Battle4Liberty

The socialist government in Venezuela is so short on foreign currency that it must decide which obligations to pay and which ones to forego. Caracas has been making payments to foreign bondholders on time, but hasn’t been paying the private companies that operate within the country. In fact, the government currently owes $14 billion to government partners and oil contractors, $9 billion to importers, and $4 billion to service companies. So why pay one group and not the other?

Foreign bondholders represent an ongoing source in capital for Venezuela. If payments to them are delayed, fewer investors will be willing to purchase the bonds and the government will have to offer higher returns in the future. In other words, Caracas MUST pay its debts to foreign bondholders or a key source of revenue will become more costly.

Firms operating within Venezuela are in desperate need of dollars and other currency they can spend abroad—not Venezuelan bolivares—but they don’t have much sway. Lacking a legitimate legal infrastructure and fearing a backlash from price controls to possible nationalization of their assets, local companies cannot fight back effectively. The government knows that these firms stand to lose a lot if they resist, so it takes advantage of the political situation and doesn’t pay.

This no-pay policy has already resulted in shortages and production slowdowns. Just recently, Toyota’s Venezuelan unit halted operations because it cannot get parts. President Nicolas Maduro did what Marxists always do in such circumstances. He accused Toyota of political motives and greed: “The only thing these little mangers want is dollars, dollars, and more dollars.”

There’s a lot we can learn from watching Venezuela. In this case, the lesson is about respect for private property. Free enterprise means that firms can make employ individuals and other resources as they choose. Enforceable contracts are essential; without them, bullies are free to rewrite the rules as they go along. Government is always the biggest bully because it has the power of force, and when it disrespects private property, firms and investors take note. They protect their assets as best they can, but pull back from development and further expansion. The result is a downward economic spiral.

Unlike Venezuela, the US has a vibrant, well-established economy based on a global currency. Our government need not make choices about which debt obligations to pay; it simply borrows more money. Nonetheless, the same bully tactic is at work in both nations. The list of examples is long but includes the President’s unilateral and frequent reinterpretation of Obamacare, the administration’s fixation with raising the minimum wage, and recent requirements that firms certify to the IRS that their workforce decisions are not based on health insurance mandates. All of these instances illustrate the same kind of disrespect for private property. And the President wonders why the economy just won’t move forward.