Monday, October 20, 2014
Ted Miguel's paper on the cost of opposition in Venezuela
What is the cost of opposing your government? What if the government is run by a maverick general-turned-politician with, shall we say, not a great tolerance for those who disagree with him? Yesterday, Ted Miguel from Berkeley gave a talk about his work with Chang-Tai Hsieh, Daniel Ortega and Francisco Rodriguez. In 2002-03, the opposition tried to organize a referendum to recall Chavez from power. The list of signatures was submitted to the authorities, and it ended up - through some interesting twists and turns - on the internet. Government offices keep copies. So everyone can check if their neighbor is a "patriota" (signed the petition to recall opposition politicians, organized by the Chavistas), or an enemy of the president (i.e. signed the original petition). The so-called Maisanta database is an amazing document, and Ted and his co-authors use it to good effect. They demonstrate that firms run by opponents to Chavez ended with much lower profits and much higher taxes. On top, they track the earnings of those who signed the petition, and show marked drops in income. Overall, it seems that opposing Chavez is not for the faint-hearted. Some findings puzzle me a bit - patriota firms had very high capital productivity before the referendum, and then see a fall. This could be consistent with a story that has a fringe of firms outside the big business consensus locked out of credit markets; opposing the referendum and supporting the president might have relaxed this credit constraint, and led to a more optimal allocation of capital. Be that as it may, Ted and Co. show that labor allocation becomes MUCH worse after the referendum fails. I like the paper in a number of dimensions, and perhaps not least because I have a paper of my own (joint with Tom Ferguson) on the returns to affiliating with dictators.