by Michael Roberts
According to all reports, Venezuela is gripped by rolling
blackouts, racing inflation, homicide rates that make it the world’s
second most murderous country and shortages of basic goods and
medicines. The opposition parties are attempting to impeach and remove
from office Nicolas Maduro, the Chavista leader, who took over from Hugo
Chavez when he died in 2013 and who then managed to win narrowly the
last presidential election. The opposition tactic appears to be the
same as that adopted successfully in Brazil by the right-wing parties in getting Workers Party leader, Dilma Rouseff, out of the presidency.
Across South America, centre-left social democratic governments that
have been in office during the great commodity price boom since the
early 2000s have lost power as oil and other raw material prices
plummeted due to the drop in global demand as the world economy entered
its long depression after the Great Recession. Both neo-liberal and
Keynesian policies adopted in Argentina, Brazil and Venezuela have miserably failed to avoid severe economic recession.
two years ago, I wrote on this blog that there was a significant risk
that the ‘Chavista revolution’ would not survive the death of Hugo
Chavez. As I pointed out then, Venezuela’s economic fortunes have
always been tied to world oil prices. When petroleum prices began to
fall in the mid-1980s, Venezuela’s GDP per head, a reasonable measure of
average living standards, started to fall sharply from 50% above 1950
levels to just 10%. The subsequent crisis in emerging market debt that
erupted in the late 1990s, as in Argentina, led to a further fall, so
that living standards by the early 2000s were below that of 1950 – a
great example of the success of the market economy in Venezuela before
Chavez came to power!
The collapse in GDP growth coincided, not surprisingly, with a sharp
fall in the profitability of Venezuelan capital (oil industry
mainly). In 1989, the then president who had won with a campaign against
the IMF, reversed his mandate and said that he no choice but to submit
to its dictates. He announced a plan to abolish food and fuel
subsidies, increase gas prices, privatize state industries and cut
spending on health care and education. Profitability was driven up, but
only modestly. And Venezuelan capitalism continued to fail.
When Chavez came to power, he promised broad reforms, constitutional
change and nationalization of key industries under his so-called
Bolivarian Revolution. Chavez’s programmes, aimed at helping the poor,
included free health care, subsidised food and land reform. This
succeeded in decreasing poverty levels by 30% between 1995 and 2005,
mostly due to an increase in the real per capita income. Extreme
poverty diminished from 32% to 19% of the population. A recent IMF
report (sdn1208rev) showed,
in a world of rising inequality of incomes and wealth, that there was
one country that has become more equal over the last 20 years –
Venezuela. And all that improvement was under the presidency of Chavez,
with the gini coefficient of inequality falling from 45.4% in 2005 to
But Chavez was lucky. He took power just as the commodity price boom
and oil prices rose to a peak. Venezuelan capital gained with a
significant rise in profitability(see graph), and because the commodity
boom continued for a while longer despite the Great Recession (because
China kept on growing), economic growth and profitability stayed up.
Oil accounts for more than 30% of Venezuela’s GDP, approximately 90% of
exports and 50% of fiscal income. With high oil prices, Chávez was able
to pour money into social programmes and engage in a burst of
petro-diplomacy – subsidising like-minded governments not only in Cuba
but also Bolivia and Nicaragua.
But in the last few years, the oil price has plummeted, along with
other commodity prices. The world economy has slowed into a low-growth
stagnation, while China, the major consumer of energy and other
commodity exports, has reduced purchases dramatically. Brazil,
Argentina and Venezuela have taken the biggest hits, and with that,
their ‘leftist’ governments can no longer deliver for the majority.
Venezuela’s currency, the bolivar, had to be devalued in order to
sustain its dollar-based oil exports. Inflation spiralled way more than
in other Latin American countries.
That hit the savings of the middle-class, in particular. As a
result, significant opposition to Chavismo grew, even among relatively
lower middle-class strata. Government spending stopped, living
standards fell (again) and social problems (especially crime) began to
Now the right-wing ‘free marketeers’ tell us that this shows
‘socialism’ does not work and there is no escape from the rigours of the
market. As the right-wing Forbes magazine put it; “The ongoing
disaster that is the Venezuelan economy under Bolivarian socialism tells
us a number of interesting economic lessons. In part that there’s no
economic theory so deluded that someone, somewhere, won’t believe in it.
That we cannot simply ascribe prices randomly to goods: prices are not
just an allocation method, they are information too. But the most basic
point that needs to be made is that the price of something just is the
price of something. We’re not going to be able to change that price
simply by randomly sticking some other numbers on a piece of paper: the
price of dried milk is what the price of dried milk will be, coffee will
cost what coffee costs. Government, our plans, even the most deluded of
economic policies, are just not going to change this: the price is the
In other words, you have to do what the markets says: the price is
the price. That is true only if the capitalist mode of production and
the law of value dominates and is allowed to. And it did and still does
in Venezuela, despite the Chavista ‘revolution’. The majority of
industry and finance is still in private hands and the foreign capital
still plays a powerful role. State ownership of the oil industry and
its revenues are no longer enough to resist the forces of the global
market. The International Monetary Fund predicts an 8 per cent economic
contraction for 2016; the inflation rate is now the fastest in the world; electricity and running water are luxuries. Food and medicine are scarce.
The Chavista regime would have to move to restrict the law of value
and replace the capitalist mode of production in order to end the rule
of global market. That would require the state monopoly of foreign
trade; expropriation of the food production and distribution; default on
the foreign debt; expropriation of the banks and big businesses; and a
national democratic plan of production.
Even that would not be enough if Venezuela remained isolated without
any sympathetic governments in Latin America also prepared to adopt
similar measures. And token support from Cuba aside,
isolated. China, which has loaned Caracas $65bn against future oil deliveries, is unlikely to extend fresh credit.
So it is probably too late, as the forces of reaction gain ground every
day in the country. It seems that we await only the decision of the
army to change sides and oust the Chavistas.
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