23 Nov Nobel Laureate in Economics Daron Acemoglu and YPFB (Bolivia’s State-Owned Oil Company)
Not too long ago, the Milenio Foundation report was an eagerly awaited and entertaining event. In a very elegant room, over lunch, people (mainly economists) listened to an analysis of the economy’s performance, followed by a debate. More than once, during these debates, a colleague of mine would justify the state’s presence in the productive sector of the economy with the following reasoning:
There should be no difference between the performance of a state-owned or private company because, in the end, it’s the same people working in both… with all their strengths and weaknesses.
The argument seems reasonable, especially in a small country like Bolivia, where there are few specialized professionals, and most people know each other. However, there’s also an alternative narrative that I once heard—not in such elaborate settings as the Milenio Foundation lunches but among the taxi drivers. One of them once posed some questions with me beside him:
Why do some of my colleagues—bus drivers—immediately put on their seatbelts when crossing the border from Bolivia into Chile? Why does the same person behave differently in two countries?
And it’s the answer to this question that dismantles my economist colleague’s argument—the one from the Milenio Foundation lunch—because it is perfectly possible for the same person to act differently, whether crossing a border or working in a public or private company.
One explanation from economic theory for this difference in behavior is tied to. A significant body of research institutions (Acemoglu and friends) attributes a crucial role to these so-called institutions in achieving greater economic development. For instance, why is resource wealth a “blessing” in country A but a “curse” in country B? Many authors argue it’s because country A has better institutions than country B.
Given such an important role, we must ask: What are institutions? Or better yet: When are institutions… good institutions? There is a near-universal consensus in economic theory linking institutions to the “rules of the game.” Moreover, these rules of the game are considered good when they are respected. Let’s explore some examples.
The presence of a traffic light at a given intersection creates a small institution, with clear rules of the game: red means stop; yellow, caution; and green, go. But that’s not enough. Drivers must respect the traffic light for this institution to become a “good institution.”
Here’s the second example. To open a business, you need 20 permits (from the municipality, governor’s office, ministries, someone’s grandmother). This tells us there’s institutionalism—but a very poor one. Such a burden means that few comply, and almost everyone ends up in the bittersweet waters of informality.
From my perspective, Bolivia’s hydrocarbons sector has the right institutions: the Ministry of Hydrocarbons, YPFB, and the ANH (National Hydrocarbons Agency). However, they must be improved. This improvement starts by insulating these institutions from political-party influence. How can we achieve that? I believe a good first step would be for the President of YPFB and the head of the ANH (Bolivia’s regulatory agency) to be appointed by a two-thirds majority in the Assembly. As long as the President of the Republic and/or the Ministry of Hydrocarbons continue to appoint—and, worse, replace—these authorities, these institutions (so dear to many) will remain subject to the whims of the President and the insatiable (and indifferent) appetite of civil society for money and jobs.
Just as the market vendor who wants to open a coffee stall must “pilgrimage” through countless institutions to obtain the necessary permits, companies (national or international) must also navigate a labyrinth to secure exploration permits for hydrocarbons or build a service station—often relying on “contacts,” which do so much harm to our beloved sector. Yes, I’m talking about those “contacts” who arrange meetings with many authorities to kickstart an investment. Wouldn’t you prefer a Bolivia with clear, transparent rules of the game that everyone follows, where such “contacts” aren’t needed to invest in a company? If your answer is yes, then you and I are on the same team because we both believe our country needs good institutions that are also respected.
As I’ve mentioned in many other writings, the performance of YPFB, the ANH, and the Ministry of Hydrocarbons depends largely on how we—as civil society, represented in the Assembly—treat these institutions. As long as we see them as the state’s “petty cash” or a source of employment, little will change.
Someone might say to me (as they already have):
“But Mauri” (that’s how we like to begin a phrase… always with a “but”), how can we not see YPFB this way if there’s no work out there?”
And they’re right. The private sector cannot currently absorb the workforce leaving the public sector, so we’ll need to support the private sector. Ironically, employment pressures on the state will decrease as the state collaborates with the private sector to move forward.
That “collaboration” could well come from institutional improvements: one-stop windows, fewer stamped documents, fewer photocopies of ID cards, a tax office staffed with well-paid employees, respect for the work of public officials, a labor law modeled on the labor agreements at the July 16th Fair… and though my Twitter friends may get upset, more education and fewer speed bumps.
If I haven’t yet convinced you of the importance of institutions, I invite you to conduct the following mental exercise: imagine that tomorrow you want to start a private venture. What’s the first thing that comes to mind? Exactly. We must eliminate that unease and change the exhaustion that just crossed your mind.
While we all await the arrival of Victoria—my lovely niece—I send you warm regards.
S. Mauricio Medinaceli M.
Half-locked down
La Paz, November 23, 2020
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