By Michael A. Lebowitz

February 16, 2013 -- In view of the latest devaluation of the Venezuelan currency (see articles below), Venezuela-based Canadian socialist Michael Lebowitz has provided Links International Journal of Socialist Renewal with the following paper written in 2010 at the request of socialist group Marea Socialista.

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We agree that the government decision to devalue the bolivar can be an important step toward providing greater funds for social programs and the state budget at all levels, reducing the unacceptable current level of imports, encouraging the development of exports other than oil and helping to create the conditions for new national production. However, by itself the burden of the devaluation measures will fall upon the working class. Therefore, to break clearly with the neoliberal model, it is essential that the government supplement its devaluation decision by accepting the following proposals.

Our proposals are based on four central principles:

The organised working-class must not pay. The people in general must not pay. Capital must pay. We need to take definite steps that move in the direction of socialism.

We understand that these steps necessarily will involve a combination of long-term and immediate measures. We focus below on the first two of these principles, as principles three and four are not separate but must be present everywhere.

1. The government has recognised the inflationary effect of devaluation by agreeing to increase the minimum wage. However, only on the basis of theoretical assumptions about market processes (assumptions which are not relevant in the Venezuelan economy and which at best are only operative in the long run), would the increase in the minimum wage provide any protection for the organised working class.

Accordingly, we demand a law that ensures that all existing collective contracts must include a cost-of-living adjustment which increases at the same rate as the minimum wage. Such a law would establish through state action what the market will not do; it also would act as an encouragement to workers to form trade unions and achieve collective contracts.

Of course, such a law could be an incentive for capitalist employers not to sign collective contracts with trade unions. Therefore the law should include a tax on all companies without collective contracts. That tax would exceed a cost-of-living adjustment, and distribution of part of the proceeds of that tax would go to the trade unions for distribution among their members. The remainder of this tax would be available for a refund to the companies upon the signing of a collective contract. Note that all state companies would need to comply with this law, and that ministers would be required to report on their compliance to the vice president of the country.

Of course, introduction of a tax upon capital is always subject to evasion and the denial on the part of capital of its ability to pay. Therefore, transparency is essential for taxation policy to be effective. This transparency can be achieved in two ways: first, by opening the books of the companies to the workers. Second, by increasing transparency directly to the government. The easiest way for the second would be to compel all firms which receive dollars through CADIVI (Comisión de Administración de Divisas; Commission for the Administration of Currency Exchange) to maintain their bank accounts in state banks. (At present, they can place this money in any banks that they wish – including foreign banks.)

In addition to providing government with the necessary information, this would be an important step in ending the generation of private profits from the people's money. As part of a general move toward removing state support of private bank profits (including ending state deposits in private banks), it would also reduce both the strength and the market value of the private banks and thus would be an essential step toward bringing the entire financial system under the control of the government. The combination of transparency to the government and the ability to monitor the books by the workers would prevent capitalist blackmail.

2. The government has taken very important steps toward protecting people in general from inflationary effects of devaluation. We're referring here to restrictions on price increases, the expropriation of the distribution chains that can serve as a government alternative and the clear announcement by minister Saman that the government intends to import goods itself to compete with the private monopolies. These are definitely steps in the direction of substituting state control of foreign trade for the current private monopoly and stranglehold.

We think that these measures, though, must go beyond announcements and sporadic enforcement; we believe that they can only be effective if combined with the initiative of people in communities who can monitor the prices being charged and the behaviour of private distributors. Accordingly, to encourage that initiative from below, we think that there should be legislation that enables local communities through communal councils and communes to confiscate goods that are being sold at excessive prices. The goods would then be sold by the communities at a just price and the proceeds would go to communal banks to finance local improvement and development.

This immediate combination of vigorous action from above and below is necessary to reduce inflationary pressures as a result of devaluation. However, in itself it does nothing to reduce the already elevated prices of capitalist firms. We need to look at the level of profits and their contribution to high prices, and we need to find ways to increase the efficiency and productivity of existing enterprises in order to make possible lower prices. Accordingly we propose opening the books to workers' councils and allowing workers' councils to introduce measures which can reduce waste and increase efficiency and productivity.

Where firms resist making this information available and allowing workers to introduce solutions in the interests of society, they should be taken over so they can act in the interests of society as worker-managed state-owned firms.

With these measures -- which include cost-of-living adjustments for all organised workers, ending private profits from the people's money, opening the books of the companies, giving communities the right to confiscate goods and to use the proceeds of their sales at just prices, empowering workers' councils to reduce inefficiency and increase productivity and nationalising firms that do not act in the interest of society -- we think Venezuela will both protect the working class from the negative effects of devaluation and also will take clear steps in the direction of building socialism for the 21st century. Not to act on such proposals, on the other hand, will be to reinforce neoliberalism and the capitalist economy.

[Michael A. Lebowitz is professor emeritus of economics at Simon Fraser University in Vancouver, Canada, and was the director of the Program in Transformative Practice and Human Development, Centro Internacional Miranda, in Caracas, Venezuela, from 2006-11. This article was originally prepared for UNETE at the request of Marea Socialista, January 2010.

Venezuela debates currency devaluation

By Ewan Robertson

February 11, 2013 -- Venezuelanalysis.com -- There has been much debate in Venezuela over the causes and likely consequences of February 8 currency devaluation, while the concrete political and economic impact remains to be seen. The Venezuelan government's decision to devalue the Bolivar by 32%, from 4.3 to 6.3 bolivars to the US dollar, was a measure seen as inevitable by many economists after the bolivar fell to under a quarter of its official value on the black market.[1]

Alongside the decision, the fifth devaluation since currency controls were introduced in 2003, the government also announced the establishment of a new body to oversee the allocation of dollars to citizens and businesses.

Analysts in Venezuela have argued that the political impact of the devaluation will depend on the success of the media campaigns of both the government and the opposition, which are attempting to communicate their interpretations of the currency adjustment to the country.

However, economic factors will also determine the political impact of the devaluation, such as its effect on imports and domestic production, increases in inflation and prices, and complimentary government measures such as a rise in the minimum wage and the effectiveness of price controls.

Opposition criticisms

The right-wing opposition has launched a campaign maximising the possible negative effects of the devaluation, partly in an attempt to erode support for vice-president Nicolas Maduro in the event of a fresh presidential election if Hugo Chavez is unable to continue as president on health grounds.

Ramon Aveledo of the opposition MUD coalition blamed the government for the devaluation, saying, “It's due to the government's irresponsibility and worrying incoherence.”

Opposition leaders and supporters alike nicknamed the move a “red” or “Cuban package” in an attempt to associate the devaluation with an IMF-style neoliberal structural adjustment package.

Julio Borges, a leader of right-wing party Justice First, said of the devaluation: “The only ones affected are the Venezuelan people, from whose pockets the government keeps taking money.” He pointed to a rise in inflation and prices over the last two months, blaming this and the devaluation on high public spending. “Now [the government] are going to make us pay for the consequences of their inability, waste and poor administration”, he declared.

A short-term rise in inflation is possible after the devaluation, because imports will be more expensive, with a concomitant effect on prices. On the other hand, since so many imported products are sold at prices that reflect the black market exchange rate, which is unlikely to change as a result of the devaluation, inflation might not rise much after all.

However, while sources such as Reuters have described a “spike” in annual inflation to 22.2% so far this year, a rise in inflation during and after the Christmas period is not unusual in Venezuela, and annual inflation is still below the annual rate experienced a year ago.

Government stance

Meanwhile, the government has highlighted the possible benefits of the devaluation, such as bringing in more oil revenue for social spending, helping boost domestic production and potentially combating capital flight.

Foreign minister and former vice-president Elias Jaua argued that the adjustment was made necessary due to the activities of a “speculator class” within Venezuela, who acquire dollars at the official exchange rate and then use those dollars for black market sale or to sell imported products at black market prices. As such, Jaua defended the devaluation and the establishment of the government's new currency exchange body as combating speculation and capital flight.

He also described the measures as part of “economic actions taken to protect our wealth in currency exchange, avoiding that it falls into the torrent of capitalist voracity, and to preserve our monetary resources for the sustainment of our socialist system of social benefit that our President Chavez has been constructing.”

Economist and pro-government legislator Jesus Faria further argued that the devaluation would make imports more expensive and exports cheaper, thus making domestic production more competitive. He said that before the devaluation there had existed “an exchange rate lag produced by the excessive cheapening of imports and the over-pricing of exports, which had to be corrected”.

US economist Mark Weisbrot also predicted the devaluation would have a positive impact. “The devaluation ... by making imports more expensive [will] provide a boost to import-competing industries. For this reason, and because it reduces the black market premium and reduces capital flight, the move will overall be good for the economy”, he wrote.

Accusations that the devaluation represents an IMF-style “package” were widely dismissed outside opposition circles given that the move was not accompanied by any measures associated with neoliberal economics, such as privatisations, salary freezes or the removal of subsidies.

However there have been criticisms of the move from within the pro-Chavez camp, where some activists have argued that currency devaluations contradict the movement's political economy and that other measures could have been taken to address speculation on the bolivar.

Leftist political scientist Nicmer Evans said that the move was “not very socialist” because it is a measure “which affects the poorest and the richest equally”.

“Neither devaluation nor the value added tax (VAT) are socialist measures, because they are regressive”, he added on his Twitter account.

[Ewan Robertson is a writer, journalist and activist based in Venezuela.]

Note

1. Most mainstream and financial press have reported the devaluation figure as 32%, possibly using calculations such as this. However, others have calculated the figure at 46.5%, using a different methodology.