Friday, June 25, 1999

A true fountain of inspiration

I recently learned of the demolition of the famous Hotel Fuenti, located on the beautiful coast of Amalfi in Italy. This structure had become a symbol of what seems to be known as environmental "abusivismo” in Italy. At least this is what comes out of the automatic translator I use when navigating Italian web sites. I am sure that this case is fascinating to those who are interested in administrative law or in the study of Italian society. To begin with, this case has been around for the last thirty years.

The demolition of 34,000 square meters of reinforced concrete structure is no small matter anywhere. Exactly how these measures are approved and taken in order to effectively defend the environmental rights of a society or an individual without resulting in legal "abusivismo” is a challenge to one’s imagination.

I am sure that most of us, without going into much more detail, are absolutely sure that whatever the legal regulations the promoters of the Fuenti violated, there are thousands of worse violations that will never suffer this drastic fate.

On the other hand, most of us will probably not shed too many tears over what may be a total injustice that the Fuenti’s owners are being subjected to. One explanation of the above may be what one could call the Fuenti’s high Visual Contamination Index (VCI).

In order to understand the VCI, let us imagine that we can assign points to the ugliness of any structure, ten points for the ugliest to 1 point for the least ugly. Likewise, we could assign points for the relevance or beauty of its location, from one point for the most insignificant to ten points for the most beautiful and relevant. By multiplying both rankings, we can obtain the VCI. In the Fuenti case, if we assign an eight for ugliness and multiply this by an eight for the beauty and relevance of its location, we obtain a total score of 64. This apparently is enough to send the structure to the gallows.

Does this seem easy and fair? Not necessarily. Imagine trying to get two Italians to come to an agreement about the assignation of points for beauty and relevance!

I sincerely hope that the case of the Hotel Fuenti will serve as an inspiration so that we can begin to confront the serious problems of visual contamination that occur in Venezuela, specially on the Island of Margarita.

Playa El Angel, Playa Guacuco, Playa Anywhere. In all of these we can observe how half-finished structures, like a herd of dinosaur skeletons, provide eyesores to all those who care to pass by. Is it possible that these structures insolently consider that simply because they have suffered an accident, financial or otherwise during the initial construction period, they have the right to contaminate our island. Just as an airplane is required to take on sufficient fuel to get it to its next destination, any construction project should be required to have enough resources to get it to completion.

When you study some of the laws that govern this matter, for example the Urbanization Law, you can find plenty of articles that allow, for one reason or another, authorities to paralyze work on any construction project. Surprisingly, there is no mention whatsoever that refers to the obligation of a project’s promoters to actually finish what they started. Evidently, since the laws are drafted by politicians who are not exactly known for their ability to finish what they started, the word “surprisingly” is probably overdone.

Although I consider the road to the demolition of existing structures to be a dangerous one if based simply on visual contamination, I do believe it is possible to develop a good set of rules to handle half finished projects. Obviously, any law drafted to regulate this matter must guarantee affected parties the right to develop alternatives within a specified period of time (years, not decades!).

We must also analyze those projects that, due to simple lack of use or care are severely deteriorated. We are all aware that fashion once considered that holes in blue jeans were “chic”. Likewise, any amount of building materials has been used to create a rustic look to buildings, mostly with a lot of success. However, when we observe walls that are crumbling due to lack of care or, even worse, to bad construction practices, we do not need rocket science to see that something has gone seriously wrong and that we must find a cure.

With every day that goes by, all aspects of defense of our environment become more and more critical. For an island like Margarita that lives of tourism and that is faced with increasingly heavy competition from other locations, the avoidance of visual contamination is more than critical, it is vital.

Friday, May 07, 1999

All bureaucrats should be created equal

In the second volume of his autobiography titled “The Invisible Writing”, the European intellectual Arthur Koestler (1905-1983) writes about the time during the early thirties when a primitive town, in the area of Pamir in the south of Central Asia, received the visit of a Russian patrol unit mounted on bicycles. The local folk ran away in total terror. During their lives they had seen many airplanes, but never a bicycle. The planes were seen to be simple machines and so they seemed quite normal. However, the fact that a person could glide along on two wheels without touching the ground could only be explained by the intervention of Satan himself.

Thirty years have gone by since I read about this incident which I believe illustrates in a curious way a less than harmonious development. Since then, I have been repeatedly reminded of this by living in a country such as ours, where the modern lives together with the antiquated without any complex whatsoever. Obviously, our public administration has been a fertile area in this sense.

Last year I had the opportunity to visit both the recently created Banco de Comercio Exterior (Bancoex) as well as the National Institute for Minors (INAM). Without going into which of the two entities is of more importance for the country, the differences between the two were so great that they seemed abominable to me.

I cannot faithfully express the magnitude of the surrealism, but it should be sufficient to say that Bancoex has modern offices, systems employing the latest technologies and an organization with staff selected with the assistance of an international advisory firm while the INAM, accessible only by means of a rickety elevator which takes of every half an hour towards the 42nd floor of one of the towers of Parque Central, has papered its walls with wall to wall Oslo type files labeled with things like “Invoices – Meat Purchases Month of February 1994”.

If a government determines that it must assume the direct responsibility of fulfilling two specific functions, whichever they may be, it should at least try to do both with the same enthusiasm and with the same service standards. We are constantly harping about the fact that we should fight to narrow the social gap in income distribution that creates first class and second class citizens. Likewise, it is equally as important to avoid creating first class bureaucrats and second class bureaucrats. Sometimes I believe we even have third class bureaucrats.

This does not mean I am promoting automatic and irrational equality as far as salaries of public officials is concerned. It has much more to do with the identification of the role and the social support given each public servant in order to stimulate his or her pride. He who thinks or feels that other believe his work is not important, or who is actually doing work that is indeed not important and should therefore be eliminated is as incapacitated emotionally as a baseball player who has lost his arms.

Likewise, as we head towards the Constituent Assembly which initiates the debate on the role of the State, it is of utmost importance to establish the norms and regulations that require the State to comply with its actual responsibilities before it is permitted to accept new ones. Should we not do this, we should not be surprised about the capacity of certain sectors to negotiate resources that allow them to incur in new initiatives that normally possess noteworthy or glamorous characteristics at the expense of other that, although no less important, require quite dedication, day after day, from 9 to 5.

I now wish to share with my readers a nightmare I have over and over again. During the last decades, the Venezuelan State has frittered away an immense amount of resources. Thank God that in spite of this, most of the spending occurred in public service sectors and that therefore it did actually leave something, however small, for posterity. Does this mean that if the State actually goes full tilt into privatizing public services (at the behest of ourselves) without having previously negotiated a corresponding reduction in their income, 100% of public spending will be wasted?

The town folk in Pamir did not bat an eyelash when airplanes roared overhead. They did not know that human beings were strapped inside at the controls. Had they known this, the panic would have been absolute. I sometimes think about the high expectations we have of the privatization processes in Venezuela. Are we by chance also ignorant of the fact that there are human beings in these private companies?

Evidently, doubts about one issue are not translated in certainty about another. In this sense, I cannot resist finalizing with a quote that I underlined almost thirty years ago in the before mentioned book by Koestler. “I automatically learned to classify all that is repugnant as an »inheritance from the past», and all that is attractive as the »seed of the future». With the aid of this automatic classification it was still possible for a European in 1932 to visit Russia and continue to be a communist.”

Daily Journal, Caracas, May 7, 1999

Friday, April 30, 1999

Virtual tulipomania in New York City

The tulips planted all along Park Avenue were in full bloom in a kaleidoscope of colors as I read that the share price of one particular firm reached the skies in New York. Both things conspired to remind me of a book by John Kenneth Galbraith, A Short History of Financial Euphoria.

In the chapter “Tulipomania,” we read: “Speculation, it has been noted, comes when popular imagination settles on something seemingly new in the field of commerce or finance.” “. . . by 1636, a bulb of no previously apparent worth might be exchanged for ‘a new carriage, two grey horses and a complete harness.’” The value of one particular bulb, the Semper Augustus, would be the equivalent of US$ 50,000 at today’s prices! Everyone, from nobles to servants, speculated, cashing in their property and investing in flowers. Capital inflow inundated Holland. “In 1637, came the end.”

Now, April 1999, in New York, the share price of a company which initiated operations in 1995, has never registered a profit, has (according to management itself) no short-term possibility of doing so either, does not possess any major tangible assets, and has issued a management report in accordance to SEC rules and regulations in which it makes known a series of risks that would make any investor’s hair stand on end, trades at US$ 200 per share, up from US$ 10, only a year ago.

Evidently, the company that I believe has joined the rank and files of the “tulipomanias” sells books through Internet and to conclude as much it should suffice to analyze some of the risks the firm itself has enumerated in various reports.

The Internet is above all else a medium for the transfer of information and in this context, developing technology known as “shopping agents” will permit clients to quickly compare one company’s prices to those of its competition. This would seem to presage an eventual but fierce price war, an environment that is not exactly the breeding ground for profits that back the market valuation we are observing. The low cost of entry and the probability that sooner or later some efforts will be aimed at prohibiting any monopolistic controls of the Web are also factors which can make the advantages created by an early incursion disappear in a flash. 

All this has nothing to do with the company itself and all that I’ve read about it makes me believe it is well managed and that it most probably has a brilliant future. The problem lies solely in the market’s irrational expectations. The company reported in 1998 total sales of US$ 610 million, a net loss of US$ 124 million and a book value (assets less liabilities) as of the 31st of December 1998 of only US$ 139 million. Today’s market value of the firm, equivalent to the share price times the amount of the shares issued surpasses US$ 33 billion. 

Let us now have a look at its potential. Total book sales in the United States during 1998 were worth close to US$ 23 billion. If we assume that a profit margin of 8% would be reasonable, this would mean that there would be US$ 1.8 billion available to reimburse capital invested, both equity as well as debt financing. If we then, for the sake of simplicity assume an overall return of 10%, we can estimate the global value of companies that sell books in the United States in the order of US$ 18 billion. If our company that today commands less than 3% of market share eventually attains a whooping 20%, its value could then reach US$ 3.6 billion. Now double that to take into account the rest of the world and then double that again to take into account of its declared intention of adding other products to its line of products, and we will still reach only about a third of its current value.

As this Financial Euphoria seems to have infected many firms associated with the Internet, I conclude that this must be a modern version of the speculative Dutch tulips. I also conclude that both these and the real tulips thrive in New York in spring.

From The Daily Journal, Caracas, April 30, 1999

Friday, April 23, 1999

A New English Language Empire

I have often harbored reservations about the possibility of success of the European Union. In particular my worry is about its new currency, the euro, the bases of which I believe are rather weak. I recently heard that there is still much debate going on which, even when new to me, leads me to rethink many of today’s geopolitical aspects.

I refer to the thesis that the United Kingdom is finding it extremely difficult to get used to the idea that it must forgo much of its autonomy in favor of an entity formed by other nations which are geographically close, but still very mystifying, and therefore could possibly abandon the idea altogether, forging instead an alliance with the English speaking world. Among the sponsors of this line of thought, I find the Canadian newspaper owner Conrad Black and the well renowned historian Paul Johnson.

Having observed how much time and effort the UK and the United States spend coordinating their foreign policy and considering how tempting it must be to unite cultures of the same origin that speak the same language and share the same legal system into one global superpower, it should not really be surprising if we were all of a sudden presented with the creation of an English Language Union, or ELU. Considering the recent impact of Shakespeare in Hollywood it might be a lot closer than we think.

The possible implications of a NAFTA expanded to include the UK plus perhaps even other nations such as Australia and New Zealand (both disillusioned by the Asian crisis) lead me to reflect on other issues in addition to the importance of the English language. The first issue that occurs to me is that any pact of this sort would effectively wipe out any aspiration Europe may nurture of going head to head with the United States unless it undertakes internal expansion (Russia or its former satellites, maybe?).

Another important thought is the fact that in a globalized and computerized world, geographical proximity seems to be losing its importance. The truth is that once you have incurred the cost of loading merchandise on an airplane or ship, the marginal cost of transporting it a few thousand miles further is not really that great. This could be of importance to Venezuela, especially when it owns so much oil.

The Andean Pact, is basically a commercial agreement with Colombia. This makes a lot of sense if we are trying to create bigger markets with their corresponding economies of scale for our respective industrialists. It does not make much sense as far as real complementary economics are concerned.

It is possible that Venezuela, while not abandoning its policy of creating larger markets, should be intensifying its efforts of negotiating commercial agreements with countries very different from itself, in which we can maintain our competitive advantages. Let me explain.

While oil prices remain low, our currency will be sufficiently weak so as to allow industries heavily dependent on labor, such as the textile confection sector to compete with Colombia. Evidently, if oil prices were to spike upwards, the bolívar would become stronger and would make survival of industries such as these difficult, obligating the country to impose protective duties.

If, however, our agreements would be based more on real complementary issues and economics, then it would be possible to create sustainable results. A simple theoretical example would be a negotiation of an commercial agreement with one of the Nordic states, with a wintry climate, allowing them preferential access to our market, with the establishment of the beaches of Margarita as the preferred winter tourist attraction for its citizens. Chile, for one, has made a lot of this, in for instance promoting fruit exports, taking advantage of the fact that their seasons are opposite to those of the Northern Hemisphere.

There is no doubt that we are in a fluid and rapidly changing environment in which it is of extreme importance to be alert to the possibilities that are presented to us. Personally, I feel that Venezuela should not hurry into commercial agreements, simply because it is the thing to do, the flavor of the month. What’s more, with the sole exception of Colombia, with which we share a permeable border which in turn makes the negotiation of agreements a must, I believe Venezuela has not signed one single agreement in which it comes out ahead in practical terms as a country.

Published in The Daily Journal, Caracas, April 1999

PS. Oops! Does Brexit now reignite this alternative? How much should the English language proprietors now charge the remainder EU for the use of it… so as to avoid a war between Germans, French and Spaniards on which should now de facto be its official language? Or will EU go for Esperanto?

Friday, March 12, 1999

Of mangoes and bananas

For several reasons, the debate about the global economy has recently reminded me of fruit. The wise Henri Pittier wrote his Manual about Common Plants in Venezuela in 1926. In it he wrote the following about the mango:

“It is harvested in abundance, and there are many who, during the season in which they are ripe, dedicate all of their time to the search for this fruit which for some time then becomes their only source of nourishment, very often to the detriment of their health. One can vacillate, then, on deciding whether the introduction of this tree [from Asia] has been a blessing or a curse. The writer of these words is inclined to believe the latter since the mango leads to idleness, to the invasion of another’s property and to vagrancy; additionally, no matter how good or healthy it may be, when ingested in moderation, it sometimes provokes digestive disorders and is far from being wholesome food. It alters, then, both morality as well as public health.”

This interesting quotation shows us that, in addition to oil, the mango should be classified high on the list of culprits that have been the cause of our poor economic development. Most assuredly, in addition to the mango and oil, we must also add to this list the sun, the beaches and all those variables that undoubtedly make it easier to survive an economic recession in a tropical Caracas than in a wintry Moscow.

Since it seems evident that the simplicity of living in the tropics leads to laziness while the hardship of winter promotes the discipline and work ethics that have ultimately inspired today’s global economic development, it behooves us to view global warming with renewed preoccupation and from a totally new angle.

I have made my own empirical observations about the evolution of global warming. Every Carnival weekend, for example, I stroll out to my beach in Margarita, the tropical Venezuelan island in the Caribbean Sea, and take note of the width of the shore from the water line to the roadway. Even when I had terrible difficulty in finding a spot in which to anchor beach umbrella, I never really worried about it. I simply attributed this difficulty to the increased popularity of the island and not to an invasion by the oceans.

Today, however, I harbor serious doubts as to the validity of my method of measurement since wherever I look I find much new and more concrete evidence of a very advanced state of global warming.

How else, other than by assuming a certain displacement toward the north of the parallel of the Banana Republics, can we explain the current enormous fiscal and commercial deficits that currently thrive in the United States.

How else, other than by assuming a certain displacement toward the north of the geographical boundary of the Banana Republics, can we explain the opposite positions recently sustained by superpowers like Europe and the United States on the issue of bananas, as if they were some modern versions of Lilliput and Blefuscu.

How else, other that by assuming the creation of climatic conditions conducive to the cultivation of mangos, can we understand why Japan has not been able to combat idleness and stimulate the reactivation of its economy? We have all read that Japan has reduced interest rates to an annual rate of one per one thousand. Can you imagine how impressed a botanist like Henri Pittier would be upon observing this unique specimen of a mango?

From The Daily Journal, Caracas, March 12, 1999 (Abridged version)