The tragedy of Venezuela

by Michael Roberts

As the Maduro regime tries to impose its new Constituent Assembly as a rival or replacement of the existing Venezuelan Congress and arrests the leaders of the pro-capitalist opposition, the dire economic and social situation in the country continues to worsen.

According to the IMF, Venezuela’s GDP in 2017 is 35% below 2013 levels, or 40% in per capita terms. That is a significantly sharper contraction than during the 1929-1933 Great Depression in the US, when US GDP is estimated to have fallen 28%. It is slightly bigger than the decline in Russia (1990-1994), Cuba (1989-1993), and Albania (1989-1993), but smaller than that experienced by other former Soviet States at the time of transition, such as Georgia, Tajikistan, Azerbaijan, Armenia, and Ukraine, or war-torn countries such as Liberia (1993), Libya (2011), Rwanda (1994), Iran (1981), and, most recently, South Sudan.

So, on this measure, according to Ricardo Haussman, former chief economist of Inter-American Development Bank, Venezuela’s economic catastrophe dwarfs any in the history of the US, Western Europe or the rest of Latin America.

Back in 2013, I warned that the achievements of the ‘Bolivarian revolution’ under Chavez were seriously under threat.  Chavez had improved the conditions of the poorest with increased wages, social services and reduced inequality.  But these improvements were only possible within the confines of capitalist economy by using the revenues of oil exports at a time of very high global oil prices.  But oil prices started to mark time and have virtually halved in the last two years.

Oil exports fell by $2,200 per capita from 2012 to 2016, of which $1,500 was due to the decline in oil prices.  The Maduro government started to rack up huge foreign debts to try and sustain living standards.  Venezuela is now the world’s most indebted country. No country has a larger public external debt as a share of GDP or of exports, or faces higher debt service as a share of exports.

The government resorted to the devaluation of the currency to boost dollar revenues, but this only stimulated outrageous inflation and cuts in real wages.  At the same time, the government decided to ‘honour’ all its foreign debt payments and cut imports instead.  As a consequence, imports of goods and services per capita fell by 75% in real (inflation-adjusted) terms between 2012 and 2016, with a further decline in 2017.  Such a collapse is comparable only to that of Mongolia (1988-1992) and Nigeria (1982-1986) and bigger than all other four-year import collapses worldwide since 1960.  This led to a collapse in agriculture and manufacturing even larger than that of overall GDP, slashing almost another $1,000 per capita in locally produced consumer goods.

The minimum wage – which in Venezuela is also the income of the median worker, owing to the large share of minimum-wage earners – declined by 75% (in constant prices) from May 2012 to May 2017.  Measured in the cheapest available calorie, the minimum wage declined from 52,854 calories per day to just 7,005 during the same period, a decline of 86.7% and insufficient to feed a family of five, assuming that all the income is spent to buy the cheapest calorie. With their minimum wage, Venezuelans could buy less than a fifth of the food that traditionally poorer Colombians could buy with theirs.

Income poverty increased from 48% in 2014 to 82% in 2016, according to a survey conducted by Venezuela’s three most prestigious universities. The same study found that 74% of Venezuelans involuntarily lost an average of 8.6 kilos (19 pounds) in weight. The Venezuelan Health Observatory reports a ten-fold increase in in-patient mortality and a 100-fold increase in the death of newborns in hospitals in 2016.

According to a study carried out between October and December 2016 by Caritas Venezuela, in collaboration with Caritas France, the European Commission and the Swiss Confederation, there are clear indications of chronic malnutrition among children in Venezuela. In some areas, it reaches levels close to what, according to international standards, is a crisis. The report says: “Insecure and irreversible survival strategies are being recorded from an economic, social and biological point of view, and the consumption of street foods is especially worrying.”  “According to a survey conducted in June 2016 in the state of Miranda, 86% of children feared to run out of food. Fifty percent said they went to bed hungry for lack of food in their homes. “

Erika Guevara, director of Amnesty International’s Regional Office for the Americas in June 2016, wrote:  “J.M. Children’s Hospital. Of the Rivers in Caracas, once a source of pride as a model of pediatric care in Venezuela, today is a tragic symbol of the crisis that is sweeping this South American country.  Half the gigantic building is collapsing, the walls stagger, the floors are flooded and the rooms are so deteriorated that they are no longer used. Halfway through, hundreds of children are being treated. But both medicines and basic medical supplies are in short supply, and the children’s mothers have already given up ordering them. (…)”. The Voices of Hunger, a report made by Telemundo and led by the Venezuelan journalist Fernando Girón, shows how Venezuelan children fight with birds of prey for bones discarded by butchers (El Nacional, 02/28/17).

Before Chavez, most Venezuelans were desperately poor after a series of right-wing capitalist governments.  But now once again, under Maduro, this is the situation for the poor and the majority of the Venezuelan working class.  No wonder support for the Maduro government has subsided while the forces of reaction grow stronger.  While the majority struggle, many at the top of the Maduro government are as comfortable as the Venezuelan capitalists and their supporters who are trying to bring the government down.

The Maduro government is now relying increasingly not on the support of the working class but on the armed forces.  And the government looks after them well.  The military can buy in exclusive markets (for example, on military bases), have privileged access to loans and purchases of cars and departments, and have received substantial salary increases. They have also won lucrative contracts, exploiting exchange controls and subsidies, for example, selling cheap gasoline purchased in neighboring countries with huge profits.

As Rolando Asturita has pointed out in a series of posts.  the army has strong direct economic power, since the FANB directs and controls a whole series of companies: the bank BANFANB; AGROFANB, for agriculture; EMILTRA, transport; EMCOFANB, company communications systems of the FANB; TVFANB, an open digital TV channel; TECNOMAR, a mixed military technology projects company; FIMNP, an investment fund; CONSTRUFANB, constructor; CANCORFANB, Bolivarian Mixed Company; Water Tiuna, water bottling plant; And then there is CAMINPEG, the anonymous military, mining and oil and gas company.

Many of the Maduro government elite have used the economic crisis to their own personal benefit.  They have bought up government debt for rich returns, while at the same time ensuring that there is no default, all at the expense of falling living standards for the people who must pay this debt through taxes and foregone oil revenues.  Foreign exchange earmarked for the payment of foreign debt has been offset by the reduction of imports of food, medicines or essential industrial inputs.

So, as anti-government protestors fight the police and army on the streets and the Maduro government moves ever closer to outright authoritarian rule, the working class is left in the cold.  The economic and social program of the opposition is the traditional one of the national capitalists backed by imperialism: namely, reform of the labor laws (ie more exploitation and sackings), privatization or re-privatization of state enterprises, deregulation of controls over investment (ie ensuring a high rate of labor exploitation) and, of course, the lifting of price controls and exchange reunification. The implementation of this program would impose even more losses on the majority.  As would the planned sanctions by US imperialism and its acolytes in the region.

What went wrong with the laudable aims of Chavismo? Could this tragedy been avoided? Well, yes, if the Chavista revolution had not stopped at less than halfway, leaving the economy still predominantly in the control of capital.  Instead, the Chavista and Maduro governments relied on high oil prices and huge oil reserves to reduce poverty, while failing to transform the economy through productive investment, state ownership and planning.  Between 1999 and 2012 the state had an income of $383bn from oil, due not only to the improvement in prices, but also to the increase in the royalties paid by the transnationals. However, this income was not used transform the productive sectors of the economy.  Yes, some was used to improve the living standards of the most impoverished masses. But there was no plan for investment and growth.  Venezuelan capital was allowed to get on with it – or not as the case may be.  Indeed, the share of industry in GDP fell from 18% of GDP in 1998 to 14% in 2012.

Now the right-wing ‘free marketeers’ tell us that this shows ‘socialism’ does not work and there is no escape from the rigors of the market.  But the history of the last ten years is not the failure of ‘socialism’ or planning, it is the failure to end the control of capital in a weak (an increasingly isolated) capitalist country with apparently only one asset, oil.  There was no investment in the people, their skills, no development of new industries and the raising of technology – that was left to the capitalist sector.  Contrast that with ‘socialism with Chinese characteristics’, albeit in the largest country and now economy in the world.

Just over a year ago, I argued in a post that, to save the aims of Chavismo, “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.”