Tuesday, December 11, 2007

Are Chile and Venezuela really the Same??

Over at Oil Wars, they say the answer is yes (it's the first post there as of my posting this, dated December 9th and titled "Is this the way to go?" I can't get a unique link to the post).

It's really worth reading the whole thing to try and see how to make an untenable argument as best you can by playing with the data and abusing the language.

For example we are told that Venezuela has made better progress in combating unemployment though the graph we are shown shows the Chilean unemployment rate is lower than the Venezuealan one in every observation depicted!

The main argument is Chile is dependent on a single commodity export (copper) just like Venezuela (oil) but Ven is actually doing as well as if not better than Chile.

The main data in support is a graph showing that since the end of 2004 Venezuela has been growing faster than Chile (sorry but I don't see how accumulating more international reserves is a sign of superior economic performance).

However, the author cleverly has omitted pre-2004 data which tells a very different story (sorry this is so small, click it and watch it grow!!):

These data,from the Penn World Tables tell a different story. (Data are adjusted for variations in PPP. The series is called RGDPL). Venezuela was poorer in 2004 than it was in 1977! Chile caught them in 1991 and in 2004 Chilean per capita income was hugely greater (note that much of this excellent relative performance is post Pinochet).

The oil wars guy concludes as follows:

It would seem Chile is not all it has been cracked up to be. The sad reality here is that neither of these countries are in very good shape. Venezuela is poor and very heavily dependent on one export commodity. And so far attempts to diversify the economy seen either not to exist or not to have had success. Chile, contrary to popular perception, is also very dependent on export of a single commodity. And while it has had more success than Venezuela in increasing other exports those other exports seem also to be commodities or agricultural products. In other words, both countries are on the bottom of the world wide food chain exporting only natural resources and agricultural products - for some reason value added manufactures seem to be beyond them.

But one point is crystal clear. Chile, being to a large extent stuck in the same swamp of underdevelopment that Venezuela is, can hardly serve as a model for how Venezuela is to get out that underdeveloped state. For that Venezuela would do MUCH better to look east towards South Korea and Taiwan than to look south towards Chile.

Now I'm not here to say Chile is a model for anybody, but I do say that they have gotten quite a bit further out of the "swamp of underdevelopment" than has Venezuela.