Populists have always had a niche in politics, but that space has expanded considerably in recent years, and it is easy to understand why. A decade ago, weird financial instruments created by highly qualified bankers brought the financial system to its knees, while ratings agencies and regulators saw no disaster coming or looked the other way. The 2008 meltdown exposed the danger of depending on entrenched elites in business, government and academia, but 10 years later, we face its antithesis: the threat posed by populist leaders with no respect for expertise and professionalism.
Venezuela, in the news for its descent from affluent nation to economic basket case, is suffering the worst consequences of this approach. The Venezuelan catastrophe was set in motion by its late President Hugo Chavez, and should serve as a warning about two equally megalomaniacal leaders, Donald Trump and Narendra Modi, who have also triggered crises by refusing the counsel of experts.
The rise and fall of Venezuela
Venezuela, like many oil-rich countries, was over-dependent on the commodity and did not use it adequately to better the lot of the poor. When Hugo Chavez was elected on a socialist platform, there was hope he would put in place a more equitable order. He proceeded to do exactly that, and the massive decline in extreme poverty engendered by his welfare measures made him tremendously popular not only with low-income Venezuelans but also left-wing intellectuals like Noam Chomsky, Arundhati Roy and Slavoj Žižek. Sadly, Chavez’s reform of his country’s oil industry was a time bomb that has now blown up the economy, severely hurting most severely those at the bottom of the ladder.
Venezuela’s oil industry was nationalised during the boom in prices in the 1970s. Two decades later, enormous new deposits of petroleum were discovered in the Orinoco Belt, but these were difficult to extract and required massive capital investment. The Venezuelan government invited multinationals that had expertise in tapping such reserves to start drilling for oil, side by side with its own well-respected state-owned oil company, Petróleos de Venezuela SA, or PDVSA. Soon after coming to power, Chavez removed top executives in PDVSA and replaced them with his cronies. This triggered a strike by managers and workers, and hundreds more sackings. The multinationals, which had kept drilling through the strike, were hit with demands for greater royalties, which eventually drove Exxon and Conoco out of the country. The few experts left at PDVSA urged Chavez to reinvest some oil profits because wells run dry quickly and equipment needs continual upgrades, but he spent the surplus entirely on welfare programmes.
Of all degrees available to students, Petroleum Engineering offers the best financial prospects. Of all blue-collar jobs in the world, working on an oil rig is among the highest paid. When Venezuelan oil production began to drop after years of insufficient investment, it squeezed salaries, and the best managers and highly skilled workers left the country for more lucrative markets. This hit production further, in a vicious cycle that pushed the country deep into recession, where it has remained for three years. Chavez’s successor, Nicolás Maduro, has stayed the disastrous course, and so we witness the shocking sight of a country with the largest proven deposits of petroleum in the world, operating in a peaceful, sanctions-free environment, having to import oil in order to fulfil contracts for delivery.
The Trump case
Donald Trump’s dismissal of expertise (“I know more about renewables than any human being on Earth”, “I know more about ISIS than the generals do” and so on) works in the opposite direction from Chavez’s. It is a distrust of government rather than of business. The degree to which this might harm the country and world is the subject of Michael Lewis’s latest book, The Fifth Risk. Lewis makes a deeply-felt case for the positive contribution of the American federal government and the dedication of many of its employees against the backdrop of a decades-long misinformation campaign by free-market advocates. Americans only hear about government agencies when they fail at something, and tend to ignore all the good and necessary work they do. In fact, few Americans even know the scope of agencies like the Department of Commerce (it collects enormous amounts of data, mainly centred around weather prediction, and has no direct links with the private sector).
Lewis investigates two agencies aside from Commerce, the Department of Energy and the Department of Agriculture, and finds all three weakened by the Trump administration’s disregard for their critical functions. The Department of Energy, for example, maintains and guards the nuclear arsenal, tracks weapons grade plutonium around the world to ensure it does not go missing and fall into the hands of terrorists, runs 17 national laboratories integral to the most important research in physics, and sponsors early stage innovation in technology whose gestation period is too long to be considered feasible by private industry. Every other terrorist or disaster plot in Hollywood movies connects with one of the three departments Lewis covers, and the only reason these plots have stayed fictional is because the agencies do their job very well.
The Obama administration prepared a comprehensive handover plan for the incoming government in 2016, but Trump’s appointees never bothered with the binders full of briefings prepared for them. Lewis, who read some of that preparatory material as part of his research, was the first person to do so. The day after his election victory, Trump fired his transition team, built to manage the complex handover of a federal administration with two million employees managed by 4,000 political appointees. On taking office, he fired all political appointees without bothering to replace them, while his predecessors had held on to many agency heads pending confirmations of new ones, and even rehired many, since the work they did was essentially non-ideological.
Under Obama, the Department of Energy had been helmed by the Nobel Prize-winning physicist Steven Chu, followed by the former head of the Massachusetts Institute of Technology’s Department of Physics, Ernest Moniz. Under Trump, it is led by the former Texas Governor Rick Perry, who once said the department ought to be eliminated. Trump appointed to well-paid jobs at the Agriculture Department headquarters a long-haul truck driver, a country club cabana attendant and the owner of a scented-candle company, all of whom had played an active role in his campaign.
The Fifth Risk is full of jaw-dropping revelations about the profound ignorance of Trump and his close associates about how the US government works, and their lack of interest in finding out. The risk in the title refers to all that might go wrong thanks to the cracks caused to essential services by understaffing, budget cuts, and the incompetence of new department heads. The Hugo Chavez catastrophe took a long time to materialise, and we cannot predict what price Trump’s misgovernance will exact, or when its worst effects will be felt, but at the end of Lewis’s book one is left in no doubt that a price will be paid and it will be heavy.
The Modi case
If the Chavez case is about the peril of disregarding business expertise, the Trump case about the risk in disregarding government expertise, the Modi case is about the danger of disregarding academic expertise. It was apparent early in Modi’s reign that his administration had little respect for academic institutions. His party valorises myth over history, and quack remedies over evidence-based medicine. His great contribution to the annals of populist disasters, however, came in the field of economics, with the announcement of demonetisation. He thought, or claimed he believed, that he could slay the shadow economy with this one magic bullet. The experts he consulted, including Raghuram Rajan, the head of the Reserve Bank of India at that time, cautioned him against the radical step. In Rajan’s words, “Any macro-economist would say that if 87.5% of the currency is being demonetised, then it better be made sure that a similar amount of currency is printed and ready to be put back in circulation.” But Modi thought he knew better than any macro-economist, and the nation suffered the consequence of his hubris.
One by one, pillars of the edifice built to defend demonetisation have been knocked down. Black money did not come close to being eliminated. Protests in Kashmir did not die down. The production of counterfeits did not slow. The prediction that much of the currency in public hands would not return to banks proved incorrect. India did not graduate to becoming a cashless economy or anything approximating it. The supply of currency notes has returned to its previous level.
The final claim demonetisation supporters made was that the returned money would be tracked, which would nail those who had made enormous deposits. That final pillar has fallen with the news that tax notices sent to such depositors have produced negligible revenue.
The silver bullet of demonetisation yielded immediate political results in the Uttar Pradesh election of early 2017, which many saw as a vindication of his policy. However, the damage done to supply chains, to the rural economy, and to the jobs market, impossible to quantify and ramifying in complex ways, affected the mood of the nation in the medium term. If Modi’s party now seems very unlikely to approach its 2014 performance in the upcoming Lok Sabha election, a large share of the blame must be borne by the foolish currency swap incited by his disdain for expertise.