The Chávez Way
di Robert Skidelsky
da Project Syndacate
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.
