Keating: How to Become a Billionaire

December 12, 2018

by Maryann O. Keating, Ph.D.

A recent article in the New York Times reports that a former security guard in Venezuela became a billionaire even as his country crumbled. The amount of money involved is inconceivable to most of us, yet attainable given just two conditions. First, you must live in a country where government has control over international trade and foreign exchange. Second, you must be free of scruples in using your influence for personal gain.

Under some regimes, foreign currency earned abroad by exporters of coffee, petroleum, sugar, etc.. is remitted to the government. The government will then pay the exported an equivalent amount of local currency at the official exchange rate. For example, an exporter might receive five local units for every dollar earned abroad.

The government then allocates dollars earned by exporters to importers in need of foreign exchange. The right to buy foreign exchange is controlled. Different rates paid per unit of scarce foreign currency are justified on the basis of government priorities. For example, government agencies could be charged one unit of local currency per dollar, certain targeted industries three local units per dollar, and private individuals and remaining corporations five units per dollars.

When local demand for foreign currency exceeds the quantity available at the official rate of five units per dollar, an unofficial market in foreign currency is created. The price of a dollar in local currency escalates dramatically. Now, if you can use influence or bribes to be in the group that has the privilege of purchasing foreign currency at the official rate or less, it is conceivable to make a billion or more on the black market. This is particularly likely if other residents have lost confidence in the current regime. Or, like the Venezuelan billionaires described in the article, you might decide to reward yourself and your family by using your ill-gotten dollars to purchase condos, show horses, plus education and other services in the United States.

We are probably not surprised that corruption exits, but rather shocked by its extent and the misery inflicted on millions of persons in those countries experiencing food and medicine shortages. The lesson is to limit the potential for this type of corruption at home by limiting government’s role in markets.

Maryann O. Keating, Ph.D., a resident of South Bend and an adjunct scholar of the Indiana Policy Review Foundation, is co-author of “Microeconomics for Public Managers,” Wiley/Blackwell.



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