Spring Journaling

4/23/07

Contributing factors to why Venezuela has a weak economy outside of the oil industry.

The economic explanation:
The Dutch Disease- Where new discoveries or favorable price changes in one sector of the economy, cause distress in other sectors- for example agriculture and manufacturing.
Persistent Dutch Disease provokes a rapid, even distorted growth of services, transportation and other non trade ables while simultaneously discouraging industrialization of agriculture.
Policymakers in undeveloped nations are consistently unable to counter this dynamic.

Mineral ‘rents’ have a particularly perilous nature because they can be easily exploited and exhausted.
“The rents, they argue, too often foster persistent rent-seeking behavior and a bias toward unproductive activities, leading to poor development outcome (Karl, 5).”
Karl says-However, “The Dutch Disease is not automatic. The extent to which it takes effect is the result largely of decision making in the public realm.”
She explains economic effects like The Dutch Disease are outcomes of “the particular institutional arrangements”, political habits and arrangements made by those in power.


Another contributing factor to Venezuela’s lack of industry and reliance on imports is:

As Fernando Coronil explains in Magical State, Nature Money and Modernity,

The combination of the escalating foreign debt and declining economy due to drop in oil prices in the 1980s, caused
‘Local businesspeople to lose confidence in the local market, as a result of the states inability to promote the expansion of the local economy.