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Ball – The Rule of Law

Carlos Ball
AIPE

The Rule of
Law
Introduction to the session on the Global Prospects for the Rule of Law

The
Philadelphia Society
New Orleans

April 27, 2003


Good
morning, ladies and gentlemen. My name is Carlos Ball. This is our last session,
and I want to congratulate Ed Meese and Bill Campbell for designing an excellent
program and inviting an outstanding group of speakers.

I
should start by saying that Iím not a lawyer, but a journalist, and according
to one of my nephews, I am not even very popular with lawyers and law
professors. He claims that his application to a Law School in Caracas was
rejected because of a talk I gave there a few days before his application was
considered. True or not, it was perhaps a blessing in disguise. I donít think
law diplomas are very useful in a country without rule of law. But then,
Venezuela today is very different from the country I grew up, and since our two
distinguished speakers will be talking about the global prospects for the rule
of law, Iíll take just a few minutes to tell you about the socialist
destruction of a prosperous South American nation.

Not
long ago, looking through the papers of my late brother Luis Henrique, I found a
truly amazing story, which to me clearly shows the mistaken road Venezuela has
followed. That road was not only chosen by our local politicians, but encouraged
and supported by multilateral agencies and the State Department. We could call
it, a road to serfdom.

My
brother Luis Henrique was nine years older than me, and the story in his papers
that I found fascinating relates to his visit to our mother at the hospital, the
day I was born, in July 1939. He writes that during his visit to the clinic, he
said hello to a young lady walking out with a newly-born baby in her arms. He
recognized her as a worker in my fatherís factory. And I was very impressed to
learn that, in 1939, my fatherís company paid 95% of the workersí medical
expenses, and all of them received medical attention at the very best private
clinic in Caracas. There was no socialized medicine in Venezuela. Only after the
war, the U.S. State Department pressured the government to establish a social
security organization to centralize not only pension funds, but also healthcare.
Then, the United Nations recommended the appointment of Dr. Salvador Allende to
oversee the creation of the Venezuelan Social Security Institute, which to this
day handles both pension funds and medical services. The payroll taxes imposed
on corporations soon eliminated all private sector efforts to offer healthcare
benefits to employees, and private clinics became accessible only to a select
group of Venezuelans, those with higher than average incomes.

Iím
not trying to imply that Venezuelan political mistakes are the fault of a
Chilean communist like the despicable Salvador Allende or State Department
socialists. But it is obvious that in 1948 we did not have in the government
someone with the knowledge and stature of Ludwig Erhard, who that same year told
the Allied commanders in occupied Germany to take a hike, when they wanted to
keep the price controls imposed by Hitler since1936.

Despite
the glorious role played by SimÛn BolÌvar and his army in the independence of
much of South America in the early 19th century, Venezuela remained a
poor, agricultural country until the 1930s, when thanks to the oil boom it
became one of the fastest growing economies. An important ingredient in the
sharp increase in prosperity was that the value of our currency, the bolÌvar,
had been fixed to one gram of gold since 1879, and remained so until 1961.
Private commercial banks issued the currency until 1940, when a central bank was
established. But the new central bank was not a government agency, rather a
mixed enterprise with 12,000 private shareholders owning 50%, and the selection
of the chairman was not a political decision. Thanks to a wise monetary policy,
inflation throughout the 1950s, our golden age, was under 1%, and our economic
success was reflected by the great number of immigrants arriving from Europe and
other Latin American nations.

Low
inflation is a clear demonstration of a governmentís respect for property
rights. But for Latin American politicians, the easiest way to steal is by
inflating the currency, harshly hurting the poor whose assets are mostly in cash
and saving accounts rather than in real estate and investments.

Venezuelaís
first Constitution of 1811 had similarities with the U.S. Constitution; it was
written to protect the citizens rather than to empower bureaucrats in building
the road to Utopia. 25 constitutions later, the document is now a long list of
socialist dreams that will bankrupt any government that tries to abide by the
constitution.

Another
significant historical factor is that Venezuela inherited the old Spanish law
declaring that the subsoil, that is the underground resources, belongs to the
State and not to those that own the property above.

Mexico
has a similar law that allowed President L·zaro C·rdenas to expropriate the
foreign oil concessions in 1938. Then Standard Oil, Shell, Gulf, Mobil, and
others concentrated their investments in friendly Venezuela. For that reason, I
believe that L·zaro C·rdenasí dead body should be given a place of honor in
Venezuelaís national pantheon.

By
1958, Venezuelan oil exports accounted for nearly 60% of the international oil
trade, there was more American investment in Venezuela than in the rest of South
America combined, and our standard of living surpassed Spain and Italy. 45 years
later, Iím sorry to say, our national statistics are much closer to those of
Cuba and Haiti.

What
happened? You will be surprised to hear that there was more respect for the rule
of law and property rights during the military dictatorship of the 1950s than
under the later, freely elected, democratic administrations.

We
should also recall that OPECís founding on September 17, 1960 was the idea of
the Venezuelan energy minister, Juan Pablo PÈrez Alfonzo, who convinced four
Middle East rulers to form a cartel to secure ìa steady income to the
producing countries." Interestingly enough, the model of production quotas
designed by PÈrez Alfonzo for OPEC was based on the rulings of the Texan
Railroad Commission, to which he dedicated years of study.

The
immediate result of the involvement in OPEC and of President RÛmulo
Betancourtís announcement that no new oil concessions would be granted was
that foreign oil companies pulled back their investments and in 1961 the bolÌvar
suffered its first devaluation of the 20th Century. After frequent
devaluations, starting in 1986, the bolÌvar has lost 53,000% against the dollar
in the official market and even more in the black market. That black market
surged upon the recent imposition of exchange controls, in which dollars are
made available only to the friends of the Ch·vez administration.

From
1961 to 1971, Venezuelaís share of the international oil trade dropped by
half, to 30%, as the Arab countries and Iran greatly increased their foreign
concessions. Then in 1969, Betancourtís social democratic party lost the
presidential election, but used its congressional majority to keep control over
the judicial system. A law was passed making judicial appointments a function of
electoral results. The judiciary soon became politicized and corrupt, discarding
the notion that the law is something permanent, uniform, and universal.

In
1974, Carlos AndrÈs PÈrez was elected president, and proceeded to nationalize
both the oil industry and the independent Central Bank. Venezuelaís share of
the international oil trade continued to drop steadily until reaching 3% today.
But one of President Ch·vezís top concerns has been strengthening OPEC. In
typical doubletalk, Ch·vez says: ìfrom its birth, OPEC has been an instrument
in the fight for liberty, for justice and for peace.î

Perhaps
the peace President Ch·vez has in mind is reflected by his appointments, such
as the current chairman of PDVSA, the state oil company, Mr. AlÌ RodrÌguez, a
former director general of OPEC, who in the 1960s was a guerrilla leader and the
terrorist in charge of blowing up oil pipelines.

If
asked to describe Mr. Ch·vez, I would do so by quoting from Adam Ferguson:
ìthe most important difference between a savage and a civilized man is that
the savage does not recognize property rights.î

President
Chavez not only rewrote the constitution, but controls Congress, appoints the
justices of the Supreme Court, chooses the members of the Electoral Board, and
keeps repeating that he plans to govern for 21 years. Why not? His model figure,
Fidel Castro, has been in power for 44 years, since the times of President
Eisenhower.
Our tropical version of the Welfare State has reduced the
income per capita back to the level of 1950, but most Venezuelans see Ch·vez as
a freak, not as the logical result of 40 years of socialist policies.

In
this session we are going to hear from two very distinguished speakers from the
Czech Republic and Argentina.

Dr.
Martin Palous is the current ambassador of the Czech Republic in Washington. I
hardly need to remind this audience that the newly-elected president of the
Czech Republic is Dr. Vaclav Klaus, a fellow-member of the Mont PËlerin Society
in the tradition of Ludwig Erhard of Germany and Luigi Einaudi of Italy. Earlier
this month, I heard Dr. Klaus say that the Czech membership in the European
Union is a marriage of convenience, not a marriage of love. It is refreshing to
hear the new Europe.

Ambassador
Palous was a founding member of the Civic Forum, the most important political
body in the successful transfer of power from a totalitarian government to
democratic Czechoslovakia, after the Velvet revolution. He was elected to the
Federal Assembly in 1990. He has served as Deputy Foreign Minister and also as
professor of foreign relations and Vice-Dean of Charles University, the same
university from which he received his degree in chemistry in 1973, and went on
to study philosophy and social sciences. In 1993-94, he was a visiting lecturer
at Northwestern University in Chicago.

Professor
Ricardo Rojas is a Judge at the Buenos Aires Criminal Court and former Secretary
Attorney of the Argentina Supreme Court. He teaches Economic Analysis of
Criminal Law at the University of Buenos Aires, is a member of the board of
Directors of the ESEADE (a graduate school of business administration and
economics), and also a member of the board of directors of the Friedrich von
Hayek Foundation in Buenos Aires. I am happy to add that Judge Rojas is also a
columnist for my news service AIPE.

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