CHAPTER III

~~ ECONOMIC DEVELOPMENT STRATEGY: POLICIES ~~

~~ AND PROGRAMMES ~~

As has been discussed in the previous chapters, political and social problems were

avoided during the economic boom in the 1970s but as economic crisis struck

Venezuela; all the social, political and economic problems could no more be denied or

avoided; and it paved the way for the new actors to play roles at different levels.

Carlos Andres Perez's re-election and his neo-liberal reforms in the form of Structural

Adjustment Programmes (SAPs) could not handle Venezuela's economic crisis rather

his austerity measures intensified the protests against the Punto Fijo regime. All this

dented the image of Venezuela as being a successful governing system. Subsequent

government of President Rafael Caldera promised a different economic programme

but failed to present a sustainable economic programme. In the end, Caldera's

economic reform package was no different from that of Perez. With elites having lost

their seeming invincibility and the regime at its extreme unpopularity, the distraught

Venezuelans opted for another promising candidate, the former coup leader Hugo

Chavez. He also came to office with a bag full of promises. But political reforms took

priority over economic reforms during first year of his administration because

political reforms were considered prerequisite for the economic reforms. He

concentrated on his economic agenda only after the implementation of 1999

Constitution. The Second Chapter has presented a detailt!d description of the

philosophical and ideological roots of the 1999 Constitution; and the path of

constitutionalism to entrench the Bolivarian revolution and usher in the '21 st century

socialism.' The Chapter has argued that the recourse to constitutionalism did not stop

with the promulgation of new Constitution, rather the process continued over the

years, 2007-09.

The present Chapter examines the economic policies and programmes of Chavez; for

it is through the change in economic structures that '21 st century socialism' is being

built. What are the economic strategies, ideas and goals of the Bolivarian Revolution?

The first Section deals with the nature and contents of economic policies and seeks to

answer, how and why these policies were formulated in Venezuela under Chavez. In

other words, the Section examines the economic orientation of the Bolivarian regime.

The second Section then goes into the varying types and degree of nationalisation

schemes, and the place of nationalisation per se in building the Bolivarian economy or

the '21 st century socialism.' The third Section discusses and explains the significance

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of oil industry in Venezuelan economy. It also analyses government's approach to

nationalise the oil industry and balance the private sector participation in the oil

sector. The fourth Section goes into discussing the land and agrarian reforms

including grant of property titles to the urban poor. In the backdrop of the discussion,

the final Section evaluates the economic performance of the regime in the last ten

years.

Bolivarian Revolutionary Model of Economic Development

Article 299 of the 1999 Constitution lays down the principles as well as the aims and

objectives of the Bolivarian revolutionary model of economic development. It reads:

The economic regime of the Bolivarian Republic of Venezuela is based on the principles of social justice, democratisation, efficiency, free competition, protection of environment, productivity and solidarity ... The state, jointly with private initiative, shall promote the harmonious development of the national economy, to the end of the generating sources of employment, a high rate of domestic value, raising the standard of living of population and strengthen the economical sovereignty of the country, guaranteeing the reliability of the law; the solid, dynamic, sustainable, continuing and equitable growth of the economy to ensure a just distribution of wealth through participatory democratic strategic planning with open consultation.

The economic crisis of 1983 and neo-liberal policies of Perez government, adopted in

1989, had resulted in the popular mobilisation against the Pun to Fijo regime and its

system of 'two-party' dominance. As discussed in Chapter I, ordinary Venezuelans

experienced a sudden and profound deterioration in their living standards with

government showing complete indifference and apathy as to the impact of the various

economic austerity measures on the population in general. The two main political

parties were no longer considered as interested or capable of representing the interest

of people. Working class from the industrial and agrarian sectors, historically

organised and bound to AD, lost their faith in the party. The unions belonging to AD­

affiliated Confederacion de Trabajadores de Venezuela (CTV) or Confederation of

Venezuelan Workers, were not effective at articulating the political goals or

representing the interests of their workers. One report of International Labour

Organisation (ILO) shows that unionisation of the workers declined on the whole; and

the proportion of the work-force still affiliated to the established trade unions declined

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by nearly half during the period of economic adjustment-the figures show a decline

from 26.4 per cent in 1988 to 13.5 per cent 1995 (ILO 1997: 235). The problem was

not simply that CTV lost its credibility and ability to organise the working class into

unions affiliated to the AD, the real change and challenge came in the form of

independent unions in the southern industrial state of Bolivar with political ties to

rising leftist party La Causa Radical (LCR). The loss of corporatist control

mechanism was a significant development as new unions came to be formed

independent of the regime control. This 'new unionism'-which gained control of

Venezuela's largest union, that of the steel workers in 1987-became sharply critical

ofneo-liberal reforms and the political quiescence of the CTV (Roberts 2003: 61). As

the corporatist control device, CTV offered only a weak criticism of the SAPs

introduced by Perez government and remained largely a tool of the AD to keep labour

in line with regime policies. Its hold over the workers declined sharply as 'new

unionism' pioneered by LCR swept large unions into the opposition ranks.}

Thus, the combination of social polarisation and political detachment proved to be

highly combustible after caracazo, as Venezuelans turned against the political

establishment and threw their support behind a series of independent leaders and

protest movements like LCR. It is true that domestic business, who thrived on the

sheltered domestic market for decades, also opposed the neo-liberal policies of Perez;

however, on the whole, structural adjustment programmes were received more

favourably by the upper and middle classes than the working and poor classes who

were hard hit by governmental measures. All this accentuated the class cleavage

which had remained somewhat hidden during the Punto Fijo regime. Class cleavages

came out into the open during the 1993 presidential elections and hardened in late

1990s. By the 1990s Venezuelans of all social strata were abandoning both the

traditional political parties which had alternated in power since 1958 in a kind of

'power-sharing' arrangement. Organisations like LCR argued that the wealthy had

become prosperous at the cost of the poor and this became the chord among those

who saw themselves as bearing the cost of corruption and neo-liberal reforms. One

survey discovered that 51.5 per cent of the upper class respondents favoured the neo­

liberal reforms, while 31.7 per cent preferred to return to the old order. On the other

I New workers emerged due to the economic crisis of the 1980s.

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hand among lower class respondents, an average of only 23.8 per cent supported the

new model in the hope of a better tomorrow while 55.1 per cent had a preference for

the previous economic model of the 1970s (Roberts 2003: 63-64). One of the main

sore points was the elimination of state support mechanism including subsidy for the

poor and indigent.

Rafael Caldera became president of Venezuela in 1993. He had also promised to

never return to the policy proposals of World Bank and International Monetary Fund

(JMF). But his governments' first economic policy, known as the Sosa Plan, was a

mixture of spending cuts and tax increases. Another problem Caldera government had

to face was the banking crisis that occurred in 1994. The crisis was the product of the

inadequate regulation and corruption because the government spending was 12 per

cent of GDP in 1994. The banking sector crisis triggered massive capital flight. In an

attempt to shore up international reserves the currency was devaluated; consequently,

inflation increased up to 70.8 per cent in 1994 (Buxton 2003: 120). The increased

inflation intensified the annoyance of the common Venezuelans. Buxton discovers

that by the end of 1994, official unemployment had risen to 8.5 per cent and,

according to a congressional report published in that year, 79 per cent families were

poor, with one in every three families living in conditions of critical poverty. With the

government incapable of maintaining investment ratio, the public infrastructure was

increasingly subject to blackouts and shortages. Devoid of alternatives, Caldera

announced an adjustment programme backed by a US $ 1.4 billion stand-by loan from

the IMF in 1995. Subsequently, 'Venezuela Agenda' was implemented in 1996 which

led to the removal of the price and exchange controls imposed in 1994. The national

currency 'Bolivar' floated freely before a system of exchange rates bands was

introduced. The 'Bolivar' fell to 290 to one dollar, while the lifting of price controls

led to a further surge in inflation, which reached a record 103.2 per cent in 1996. The

poverty afflicted 86 per cent of the population; and of all the poor, some 65 per cent

found themselves living in critical poverty (Buxton 2003: 121).

The economic hardship had a disarticulating effect on the society besides eroding

whatever the legitimacy, political institutions had. Protest against the Caldera

government accelerated, and the opponents including Chavez viewed structural

adjustment policies as an act of betrayal of the working class. Caldera and the private

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sector failed to deliver the accumulated benefits promised in exchange for

modification of legislation. All this compounded perceptions that the government was

incapable of handling the economy.

The political establishment suffered an awakening in 1997 and 1998 when Chavez

and other Bolivarians emerged with the promise of strong leadership, radical political

change and an economic 'third way' or an alternative to neo-liberalism. What

constitutes a real alternative to neo-liberalism? Chavez describes neo-liberal policies

as the 'savage neo-liberalism'. Michael A. Lebowitz answers that it is a society in

which the explicit goal is not the growth of capital or of the material means of

production but, rather, human development itself-the growth of human capacities

(Lebowitz 2007: 40). The similar goal has been determined in Article 299 of the 1999

Constitution, which emphasises the 'overall human development.' A similar

perspective is embodied in Article 112 which reads:

All persons may devote themselves freely to the economic activity of their choice, subject only to the limitations provided for in this Constitution and those established by law for reasons of human development, security, health, environmental protection or other reasons in the social interest. The State shall promote private initiative, guaranteeing the creation and fair distribution of wealth, as well as the production of goods and services that meet the needs of the populace, freedom of work, enterprise, commerce, industry, without prejudice to the power of the State to promulgate measures to plan, rationalize and regulate the economy and promote the overall development of the country.

In this way 1999 Constitution seems to announce the economic agenda of the

Bolivarian revolution as an alternative to neo-liberal ideas and strategies of

development.

In his 'Economic Programme of Bolivarian Revolution' Chavez also presents a

viewpoint which is an alternative to neo-liberalism. His government aims at

establishing a "humanist self-managing economy" through promotion of cooperatives,

family businesses and, in general, small and medium-sized firms as part of an effort to

encourage "solidarity." Nationalisation of key industries, land reform and oil industry

reforms are considered main goals and strategies of economic development. Hugo

Chavez once told Marta Hamecker that he was always in favour of a legal political

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transformation, which would later enable a calm 'economic transformation'

(Hamecker 2005: 107-08).

During his presidential campaign in 1998, Chavez and MBR-200, in response to

Caldera's pro-neoliberal "Agenda Venezuela," published an "Agenda Altemativa

Bolivariana." Chavez, with the help of Central University Rector Simon Munoz, went

to court to question the legality of the oil industry, being in the hand of foreign

capital. Although, he subsequently accepted the selective privatisation, he continued

to speak out against neo-liberalism both at home and abroad (Ellner 2001: 19).

As president, Chavez declared that he would reverse the trend of turning over

increasing control of health, education and petroleum sectors to private interests. Soon

after assuming office, his administration suspended the privatisation of the health

system and limited the profits of the private firms that administered the recently

privati sed system of pension funds. In addition, the newly proclaimed Constitution

specifically prohibited the sale of stocks in the state petroleum company. As

president, he did not push privatisation as a priority item as the neo-liberals had

prescribed; and thus, there were no breakthroughs on privatisation front in 1999 and

2000.

In the first two years after his 1998 electoral victory, Chavez however did open the

opportunities for small scale investors in the aluminium industry. This strategy of the

administration differed from the previous Caldera regime which had sold off the

nation's steel plants to a single foreign-dominated consortium to maximise

government revenues. The Chavez government also regulated privati sed operations in

accordance with public and national interests.

When Hugo Chavez took office in 1998, his first economic act was to go to OPEC

and advocate higher oil prices and reworking of oil production quotas. His efforts

brought nearly immediate results, when the price of oil rose, for the first time since

1985, over to US $27 per barrel in the year of2000 (Wilpert 2003). Throughout these

two years, the Chavez government consolidated the accumulation of international

reserves while avoiding a sharp increase in exchange rate, limiting annual inflation to

20 per cent and deriving down interest rates (Ellner 2001: 20). His position and

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policies disregarded the traditional left's advocacy of state takeover of all 'strategic'

sectors; but insisted that the state retains a dominant position in oil, education and

health. His government adopted some privatisation measures but with terms and

conditions forcing investors to comply with established national goals. These policies

created a confrontation between MVR and its coalition partner Patria para Todo

(PPT-Fatherland for All). The PPT was of the view that the oil money must be

injected into the economy and the allocations should be increased at the state level to

promote decentralisation.

In the first two years, economic thinking and policy formulation was becoming

gradually clear and meaningful. In this context the National Economic Development

Plan (2001-2007) was developed to strategically guide the country's economic

development. A team, including state governors and directed by Chavez's economic

advisor James Giordani, was formed to develop the Plan. After the cabinet approved

it, it was sent to the National Assembly for approval as per the constitutional

requirement. There it was debated for several months before National Assembly

finally approved it (Harnecker 2005: 114). The Plan was developed to diversify the

economy, to achieve economic balance and moving away from the overwhelming

reliance upon oil and propelling the development of sectors such as agriculture and

industry to serve both local and international markets. The Plan proposed that all this

be achieved by relying upon private initiative and investment, with the presence of the

state in the key industries.

The economic rationale differed from the neo-liberal model. The Plan rejected the

neo-liberal belief in the market, rejected privatisation of oil and other key industries

and was determined to use the state presence actively to promote economic

development and well-being of the populace in general. But significantly, the Plan did

not announce the rejection of capitalism; private capital was very strong in the oil­

dominated economy and, anyway, the '21 st century socialism' did not reject a role for

private business in the economy. The Plan conceived the role for the self-managing

and cooperative activities, by which the "complete development, both individual and

collective", of the people would be achieved. Self management or 'democratic

management' has been described as the "workplace democracy" by Camila Pineiro

Harnecker. The writer describes that the workplace democracy-the model of

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democratic management of enterprises by the workers-allows individuals in each

working community to engage in the practice of democratic participation during

production, and is therefore central to the model of human development

(Harnecker 2007: 27). State presence in strategic industries is perceived as the step for

the development of a 'social economy', which is conceived as an alternative to neo­

liberalism and as a complementary road to the private sector and the public sector.

Essentially, this was a programme to incorporate the informal sector into the social

economy. It is necessary, the Plan argu~d, "to transform the informal workers into

small managers". Accordingly, family, cooperatives and self-managed micro­

enterprises were to be encouraged through training and micro-financing and by

reducing regulations and tax burdens.2 The goal of these various initiatives has been

creation of a managerial class among the workers ,and the poor (Lebowitz 2007: 42).

(i) Role of the Cooperatives

The number of co-managed and especially self-managed enterprises such as

cooperatives in Venezuela has increased significantly under various government

initiatives since the promUlgation of National Economic Development Plan. They

have become the key actors in the transformation of Venezuelan economy into a

social economy.

The role of these..cooperatives is assessed below:

(a) According to Superintendencia Nacional de Cooperativas-SUNACOOP or

National Superintendence of Cooperatives, there were 877 cooperatives in existence

in 1998, but by September 2006 there were 158,917 cooperatives registered, involving

more than 1.5 million Venezuelans or 12 per cent of the labour force. Of the total

number of cooperatives nation-wide, more than 60 per cent were in services and

around 30 per cent in production (Harnecker 2007: 28).

2 The conduction of the training and the financing is done with the help of the institutions such as the Women's Development Bank.

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(b) The huge increase in the numbers.of cooperatives could become possible with the

enactment of September 2001 'Special Law of Cooperative Associations', facilitating

the creation of new cooperatives, emphasising the obligation of the state to protect

them, and extending their tax-exempt status. But growth in the number of

cooperatives accelerated in 2003 primarily as the result of direct promotion by state

agencies, and the implementation of training and employment programmes. Vuelvan

Caras3-an employment mission-also played an important role in the rise of the

numbers of cooperatives; 15000 cooperatives were created during 2004-2006 under

the promotional Vuelvan Caras programme. Vuelvan Caras not only offers credit but

also puts emphasis on preparing people for the new relations of the production by

giving classes in cooperation and self-management. More recently there has been a

move towards creating social production companies which are guided not by the logic

of the capital but by a humanist, solidarity based logic (Harnecker 2007: 145). And

there have been attempts to implement self-management in some strategic state

companies as well.

(c) To prepare workers in cooperatives to collectively run business, the Ministry of

Popular Economy (MINEP) has announced small scholarships for training in

cooperativism, production and accounting. Since mid-2003, MINEP has provided free

business and self-management training, helped workers tum troubled conventional

enterprises into cooperatives, and extended credit for start-ups and buy-outs. The

resulting movement has increasingly come to define the' Bolivarian Revolution.'

(d) Now MINEP is trying to keep up with the enhancement" it set off. While pre­

Chavez cooperatives were mostly credit unions, the 'Bolivarian' ones are much more

diverse: half are in the service sector, a third in production, with the rest divided

among savings, housing, consumer, and other areas. Cooperativists work in four

major sectors: 31 per cent in commerce, restaurants, and hotels; 29 per cent in

transport, storage and communications; 18 per cent in agriculture, hunting, and

fishing; and 8.3 per cent in industrial manufacturing (Bowman and Stone 2006).

3 Vuelvan Caras means, "tum around and face the enemy". This was very popular during the war of independence in Venezuela. The enemy today in Venezuela is not Spain but rather unemployment. The Chavez government is calling on Venezuelans to tum around and face the unemployment through the creation of cooperatives.

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Cooperativism is on the march in Venezuela on a scale and at a speed never before

seen elsewhere.

(e) Most cooperatives are small. Since January 2005, however, when the government

announced a policy of expropriation of closed industrial plants, MINEP has stood

ready to help workers take control of some large factories facing bankruptcy. If the

unused plant is deemed of 'public utility,' the initiation of expropriation proceedings

often leads to negotiation with the owners over compensation. There have been cases

where the state has offered the private owners to sell unused companies to the

government.4

(f) These unused plants had left thousands of workers unemployed in the past. And

now the government is restarting these plants and providing employment to the

people. There are many instances of the re-start of the shattered plants with some

confrontations. In a more typically confrontational example, displaced workers first

occupied a sugar refinery in Cumanacoa and restarted it on their own. The federal

government then expropriated the property and turned it over to cooperatives of the

plant's workers. The owner's property rights were respected in as much as the

government loaned the workers the money for the purchase, though the price was well

below what the owners had claimed (Bowman and Stone 2006). Such expropriated

factories are then often run by elected representatives of workers alongside of

government appointees.

(g) The similar case is of the Cacao Sucre Mill, another sugar mill closed for eight

years by its private owners, leaving 120 workers unemployed in a neighbourhood of

grinding poverty. The state governor put out a call for the workers to fonn a

cooperative. After receiving training in self-management, the mill cooperative

integrated with the 3,665 strong cane grower's cooperative. In July 2005, this large

cooperative became the first 'Social Production Enterprise.' The new designation

means that the cooperative is required to set aside a portion of its profits to fund

health, education and housing for the local population, and to open its food-hall to the

community as well (Bowman and Stone 2006).

4 In one instance, owners of a shuttered Heinz Tomato, processing plant in Monagas state, offered to sell it to the government because the company was not working properly under their administration.

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(h) Another point is that workers in the cooperatives, are supposed to take part in the

social and political activities sponsored by the state. Government argues that this act

would allow the cooperatives to expand and perfect their participatory practice. For

instance, skilled members can teach other less skilled members. They can encourage

and tell the inactive members, how important it is to dedicate more time in the social

work and self study. Thus, the participatory skills and attitudes can be transferred

from one place to another. It is argued that the levels of workplace democracy are

strongly tied to levels of members' participation in political and social organisations

in their communities. Thus, cooperatives have become the centre of Venezuela's new

economic model and base of political activities. They have the potential to fulfil a

number of the goals of the Bolivarian revolution, including combating unemployment,

promoting durable economic development, competing peacefully with conventional

capitalist firms, and advancing Chavez's still-being-defined socialism.

After looking at one survey organised by Marta Harnecker, it seems that some of the

Venezuelans are referring to work in the cooperatives just because they don't have

better options. Harnecker's study reports that 27.8 per cent of all members surveyed

said that they would leave the cooperative if they had an opportunity to work for the

private enterprise with a better income, while 24.3 percent were not sure and 47.3 per

cent said that they would not (Hamecker 2007: 33-34). In most cases, although

a'cknowledging the advantage of not having bosses, interviewees explained that they

would be willing to leave the cooperative only because they need higher incomes to

satisfy their basic needs. Doug Dowd also mentions some questions, raised by

Michael A. Lebowitz in his book, Build it Now: Socialism for the 2rt Century,

regarding the self-management of the cooperatives. Lebowitz was invited by the

Chavez government to discuss 'worker self-management.' He is convinced that the

'worker self management' is the essential path to follow if a truly democratic non­

capitalist society is to thrive and endure. But Lebowitz makes it clear that self­

management system of Venezuela still has a long way to go. The seven questions of

Lebowizt, presented by Dowd are as follows:

(a) How do we break down the division within the enterprise between those who

think and those who do?

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(b) What should be done in a workers-managed enterprise when sales fall?

(c) What should be the role in 'worker self-management' of competition between

workers in different enterprises?

(d) What responsibility do workers In self-managed enterprises have for the

unemployed and the excluded? Who is responsible for creating jobs?

(e) In a system of worker self-management, who looks after the interests of the

working class as a whole?

(f) Should worker-managed enterprises be allowed to fall?

(g) How can solidarity between worker-managed enterprises and society as whole

be incorporated directly into those enterprises? (Dowd 2008: 58-59).

After examining these questions one can say that they are concerned with the

complicated problems of the self-management system.

(ii) Promoting a ~Self-Managed Economy'

In accordance with the goal to build a more inclusive, humane and solidaristic society,

participation in decision making has become the tool of inclusiveness and learning for

Venezuelans which develop the capabilities of the individuals to become independent

politically and financially. After the approval of the 1999 Constitution and the

passage of a package of 49 laws (some about public administration) in December

2001, public decision making is being decentralised and space has opened for direct

participation of all citizens.

Article 62 of the 1999 Constitution establishes that the participation of the people in

the formation, execution and the control of the management of public affairs is the

means to accomplish the protagonism that will guarantee their complete development

both as individuals and collectively. Article 70 directs the Venezuelan state to

establish a self managed economy through citizen service organs, self management

and cooperatives in all forms, including those of financial nature, saving funds,

community enterprises and other forms of association guided by the values of mutual

cooperation and solidarity. Article 118 recognised the right of the workers and the

community to develop associations of social and participative nature such as

cooperatives, saving funds, mutual funds and other forms of association. These

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associations may develop any kind of economic activities in accordance with the law.

The law shall recognise the specificity of these organisations; especially those relating

the cooperatives, the associated work and the generation of the collective benefits.

The state shall promote and protect these associations destined to improve the popular

economic alternative. Article 308 states that the Venezuelan State shall protect and

promote small and medium-sized manufacturers, cooperatives, saving funds, family­

owned businesses, small businesses and any other form of community association for

purposes of work, saving and consumption, under an arrangement of collective

ownership, to strength the country's economic development, based on the initiative of

the people. Training, technical assistance and appropriate financing shall be

guaranteed.

All these constitutional provisions establish the Venezuela state as the promoter of the

self-managed e~onomy which paves the way for the establishment of the 'social

economy.' But this is also true that problems can not be avoided in the running of

cooperatives with this type of management as discussed earlier.

Nationalisation and Bolivarian Development Strategy

Nationalisation is one of the main economic policies of Chavez which,he claims, is ;

dedicated to bring the '21 st century socialism.' Chavez had severely criticised the

policies of World Bank, IMF and the 'Washington Consensus' in his speech at the

World Social Forum (SWF) held in January 2005 in Caracas. He had likened their

policies to an avalanche in the economic development process of developing countries

(Chavez 2005: 55).

Venezuela had nationalised its oil industry in 1976. This had not only increased state

ownership and share in the oil industry, the high wages had also increased the

purchasing power especially of oil workers. With Chavez in power, nationalisation of

key industries became the priority and core of the development programme and

policies of the government. One factor behind the nationalisation path was to get the

political support and allegiance of the workers; they were the untapped electoral

resource after the decline of two traditional parties (AD and COPEl). Kenneth M.

Roberts takes a critical view and suggests that nationalisation represents a kind of

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populist approach. He explains that workers are the latent constituency that are

amenable to mobilisation by new mass parties that embrace their demands for higher

wages, social benefits and organisational rights. Chavez also wanted to weaken the

corporatist exchange between the unions and the state because the labour union used

to bargain during elections (Roberts 2006: 134). With the goal of winning over

workers, the independent 'new unionism' proved short-lived. It is point for

consideration, whether unions representing large industrial workers have bargained

for 'neo-corporatism' under Chavez.

Be that as it may, Chavez had to contend with the unionised labour. Not very long

after in presidential office, Chavez had to face four general strikes between December

2001 and February 2003. Discussed at length in the fourth Chapter, a brief

background of these strikes is called for here. The first major strike was launched in

December 2001, second in April 2002, third in October 2002 and fourth lasted from

December 2002 to February 2003. The strikes led to the decline in production of oil

and other commodities and pushed Venezuela on the verge of an economic crisis. In

all these strikes, workers joined hands with the business; and in the strike of April

2002, they had even tried to oust Chavez from office through a coup. Chavez and

other Bolivarians were thus convinced that without control of labour and without

securing its support, it would not be easy for them to remain in power for long and,

much less, carry out the desired economic changes. Therefore, nationalisation of the

key industries became unavoidable for the survival of the regime and success of its

policies. Besides, control of state resources in the form nationalised sector was

essential to leverage the big business which sided with the opposition.

Then there were the economic rationale for nationalisation. He presented the policy

of nationalisation as the remedy for economic crisis. And he started to demand the

nationalisation of strategic industries for the establishment of '21 5t century socialism.'

He argued that nationalisation of the industries would solve the problem of

unemployment too because many of the key industries were locked-out, such as

Venepal-the biggest paper mill of the country.5 Nationalisation is not a single linear

process; rather one comes across various strategies and methods of increasing

5 The information about nationalization last collected in the month of May 2008.

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governmental control and ownership. Scholarly writings have generally used the tenn

nationalisation to describe various levels and degree of state regulation and control

over key industries. In reality, nationalisation has taken various forms and shapes:

cooperatives; workers-state management; equity participation; joint ventures etc. and

cases of outright nationalisation.

(a) Nationalisation of the Paper Mill (Venepa/): The nationalisation of Venepat, under

decree number 3438, marked a sharp new turn in the economic situation. It was one of

the biggest paper mills in Venezuela. The company was abandoned by the owners

after the lockout of 2002. In 2004, a group of trade unionists occupied the mill, the

largest supplier of paper products in Venezuela, and called for its nationalisation

under workers' control.

After two years of struggle and continuous occupatio,n of the factory, it was

nationalised under worker-state control scheme (Woods 2006: 155). Jorge Martin

finds out that some of the main share holders of the mill had actively participated in

the series of general strikes during 2001-2002. In July 2003, the owners declared

bankruptcy and the workers responded by occupying the plant and started to run

production under workers' control. Following a failed deal with the prior corporate

management and amidst the company's threats to sell off equipment, the Chavez

administration expropriated and nationalised the Venepal Mill. In the morning of 19

January 2005, in the Ayacucho room of the Presidential Palace in Caracas, and in the

presence of Venepal workers and trade union leaders, Chavez signed decree number

3438 which expropriates Venepal (Martin 2005).

The example of Venepal inspired many of Chavez's supporters to call for the

transformation of the Venezuelan economy to a 'fully market socialist model.' That

is, a market controlled by state to some extent and presence of private capital also.

(b) Nationalisation of Telecommunication and Electricity Sectors: On the eve of his

inauguration as president for the third term (2007-2013), Hugo Chavez announced a

series of measures with the goal to move the country away from capitalism and

towards '21 st century socialism.' On 8 January 2007, Chavez announced in a series of

re-nationalisations of various strategic industries as part of his campaign towards

105

building socialism in Venezuela. In 2007, Chavez took the unilateral step and

converted 32 oil and gas Operating Services Agreements (OSAs) with multinationals

into state-controlled joint ventures and announced plans to do the same with

association contracts for the production of heavy oil in the Orinoco belt. During his

third inaugural address, he announced plans for the 'Simon Bolivar National Project

2007-2021' (Simon 2007).

The analysis of the origin and the re-nationalisation of Compania Anonima Nacional

de Telefonos de Venezuelal (CANTV) and Electricidad de Caracas (EDC) bear

relevance here. The 'Simon Bolivar National Project 2007-2021' called for the re­

nationalisation of both CANTV and EDC-the primary telecommunications and

electricity providers respectively. CANTV was one of the first telephone service

enterprises in Venezuela, founded in 1930. After a commission spent several years

enquiring into ways of expanding the service, in 1953, the government announced its

plan to control 100 per cent of the shares of CANTV at a price of US$7.1 million as

part of the state's programme of nationalisation. Over the following years the state

bought up the other privately owned telephone companies, the last one being

Compania de Telefonos de San Fernando de Apure which it acquired in 1973.6

Under the SAPs, Perez government privati sed CANTV on 15 December 1991.

VenWorld emerged as the successful bidder, at US$ 1,885 million (US$ 1,085 million

above the base price) for a 40 per cent equity stake in the company. The VenWorld

consortium was headed by General Telephone and Electronics (GTE) Corporation,

with 51 per cent of the shares. The other share holders were Telefonica lnternacional

de Espana, Electricidad de Caracas, each with 16 per cent, Consorcio lnversionista

Mercantil (CIMA) with 12 per cent and AT&T International with 5 per cent.?

Considering CANTV a key industry, Chavez announced on 8 January 2007 re­

nationalisation of both CANTV and EDC-Venezuela's biggest publicly traded

electricity company. On April 8, 2007, the government launched a tender offer to

acquire CANTV's shares in Venezuela (Class D). One month later on expiring the

6 For more details see "Telephone Properties: Venezuela Assets", The Times, London, 8 December, 1953. 7 For more details see, http://en.wikipedia.org/wikilCANTV Accessed on 22 February 2008.

]06

offer, the government acquired 79.6 per cent of the outstanding shares of the

company, in addition to the 6.6 per cent which it previously owned, obtaining control

of the company with a total of 86.2 per cent of its total shares (Simon 2007).

As for the EDC, Chavez's plans to nationalise the electricity sector had remained

unclear. The Corporation of Arlington (AES)8, a U.S. based corporation, controlled

EDC but did not acquire the company through a privatisation auction. This sector of

energy was also sold to the private company in the 1990s. EDC is a Venezuelan

company, ordered to provide electrical energy to the city of Caracas and its environs.

At the moment it was the property of the Venezuelan state, being assigned to the

Ministry of the Popular Power for Energy and Petroleum. According to

'BusinessWeek' magazine, Electricidad de Caracas was established in 1895 with the

objective to provide energy to the city of Caracas that in that age had 72,500

inhabitants.9

Until the year 2000, EDC remained in the hands of Zuloaga' family, Recardo Zuloaga

was a young Venezuelan engineer who founded the company. Zuloaga family were

the largest shareholders, besides there were other Venezuelan private investors. From

the 1 July 2000, Richard Bulger started to assume the AES presidency of EDC in

Venezuela. The company continues its plan of expansion and in 2005 the works of

installation of the thermal power plant begin 'the Raisa', located in Valleys of the Tuy

and that would count on two gas turbines in simple cycle, for an initial capacity of

200 generation of Megavatios. In 2007 PDVSA bought 82.14 per cent share ofEDC

from AES Corporation as part of the nationalisation programme. Subsequently, the

ownership share rose up to 93.62 per cent in 2008. Since 2007 the company had

officially been under the regulation and management of the Venezuelan state. lO

(c) Nationalisation of the Cement Factories: Mexican-based Cemex, Ho1cim of

Switzerland and Fabrica Nacional de Cementos of Lafarge Group of France are the

8 AES is a leading global power company comprised of competitive generation and retail supply businesses in Argentina, Australia, Bangladesh, Brazil, Canada, China, Dominican Republic, El Salvador, Georgia, Hungary, India, Kazakhstan, the Netherlands, Mexico, Pakistan, Panama, the United Kingdom and the United States. 9 For more details see, http://investing.businessweek.comlresearchl stocks/snapshot! snapshot. asp ? capJd=8 74221 . Accessed on 25 February 2008. 10 For more details see:- "Energy Policy of Venezuela", [Online web] Accessed 1 January 2009 URL: http://en.wikipediacorg/wikilEnergyyolicy_oCVenezuela#Cite_ note-IO.

107

leading Venezuelan cement producers. Mexico's Cemex has almost half of the market,

with most of the remainder controlled by Lafarge of France and Switzerland's

Holcim. On 3 April 2007, Chavez announced that the cement industry would be

nationalised (Suggett: 2008). Senior representatives of the cement companies met

with ministers in mid-April 2007 and were offered a joint-venture scheme under

which the government would acquire a minimum 60 per cent stake. According to

Venezuela's energy minister Rafael Ramirez, companies indicated that they would

accept the offer with due compensation. The then finance minister of Mexico, Agustin

Carstens, condemned Venezuela's move 'against one of Mexico's largest and most

successful multinational companies. He said, "Certainly it's an inadequate action, an

action that doesn't respect the property and the rights of Mexicans," (Dickerson 2008).

Venezuela's Energy and Petroleum Minister Rafael Ramirez, claimed that the

nationalisation would be good from the perspective of generating employment. He

assured that Venezuelan government will guarantee the job security of the 4,600

workers in nationalised cement factories. He explained that the sovereign decision of

the Venezuelan government to nationalise the cement industry "does not have to do

with trans-national companies," but rather the government's goals for the Venezuelan

people, goals which do not "fall into line with the trans-national strategy of any

company" (Suggett: 2008).

The Venezuelan government issued a decree on 19 June 2008 that required cement

plants to transfer 60 per cent stake to the state by 31 December 2008

(www.chinaview.com 20 June 2008). Most of the cement compames were

nationalised in August 2008. Chavez argued that these companies produced a lot of

material for export at high prices and avoided the domestic demands. Nationalisation

was also done in the context of a massive nationwide housing shortage and

unaffordable housing (Pearson 2008).

(d) Nationalisation of Food Business: Amid higher food prices and shortages of some

basic foodstuffs, the Venezuelan government turned on private food businesses in

mid-March 2008. It nationalised Centro de Almacenes Congelados (Cealeo), the

country's largest cold storage and distribution company, and Lacteos Los Andes, a

dairy producer responsible for around 30 per cent of Venezuela milk production.

108

These companies are to be incorporated into Productora y Distribuidora de Alimentos

(PDV AL), a food distributor and subsidiary of PDVSA. II The Chavez government

also announced the nationalisation of Venezuela's largest chain of slaughterhouses,

representing 70 per cent of national capacity. The move followed the shortages of

basic staples, which Chavez claimed were due to hoarding by producers-which he

saw as part of a wider US-instigated plot to destabilise his government. However,

various factors had contributed to reduced supply, including a sharp increase in

national and international demand and price controls, which had made it profitable to

smuggle milk into Colombia and to process products such as cheese and yoghurt with

higher profit margins. Producers denied this, and attributed shortage more to the

government policy, particularly price controls, which discourage production and

investment. The government defended its actions by stating that the state-takeover of

the private finns would improve production and distribution of food, and thereby help

alleviate chronic milk and meat shortage.

(e) Nationalisation of Sugarcane Farms: The nationalisation of the sugarcane farms

is a part of the larger nationalisation strategy of Chavez government. There had been

an on-going series of plans to re-nationalise the sugar industry, but other than the

announcement in 2002 of the creation of a state-owned sugar mill in the state of

Barinas, Complejo Agroindustrial Azucarero Ezequiel Zamora, most sugar production

remained in private hands (GAIN 2004). Chavez argues that end of the latifundias

(large landholdings) is a must to continue and spread the revolution in countryside . . . ~t

(Cordoba 2007). BeSIdes, there IS the pressmg need to accelerate the supply of

foodstuffs to urban centres. It has been estimated that the demand for food climbed

more than 30 per cent in the two years, 2005 to 2007, with the oil boom while

Venezuela's capacity to produce food grew only 5 per cent (Simon 2007b).

The owners were given 60 days to prove 'legal ownership' or 'legitimate title' of the

land. Failing this, the land was supposed to be incorporated into state-owned Social

Production Units.

II For more details see "Hugo Chavez's Latest Assault" , [Online: web] Accessed on 20 April 2008, URL: http://www.economist.comldisplayStory.cfm?Story _ ID= E 1_ mJRSGvv.

109

The Venezuelan government deployed anny in 32 sugarcane fanns in Lara state on 13

April 2008, after the National Lands Institute (INTI) expropriated the privately held

plantations. The motre caused protest by the local land-owners who claimed 80 per

cent of the land was in full production. The INTI actions fonned part of the

government's 'agricultural reactivation' strategy and were legitimised through Article

90 of the 2001 Land and Agricultural Development Law, which allows the state to

expropriate idle lands and fanns whose legal ownership cannot be proved. The

violence had gone both the ways in the struggle with more than 160 peasants killed by

hired gunmen in Venezuela, including several here in north-western Yaracuy State, an

epicentre of the land refonn project, in recent years. Eight landowners have also been

killed here. The land owners described the expropriation act as agrarian terrorism

encouraged by the state (Simon 2007b). Over 2 million hectares of 'idle land' has

been reclaimed by the INTI since October 2007 and a further 4 million was scheduled

for expropriation in 2008.12

(f) Nationalisation of Steel Industry: Siderurgica del Orinoco (Sidor), the biggest steel

company of Venezuela, is known as one of the most important steel factories of Latin

America. The company was privati sed in 1997, one year before Chavez was elected.

The major share-holder has been an Argentinean-controlled conglomerate Techint.

Since privatisation, the workforce was slashed from around 15,000 to just over 5000;

and the company used contract labour in violation of a government decree banning

h . 13 t e practIce.

Sidor workers had struggled for more than a year to re-nationalise the company,

together with the people of Guyana, against not just Sidor management but also the

policies of the .local Chavista governor, Fransisco Rangel Gomez, and the labour

minister. Jose Ramon Rivero--both of whom had been accused of anti-worker

policies. Chavez signed a collective contract with workers at the Sidor steel plant on

12 May 2008, fonnalising an agreement reached between workers and the

12 For more details see "Socialist Scheme spell Trouble for Chavez", [Online: web] Accessed on 24 April 2008, URL: http://www.oxan.comldisplay.aspx?ItemID=DBI42187.

13For more details see "Venezuela: Steel nationalisation marks' new revolution within revolution"

[Online: web] Accessed on 20 April 2008, URL: http://www.greenleft.org.aul20081747/38636.

110

government a week before. The agreement followed 16 months of contract disputes

with the previous management, the Argentine controlled Techint that had sparked

repeated work stoppages and led Chavez to order the nationalisation of the plant.

In addition to the collective contract, Chavez also signed a law formalising the

nationalisation of Sidor, and appointed Rodolfo Sanz, minister of basic industries and

mining, as the company's president. The workers themselves were to elect the

company's vice president, Chavez said on 7 April 2008 in a televised address from

Sidor. So far, under the agreement, Venezuelan state owns 20 per cent of Sidor shares,

and other 20 per cent are owned by Sidor's workers and former workers, and 60 per

cent belong to Ternium. 14

Techint was supposed to hand over the company to the government by the 30th of

June 2008 (Janicke 2008). The move comes as accelerating the process of

nationalisations. This event has once again brought to the fore the question of the role

of workers in Venezuela's Bolivarian Revolution, whose participation as an organised

class has been sporadic at best until recently.

Nationalisation and Restructuring of the Oil Industry

Venezuelan economy is oil based and it is oil which makes Venezuela a significant

actor at the world stage. It is not only the most valuable product for Venezuela but

also serves as a strategic material for the world's great powers. It is the oil wealth

which holds the prospect of creating true and permanent wealth for the Venezuelan

society. But it was only after the establishment of a democratic government in 1961

that the idea of using oil to create a long-lasting regime based on order and progress

was envisaged (Lombardi 2003: 3-4).

Venezuela's oil industry had begun developing with the discovery and commercial

production of oil as far back as 1912. With Royal Dutch Shell and then Rockefeller's

Standard Oil as major producers Venezuela had become the world's second largest oil

14 For More details see "Bolivarian Conf"mns Sidor Nationalisation", Presidential Press Office, [Online: web] Accessed on 9 Apri1200S, URL: http://unityaotearoa.blogspot.coml200S/04/venezuelas­largest-steelmaker-back-into.htrnl.

111

producer, after the U.S., and the world's largest oil exporter by 1929. Between 1920

and 1935, oil's share in total exports went up from a meagre 1.9 per cent to the

staggering 91.2 per cent-turning the country into a typical oil-dependent economy

(Tugwell 1975:182).

Known as the 'Dutch Disease', the consequence of oil dependence was the near total

decline of agriculture and preclusion of any worthwhile industrialisation. The country

soon had fallen both in terms of agricultural production and rate of industrialisation,

relative to other Latin American countries. While agricultural production had made up

about one third of Venezuela's GDP in the 1920s, it shrank to less than one tenth by

the 1950s.15 Towards the end of 1990s, while 23 per cent of the workforce was in

industry, only 13 per cent were engaged in agriculture. 16

Oil dependence also caused the decline in industrial activity. For instance, industrial

production declined between 1990 and 1999 from 50 per cent of GDP to 24 per cent

(compared to the all of Latin America, which declined from 36 per cent to 29 per cent

in the same period). The other 'Dutch Disease' symptoms are evident in the constant

devaluations of the currency and subsequent inflation which had existed in

Venezuela's economy ever since the oil booms of the late 1970s and early 1980s.17

A typical 'Dutch Disease' problem, the sudden increase of oil revenues in the 1970s

caused a serious problem in the government's fiscal policies. The glut of the oil

money created caused the illusion that the oil income could be used to industrialise

the country via massive infrastructure projects; 'sow the oil' was the slogan of

President Perez. What actually happened was that the quadrupled income caused

government spending to quickly increase and even surpass the newfound revenues.

When the oil income began to decline again, it was not as easy to reduce government

spending as it had been to increase it. The result was that the government gradually

went deeper and deeper into debt. Between 1970 and 1994, foreign debt rose from 9

per cent to 53 per cent of GNP. As oil prices and revenues declined, so did per capita

income and the Venezuelan economy as a whole, and poverty increased. In 1996

15 *World Development Report 200012001, p.297. 16 * The International Year Book 2007, p. 1337. 17 Average annual inflation was over 50 per cent between 1988 and 1998.

112

Venezuela was one of the very few countries in the world where per capita income

was lower than it was in 1960 (Karl 1997: 235).18

In 1943, the Hydrocarbons Act had tied the Venezuelan state's income even more

tightly to the extraction of oil. While previously oil income was mostly based on

concessions and customs, the new act tied oil revenues to taxes based on income from

mining. The law established that the foreign companies could not make greater profits

from oil than what they paid to the Venezuelan state. The continually increasing oil

income led to an ever increasing reliance of the state on this source of income in lieu

of individual income taxes (Karl 1997: 89).

Venezuela had the key founder of Organisation of Petroleum Exporting Countries

(OPEC).19 Post-1973 global price hike, cartelisation in the form of OPEC with price

stability and production quotas, and nationalisation of oil industry with the creation of

PDVSA, oil became even more central to Venezuelan economy with far-reaching

impact and implications for the society and politics. The energy crisis of 1973 allowed

the newly-elected president Carlos Andres Perez to promise that Venezuela would

become a developed country within a few years. His project was known as 'La Gran

Venezuela' and was supposed to 'sow the oil' though a combination of fighting

poverty, via price controls and income increases, and the diversification of the

country's economy, via import substitution. But the sudden fall in oil prices in 1983

brought home the negative results which led to a series of austerity measures in the

1980s and 1990s. By 1998, the international price of oil had reached a historic low of

$3.19 per barrel (in 1973 prices).20

The long dependence of state on oil income produced a different cultural trait. It

fostered a 'rentier clientelistic mentality.' In other words, oil wealth promoted the idea

that one can do well in Venezuela as long as one has access to the country's oil

wealth. The consequence was that rather than engaging in creative entrepreneurial

18 Venezuela was one of the 19 countries, in the world, who had to face this problem in 1996. 19The Organization of the Petroleum Exporting Countries (OPEC) is a permanent, intergovernmental Organization, created at the Baghdad Conference on September 10---14, 1960, by Venezuela, Iran, Iraq, Kuwait and Saudi Arabia.

20 *For more detail see 'OPEC Armual Statistical Bulletin, 2001'.

113

activity, Venezuelans were encouraged to ally themselves with the state, seeking

either employment or contracts from the state, which had a monopoly on Venezuela's

oil income. Political analyst Terry Lynn Karl describes the cultural consequences of

oil as follows:

In the manner of a petro-state, rent seeking had become the central organising principle of Venezuela's political and economic life, and the ossified political institutions in existence operated primarily to perpetuate an entrenched spoils system. Both state agencies and political parties had given up their programmatic roles to become machines for extracting rents from the public arena ... (Karl 1997: 184).

Fernando Coronil, another observer of Venezuela and cultural anthropologist argues

that Venezuela's oil wealth, which is concentrated in the state, has caused the state to

appear to have magical powers, to be able to accomplish just about any feat at no cost

to the population. He states,

Thus transformed into a petrostate, the Venezuelan state came to hold the monopoly not only of violence, but of the nation's natural wealth. The state has exercised this monopoly dramaturgically, seeking compliance through the spectacular display of its imperious presence-it seeks to conquer rather than persuade.. .. By manufacturing dazzling development projects that engender collective fantasies of progress, it casts its spell over audiences and performers alike. As a 'magnanimous sorcerer,' the state seizes its subjects by inducing a condition or state of being receptive to its illusions-a magical state." (Coronil 1997: 4).

Thus, while oil had the magical effect all around, it enabled the elites to soak

themselves fully into oil revenues leading to graft and personal aggrandizement.

Also, it made the ordinary Venezuelans a demanding type of people who always

expected better performance from the government. On the other hand state also

always sought more money from oil to counter every problem in the country so that

elites could remain in power in perpetuity. Such a culture among the elites and masses

alike produced a strange kind of fatalism and a culture of resentment. It is not in the

hand of the Venezuelan people and Venezuelan state to ensure flow of enough petro­

money; international oil prices fluctuate and production technology requires massive

investment and up-gradation. Price fluctuations and production bottlenecks became

the reasons for the political, social and economic crises.

114

Oil could not leave the Venezuelan politics without a greater influence. A natural

consequence of the clientelistic and magical nature of the state was that the state

became very bureaucratic. The Punto Fijo was a bureaucratic regime, while the

government took the form of 'pacted democracy'; better to say a power-sharing

arrangement between entrenched political elites. Power sharing ensured a truce

among contending elites since it guaranteed to all traditional political parties access to

power in proportion to the voting results. In other words, even if one party won the

presidential and legislative elections, it would still be obliged to share the spoils of

Venezuela's oil economy with other parties, more or less according to the vote share

they received. This way each of the main parties (primarily AD and COPEI) was

guaranteed access to jobs, contracts and ministries; better to say access to the oil

revenues. Radical socialist and communist parties were completely excluded from this

pact; and there was no scope for new forces to enter political arena and claim a share

in the oil pie. The Pact of Punto Fijo began falling apart once oil rents began to

decline in the beginning of 1980s. It then received its last blow when Chavez was

elected president in 1998 and the 1999 Constitution was adopted.

In this way, one can observe that the oil has always been the central part of the

Venezuelan politics and society. It has shaped every aspect of the Venezuelan society.

It is not wrong to say that whosoever wants to rule Venezuela must control the oil

resources of the nation. Oil has become the centre of the power in Venezuela. Oil

money has made the Venezuelans aware oftheir rights. It is oil money which enables

government to spend on social issues.

(i) Re-structuring of PDVSA

When Hugo Chavez was first elected in December 1998, it did not look like he had

any particular plans for the state-owned PDVSA. He did, however, have very clear

plans for OPEC, which, under the leadership of Ali Rodriguez, was to be turned into a

strong cartel once again. Until Chavez came to power, OPEC had turned into a

shadow of its former self, with member states regularly ignoring their quotas.

Venezuela, especially, had turned into one of the member-states' most unreliable

partners. Production over allotted quotas, combined with the expansion of oil

production in non-OPEC countries, such as Russia and Mexico, led to a steep decline

115

in the price of oil. Chavez promised to put an end to this, by organising OPEC's

second-ever meeting of heads of state in Caracas, in the year 2000. Also, Chavez

spent the first years of his presidency visiting the leaders of OPEC and non-OPEC

countries to convince them to adhere to production quotas, so as to maintain an oil

price of between $22 and $28 per barrel.21 Chavez' efforts brought nearly immediate

results, when the price of oil rose for the first time, since 1985, to over $27 per barrel

in 2000 (in nominal prices) and $138.75 per barrel in mid-2008.22

Soon after the first price hike in 2000, Chavez government had to confront with the

PDVSA and, on the other hand, conceive of programmes of social spending. As noted

earlier, PDVSA was the result of the nationalisation policy which was adopted to

maximise the fiscal revenues collected from oil exports. By 1970, the government had

asserted a right to levy export taxes at its sole direction, effectively leaving the

companies with nothing but regulated profit. The foreign companies were loosing

control of their businesses. They could no longer maximise their own profits because

additional earnings were subject to appropriation by the government via the export

levy. They hardly resisted when Perez government nationalised the industry on 1

January 1976. But Perez could not continue his projects because his term ended in

1978 and he could no implement his plan 'Great Venezuela' also (Riding 1988).

After that PDVSA started to develop its own control over oil and tried to break away

from the state contro1. The Venezuelan executives of PDVSA shared the outlook of

the international oil companies for whom they worked for many years. Thus, the

nationalisation changed the ownership but not, the management. There were three

major foreign oil companies before nationalisation namely, Exxon, Shell and Gulf.

These oil companies selected Venezuelans for executive positions under the political

pressure (Mommer 2003: 132). Once these executives were in charge of the PDVSA,

they pursued the policy of insulating the PDVSA from government interference. Their

prime objective was to displace the Ministry of Energy and Mines (MEM). They

argued that the autonomy of the PDVSA would serve the public interest better. After

1982, in order to avert devaluation, President Herrera Campins deprived the state oil

21 Chavez's visits to Middle East reason had become the cause of his unpopUlarity among the United States and his opponents from the Right Wing in Venezuela. 22For more details see The Economic Times 15 July (Tuesday) 2008.

116

unqualified 'yes' (Mommer 2003:138-39). This view of the PDVSA was just the

opposite to the idea of oil nationalism. PDVSA preferred foreign investment over the

policy of fiscal revenue maximisation of the past, launched with the nationalisation of

1976. It was neither a coincidence nor looked strange that Venezuela, the founding

member of OPEC, had become the role model for exploiting the exhaustible natural

resource in the favour of the international oil companies and consumers.

(ii) Nationalisation of Oil Industry

In the presidential election of 1998, Chavez was backed by all the small political

groups who were kept away from the benefits of oil in the previous years. They

opposed the neo-liberal policies ofPDVSA. During his election campaign Chavez did

not speak much of his plan for PDVSA or oil industry. When he assumed office in

February 1999, oil prices were at very low level. But he started the process of

implementing the quota system as fixed by OPEC and other oil producing countries

and he, to some extent, could convince them about his strategy. There is no doubt that

the Chavez government played a crucial role in the recovery of the oil prices in 2000.

Chavez government started to tighten the control on the industry with the introduction

of a new 'Organic Law of Hydrocarbons' enacted in 2001. He directly confronted the

PDVSA when it was found out that the state oil monopoly was directly involved in

the April 2002 coup against him. PDVSA created economic crisis by launching four

strikes in the oil industry, as mentioned earlier. These strikes were organised by the

management of the PDVSA in alliance with the right-wing trade union bureaucrats of

the CTV. The PDVSA executives wanted end to the restrictions on oil production and

return to their previous position as the single largest oil supplier to United States

(Woods 2006: 17).

Failed coup attempt and the series of four nation-wide strikes made PDVSA the

subject of great concern for the Chavez government. Therefore, Chavez appointed Ali

Rodriguez, who at that time was the general secretary of OPEC, as the president of·

PDVSA and there began the restructuring of the oil industry.

118

Venezuela's oil industry reform encompasses four main areas: solidification of state

ownership of oil industry; tax reform; subordination of the oil industry to national

interests; and, strengthening of OPEC.

(a) Establishing state ownership of oil industry, Article 303 of the 1999 Constitution

states:

For reasons of economic and political sovereignty and national strategy, the state shall retain all shares of Petroleos de Venezuela, S.A. or the organ created to manage the petroleum industry, with the exception of subsidiaries, strategic joint ventures, business enterprises and any other ventures established or coming in the future to be established as a consequence of the carrying on of the business of Petro Ie os de Venezuela, S.A.

In some ways, the Article was supposed to mark a defmitive break from neo-liberal

economic policies that PDVSA had been pursuing prior to Chavez's election.

However, at the same time 1999 Constitution does not close the door for private

ownership and participation, as Article 303 talks about the exceptions of subsidiaries,

strategic joint ventures and business enterprises. In other words, in theory, PDVSA

could tum its various activities into subsidiaries and then sell them off, one by one.

Following the December 2002 to January 2003 oil industry strike, this is what

PDVSA's directors had been considering, mostly in order to rid the company of

unprofitable subsidiaries or activities. It becomes very paradoxical for a state to

follow both the policies of nationalisation and of privatisation at the same time, a

situation that the 1999 Constitution envisages. While national ownership could be a

pressing need, globalisation is forcing firms and governments to show ever higher rate

of efficiency and productivity. Public or private, firms have to be efficient and

competitive so as to seize and benefit from the opportunities offered by the process of

economic globalisation. Revolutionary or otherwise, Bolivarians in Venezuela

understood this imperative well for the oil industry.

(b) The purpose of tax reform under President Chavez is how to extract more revenue

from the oil industry and easily too. Here the government introduced a change in the

taxation of the oil industry. Since 1943 the government required a royalty payment of

16.6 per cent for every barrel of oil that either PDVSA or a foreign company

119

extracted. The royalty had even been negotiated to drop as low as 1 per cent in the

case of some foreign investors. A new oil reform that PDVSA was working. on in

1998 even suggested eliminating royalty payments entirely. With the new oil reform

law of 2001, however, royalty payments were nearly doubled to 30 per cent of the

price at which every barrel is sold. At the same time, the government lowered the

income tax levied on oil extraction from 59 per cent to 50 per cent

(Mommer 2003: 141). The government's main argument for increasing the royalty

payments is based on the fact that it is much easier for the government to collect

royalty payments than it is to collect taxes on oil income. That is, the government can

track very easily how much oil is being extracted and what the royalty payments

should be based on the current price of oil. However, taxes based on oil income are

much more difficult to control because PDVSA or other oil companies deduct their

expenses from the income on which they have to pay the taxes. Since expenses are not

that easily identifiable by an outside auditor, the tax payers can attempt to inflate

expenses, in order to lower their tax payments. By shifting government revenues from

taxes to royalties, the government has basically closed loopholes in the tax collection

process. A second and closely related reason for the change in the oil revenue

collection process has to do with PDVSA. Chavez and his supporters have long

claimed that PDVSA is providing too little of its revenues to the central government,

the company's only shareholder. One way to make the company more efficient would

thus be to increase its contribution to the government, regardless of its expenses. That

is, by making fewer expenses tax deductible, that is what the shift from income tax to

royalties does, the company faces a strong incentive to make its operations more

efficient.

(c) As part of the tightening of state control over PDVSA, responsibility of

Venezuelan oil policy was transferred to the Ministry of Energy and Petroleum. The

Venezuelan government tried to extend the restrictions on foreign participation in its

oil sector to the associations for the upgrading of heavy oil projects in the Orinoco

Belt. The Venezuelan government had set 1 May 2007 deadline for the conversion of

four existing joint ventures managing heavy oil projects into mixed companies?3 But

23 "Risk in the Oil And Gas sectors: Venezuela Example" Oil and Gas (April 2007) Accessed on 14 April 2007 [Online: web]

120

the foreign companies (Exxon Mobil, ConocoPhillips, Chevron Corp and Fortune)

were not satisfied with the terms and conditions of nationalisation. Venezuelan

government told them to leave if they do not accept the terms and conditions. On 1

May 2007, Venezuela carried out a presidential decree and took over the projects'

operations. The decree also gave a further two months for the legislature to review the

terms of the deals. Some of the companies, including Exxon, want to continue to

negotiate the terms of the new partnerships (CNNMoney.com).24

(d) As mentioned before, strengthening OPEC and raising the international oil price

was among the highest priorities of Hugo Chavez when he came to power in February

1999. Oil had dropped to less than $10 per barrel, to a large extent because Venezuela

was ignoring its OPEC oil production quotas during the previous government of

Rafael Caldera. Ali Rodriguez visited OPEC countries in 1999 and Hugo Chavez in

. 2000 visited Iran, Iraq, Libya, and Saudi Arabia. Both of them came back with the

commitments, from most of the member-countries to reduce production or abide by

their OPEC quotas and increase in the oil prices. The 2000 summit of heads of the

states from OPEC countries, held in Caracas, was another step to empower the oil

producing countries?5

The opposition criticised the oil industry refonn arguing that the refonn would bring

troubles because higher royalties and the limitations placed on joint ventures would

make foreign direct investment avoid Venezuela. To support their argument, the

opposition pointed to the fact that Venezuela's royalty payments are among the

highest in the world. The opposition accused Hugo Chavez that he was using oil as

the political tool to advance his hemispheric and global foreign policy ambitions.

Chavez again played a key role in the 2003 OPEC decision to cut production and

coordinate policy aimed at driving oil prices higher.

http://www.ey.comlglobaVassets.nsfllntemationallIndustry _ Oil_and _Gas _PartnershipOGSector/$filell ndustry _ Oil_and _Gas _ PartnershipOGSector.pdf.

24 For more details see "Chavez: Big Oil firms to Leave Venezuela", [Online web] Accessed on 23 June 2008, http://money.cnn.coml2007/06123/newsiintemationaVchavez _ oiVindex.html. 25 For more details see OPEC Fund News Letter Vol. 9 (6) September-December 2000, Pp 4-5.

121

Land and Agrarian Reforms

The 1999 Constitution mandates extensive land redistribution with the goal of

promoting 'holistic rural development.' It also entails optimal use of land by means of

the provision of production of infrastructure works, credit training service and

technical assistance. Article 306 of the 1999 Constitution clearly states:

The state shall promote conditions for overall rural development, for the purpose of generating employment and ensuring the rural population an adequate level of well-being, as well as their inclusion in national development. It shall likewise promote agricultural activity and optimum land use by providing infrastructure projects, supplies, loans, training services and technical assistance.

Thus, the agrarian and land reforms become the essential component of the economic

reforms in Venezuela pursued by President Chavez. At the same time, land reform

policy has become the most controversial issue because it ~aces fierce resistance from

the big land-owners, who together with the bankers and elites constitute the

Venezuelan oligarchy. They resist all the policies which are against their historical fad

and fashion. Why the policy of land reform has become so controversial? What it

consist of, what are the steps Chavez government has adopted to pursue its land

reform policy and what are the problems and prospects are some of the questions to

be discussed in this section.

In the aftermath of independence in early nineteenth century, Venezuela was a fairly

typical Latin American country with large landholdings and poor peasants tied to the

lands. There also existed minifundias (subsistence agriculture) alongside the

latifundias. With not much known mineral resources, early on agriculture became the

main economic activity of the country, with the production of cash crops such as the

cocoa, coffee, sugar, cotton, and tobacco leading the way.

J. D. Robinson has observed that the overall evolution of agriculture in nineteenth

century Venezuela showed stagnation, not the development. He gives the example of

Codazzi's surveys of 1830s which had shown that only 0.5 per cent of the national

territory was under cultivation (Robinson 1971: 221). Before 1920, population in

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Venezuela grew slowly or not at all and was principally rural and immobile

(Robinson 1971: 227). Land tenancy during the nineteenth century was mostly

divided up between a handful of caudillos (strong men) who had fought during

Venezuela's war of independence. But this land distribution was not quietly accepted

in Venezuela. One, who fought against the unjust distribution of land shortly after

independence, was Ezequiel Zamora (1817-1860).

Land ownership and a career in military were the two available routes for upward

movement. Military rulers, like Guzman Blanco (1880-1890), distributed large lands

among their loyal supporters. Another dictator, Juan Vicente Gomez (1908-1935) had

simply occupied large lands as his personal property. His lands had to be

expropriated, after he was removed from power, and that property became the state

property again. By 1930s, agriculture made up only 22 per cent of Venezuela's GDP,

though it still occupied about 60 per cent of the workforce (Wipert 2005). As

population grew on the back of oil boom, the country became dependent on imported

agricultural and other food stuffs. Subsequently, Betancourt government introduced

the 'Agrarian Reform Law' of 1960, which set up the National Agrarian Institute.

This reform effort, over the course of 20 years, distributed state land to over 200,000

families. But the subsequent governments ignored the land reform programme

(Wilpert 2005).

In the 1990s, the situation in the agricultural sector had become next to worst. At an

agricultural census in 1998, it was found that 60 per cent of farmland was owned by

less than one per cent of the population (Fuentes 2005). Seth Delong explores that 5

per cent of landowners who controlled the largest landholdings controlled more than

75 per cent of all landholdings in the countryside while the 75 per cent ofland owners

who controlled the smallest land holdings covered about 5 per cent of all farm land

(Delong 2005). Wilpert explores that market for the land ownership developed during

this period but mostly among middle to large landholdings, as these landowners began

purchasing and selling their lands, often for speculative purposes. Second, the larger

landowners were also increasingly inclined to expel campesinos (often landless

peasants) from the lands, either as a result of the introduction of new technologies or

because they had to stop production due to the un-competitiveness of their agricultural

products, thus contributing to the already serious pressure on urbanisation. Finally, a

123

third change was that the landowners were increasingly companies rather than

individuals (Wilpert 2005). Thus, the land sector emerged as the main subject of

concern to by the Chavez government.

During his 1998 election campaign, Chavez had made it clear that one of his first

priorities would be land reform. Although, he could not pay early attention to the

issue of land refonn, Chavez repeatedly stressed that one of his main heroes was

Ezequiel Zamora. Also, once the new Constitution was approved by referendum in

December 1999, it became even clearer that land reform would have a constitutional

mandate. Article 307 of the 1999 Constitution clearly states,

The predominance of large idle estates is contrary to the interests of society. Appropriate tax law provisions shall be enacted to tax fallow lands and establish the necessary measures to transfonn them into productive economic units, likewise recovering arable land. Farmers and other agricultural producers are entitled to own land in the cases and fonns specified under the pertinent law. The State shall protect and promote associative and private fonns of property in such manner as to guarantee agricultural production. The State shall see to the sustainable ordering of arable land to guarantee its food­producing potential.

Article 306 also specifies that it is the state's obligation to promote the development

of agriculture in Venezuela. It is to be noted here that Venezuela's 1999 Constitution

is replete with provisions that may be considered as guidelines for state action. In

November 2001, National Assembly allowed Chavez to pass a set of 49 decrees and

these decrees were part of the 'enabling act' and supposed to concentrate on land

refonn (Leiter 2007). Ley de Tierras y Desarrollo Agrario. (Law on Land and

Agrarian Development) was introduced to redistribute the latifundias. The

government also set up three institutions to follow up on the land reform programme

as these were entrusted with the implementation and management of land refonns.

The first is the National Land Institute (INTI), which replaced the previous National

Agricultural Institute (IAN) and now manages all lands held by the central

government and administers all land titles. Its main duty is to detennine ownership of

land and to redistribute it according to the land law. Also, it certifies the quality of the

land and whether it is being used productively or is left idle. The second institution is

the National Institute for Rural Development ONDER) which provides agricultural

124

DiagramI26

(Function of the Institutions and Connected Ministries for Land Reforms)

National Land Institute (INTI)

Institute for Rural Development (INDER)

Venezuelan Agrarian Corporation (CV A)

Fund for Development, Agriculture, Fisheries, Forestry, and Related Purposes (FONDAFA)

National Institute for Educational Cooperation (INCE)

Foundation for Training and Applied Research in Agrarian Refonn (ClARA)

I The Bank for Women

The People's Bank

National Institute for Agricultural Investigation (INIA)

peasants provisional land use rights, which do not constitute land titles, but allow the

temporary occupation ofland until legal disputes are resolved (Wilpert 2005).

(i) Plan Ezequiel Zamora

Plan Ezequiel Zamora is a government-funded project, designed to promote food

security by supporting sustainable agricultural development based on more equitable

land ownership patters. Small and medium-sized producers in rural areas benefit from

Plan Zamora by receiving titles to land that they own and cultivate themselves. By

breaking up larger landholdings, a more efficient use of agricultural areas is achieved.

This way, more foodstuffs-including traditional crops and organic products-are

made available to Venezuelan consumers at more competitive prices. Most of the land

distributed under Plan Zamora was either owned by the government or had remained

entirely vacant. Where private property was affected, it was only as a last resort and

with a guarantee of full market-value compensation. Begun in February of2003, Plan

26 Ramcbandran, V.K. (2006) "Land Reform in Venezuela" The Marxist, XXII (2-3), (April­September).

126

Overall, land reform programme has two main goals: creation of greater social justice,

and establishment of food self-sufficiency in Venezuela. With regard to the first goal

of creating greater social justice, over 150,000 families had benefitted from the

programme by 2007. This number is substantially large compared to the past land

reform experiences in Venezuela. With regard to the second goal of making

Venezuela more self-sufficient in terms of its food consumption, of establishing "food

sovereignty," here the advance is not as noticeable as with the first goal, but some

solid progress still has been made. The most concerted efforts in this area have been

to re-capture agricultural production in those areas where Venezuela was strong in the

past, but after decades of neglect became dependent on imports. For example,

Venezuelans are great consumers of beans, corn, and sugar; and Venezuela could be

self-sufficient in all these agricultural products though for long it has been an importer

of these goods. These are just some of the areas in which the government hopes to

become self-sufficient. Another part of the strategy for achieving self-sufficiency has

been the social programme known as the Mission Mercal. This programme, which is

part of a whole series of social programmes the government introduced in 2003 and

2004, consists of providing food to Venezuela's poor via a network of thousands of

subsidised food markets?8 Already 43 per cent of Venezuela's population shops for

food at the Mercal stores. While most of the food that is sold in the Mercal stores is

still imported, the government is making a concerted effort to increase the proportion

of domestically produced food in these stores (Wagner 2005).

After having looked on the land reform policy in Venezuela, it can be said that it is

truly an impressive force for change in the country. While honouring historical efforts

to make land use and ownership patterns more just and equitable, thus democratising

important economic and citizen rights, the land reform effort also includes

innovations that distinguish it from past attempts to do the same. At its root, the

'return to the countryside' means that farmers and informal workers are empowered in

local settings. It also allows economic diversification, food security, and higher levels

of human development to be achieved at the national level.

28 'Mission Mercal' is a social Mission launched by Chavez government to deal with the food problem. According to this programme a subsidized food market has been started for the poor Venezuelans. This is one of the most successful 'social missions' in Venezuela.

128

Land refonn in rural and urban areas has however not been without challenges and

roadblocks. Despite the efforts that have been made with land refonn, relative to the

enonnous expectation raised by Chavez's 'Bolivarian Revolution, the Venezuela's

peasantry has not received the reliable and sustainable solution so far; and also it does

not seem quite comfortable either. As stated earlier, there are numerous hurdles and

challenges. (a) Foremo'st, there is the weak legal framework in Venezuela regarding

the land refonn. The combination of legal challenges to land redistribution and the

poor quality of Venezuela's land title registry has made the expropriation and

redistribution of privately held land extremely difficult and slow. This situation has

also affected the redistribution of publicly held land because in many ·cases large

landowners claim to own lands that the Venezuelan state also claims to own. (b) The

land refonn process has created a situation of lawlessness, insecurity and chaos in the

countryside. Peasants not only have to deal with ruthless landowners who are intent

on maintaining control over their latifundias, often with use of hired assassins and

bullies, they also have to deal with drug smugglers, anned gangs and corrupt police

and military elements. (c )The third problem is the lack of strong and efficient

peasants' organisations. Even when they have a sympathetic government, peasants are

not able to assert their rights. (d) Government functionaries, mostly still the left over

from past, often succeed in sabotaging and perverting land refonn schemes. Wilpert

observes that INDER is very slow in providing training, technology and credit to land

refonn beneficiaries. Other reasons for this appear to be related to problems of

corruption within the institute and another reason is that the central government has

paid relatively little attention to infrastructure and support side of the land refonn, in

favour of the more controversial and visible land redistribution aspect. The CV A,

which is supposed to help peasants market their agricultural products, has not even

really gotten off the ground yet, several years after the official launch of the land

refonn programme (Wilpert 2005b).

Balance-Sheet of the Revolutionary Economy, 1998-2008

How Chavez and his Bolivarian Revolution have perfonned on economIC

development front in the ten year between 1998 and 2008 is a pertinent question. An

129

evaluation of the economic perfonnance of his regime is essential to assess his social

policies and programmes, which have been discussed in Chapter IV. The first quarter

of the decade under review here was full of various problems that Chavez had

inherited from the previous regimes. Besides, he had to face coup attempts and,

attempts at destabilisation including four major nation-wide strikes. These incidents

had a destabilising and debilitating effect on the economy as a whole and prevented

early introduction of many economic policies and programmes of developments.

One way to evaluate the economy, under Chavez, is simply to look at the expansion

of Gross Domestic Product (GDP). According to reports released by the Economic

Commission for Latin America and the Caribbean (ECLAC), Venezuela registered

the largest level of economic growth in Latin America, from a negative balance of 9.7

per cent in 2003 to a positive balance of 18 per cent in 2004 (Wagner 2004). The

economy grew 10.3 per cent in 2006, 8.5 per cent in 2007 and 4.8 per cent in 2008

(Suggett 2009). The growth rate declined in 2008 on account of falling oil prices in

the global market and the recessionary conditions in the developed countries.

It is also worth noting that in spite of the consolidation of '21 st century socialism' and

nationalisation of industry and agriculture, the private sector has grown faster than the

public sector. It is true that the contribution of public sector to national growth has

increased which is the result of the expansion of the nationalisation policy of Chavez

during 2007-2008. (See, Table Ion next page).

130

Table 129

(Public and Private Sector Growth (real per cent change)

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Real 0.3 -6.0 3.7 3.4 -8.9 -7.8 18.3 10.3 10.3 8.4 5.6

GDP

total

Public 2.1 -5.2 3.0 -0.6 -11.1 -1.3 12.5 2.8 3.6 7.7 18.8

Private 1.1 -6.9 4.2 4.9 -5.8 8.9 17.2 12.9 11.9 7.3 0.2

Source: Banco Central de Venezuela (BCV), 2009, Bolivarian Republic of Venezuela.

Note- Data includes private agriculture, restraint, private hotels and various public sector activities.

Data from Instituto Nacional de Estadististica (INE), National Institute of Statistics

(displayed in Table II on next page) shows that there has been a huge decline in

poverty during the ten years of Chavez's presidency. The percentage of households in

poverty declined by more than half--from 54 per cent in the first half of 2003 to an •

estimated 26 per cent at the end of 2008. The percentage of households in extreme

poverty fell by even more: a 72 per cent decline, to seven per cent of total households.

This is a significant achievement, and puts Venezuela within reach of eliminating

extreme poverty altogether. If one takes the first half of 1999 as the starting point, the

percentage of households in poverty has been reduced by 39 per cent, from 42.8 per

cent to 26 per cent. Extreme poverty fell by over half, from 16.6 per cent to 7 per cent.

There has been a sharp drop in inequality also, as measured by the GINI index. Since

Chavez's 1998 election, the GINI index has dropped by almost six points, from 46.96

to 40.99. In the year 2003, the drop had been even greater: over seven points, from

48.11 to 40.99.

29 For more Details see: Weisbort, Mark et al. (2009), "The Chavez Administration at 10 years: the Economy and Social Indicators", [Online: web] Accessed 5 March 2009, URL: http://www.venezuelanalysis.comJanalysis/4182.

131

Year

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Table II

(Poverty, Extreme Poverty and Inequality, 1998-2008)

Time Period Households Population Inequality (Percentage of total declared) (Percentage of total declared) (GINl Poverty Extreme poverty

Poverty Extreme Poverty Index)

1st half 49.00 21.02 55.40 24.66 48.65

2nd half 43.90 17.06 50.40 20.34 47.02

1 st half 42.80 16.60 50.0 19.86 46.93

2nd half 42.0 16.89 48.70 20.15 48.51

1st half 41.60 16.65 48.30 19.49 47.22

2nd half 40.40 14.89 46.30 18.02 45.07

1 st half 39.10 14.17 45.50 17.36 45.73

2nd half 39.0 14.04 45.40 16.94 47.72

1 st half 41.50 16.58 48.10 20.13 49.44

2nd half 48.60 21.04 55.40 25.03 47.98

1 st half 54.0 25.09 61.0 30.22 48.11

2nd half 55.10 25.03 62.10 29.75 46.47

1 st half 53.10 23.46 60.20 28.10 45.50

2nd half 47.0 18.60 53.90 22.50 45.470

1 st half 42.40 17.0 48.80 20.30 47.48 2nd half 47.90 ]5.30 43.70 ]7.80 47.71

1 st half 33.90 10.60 39.70 ]2.90 44.22 2nd half 30.60 9.10 36.30 11.10 43.70

1 st half 27.46 7.63 33.07 9.41 42.37 2nd half 28.50 7.90 33.60 9.60 42.11

] st half 26.0 7.0 3].50 9.50 40.49

2nd half N.A. N.A N.A. N.A. N.A.

Source: lnstituto Nacional de Estadististica (IN E), 2009, Bolivarian Republic of Venezuela (Weisbort 2009).

Note:- 2008 data is preliminary for the year and is subject to revision.

When Chavez took office for the second time in 2000 inflation rate (consumer price

index) was at 20 per cent, as Table III shows. This dropped to 12.3 per cent in 2002,

and then soared to a peak of 31.2 per cent in February of 2003 as a result of the

economic destruction caused by the oil strike at that time. After the strike ended in

132

that month, the economy grew very rapidly while inflation declined sharply to a low

of 15.8 per cent by May of 2007. It then began an upward climb that, except for a dip

from February December 2007, brought inflation to a peak of 3 per cent in September

of 2008, from which it has since declined to 20.7 per cent.

Year

2000

2001

2002

2003

2004

2005

2006

2007

2008

Table III

(Inflation: Consumer Price)

Inflation Consumer Price (Percentage)

20.0

13.0

12.3

31.2

31.1

22.4

16.0

15.8

20.7

Source: Central Intelligence Agency (CIA) World Factbook, 2009.

While the rate of inflation is still much higher than the previous couple of years, it is

still lower than the historical peak rates. Given the trajectory of the regional

and world economy, inflation is likely to continue declining trend this year, in the

absence of unanticipated events and/or serious shortages. Inflation itself, then, does

not seem to be a direct threat to economic growth in Venezuela, although the

government wants to bring it down over time (Weisbort 2009).

It is true that Venezuela government has achieved a success in economic growth rate;

poverty and inflation decline but, as it is a trend in Venezuela, low price of oil may

cause a major challenge for economic growth in the immediate future. Ali Rodriguez,

Finance Minister of Venezuela told Charlie Devereux about the influence of declining.

oil prices on the economy "If this carries on for two or three years, which is possible,

133

one would think that it would lead to difficult consequences," (Devereux 2009). With

the decline in oil prices and revenues, the spectre of inflation is likely to loom large

soon. Inflation started to hit the consumers towards the end of 2008 and, it is feared,

could neutralise many of the gains Chavez has made in the last ten years.

Conclusion

In conclusion, Chavez and his Bolivarian revolutionary regIme have set out to

establish a model of economic development which would an alternative to the neo­

liberal path of economic development. Venezuela is a capitalist economy and

Chavez's '21 st century socialism' has a role for private sector. Bolivarian

revolutionary economic development model however would like to benefit from and

take advantage of the opportunities that globalisation offers. It seeks to establish a

new balance between state and market; with state exercising regulatory control and

ownership for the sake of increasing the share of the poor in the fruits of growth.

Bolivarian model of development, as noted in the Chapter, establishes varieties of

nationalisation schemes--cooperatives, joint ventures, mixed firms and out-rightly

state owned enterprises. It leaves many areas and sectors to private enterprises

including in the oil industry. The eventual aim of development strategy is to create an

economy that is 'self-managed' that would lead to better development of the

individual and the communities. No doubt, many of the constitutional provisions and

policy initiatives remain vague, even somewhat rhetorical, the intentions of the

Bolivarians remain beyond reproach.

In formulating his economic development strategy, Chavez learned from the mistakes

made by the previous regimes especially of Perez and Caldera. Emergence of the new

organisations like LCR and their alliances with Chavez and MVR also influenced the

economic policy of Chavez. It is to be noticed that left parties of Venezuela tried to

play an important role in the formulation of economic policy, as they were kept away

from the process in the 1970s. One can also trace their ideological influence on the

policy in the nature of social economy, self management and cooperatives.

134

While oil revenues are useful especially in times of higher prices and production level

to meet social goals, oil dependence also sets limits to social engineering and

socialistic goals. Oil dependent economies are particularly sensitive to international

market forces, and depend a good deal on foreign investments and technology.

Venezuela is no exception to this axiom. The economic performance of the Chavez

regime could be counted overall as a moderate success story, albeit with some

significant failures and continuing vulnerabilities. Decline in poverty, inequality and

land reforms are the successes; on the other hand, increasing inflation, largely an oil­

based economy, and chaotic problems in countryside are the challenges. The

prospects for the '21 st century socialism' are alive because Chavez has the control

over system but, at the same time, it is the old bureaucratic order that he depends upon

to deliver his promises. It is in this context that one needs to examine the formation

of Partido Socialista Unido de Venezuela (PSUV) as the political arm for expansion

and consolidation of the Bolivarian Revolution.

135