The Price of Venezuelan Oil? Democracy

Venezuela has inherited from its colonial past a feature that has handicapped its economic development as well as its free institutions: rentierism.

Rentierism, or what is called in Spanish rentismo, refers to an economy that depends too much on government spending because the government maintains a monopoly that permits it to be independent from tax revenues, and hence from its population. The Empire of Charles I of Spain financed all of its costly foreign and interior policy with gold brought over from the Americas. Over time, this led to inflation, further feudalization of Spanish society, and a weak commercial balance dependent on imports from England, the Italian republics and the Netherlands.

Today, President Hugo Chavez’s Venezuela works in a strikingly similar fashion. His so-called “Socialism of the 21st Century” has been a long campaign to expropriate and take over the private businesses of Venezuela’s weak bourgeoisie. He has utilized gigantic oil revenues in order to finance the government without the need for tax revenues or the private sector.

Chavez has systematically expropriated agricultural land from the hands of private producers (some of them very efficient) in a crusade to give the land to the peasants. He has propagated a myth using socialist rhetoric in which the government must redistribute the country’s land in order to protect landless peasants from being exploited by greedy landlords. This narrative feeds off a 19th century vision of Venezuelan society — where most of the land was monopolized by military and oligarchic landlords — that no longer exists now that the country has become a mainly oil producing economy. This was a process that began decades ago with Venezuela’s oil industry, but Chavez has taken it to its ultimate extreme, resulting in the destruction Venezuela’s capacity to feed itself by decimating the country’s agricultural sector.

As a result, Venezuela now depends more than ever on foreign imports, especially from Colombia and Argentina, and the average Venezuelan depends on imported food purchased with oil revenues. High government spending has led to the highest inflation in Latin America and the almost complete demise of national production. Contrary to common sense, Chavez’s officials defend this policy as the primary establisher of national autarchy.

Venezuela’s catastrophic economic situation doesn’t end with the agricultural sector. Chavez has expropriated other important branches of national industry, like steel and aluminum, sugar, electricity, and the biggest telephone corporation, which has followed these companies into bankruptcy. His socialist ideology has resulted in an economy that depends more than ever on oil prices.

Chavez's strategy to have a tight control of the only real source of wealth in the country makes complete sense if he plans to rule for life. It has made him the indisputable, strongest and wealthiest politician in Venezuela, by leaving the private sector subservient to the central government and the civil society weak and demoralized in front of an all-pervasive civil bureaucracy.

Venezuela’s woes fit the pattern of other oil-rich countries which have also become rentier economies controlled by repressive regimes. These governments use oil wealth to bolster their popularity by buying off important segments of the population with social programs, as well as suppressing dissent, which is exactly what Chavez has been doing for more than a decade now.

Photo Credit: smoreno2007