Tuesday, September 16, 2014
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The Chávez Way

LONDON – I remember the exact date of my visit to Venezuela. I was sunbathing by the pool on the roof of the Caracas Hilton. A waiter came up to me and mumbled something about a bomb attack in New York. I rushed to my room and saw the news footage, endlessly replayed, of two airplanes crashing into the World Trade Center.

I was in Venezuela on September 11, 2001, to attend a conference on the “Third Way.” Hugo Chávez was very interested in the Third Way – a modus vivendi between American-style capitalism and state socialism – as had been Tony Blair a few years earlier. Chávez himself, dressed in fatigues, briefly graced the meeting with his presence, receiving a heavy volume of Marxist texts from an elderly professor.

A day earlier, I had had lunch at the Venezuelan central bank, sitting next to the deputy governor, Gastón Parra Luzardo. He told me that all Venezuelans believed that they had been born with a “loaf under their arm” – that is, a right to a share in the country’s oil revenues. As a result, no one worked hard. An economist, Orlando Ochoa, explained that rent-seeking dominated the Venezuelan economy. Oligarchs fight to keep control over the oil revenues, populists promise to redistribute them, and both groups steal as much as they can for themselves. No one is interested in creating wealth.

“No one,” I wrote in my diary, “believes that Chávez will last his full term. They see him as a damaging buffoon, rather than as a dangerous revolutionary.” In fact, a coup against him was attempted a year later. He survived it, and went on to win a second, a third, and then a fourth term.

The debate over Chávez’s political legacy is a posthumous re-enactment of the ideological battles that were fought while he was alive. The battle for his economic legacy is more straightforward: it comes down to how he managed Venezuela’s oil wealth.

Venezuela has the largest oil reserves in the world, and Chávez’s economic strategy depended on harnessing that wealth in order to address his country’s social problems. The first few years of his rule were dominated by his struggle to gain control of the country’s state-owned oil company, PDVSA.

Upon reasserting political control in 2003, Chávez fired 40% of PDVSA’s staff. His hostility to foreign players in the industry (he expropriated several American oil companies’ holdings in 2007) limited investment and held back production. Chávez turned PDVSA into a personal fiefdom and used it as a cash cow; many of his social programs were funded directly from the company’s budget.

Starved of cash, PDVSA was forced to cut back on maintenance and expansion, which increased the number of accidents and limited production. Thanks partly to Chávez’s policies, Venezuela is still a small player in the global oil market, with less than a 3% share of world production. It is therefore vulnerable to price fluctuations, and has to follow the lead of Saudi Arabia and other big OPEC producers.

Though Venezuela’s non-oil sector has been growing, oil still provides the vast majority of its dollar earnings. For the past decade, booming oil prices have spurred economic expansion, with only a short break following the financial crisis of 2008. Yet stumbling oil-export performance and a sharp rise in infrastructure-related imports, combined with an explosive growth in public spending, have fueled consistently high levels of inflation, with the annual rate now at more than 20%.

This has put immense pressure on Venezuela’s dollar-pegged currency, the bolívar. In early 2013, the government was forced to announce a 32% devaluation, and stopped issuing government debt in dollars. The issuance of dollar bonds was a major source of abuse, with speculators buying dollar debt at the official exchange rate, selling it for greenbacks, and then exchanging them for bolivars at a much higher rate on the black market.

With limited access to global capital markets, Chávez turned to China for loans, backed by sales contracts for oil. Loans from the China Development Bank carry higher interest rates than the West’s traditional lending mechanisms, but they also come with fewer restrictions on policy, and allowed Venezuela to escape the worst of the bondholders’ wrath – at least so far.

Where has the oil wealth gone? Chávez’s social programs were the biggest beneficiaries. He used to go around the villages writing checks to poor farmers. The most reliable data suggest that he was successful at reducing inequality; during his rule, Venezuela’s Gini coefficient, a 100-point scale measuring income inequality, fell from 50 to 39, the biggest decline in Latin America. Poverty was cut in half – from 50% to around 25% of the population, while extreme poverty fell by two-thirds.

One can hardly say that every céntimo was well spent. Cronyism was rife and the murder rate tripled, partly owing to corruption in the police and the justice system. Chávez’s petro-diplomacy sometimes took bizarre forms, like providing cheap bus travel for Londoners to please London’s left-wing mayor, Ken Livingstone.

Despite his extravagancies and authoritarian style, the masses loved him. They fervently believed that he was on their side, and voted overwhelmingly for him up to the end, even when they knew that he was dying of cancer. He is sure to enter the pantheon of Latin American heroes.

And what about the Third Way? In the aftermath of the collapse of communism, Chávez’s mix of anti-Americanism and state activism seemed merely eccentric. There could be no alternative to free markets and the neoliberal Washington Consensus – or so it appeared.

But the rise of China, the relative decline of the United States, the long boom in commodity prices, and the Western financial collapse of 2008 have created space for political and economic experiments. Chávez took advantage of that opening, and Chávezism may well prove to be a significant phenomenon far beyond its Latin American homeland.

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  1. CommentedHermann Alvino

    ..."writing checks to poor farmers" is not exactly a valid way to govern, and indeed this Chavez's insanity has produced a chronic 30% deficit in food that has to be imported if venezuelans want to have a complete meal every day...more or less; a fact that logically called for a terrible inflation, now also chronic, that contradicts all the praising analysts regarding Chavez as poors' champion. The real truth is that Chavez just wrote checks but he never promoted the conditions to produce employment and to train people for new kinds of jobs; the consequence is clear: nowdays we have millions of venezuelans that depends of checks written by the regime. Just like that, and this is a reality that methodologies such as Gini cannot detect, and so giving a benevolent distorted picture of the disgrace of having someone as Chavez admnistering a complez society.
    Yes, a large mass loves him, but the same kind of masses also loved Hitler or Stalin, Kim and Mussolini, and we all know how it ended. In this case the war is internal, in a country that jumped to the fifth place in the global scale of crime rate, and to place 165th of 176 regarding the corruption perceived index. New rich elites emerged from this deeply corrupted regime, people who stays in power not exactly helping poor masses.
    If these disgraces are not enough we may add the drug commerce, having Venezuela as a main distribution node as a consequence of Chavez's association with colombian "narcoguerilla" with high rank venezuelan army personnel providing the local logistics, plus the dangerous friends of Chavez such as Iran and Siria regimes, having Venezuela now in the war map, not as a freedom defendant but as enemy of West democratic values.
    ¿Not enough? well, Chávez insanity has transformed Venezuela from a proud country due Bolivar's efforts to free 5 nations from spanish colonialism to a Cuban colony, with around 60000 civil and military personnel that now control the main decision nodes in venezuelan government.
    The country is ruined, it will take generations to fix it. That is the real Chavez's legacy, and we don't need a hundred years to evaluate this period, because the keys indexes whose methodology and meaning are recognized by all international organizations to evaluate countries are there to shut up the manipulators and the european leftist, that permanently praise the regime but never would live in a country like that.

  2. Commentedsrinivasan gopalan

    Prof.Skidelsky has delved deep into unraveling the mystery shrouding the charismatic Chavez. But his summation that Chavez legacy would go beyond the borders of Venezuela is not a fair assessment as the erudite professor has also fallen prey to the panegyrics of other fringe elements that had been applauding the Venezuelan leader. The world is today no longer faced with the twin options of capitalism and communism since both the systems had collapsed unceremoniously under the upshot of their inherent contradictions. Most of the countries including China had been successful in marrying the virtues of both though lack of political freedom in the Middle Kingdom is bound to trigger problems before long. One can be sure about the success of any ideology as long as it helps in unleashing the productive potentials of the stakeholders without unduly limiting their fundamental rights to expression and movement as agents of the real sectors of the economy. With information technology simplifying the way people live today, expectations and aspirations have soared among people . Hence, extant and future generation would surely countenance only such progressive policies that enable them lead a decent life with no societal discomfort in the form of violence and crime. As long as the government of the day is able to manage these fundamental expectations, its survival and triumph would be assured. One need not draw a wrong lesson from the apparent success of a hero just because he cocked a snook at the United States or trampled the democratic rights of his own denizens. Life is bigger than political heavyweights who eventually end up merely as a flash in the pan. G.Srinivasan, Journalist, New Delhi, Inde

  3. CommentedAndrea Luna

    Excelente artículo sobre el Chavismo por el Profesor Galiani acá:
    http://focoeconomico.org/2010/11/07/chavez-y-la-izquierda-latinoamericana/#comment-6017

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