Ricardo Hausmann Explains How the Venezuelan Economy Collapsed

Ricardo Hausmann (0:02)

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Joe Weisenthal (0:18)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:23)

And I'm Tracy Alloway.

Joe Weisenthal (0:25)

So Tracy, we recently published that episode about what it was like to have done business during the Maduro years in Venezuela. That was from a grain perspective. And I think one thing that's very obvious is that, sure, Venezuela may have plenty of natural resources, oil obviously, but also other ones.

And perhaps that the relationship between the US and the current government may be better than it was. But there is going to be actually reviving the economy, actually getting in a place of stability and thriving. That's a very long way off, to say the least.

Tracy Alloway (1:01)

Right. So if you have oil in the ground, that's great. But it's in the ground and you need to actually extract it in order to make money. And also in order to encourage the type of people who would extract it, you need to have some sort of reliability in place, right? There has to be some sense of stability of the future. Otherwise, as we heard from our previous discussion, people just aren't going to want to go there and do business.

Joe Weisenthal (1:29)

Right. So one of the points that he brought up, which I think is very germane to the future and the questions about the country's future is that, you know, it talked about if there was a talented engineer who worked in some sort of processing plant, in his case, he was talking about Cargill, obviously. If there was someone who was like talented in the sort of technical side of them, they hired them in Mexico. You know, they hired them elsewhere. So many people left. And when you think about the security situation on the ground, even again, let's say somehow the foreign money wants to come back in this question of talent and the question of like, where are they and do they want to come back and what it would take to get them to come back such that you can actually sort of produce natural resources among other things profitably. That's a huge difficult element and there's no switch that you can flip.

Tracy Alloway (2:19)

I'm also just interested in Venezuela's economy from a historical perspective. One, because I feel like Central and South America have been a blind spot for us for various reasons. I've been to Venezuela once, but I think it was on a cruise when I was the only cruise I ever went on, when I was like nine years old and all I remember is getting off the boat and like being there for a few hours and seeing a lot of stray dogs that I thought were really cute and I wanted to take home with me. That's all I remember.

Joe Weisenthal (2:50)

But other than that, it didn't leave.

Tracy Alloway (2:52)

I wasn't thinking about the economy. But also, I find it really interesting because here we have an economy which seems to have coalesced around one specific resource.

Joe Weisenthal (3:02)

Yes.

Tracy Alloway (3:02)

But, as we learned from that episode, they do make some other things. And so, I'm curious about the trade-offs between encouraging the oil industry versus other types of jobs and businesses. There's a lot to discuss.

Joe Weisenthal (3:17)

And one other element before we get into this that I think is very important is you hear a lot about how prior to Hugo Chavez coming to Paro that Venezuela was a fairly well-off country. But, and again, it speaks to maybe the current moment. And we know, just looking internationally, that there is really not any sort of obvious connection between natural resource endowment and the wealth of the public.

Tracy Alloway (3:41)

The resource curse.

Joe Weisenthal (3:42)

The resource curse, right? And there are plenty of places that have a lot of oil or some other commodity where the general public is impoverished or does not live particularly well. I think this is where you get a lot of that element of the rule of law and skilled labor and all of these things that are certainly unevenly distributed throughout the world and are not correlated necessarily with the existence of commodities. Anyway, someone that we've had on the podcast before, who has talked a lot about these things, some of the preconditions for sustainable growth. We've talked to him about all this multiple times. He happens to be the perfect guest because he was previously part of economic policy making in Venezuela in the 90s. He was a minister of planning. He was also a member of the board of the Central Bank. Truly the perfect guest. So I'm thrilled to welcome back on the podcast, Ricardo Hausmann, who is currently professor at the Harvard Kennedy School, director of the Harvard Growth Lab. So Ricardo, thank you so much for coming back on Odd Lots. Truly the perfect guest in the perfect moment.