Rio de Janeiro and Venezuela

The crisis in the Rio de Janeiro State seems to share a common dynamics with the trajectory of Venezuela’s crisis.This is how it plays out. The slow deterioration of social tissue, manifested in increase in crime, decrease of social trust, failing institutions and other social illnesses, progressively causes the flight of entrepreneurs, firms and a sizable share of the middle class. The drivers of economic development, in particular high quality human capital, start to become absent. Taxation base becomes more and more fragile. First, Venezuela witnessed large waves of its middle class leaving the country to live in Miami. Then, years later, when, as part of the ongoing dynamics, the institutions fell apart and the social tissue became irremediably compromised, a “death spiral” was ignited and even poor Venezuelans, hit by despair, started to go to neighboring countries. It will take decades to heal the scars in the social tissue and rebuild the country’s institutions and its economy. If ever. I hope Rio avoids the same fate. The causes of the problems are different, but the dynamics in place may be very similar.