Should Health Care be a Right?

There’s a deep philosophical debate underlying Congressional attempts to craft a health care reform bill, centered around whether access to health care is (or should be) a basic human right. Up front, we see compelling arguments on both sides, and the “Yes” camp might even have the weightier material arguments on its side.  But the philosophical ones should not be brushed aside – especially given that the philosophical underpinnings of classical liberalism have served the U.S. and other western democracies pretty well (to critics, yes, realities have been far removed from ideals at times, but overall, these systems have proven remarkably stable and reasonably progressive).

The American Declaration of Independence asserted that three rights had been granted by God to each individual – life, liberty, and the pursuit of happiness (or as Woody from Cheers memorably put it, “the purfuit of hapineff”). This was based on John Locke’s philosophical writings, and contextually, it was a declaration that no individual should be deprived of their life, property, or vocation involuntarily. In other words, the experience of human beings under governments should exclude unjustified limitations, expropriations, torture, and death. Thus the conservative nature of classical liberalism – there’s not a whole lot at work here, other than setting limits on what people can do to one another, including those in positions of political power. Within those boundaries, there’s a vast range of possibilities for human conduct.

In the modern secular world, rights are no longer granted to individuals by God, but are now social contracts – through democratic institutions, a society determines and declares what rights an individual is entitled to. For example, social welfare systems have evolved since the late 19th century as an embodiment of the idea that people should have a right (if they choose to exercise it) to a minimum standard of income (transfer payments), housing, and health care (e.g., Medicaid). Educational systems embody a similar principle. This modern version clearly has a more solid logical foundation, as deeming rights is clearly an endogenous human activity (presumably, if God cares and we get any of them wrong, he or she will let us know at some point). So that transition away from divinely granted rights seems OK to us. But like the opening of Pandora’s box, the transition carries risks — primarily that the list of rights grows substantially over time, with many unintended consequences.

[On a side note, this observation should illuminate the remarkable arc of governments since the time of Locke and later Jefferson. Back then, rights were necessary to protect individuals from the depradations of the powerful. Since then, governments have been increasingly designed to benefit the weak at the expense of the powerful (or perhaps more accurately, the poor at the expense of the wealthy). Of course, they don't always work that way. But clearly, the idea of 'tyranny from below' is more feasible in modern social democracies.]

So today, instead of determining that individuals have rights that limit a government’s power over them, we articulate rights to things which, in many cases, governments must provide or at least enforce the provision of. That’s the critical distinction between rights today and rights in earlier centuries. Those earlier rights were intended to level the playing field between, e.g., landed aristocracy and free individuals, by transferring a certain amount of political and social power from the former group to the latter. Today they are more often intended to extract resources from the haves for the benefit of the have nots – however defined for that particular right.* To the extent that that the public reallocation of private resources provides a greater level of security and productivity overall, it may be a desirable activity. But that doesn’t address whether those reallocations need to be, or should be, enshrined as ‘rights’.

This is tangential to the choice between a political system guided by principles versus one guided by mandates. A principles-driven system has a core of ideals that can be applied flexibly to a wide range of real world situations. It allows for the rational acceptance of human imperfections, and the development of institutions for dealing with them as they occur. A system based on mandates is inevitably more complex, with rigid and sometimes contradictory rules and regulations that often become more complicated over time, and utopian standards of outcomes and conduct that, carried to an extreme,  almost require that we legislate risk, bad outcomes, and human nature itself out of existence. An expanding list of human rights is almost certain to lead to the latter type of system. As just one example, consider ‘The Human Right to Health‘ declaration from The People’s Movement for Human Rights Education. It captures well the idea that we’ve gone beyond the right to not have government interfere with the voluntary conduct of individuals, to the right to have government provide (or ensure provision of) certain things for all individuals. These two kinds of ‘rights’ are conceptually so different that they probably ought to have different names.

If we’re going to take a rational approach to the question of whether access to health care is a right, we should look for a suitable existing analogue. To us, it looks like access is the key word, and that access to legal systems and political processes are close analogues. As law and political systems evolved, people have demanded (and received) greater access to them. More recently, as medical standards, technologies, and delivery have advanced, the demand for universal access to them has increased, and that’s not unreasonable. But whereas in Locke’s time, declarations of rights sought to reallocate power from ‘enemies’ of liberty who possessed too much of it (and too often wielded it unjustly), a declaration of a human right to health care requires a significant reallocation of resources from some of us to others of us. In other words, there is no ‘enemy’ in the situation at hand unless, to borrow from Pogo, one believes that enemy is us — that some have been depriving others of access to health care. And that presents a thorny set of issues for society to debate. Unfortunately, they’re not getting much attention.

As we noted at the outset, this is a deep philosophical question, and so this missive, like any colloquium in philosophy worthy of the name, utterly lacks a satisfying resolution. We would just ask people to be aware of the following: the distinct historical conceptions of rights; the unintended consequences that are bound to follow the adoption of any expanding compendium of human rights; and most importantly, in our view, the fact that past attempts at ensuring individuals’ access to health care have contributed directly to the large numbers of uninsured individuals and families and to the precipitous rise in medical expenditures. And we would point out that the current legislation only piles on to those previous errors.

* There are current debates that relate primarily to founding principles and rights. For example, same sex marriage clearly relates to liberty and (according to 20th century SCOTUS interpretations) the pursuit of happiness, and on its surface it would not appear to involve the reallocation of private resources. But ironically, it’s due to the existence of laws governing the allocation of resources, such as probate and spousal benefits, that same sex marriage becomes a thornier political issue than it might otherwise be.

URLs:

http://news.yahoo.com/s/ap/20090715/ap_on_go_co/us_health_care_overhaul

http://graphics8.nytimes.com/images/2007/11/25/arts/25carr2190.jpg

http://www.igopogo.com/we_have_met.htm

http://www.pdhre.org/rights/health.html

President Obama to the Motherland

President Obama made a powerful speech on governance in Ghana that he directed at all or most of Africa. While we would quibble with the idea that Africa and its people can be meaningfully addressed as a single pseudo nation-state, some of the observations he offered are applicable to all human societies. According to the Associated Press:

Speaking to the Ghanaian Parliament, he called upon African societies to seize opportunities for peace, democracy and prosperity.

“…Development depends upon good governance. That is the ingredient which has been missing in far too many places, for far too long.”

The son of a white woman from Kansas and a black goat herder-turned-academic from Kenya, Obama delivered an unsentimental account of squandered opportunities in postcolonial Africa…

In his speech to Parliament, America’s first black president spoke with a bluntness that perhaps could only come from a member of Africa’s extended family.

“No country is going to create wealth if its leaders exploit the economy to enrich themselves, or if police can be bought off by drug traffickers,” he said.

“No business wants to invest in a place where the government skims 20 percent off the top, or the head of the Port Authority is corrupt. No person wants to live in a society where the rule of law gives way to the rule of brutality and bribery.

“That is not democracy, that is tyranny, even if occasionally you sprinkle an election in there,” he said, “and now is the time for that style of governance to end.”

He added: “Africa doesn’t need strongmen, it needs strong institutions.”

Some reflections…

First, the President’s remarks are things that need to be said, and discussed more openly and frequently. Too often we subsume ethics and good governance to economic calculations, convenience, or fear. But the real costs of poor governance are staggering when you start trying to add them up.

Second, what a great moment for the people of Africa (our quibble above duly noted) to host (briefly) the most powerful leader in the world, who happens to be the son of an African man, and whose identity was forged in part by time spent as a young man in Kenya. The AP reporter is almost certainly right in saying that only a member of “Africa’s extended family” could speak so openly about Africa’s historic travails and paths forward. That he didn’t focus his implications on northern hemisphere powers for their historic contributions to poor governance in parts of the continent will surely disappoint some – but perhaps his relative silence on that aspect is intended to point out that, for the first time in centuries, the way forward may have more to do with African countries’ internal resources and governance than with external powers. Still, we suspect that Yao Opare-Asamoa, the skeptical Ghanaian editorialist whom we cite below, will not be alone in taking a more cynical view of the President’s visit and speech.

Third, we’d point out to the President that, although probably far less damaging, tyranny is still quite possible even under the strongest of political institutions. And though not as bad as some right wing pundits are likely to declare in the coming days, there are shades of irony in his comments, given his incredibly ambitious agenda and the costs that it will (or would) eventually force onto some within the American electorate. While the President decries tyranny of the individual and their clan – the rule of strongmen – he leaves out the concept of tyranny of the majority, a problem and concern that has been around as long as democracies themselves. We don’t disagree that there are some pressing issues that the Obama agenda is designed to address (or that ‘tyranny of the majority’ is sometimes invoked as convenient cover for private sector tyrants). But strongman rule is also designed to address pressing issues – most often experiences and/or expectations of a fixed or falling level of resources relative to population – and so its practitioners probably believe that they too are fighting the good fight, however it might look to those on the outside. But if any leader, whether strongman or duly elected, goes too far in exploiting a country’s resources in order to enact an agenda – be it clan centered or focused far more broadly on social well-being – then those resources are likely to come up short in the long run. In the case of the U.S., if the party now in power goes too far in exacting tribute from the financially successful – and/or the broad economy – then the level of success, and the number of successful people, are likely to decline, leaving society worse off overall. It’s never clear exactly where that line lies, and surely the President understands that it exists – but some in his party demonstrate a clear willingness to trample it, either blissfully unaware of the unintended consequences, or willing to accept them as trade offs against other consequences that are presumed to be more dire (e.g., climate change). Thus, while we no longer face endemic “wars over land” in the U.S., we can’t deny that our political system has been girding for a “[war] over resources” for some time. However, that observation does support the thrust of President Obama’s speech – that with well developed political institutions, those inevitable “wars” inflict far less damage on people than they otherwise would.

Fourth, the myth of ‘one Africa’ really is a curious one. While it can be a balm or a rallying cry when thinking about the damaging legacies of slavery and other forms of exploitation, it’s not very practical for addressing the diverse realities on the ground that are faced by people living there. And it seems to betray a simpler level of understanding of Africa in the northern and western hemispheres than of, say, Asia, where few would ever consider addressing, for example, China, Korea, Japan, Hong Kong, India, Indonesia, Pakistan, Singapore, Taiwan, Thailand, and Vietnam as a single entity (though if there’s a parallel in that list to Africa, it might be our tendency to look at China as a homogenous population and country). For those who are interested in learning more about the diversity, nuances, traditions, and futures of Africa and its people, the internet is a great place to begin. For starters, we happened across this wide ranging essay from Koranteng Ofosu-Amaah, whose diverse cultural and business experience – and apparently deep intellectual curiosity – allow him to spin some fascinating anthropology-in-reverse riffs, and develop a ‘Low End Theory of Technology’ that, while aimed at technology investments in poorer countries, seems to have broader applications to investment and development. Businesses that want to invest wisely in frontier markets should probably pay close attention to voices like his.

Fifth, governance and prosperity are very much a chicken and egg riddle. It’s not entirely clear whether one precedes the other (and which one, if so) or if they progress haltingly, roughly in tandem, or whether other key ingredients are necessary, be they aspects of political economy or happenstance factors and endowments. For example, one skeptical editorialist in Ghana offered an anecdote about a lost foreign direct investment (FDI) opportunity that revealed the critical role of business education and practices, infrastructure, and security:

Now that everybody is singing our praises, let’s take advantage of the situation and push for Foreign Direct Investments (FDIs). Let’s seek technical assistance to build up our Polytechnics and other vocational institutions. It is often said that ‘investments’ desire peace and stability; we do have a case good to present on this front. This is where we come in. We need to adequately prepare and provide the atmosphere for the FDIs. A few years ago, it was reported that Korle-Bu Teaching Hospital lost a big opportunity for major technical and financial assistance because the management was just not ready and couldn’t draw up a simple proposal to show how the Hospital would utilize the funds. The government should have a clear-cut vision of what it wants to do. It should have plans and proposals at the ready. We should be able to guarantee year-round uninterrupted power and water supply. Safety and security of peoples and goods should be ensured. Only after these and more should we present our case and pursue it with all the ‘clout’ that we seem to have gained.

So I would join my brothers and sisters to wish President Obama and his family well. I pray that his would be ‘change we can believe in’ even in Ghana and the rest of Africa.

The writer’s emphasis on FDI also exposes (implicitly) the need for continued development of a financial system capable of matching domestic income and savings – rather than just export dollars and repatriated earnings from abroad – with increasingly diverse domestic investment opportunities (the Ghanaian economy is still heavily dependent upon agriculture and mineral extraction). I’ve had the pleasure of meeting financial professionals from Ghana, and have little doubt that the country will continue to make progress on those counts. But it has some catching up to do in those areas with, for example, Botswana, which has a per capita GDP ten times higher, pristine public finances, and a relatively well developed commercial finance sector. On the other hand, Ghana compares favorably on things like recent domestic investment as a % of GDP and income distribution. And both countries, like much of the developing world, have relatively young populations compared to industrialized countries – while HIV/AIDS might be a contributing factor, this is still a promising endowment for future progress – as long as institutional settings permit the productive use of their time, energy, and talents, as the President pointed out.

Sixth, the Obamas also visited the powerfully symbolic Cape Coast Castle off the coast of Senegal, which was a major jumping off point for the transAtlantic slave trade. Known for its ‘Door of No Return’, an inscription there reads:

IN EVERLASTING MEMORY

OF THE ANGUISH OF OUR ANCESTORS.

MAY THOSE WHO DIED REST IN PEACE.

MAY THOSE WHO RETURN FIND THEIR ROOTS.

MAY HUMANITY NEVER AGAIN PERPETRATE

SUCH INJUSTICE AGAINST HUMANITY

WE, THE LIVING, VOW TO UPHOLD THIS.

Though he follows two immediate predecessors there, Obama’s presidential visit is made all the more poignant by the fact that First Lady Michelle had ancestors who travelled through similar ‘points of no return’, if not the Castle itself. Symbolic acts matter, and presidential visits to sites memorializing the transAtlantic slave trade and other human holocausts seem like a good idea to us.

Finally, we have to ask, does this guy – our President – plug himself into a wall outlet at night?! Travel, diplomacy, political strategy, executive leadership, negotiation, etc, are all demanding on one’s energy and resources. And a marathon presidential campaign has to be one of the most exhausting experiences there is. But Obama is like the Energizer Bunny…he keeps working…and working…and working…however, studies of health, stress, even anthropology teach us that bodies are not immune to the laws of biology (the analogue in economics is that there’s no free lunch), and even small but chronic deficits will take a toll, much as small but chronic caloric surpluses will allow us to pack on many pounds in adulthood. The U.S. Presidency seems to impose more than a small deficit on its successors, and Obama continues to go after the job with gusto. Apparently his accelerated physical aging was noted as early as last summer and again this spring (with a tip of the hat for that last link to the Village Voice, which apparently — and perhaps justifiably — feels there are better topics for seasoned reporters to cover). Still, he continues to burn brightly, and we sincerely hope there’s enough fuel there to feed the flames, as a presidential burn out wouldn’t be much fun for anybody. If nothing else, it’s a good reminder that, despite what most of us like to think and say, public service does, at least in some important ways (and for some people, some of the time…qualifications galore…) entail sacrifice. Of course one juicy book advance or a few hitches on the lecture circuit can produce an extremely positive ROI on said sacrifice – but there’s some sacrifice involved nonetheless.

DISCLOSURES: The foregoing is for informational purposes and/or entertainment only. It is not an offer to buy or a recommendation to sell any security, or to engage in any investment strategy. Please note that Symmetry Capital Management, LLC earns a revenue sharing fee of 4% from Amazon.com for any ‘click-through’ transactions. The firm, its principals, and its clients do not own shares in Amazon.com.

URLs:

http://www.ghana.gov.gh/

http://news.yahoo.com/s/ap/20090711/ap_on_go_pr_wh/obama

http://en.wikipedia.org/wiki/Tyranny_of_the_majority

http://symmetrycapital.net/index.php/blog/2009/07/tr2-why-well-leave/

http://koranteng.blogspot.com/2007/05/on-ibm-and-africa.html

https://www.cia.gov/library/publications/the-world-factbook/geos/GH.html

https://www.cia.gov/library/publications/the-world-factbook/geos/BC.html

http://www.modernghana.com/news/226743/1/obama-and-ghana-vis-vis-us-foreign-policy.html

http://www.politico.com/news/stories/0708/11520.html

http://www.nytimes.com/2009/03/05/us/politics/05gray.html?_r=2&hp

http://blogs.villagevoice.com/runninscared/archives/2009/03/breaking_obama.php

Assessing the Health Care Debate

The health care debate is picking up intensity, thanks to President Obama and Congress’ ambition to accomplish something on that front in the current year. The eventual shape of the legislation is still uncertain, and plenty of folks are weighing in to try to influence its final shape (in fact, 2009 is looking like a bumper crop for lobbyists). It’s another good example of the realities of political economy – but this time with at least one interesting twist.

Perhaps the biggest question around health care reform is how to finance the cost – and one of the clearest ways of doing so is to end the favorable tax treatment of employer health benefits, as the WSJ’s Kimberly Strassel notes. Strassel points out, however, that candidate Obama attacked candidate McCain on this proposal repeatedly, and that there’s an anti-populist impact to it, as it would hit most union members rather hard, thanks to their generous health plans. While Senators are busy trying to carve out an appropriate compromise, we believe this is yet another example – like the mortgage crisis and the tax troubles of some of Obama’s cabinet appointees – that the 80 billion pound elephant in the room is our tax code.

Finally, the CEO of Safeway penned an op-ed about an innovative approach to health coverage at his company. Assuming the numbers haven’t been massaged, Safeway has managed to keep a lid on health care expenses for four years, and they’ve done it with risk pricing – offering discounts for healthy weight, blood pressure, and cholesterol levels, and avoiding tobacco use – and offering annual repricing to reward progress made on any of those counts. He then points out some room for improvement in prevailing policy (we assume that $1,400 is the marginal cost of insuring a smoker, and not the total monthly cost – otherwise the math might be different):

Today, we are constrained by current laws from increasing these incentives. We reward plan members $312 per year for not using tobacco, yet the annual cost of insuring a tobacco user is $1,400. Reform legislation needs to raise the federal legal limits so that incentives can better match the true incremental benefit of not engaging in these unhealthy behaviors. If these limits are appropriately increased, I am confident Safeway’s per capita health-care costs will decline for at least another five years as our work force becomes healthier.

DISCLOSURE: Symmetry Capital Management, LLC, its clients, and the author have no positions in Safeway or any other companies mentioned.

UPDATE  2009.06.19  Some interesting comments by prior Senate Leader Bill Frist on CNBC this morning – he argued that there are significant gaps in the U.S. medical system that need reform, and also outlined some of the inescapable tradeoffs involved. You can watch a replay here. There’s a related interview here on a Price Waterhouse report on the costs of health care to small businesses.

URLs:

http://www.time.com/time/nation/article/0,8599,1904312,00.html

http://www.foxnews.com/politics/2009/06/11/lobbyists-spend-millions-fighting-obama-universal-health-care-plan/

http://symmetrycapital.net/index.php/blog/2009/06/updegrave-free-market-morality/

http://online.wsj.com/article/SB124476309180208203.html

http://www.nytimes.com/2009/06/12/us/politics/12obama.html?ref=global-home

http://symmetrycapital.net/?s=tax+simplification

http://online.wsj.com/article/SB124476804026308603.html

http://www.cnbc.com/id/15840232?video=1157943588&play=1

Two Tasty Web Tidbits

We happened across two web pages that we’d recommend to those who can carve out thirty minutes of their day.

First is a photo and video narrative of Venture Capitalist and uber-blogger Guy Kawasaki’s trip to the US Naval aircraft carrier USS Nimitz (as a full grown Navy brat, this one got its hooks into me easily).

Second is a video of a presentation given by Gapminder founder Hans Rosling, who’s not just brilliant, but also the king of Swedish stand-up (at least he’s the funniest Swede we’ve ever seen on stage). Rosling uses a very cool visual platform to convey the ideas he expresses, which are about global economics and then some. His objective is to get people thinking about the world in ways that avoid bias and oversimplification. As someone who teaches Statistics to undergrads, this stuff is golden.

We came across the Rosling presentation via an intermediary link from Kawasaki’s site – networks are so cool.

URLs:

http://blog.guykawasaki.com/2009/06/24-hours-at-sea-on-the-uss-nimitz.html

http://dotsub.com/view/3b345061-c5da-4604-b59c-404527f0bd68

http://www.gapminder.org/

http://www.presentationzen.com/presentationzen/2009/05/tedx-tokyo-this-friday-in-japan.html

Blame Shakespeare

Our thoughts on the IMF earlier today raise an interesting line of inquiry—-if financial capital accumulates at a persistently higher rate than human capital in the future, then the primary bottlenecks affecting the global economy are likely to shift–for example, from credit or financial capital to labor or human capital. And while it’s easy enough to conceptualize a financial institution like the IMF as a last-resort provider of financial capital, it’s more difficult to imagine an analogous institution supporting the market for human talent in a similar way.

Education is one such institution, though it is decidedly more local and heterogenous than the IMF, and education clearly requires longer ‘production periods’ than financing agreements do. And it has occurred to us that, from the standpoint of efficiency,  primary school curriculae are outdated and in need of a makeover. Though English Lit teachers and others may damn me for saying so, primary instruction in economics and finance would do far more to advance material standards of living than reading Shakespeare. After all, people cannot enjoy fine literature, much less produce it, if they lack water, food, and shelter (see Maslow’s Hierarchy, for example). Perhaps some solace is available in the realization that productive economic activity makes it possible for cultural luminaries to produce important works of art, and for their passionate admirers to make a living teaching about them.

Taking a cursory glance at trends in charter schools, it looks like the human capital development ‘market’ agrees with us, as we’ve seen more news of ’econ and finance’ school charters than of new schools dedicated to classical literature. I certainly don’t mean to imply that literature is unimportant to the development of human capital, but traditional educational priorities do seem a bit out of step with the real world. While learning Shakespeare can be wonderful for personal refinement and professional specialization, it’s clearly more important to know how to calculate the present value of a mortgage, or other debt obligations, or future income; how to efficiently identify tradeoffs and biases in decision making; how to think in terms of assets, liabilities, and cash flows; how to turn a promising idea into a productive business; how political conditions affect economic activity; how to think strategically over multiple time horizons; and so on. In short–and I realize this statement bumps hard into prevailing cultural sensibilities–the expected social benefits of having more people understand the workings of a global financial economy far exceed the more marginal benefits that reading Shakespeare provides.

¿Hugo Chavez Es Mas Macho?

IMPORTANT DISCLAIMER: The following is for informational and entertainment purposes only. It does not constitute in any way a recommendation or an offer to buy or sell any security, or to engage in any particular investment strategy. The clients or principals of Symmetry Capital Management, LLC may hold a long or short interest in any securities mentioned.  

Venezuela’s President (and president-for-life hopeful) Hugo Chavez caused his country’s capital markets to tank in a big way this week, by proposing to nationalize privately held assets in several strategic sectors of the Venezuelan economy. Some commentators have called this an act of lunacy, but we’re not so sure. Setting aside the man’s comedically brilliant theorizing — like the one about ancient extraterrestrial capitalists having raped the ecology of Mars long ago — we believe that if he’s dumb, he’s dumb like a fox. Chavez is essentially trying to diversify oil related revenues into other productive assets, increase control over how future revenues will be distributed, and strengthen his hold on power. Using the blunt instrument of government to ‘nationalize’ attractive assets at a steep discount to their intrinsic value is perfectly aligned with these strategic objectives. Unfortunately, over the long haul, his political shenanigans can only harm the future well being of Venezuelans, or at least those who are unable to escape, primarily because they will directly raise his country’s marginal cost of both human and financial capital (this claim is inspired by the work of our friend, economist Reuven Brenner; see, for example, http://www.cato.org/pubs/policy_report/v20n3/econgrowth.pdf).

Let’s look specifically at the case of Venezuelan telecomm CANTV, which involves something of a cross-border, mano y mano conflict, which we’ll bill by invoking the spirit of Bill Murray’s old SNL gameshow sketch, ¿Quien es mas macho? We’ll simply replace “Lloyd Bridges o Ricardo Montalban” with “Hugo Chavez o Carlos Slim”. Slim, a Mexican telecom magnate, recently offered to acquire a sizeable holding in CANTV at $21 per share. Apparently, something about this offer didn’t sit so well with El Commandante, and he decided to preempt the deal. Why?

• Economic necessity? The national portfolio of Venezuela continues to be concentrated in oil production, and the public coffers have benefited tremendously from the runup in crude prices and consumption. However, overall production capacity and output have suffered from government interference, and the government has taken on increasing financial leverage in recent years. Should crude prices fall to more normal levels, the country is likely to experience financial and social crises. By reaching for other strategic assets (see chart below), Chavez may be hoping to diversify government cash flows, and reduce their exposure to future oil price fluctuations. His desire to bring the Venezuelan central bank under state control may also be aimed at preventing an external financial crisis (though, like the other measures he’s enacting, it will cause more harm than good in the end).
• Socialist impulses? If we take him at his word, Chavez may believe that the Venezuelan government is able to acquire and manage strategic assets in a way that produces sufficient cash flows that can be invested for the benefit of the Venezuelan people, through education, health care, and other subsidies. Governments play an essential role in certain areas of public investment. However, they tend not to be effective managers of economic assets.
• Market manipulation? Put yourself in Carlos Slim’s shoes. A potential suitor for the shares of a public company is at the mercy of the market, and usually has to offer a premium to the prevailing market price in order to get a deal done. Now put yourself in Chavez’ shoes. You want to buy company X at a steep discount, and you have an incredibly blunt and effective weapon at your disposal — the power of a compliant national government. Simply threaten to nationalize certain industries and companies, and already high risk premia are suddenly doubled or even tripled (which is simply an inverse way of saying that an already depressed price falls another 50-70%). It’s not certain how much the government will eventually have to pay for publicly held assets, but it certainly gives him some negotiating leverage — a lot more than Slim or any other private suitor could generate through private networks. As Mel Brooks once quipped, “It’s good to be da king.”
• Power and greed? This is pure speculation at the moment, but it deserves investigation. What if economically meaningful ownership of these assets accrues to the politically connected, rather than the Venezuelan public? There is a longstanding tradition of elitism in the country, particularly in the area of resource and industrial management and administration. There is also a tendency for any unilateral government, regardless of its philosophical basis, to suffer from misallocation and misappropriation of capital. Chavez, who appears to be modelling himself as the next Fidel Castro, has set out some rather lofty personal ambitions for himself since being sworn in. While he appears to be successfully consolidating his power at the moment, such goals always have some cost attached to them. Viewed in that light, ownership of strategic assets could certainly be used to pay off critical allies, and thus maintain and expand power.

How this will all play out remains to be seen, but we suspect that all four of these possibilities are at work to some degree. However it turns out, we are highly confident in one aspect — that Chavez’ actions will continue to cost his country’s people dearly in terms of the improvements in living standards that accrue from economic and political dynamism. Chasing human and financial capital offshore and squelching internal dissent are all fine and good for Chavez and for those who benefit most immediately from his largesse. But for Venezuelan society at large, it’s a not-so-comic tragedy.