The Venezuelan Crisis and the Failure of Petro Populism

 Venezuelan protestor: “There is no food”

Venezuelan protestor: “There is no food”

    With the election of Hugo Chavez to the presidency of Venezuela in 1998, the country became the darling of the intellectual left. Chavez pledged to confront the country’s reactionary oligarchy and redistribute the bounty from the country’s petroleum wealth to eradicate poverty,  and deprivation. Until recently, supported by buoyant international petroleum prices, the “socialist” experiment seemed to work fairly well, although with intermittent and growing political tensions and increasing political polarization. Between 1999 and 2011, poverty and infant mortality rates declined. Today, however, the country faces a severe economic and humanitarian crisis involving inflation of over 700 percent, rising poverty, severe shortages in food and medical supplies, and burgeoning crime rates. Venezuela is now one of the world’s most violent countries.

    The Venezuelan crisis is not simply the consequence of the decline in petroleum prices, which dropped by more than 50 percent in 2014. Misguided government policies, corruption, growing authoritarianism, and an imprudent political strategy have been key ingredients in contributing to the severity of the crisis. However, these developments need to be understood within the context of Venezuela’s history--a history rife with long-standing dependence on petroleum wealth, political exclusion, and authoritarianism. These features were present long before Hugo Chavez appeared on the scene.  

Chavismo as Political Legacy

    In a panel on Venezuela, a decade ago, I can remember being a lone voice questioning the long-term efficacy of the economic model and the likely negative impact of a political strategy that appeared to be exacerbating political tensions. As a Mexico specialist, I was aware of the ways in which natural resource abundance can encourage the neglect of agriculture and other productive activities. As a Chile watcher, I found the strident rhetoric of the Chavez regime, which contributed to the alienation of the middle class, and to the anger of business elites, especially worrisome. In my mind, Chavismo raised the spectre of some form of right-wing anti-poor reversal of social achievements. Even worse, the growing political polarization bode poorly for the eventual emergence of some sort of society wide settlement on distributive justice. As I have argued elsewhere, such a consensus has been an essential ingredient in societies where improvements in social welfare have been sustained

    Political developments and economic policy under Chavez, however, in many ways followed an expected trajectory. Venezuela’s pacted democracy (1958-1998), known as the Punto Fijo, involved an agreement among the major political parties that they would alternate in power and divvy up government posts. Left parties and the Communist party were excluded. The system, which involved placation of the opposition through government spending, worked well until the drop in petroleum prices in the late 1970s. At this point, governments adopted austerity measures, slashed social programs, and began a concerted foray into privatization. As poverty and deprivation increased, support for the traditional political parties plummeted. Hugo Chavez and his Fifth Republic Movement would soon move into the breach, attacking the closed nature of the country’s “democracy” and the selfishness and corruption of its elites. Hugo Chavez was no supporter of Venezuelan “democracy”; he conspired to take power through military coup twice in 1992. However, neither were the country’s middle classes and business groups. In 2002, an attempted military coup briefly removed Chavez from power and, at the time, reinforced his standing as the only leader speaking for the lower classes, in the face of middle and upper class intransience.

    Once in power, Chavez moved to centralize power and control the opposition media. His supporters justified such measures and the use of inflammatory rhetoric as necessary to the popular mobilizational effort required to keep the forces of reaction at bay. In the end, the strategy proved to be a highly counterproductive; it caused fear and insecurity among a significant portion of the population (particularly the middle classes), who otherwise might be induced to support some redistributive measures. Chile learned this lesson with the 1973 military coup. While Chile’s current ruling left centre alliance has approached social reform slowly and carefully, and the regime has made (often criticized) accommodations with economic elites and neoliberal policies, the country’s sustained accomplishments in poverty and inequality reduction are indisputable.

Repeating the Past in Economic Policy

    The problematic nature of economic policies under Chavismo served to deepen the impact of the drop in petroleum prices, a drop that made it increasingly difficult to import much needed food and other essential items. In general terms, however, these policies were extensions (albeit in exaggerated form) of what had gone on prior to the debt crisis of the early 1980s. Revenues from petroleum were used for subsidies and social programs—Chavez added exchange rate and price controls, and expropriations of many private companies. However, what no government ever did was attempt to use petroleum wealth to build domestic productive capacity. The failure to do so left the country extremely vulnerable when petroleum prices fell. Venezuela has long been dependent on petroleum and the decline of agriculture and manufacture was a feature of Venezuelan development long before Chavez was on the scene. By the first half of the twentieth century, petroleum already accounted for 70 to 80 percent of the country’s export earnings. Historically, Venezuela always found it much easier to depend on petroleum-led growth rather than to use that wealth to sustain and develop other economic activities. The challenges in doing so are, admittedly, difficult ones; they are political as well as economic, but they are not insurmountable. Despite a corrupt and authoritarian leadership at the time, for example, the government of Indonesia’s Suharto used petroleum revenues to improve rural productivity, reduce poverty, and make the country self-sufficient in rice production by the mid-1980s. 

    Without a strategy to diversify the economy, to encourage employment-generating private investment that could take over once the petroleum boom slowed or reversed, high levels of social spending were not sustainable. A diversified investment program can also contribute to an increase in middle class support (assuming a reduced level of inflammatory rhetoric). My research has shown that middle classes, although relatively small in size in Latin America and in the Global South more generally, are very important politically. They are more likely to support redistributive initiatives if their economic opportunities are expanding and they feel secure in their middle class status.

    Latin America’s historically high levels of inequality, its long history of exclusionary politics, and the extreme levels of power inequalities, despite the trappings of electoral democracy, mean that redistributive programs have to be accompanied by carefully thought-out productive development strategies that provide society wide opportunities. Such an economic development strategy also requires cautious rhetoric, which, while appealing to the aspirations of the lower socio-economic groups,  encourages middle class support and maintains the quiescence, if not the active support, of powerful economic interests.