Venezuela’s Institutional Matrix

Nobel Laureate Douglass North once said that, “if the institutional framework rewards piracy then piratical organizations will come into existence; and if the institutional framework rewards productive activities then organizations – firms – will come into existence to engage in productive activities.” Prof. North’s observation is proving to be awfully accurate in Venezuela.

The country’s recent bank scandals have exposed the internal workings of the so-called “boliburguesia” (boligarchs), a shady—piratical—network of businesses that thrives thanks to favors granted by the presidency. The boliburguesia’s plain and simple crony capitalism is even more regrettable in light of the government’s regular assaults on the market economy and its promotion of socialist practices.

Paradoxically, the boliburguesia’s emergence runs parallel to Venezuelans’ increasing faith on private enterprise. According to Latinobarometro’s latest poll, “81% of [Venezuelans] say that private enterprise is indispensable for economic development, a big increase on previous years.”

Although Latinobarometro’s finding is far from conclusive, it seems to indicate a dissonance between Venezuelans’ incentives under the current institutional matrix and their preferred institutional arrangement. In other words, it is not clear to what extent Venezuelans favor private enterprise under the current piratical institutions or if they value private enterprise under a transparent rule of law-based market economy.