For years, I’ve
been writing about Venezuela, describing it as the “movie” by which we can view
the future of other jurisdictions that are presently in decline.
The reason is
that declining nations follow the same pattern, time and time again, over the
centuries. This is not coincidence. The pattern exists because human nature
never changes, regardless of the era or the locale. Political leaders make the
same mistakes as their forebears, and the people of a nation react in kind.
For this reason,
countries have a sort of “shelf life.” They rise in prominence, due to work
ethic and productivity. They then go through a period of abundance, which
eventually deteriorates, due to complacency and apathy. Finally, they collapse
into a period of bondage.
If we recognize
that this pattern has played out countless times over the millennia, we can
track any given country and assess where it is at present, in the pattern. For
example, Europe and North America are presently in the last stages prior
to collapse, Venezuela is in the process of collapse and Cuba is in the post-collapse
recovery.
|
|
|
|
|
|
But, although
this may be historically interesting, of what value is it to us in terms of our
own lives and the choices we make for our future?
Well, we can
observe Venezuela and see the effects of the present policies evident in our
own country, if we happen to live in one that’s on the verge of collapse.
For example, we
can see that ever-increasing largesse by a government—on the backs of productive
taxpayers—is a major destructive trend. “Protective” tariffs and capital
controls also lead to collapse. And excessive debt is a pathway to economic
collapse.
We can see from
the recent history in Venezuela how these political mistakes caused their
collapse, and we can now observe how that collapse plays out.
But, going back
to the title of this essay, how do we invest in collapse?
Well, the reader
will be familiar with the investment principle of “buy low, sell high.” This
means that the investor should not wait until an investment is already popular.
He should invest when it’s at its least popular.
So, let’s look at
that a bit more closely.
The principle
would suggest that, in the main, the US, in its final, declining stage, is a
poor country for investment, but that Venezuela could be a far better
possibility.
But at what point
should investment take place? Well, there are a few basic assumptions that
might be made. First, investment is difficult at a time when there’s massive
unrest. If a “boots on the ground” assessment can be made fairly safely, this
can be a very advantageous time to begin studying possibilities.
Also, during a
collapse, local businessmen and government officials are desperate and will cut
virtually any deal with anybody, just to get a bit of money into their hands.
Such deals are normally cancelled wholesale by the incoming government, after
power has been transferred to them (often just for spite).
|
|
|
|
|
|
So, for any
investor, the country should ideally be researched both during and following
the collapse and a decision made as to what investments to focus on. Then, when
the new government has largely stabilized the country (the riots are over and
commerce has begun to function normally), the greatest opportunities for
investment occur. The country is desperate for inward investment, and
opportunities abound.
So, let’s have a
look at a country that has already passed through its collapse stage and has
stabilized.
Cuba collapsed
for much the same reasons as its neighbour, Venezuela is now collapsing. But
that was back in the 1990s. An anomaly in Cuba’s case is that the government
was not overturned and the re-stabilisation was left to the still-collectivist
government. Being unable to admit that they’d caused the collapse, but
desperately needing a recovery, the Castro government chose the obvious
solution—capitalism. By this time, the once-committed communist Raul Castro
advised his brother Fidel that collectivism was a failure and that they must
adopt a free-market if the country was to recover.
However, being
unable to admit that the problem was of their own doing (they blamed the
American blockade), they set about introducing free-market principles within
the existing system.
Over the years
since that time, it’s become increasingly possible for Cubans to open their own
businesses, and to pay the government taxes on the profits.
Today, there are
now so many cuentapropistas (business owners) in Cuba that the taxes
generated have not only enriched many of the Cuban people, but have refloated
the government. (Even a mid-level bureaucrat understands that the reason he’s
been able to discard his thirty-year-old Russian Lada and now has a new Hyundai
is due to the influx of tax revenue.) No one in Cuba has the cheek to call it
“free-market,” but most everyone understands that the end of food shortages and
the importation of such goods as appliances and stylish clothing is due to the cuentapropista
revenue.
So, then, why
isn’t this big news in the larger world? Well, although the free market has
been taking over the Cuban economy (from the bottom, up) for over a decade, the
Castro government still maintains ownership of much of the real estate, still
owns many businesses, and controls the military. However, the government
businesses (as they are collectivist) are highly inefficient, so the flood of
tourists prefer the privately run businesses, which are thriving.
And the military
is now in charge of renovating Havana’s old buildings for new shops—they’ve
become a sort of urban public works department.
Yet the claim internationally
is that Cuba is still communist.
Strictly
speaking, this is so. But each year, more government businesses fold and more
opportunities are given to allow restaurants, tourist accommodations, taxi
services, farm cooperatives and factories to be started up privately by the
Cuban people.
The government
not only condones the free-market development, but encourages it,
as today, the butter on their own bread comes from tax receipts, not Russian
subsidies.
At present, the
government still holds many areas of investment for itself. An outside investor
cannot legally make an investment deal with a local unless he’s a “relation.”
But the government creates opportunities and joint-ventures with outside
investors for tourism, mining, telecommunications, energy, biotechnology, etc.,
and, in fact, each day cruise ships arrive in Havana Harbour from Miami, loaded
with American tourists, whose countrymen are under the impression that they
cannot enter Cuba legally.
The anomaly in
Cuba is that it’s a country that’s being reinvented from within, but without
the customary announcements from the political leaders that the “rebirth” is
underway.
Raul Castro has
just stepped down as president, but as I’d expected, he’ll stay on as the
Secretary General of the Communist party until 2021, which would mean that
he’ll continue to engineer the rebirth of Cuba from behind the scenes.
After this date,
the cloak of free-market secrecy may be tossed off in Cuba, and those who have
invested at the bottom will watch their investments blossom.