CARACAS, Friday October 26, 2007 | Update
For Hugo Chávez, the U.S. "empire" and the "consumerist values" are the two greatest enemies of his attempt to guide masses to the paradise of the 21st century Socialism. But the Venezuelan petro-state, fueled by record oil prices, has become the big threat.
Works by Terry Lynn Karl (The Paradox of Plenty), Michael Ross (Does oil hinder democracy?), Asdrúbal Baptista (El capitalismo rentístico), Jeffrey Sachs, and Andrew Warner (National resource abundance and economic growth) provide an insight of the impoverishing cycle where oil-producing countries use to get bogged down; and Venezuela is no exception.
When oil prices skyrocket, a huge amount of foreign exchange flows into oil-exporting countries; as a result, the currency value increases, imports become cheaper, and agriculture and manufacture lose competitiveness.
The result is an import boom and a loss of industrialization, thereby making it more difficult to achieve the goal of diversifying the economy and decreasing dependence on oil.
Between 2004-2007, Venezuelan imports increased by 188%, whereas industry and agriculture have grown much less than the other sectors.
Another constant is that the stream of petro-dollars makes state goals and size swell, resulting in higher public spending and triggering a number of different effects: the economy grows rapidly due to higher consumption, but the failure of production to keep pace with demand makes inflation grow.
Spending increase usually gets out of control and subsequently budget deficit and more debt come along.
From 2004 to June 2007, Venezuela's oil exports amounted to USD 166.62 billion; the number of ministries increased; the Government nationalized telecommunications and electric power companies (CANTV and Electricidad de Caracas, respectively), and the cable railway (Teleférico Ávila Mágica); public spending increased several times over and, according to the Central Bank, the public sector balance registered a USD 2,69 billion deficit in 2006.
At the same time, inflation in Venezuela, with a 15.3% increase over the last twelve months, is the highest in Latin America.
The political structure
Along with the economic issues, petro-states tend to generate a structure that undermines democracy development. The government is fairly autonomous, it does not need society to remain in power, thanks to the huge volume of revenues it receives, which gives rise to a power asymmetry that paves the way to authoritarianism. The Executive branch does not need to negotiate or listen.
There is also the so-called "spending effect." Oil revenues can be used to increase hand-outs and transfers, delay the establishment of independent groups, and thus quench democratizing pressures.
It is also worth mentioning that petro-states have resources available to expend in weapon purchase, domestic security, and repress all demands for political rights.
To the power it has thanks to the monopoly of the oil rent, the Venezuelan government has added the controls of prices, interest rates, and foreign exchange allotment, and the creation of groups that solely depend on the money flowing out from Miraflores.
The spider's web
The possibilities of implementing new policies in countries of this kind find a number of obstacles. Societies tend to organize themselves to have access to portions of this oil rent, through subsidies, cheap credits, contracts; and the links they have with the state lead them to enhance "petrolization" as a way to achieve their demands.
The experience speaks for itself. Between 1965 and 1998, per capita GDP dropped in OPEC countries by 1.3% on average, whereas it increased by 2.2% in other developing countries.
21st century Socialism should take note of this.
Translated by Alix Hernández
02:57 PM. HEAVY RAINS. Venezuelan Executive Vice-President Elias Jaua reported that the government is designing plans to support farmers, cattlemen and peasants of the state of Mérida who have been hit by heavy rains that have caused crop losses.