprises are thrown into crisis.
The conclusion is therefore that to withstand the international financial crisis
· In order to avoid an overall decline in demand personal consumption must be maintained at a high level.
· Government social spending must be maintained, and increases may be necessary, in order to complement the high level of consumer demand.
· Most important, strong state measures must be taken to maintain and increase the level of investment in order to compensate for the decline in private investment due to the effect of the international economic recession. The aim of such investment, in addition to its immediate effect in maintaining demand in the economy, must be both to increase the long term efficiency of the economy and to improve the quality of life of the population. In most countries, some of the most effective means to achieve this is a sharp increase in spending on infrastructural investment (transport, housing, communications etc).
In short at the beginning of 2009 politics and economics comes together decisively in