THE CAUSES AND EFFECTS OF HUMAN CAPITAL FLIGHT: THE CASE OF VENEZUELA AND FLORIDA By DAVID MICHAEL HARMEL A THESIS PRESENTED TO THE GRADUATE SCHOOL OF THE UNIVERSITY OF FLORIDA IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF ARTS UNIVERSITY OF FLORIDA 2010 1 © 2010 David Michael Harmel 2 To my mom, who instilled in me the values of honesty and perseverance and encouraged me to broaden my horizons; and to Liliana, who has inspired and supported me every step of the way. 3 ACKNOWLEDGMENTS Many thanks are due to my supervisory committee. I am especially thankful for the support of my committee chairman, Dr. Terry McCoy, who spent countless hours brainstorming, discussing ideas, and offering insight that enabled me to improve the quality of my work. I am also grateful for the wisdom and encouragement imparted by Dr. Efraín Barradas and Dr. Andy Naranjo. Lastly, I thank the interviewees for their willingness to discuss the issues that have polarized Venezuela over the course of the last eleven years. 4 TABLE OF CONTENTS page ACKNOWLEDGMENTS ...............................................................................................................4 LIST OF TABLES ...........................................................................................................................8 LIST OF FIGURES .........................................................................................................................9 LIST OF ABBREVIATIONS ........................................................................................................10 ABSTRACT ...................................................................................................................................12 CHAPTER 1 INTRODUCTION ..................................................................................................................13 Overview .................................................................................................................................13 Problem Statement ..................................................................................................................13 Review of the Literature .........................................................................................................14 Causes of a Human Capital Drain ...................................................................................14 Consequences of a Human Capital Drain ........................................................................18 The Entrepreneurial Effect of the Human Capital Drain .................................................23 Significance ............................................................................................................................25 Organization ...........................................................................................................................25 2 CHAVISMO AND ITS ANTECEDENTS .............................................................................27 Forty Years of Punto Fijo .......................................................................................................28 The Presidency of Rómulo Betancourt (1959-1964) .......................................................29 The Presidencies of Raúl Leoni (1964-1969) and Rafael Caldera (1969-1974) .............30 The First Term of Carlos Andrés Pérez (1974-1979) ......................................................31 The Presidencies of Luis Herrera Campíns (1979-1984) and Jaime Lusinchi (1984-1989)..................................................................................................................34 The Second Term of Carlos Andrés Pérez (1989-1993) .................................................37 The Second Term of Rafael Caldera (1994-1999) ..........................................................41 The 1998 Election ............................................................................................................43 The Chávez Era .......................................................................................................................44 Radicalization of the Chávez Regime .............................................................................47 The Events of April 2002 ................................................................................................48 Accusations of U.S. Involvement ....................................................................................50 Back at Home in Miraflores ............................................................................................51 3 THE BUSINESS ENVIRONMENT UNDER CHÁVEZ ......................................................54 Overview .................................................................................................................................54 Crime and Violence ................................................................................................................55 5 Steadily Increasing Crime Rates since 1999 ...................................................................56 Lack of Coexistence in a Polarized Society ....................................................................56 Effect on the Business Environment ...............................................................................58 Concentration of Power ..........................................................................................................60 Judicial Involvement in the 2002 and 2004 Crises ..........................................................60 The Implementation of the Organic Law ........................................................................61 Political Discrimination as Government Policy ..............................................................62 Silencing Critics ..............................................................................................................64 Effect on the Business Environment ...............................................................................67 Expropriations .........................................................................................................................68 Nationalization of Private Firms .....................................................................................68 Confiscation of Private Property .....................................................................................70 Effect on the Business Environment ...............................................................................71 Economic Policy .....................................................................................................................71 Reimplementation of Capital Controls ............................................................................73 Reintroduction of Tariffs and Import Quotas ..................................................................75 Choosing to Direct Government Spending Abroad .........................................................76 International Competitiveness ................................................................................................77 Summary .................................................................................................................................79 4 EMIGRATION OF THE VENEZUELAN BUSINESS COMMUNITY ..............................85 Venezuelans in Florida ...........................................................................................................87 Westonzuela and Doralzuela ...........................................................................................90 Return of the Golden Exiles? ..........................................................................................92 Case Study ..............................................................................................................................96 Evaluation of the Pre-Chávez Business Environment .....................................................98 Deterioration of the Business Environment ....................................................................99 The Decision to Emigrate ..............................................................................................101 Effects of Emigration on Venezuela ..............................................................................104 Experiences in Florida ...................................................................................................105 Predictions for the Future of Venezuela ........................................................................107 Summary ...............................................................................................................................108 5 CONCLUSION.....................................................................................................................114 Research Findings .................................................................................................................114 Pre-Chávez Business Environment ...............................................................................114 Emigration from Venezuela ..........................................................................................115 Significance ..........................................................................................................................116 Limitations and Topics for Future Research ........................................................................117 APPENDIX A INTERVIEW GUIDE 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