Sunday, May 20, 2007

It’s amazing what you can learn when you actually look at the data 

Last week Venezuelan Gross Domestic Product (GDP) numbers came out for the first quarter of 2007. Given that there is no more important measure of the state of an economy than GDP I generally rush to report the new numbers on the economy.

But of late I have to admit my enthusiasim for reporting these numbers has waned. It is not because they have somehow become less important – they still determine if Venezuelan’s are living better or living worse. It's just that in the case of Venezuela they have become so redundant – GDP increased blah blah percent, the private sector increased blah blah percent, commerce increased blah blah percent and on and on. After 14 quarters of this it gets old.

So this time I decided to do something different. But before getting to that let me give at least a perfunctory rundown of the just released GDP numbers: overall GDP grew by 8.8%; the private sector grew 10.3% while the public sector grew 1.7%. Non-petroleum GDP grew 10.6% led by construction which was up 26.5%, commerce up 20.8%, communications up 18.3% and transport up 16.4%. Manufacturing was up 7.8% and food processing up 12.5%.

So there you have the numbers. They are good, if boring.

Now here is the interesting analysis. Keeping in mind that the 1st Quarter of 2007 is the eigth anniversary of Chavez being in power (he assumed office in the beginning of 1999) I thought it would be interesting to compare the 1st Quarter of 2007 with the 1st Quarter of 1999 and see how the economy has fared under Chavez. Fortunately all the data is here so the analysis would be easy.

But then I realized something even more interesting could be done with this – we could look at this same data for period before Chavez came to office. Originally I hoped to do it for the 8 years proceeding Chavez coming to office. However, in obtaining the actual data I was limited to going back to 1993 as that is as far as the BCV data went to. Still, comparing the 1st Quarter of 1993 to the 1st Quarter of 1999 covers a six year period and allows for a interesting and valid comparison. When the actual comparison was done to say it was illuminating is an understatement.

In the following graphs there will always be two numbers – the first is the percent change in the given segment of the economy from 1993 to 1999, before Chavez came to power, and the second is the change between 1999 and 2007, the period since Chavez came to office.

The first graph gives the percent growth of GDP over each of the periods:

Certainly there is quite a contrast – in the six years before Chavez came to office the Venezuelan economy grew a grand total of 2.1%. Remember, that is not 2.1% per year. That is a grand total of 2.1% in six years. That is right – the average yearly growth would have been less than .4% per year. Try not to blink, you might miss it.

In the 8 years since Chavez came to office the economy has grown by a total of 30.3% - or almost 4% per year. Those numbers may not set the world on fire but they are still quite good and they beat what the previous administrations did by a factor of 10!

There is one important observation that needs to be made based on this chart. The anti-Chavez opposition often claims that the current growth is unsustainable. Maybe it is, maybe it isn’t. But it misses the point – at least there is growth now! Before Chavez came to office there was in effect no growth at all – sustainable or otherwise. It is certainly a more than a little rich of the opposition to critique Chavez’s economic growth as somehow being deficient when they themselves couldn’t get the economy to grow at all!!

Yet this will get even more interesting as we dig a little deeper into the numbers so on to the next graph which shows how the Non-Oil segment of the economy did:

Here the division between Chavez’s economy and what came before is even more stark. Under Chavez everything besides oil has grown almost 37% while before Chavez everything but oil actually shrank by 7.1%. Yes, that is right, the same people who now bitch about Chavez’s not doing enough to diversify the economy away from oil actually managed to shrink everything else when they were in office! Thankfully, Chavez has more than reversed what they screwed up but the nerve of what these people complain about given their extremely poor performance is something to behold.

But hold on to your hat, as the most breathtaking is yet to come. Here is the slide on how manufacturing has done:

From 1993 to 1999 manufacturing GDP declined a stunning 15.9%. From 1999 to 2007 it increased by 34.3%.

Now sit back and think about this for a moment. Virtually every day the opposition media screams that Venezuelan industry is being ruined by government. Then we have people like Simon Romero of the New York Times claiming that Venezuelan manufacturers are being “stymied” by Chavez. Listen to them and it is clear that Chavez is a one trick pony – it is all about oil as Chavez’s Venezuela makes less and less and instead most everything is imported.

Yet looking at the numbers we see that when it comes to those assertions down is up and up is down. It was the previous governments that trashed Venezuela’s manufacturing sector and put it in to a serious decline. Under Chavez that has been reversed as Venezuela produces 34% more now than when he came to office!

Remember that the next time you read some opposition newspaper or blog spouting off about how bad Chavez has been for Venezuela’s ability to make things besides oil – that assertion is flatly false and the people who say it are either ignorant of reality or lying. Rather it was THEY who ran the manufacturing sector into the ground. Gee, talk about projection!!!

Ok, now that the general trend has been established here maybe we can run through some of the rest of the of the data a bit more quickly.

Here is the percent change in construction GDP:

Same basic story line: Chavez is kicking but; his predecessors sucked.

Here is the percent change in commerce GPD:

Again, Chavez rocks, his predecessors were pretty lame.

Here is the percent change in transportation GDP

So as not to be too repetitive I won’t say anything – I’m sure people can draw their own conclusions.

Here is the percent change in government services:

Now on this one the opposition might be slick and say they were intentionally trying to reduce the size of government – you know like Ronald Reagan supposedly did. And if you believe that one….

Ok, surely the previous governments must have gotten some sectors of the economy to grow. To be fair they did. Looking at telecommunications we can see one they did a good job with:

Note the base on this graph is not zero and that in fact both the Chavez government and the previous administrations have gotten telecommunications to quite well with over 100% growth for both of them. What can you say – Venezuelans love their cell phones. Given that the pre-Chavez period is only six years compared to the eight year Chavez period the pre-Chavez period actually had the highest annual growth.

And prior governments did respectably in other areas too. Mining would is one example:

Electric production was another:

One might now ask, is there any area that grew under prior governments but shrank under Chavez? Indeed there is, the oil sector:

I’m sure some will be very counter-intuitive to some who will ask aren’t Venezuelan oil revenues much higher now? Indeed they are. But remember all these numbers are REAL GDP, meaning they factor out prices so that they are measuring actual activity in each sector. So what this graph shows is not how much revenue came from the oil industry – rather it measures oil industry activity and oil production.

Once you realize that the graph makes perfect sense. The governments proceeding Chavez ramped up oil production as much as possible and opened up the oil industry to foreign investment which further increased activity in that sector. The Chavez government on the other hand significantly reduced oil production in order to comply with OPEC production quotas and it has pretty much put a stop to new investments by foreign oil companies.

Of course, it is not coincidental that the previous governments only really “outperformed” the Chavez government in this one sector. The reason is that because in reality they didn’t perform well by doing this. Ramping up production and busting OPEC quotas only serves to help crash prices, bring down oil revenues and help put the rest of the Venezuelan economy in a recession. Hence, even in the one area where it looks like the previous governments had some success in reality they failed.

I hope readers have found all this to be revealing as I have. I knew the Venezuelan economy as doing better under Chavez than under his immediate predecessors. Yet I truly had no inkling it was doing THAT much better, nor that his predecessors were such abject failures in many of the areas that they now try to critique Chavez on.

Given how much information we’ve gone over here maybe it would be good to see just one more time some of the most outstanding information:

Under Chavez the economy has boomed. Under his predecessors it didn’t grow at all. Not even in an “unsustainable” way.

When we factor out oil the contrast is even more stark. Chavez has overseen even a bigger boom while the opposition presided over an outright decline in everything but oil!!!! It’s a good thing Chavez gave them the boot – a decade or two more of that and Venezuelans would have been left with an oil industry and nothing more.

And here we have what really drives a stake through all the non-sense peddled by the opposition. “Venezuela needs to do things besides pump oil and under Chavez we are just becoming more and more dependent on oil”. Popycock. Under Chavez the manufacturing sector has experienced solid growth. Under his predecessors manufacturing withered.

Not exactly what you would expect after listening to Petkoff babble on for years, or reading what El Universal writes in its economics section everyday, nor even the non-sense about manufacturing being “stymied” that New York Times editors let slide by.

Such is the extent of the oppositions propaganda that even some people who should know better, like me, sometimes internalize some of it. That is why it is good to check our preconceptions against the cold hard reality that the actual data presents. And I hope other readers have benefited from this little exercise in looking at Venezuela’s economic reality as much as I have.


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