I’m reading Comandante: Hugo Chávez’s Venezuela
Sansó defended Chávez’s energy policy, saying the comandante had helped revive OPEC, sending prices rising even before the Iraq war, and had had the vision to recognize Venezuela’s oil was not just around Lake Maracaibo, in the west, but also in the center of the country along the Orinoco in a smiling arc known as the Faja. The same wilderness that had swallowed gold-seeking conquistadores contained enormous deposits of extra-heavy crude. The black ooze had long been written off as tar, a costly-to-extract type of liquid coal, and the old PDVSA gave foreign oil companies a virtual free hand to develop it. Chávez insisted it was oil, and eventually even the U.S. Geological Survey agreed. The zone contained an estimated 220 billion barrels—making Venezuela’s total reserves vaster than Saudi Arabia’s. Chávez partly nationalized the Faja in 2007, taking majority shares in the operations, an audacious decision that infuriated the foreign oil companies working there. “For that alone Chávez was worth it,” said Sansó. “He was crazy enough to do it. Any reasonable guy wouldn’t have had the guts. He would have said it’s not possible. A century from now Chávez will be remembered and thanked for this, no matter what else happens.”
The book could use some editing. It jumps back and forth in time. There is some redundancy. But it is highly relevant right now when politicians and newspapers worldwide are trying to get people excited about “income inequality” (e.g., see this New York Times op-ed from yesterday). Chávez did not just talk about income inequality but took action.
I’m not sure if your last sentence is sarcasm or…?
At any rate, how well did Chavez’ actions work out?
The future of Venezuela lies in the education of its people not in its oil reserves. The most prosperous nations are not those that possess abundant natural resources but those that educate their young, have good legal structures, and good social dynamics. Thanks to its oil, Equatorial Guinea (the old Spanish Guinea) has a per capita GDP just a tad below the EU average (http://en.wikipedia.org/wiki/Equatorial_Guinea). Equatorial Guinea is still a Third World country and its “income inequality” is one of the highest of the world.
Javier: How has Chavez worked out for Venezuelans? I don’t know! I haven’t finished the book yet. It is unclear that he found his hoped-for “third path” between capitalism and Soviet/Cuban-style socialism. It may simply be that any “third path” is just a combination of crony capitalism and government hand-outs.
Spoiler alert: as compared to its (less resource-rich) neighbors, it is not obvious that Chavez did a great job. Great article at 538: http://fivethirtyeight.com/features/why-venezeulas-middle-class-is-taking-to-the-streets/
Quite surprised that you imply support for Chavez and his policies. Quite simply he was a very charismatic person with no idea how to provide long-term stable government (or to put it less politely, he was nuts). Some of the results of his policies: inflation, official/unofficial exchange rates and the foreign currency black market with crazy loopholes like people sending their debit cards to the States on empty flights (large numbers of seats having been bought by like-minded entrepeneurs aka criminals) to have cash withdrawn from ATMs and sent back in cash, nationalisation of massive pieces of infrastructure (e.g. The World Economic Forum ranked Venezuela as 82 out of 102 countries on a measure of how favorable investment was for financial institutions) and subsequent lack of investment meaning key parts of infrastructure are now unusable (e.g. rolling blackouts, oil production dropping as equipment plant breaks from lack of maintenance), control over mass media and resulting censorship, rationing of basic commodities resulting in long lines and black market for common goods, unable to pay foreign debt, huge increase in violent crime, etc x 100. Not to mention annoying every sensible leader in the world with ridiculous rants and foreign policies.
From an article (in spanish, titled “Why Venezuela has no toilet paper”):
http://www.eldefinido.cl/movil/actualidad/plazapublica/1863/Por_que_Venezuela_no_tiene_papel_higienico/
– Give out lots of easy money to the poor (by taking from the coffers, increasing taxation to businesses and the evil rich, printing more money)
– Lots of easy money = inflation
– High inflation = ok, let’s stop those evil companies from robbing “the people”, let’s fix prices. Unfortunately companies are in business to make a profit, which they can’t do when you are telling them you have to sell at below cost (costs that have increased because of the inflation). Hence shortages of common items. Job losses as businesses fold.
– Rationing = black market
– Nationalisation = flight of capital
– Fixed exchange rate = further shortages and thriving black market
– Foreign debt to pay for all these spiraling programs that keep making everything worse. No foreign currency to pay debt (lots of examples, e.g. airlines pulling out of Venezuela because they can’t get their money out).
– Crisis – violence in the streets
As Olentzero stated, the key to improving the lives of the poor, is not to give them easy money, but to improve the overall country, the core systems, from which everything else flows. Make the country attractive for investors and for companies and entrepeneurs, and make it clean and beautiful and safe for the best and the brightest to *want* to live in Venezuela, to *want* their kids to grow up there. None of these things are currently true in Venezuela. And that’s thanks to Chavez.
I read through the op-ed quickly. Prof. Shiller doesn’t suggest the nationalization of major industries and I doubt that any member of Congress or any well known American economist would. It might be a better to use of your time to read about the economies of countries like Canada or Germany, which are similar to the U. S. economy and have significantly lower levels of inequality.
Ok, so you haven’t finished the book and therefore you don’t know how Chavez has worked out for the Venezuelans. Leaving aside the facts enumerated by John, above, I’ll give you a simple metric: the exchange rate between the US dollar and the Venezuelan currency. Do a web search for “USDVEF=X” and you’ll see that in January 2010 the exchange rate was about 2 and four years later is about 6. That’s how well it worked out for the Venezuelans.
Philip, I know you’re a fan of economics, so I’m surprised that you would have anything other than contempt for Hugo Chavez. He was a thug who mismanaged the economy in pretty much every way it is possible to mismanage an economy, and his country is suffering for it.
Even if we’re just going to talk about producing oil, he was a miserable failure. Venezuela’s oil output is collapsing due to all the incompetent political appointees he stuffed PDVSA full of.
http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/the-venezuelan-oil-bust/article16771856/
The August 2012 explosion is just the most visible effect of the pervasive cronyism and incompetence at PDVSA.
Folks: certainly I am not saying that Venezuela has been featured in U.S. media as an economic success story. On the other hand much of what Chavez is described as saying and doing is pretty similar to what other politicians worldwide promise and do. It may simply have been that Venezuela had a larger percentage of workers whose skills were not in demand than, say, the U.S. or Greece. I am reserving judgment until I finish…
@philg “Much of what Chavez is described as saying and doing is pretty similar to what other politicians worldwide promise and do”
This relativism is exactly what I and other readers of this blog find hard to understand coming from you, Phil. To put Chavez in the same boat with, say, Hillary Clinton, Mitt Romney, Joe Biden, Angela Merkel, Tony Blair or “other politicians worldwide” (OPWs) is incredibly simplistic and downright insulting to those other politicians. Or perhaps the OPWs you were thinking of were Evo Morales, Fidel Castro, Vladimir Putin, Mahmoud Ahmadinejad and others from the same category?
Alex: What has Chavez promised? (1) To a country that already had a free public health care system for the poor he promised additional health care services/schemes (and, unlike his counterparts in the U.S., he actually brought in a lot of new doctors to his country (from Cuba)). (2) To government workers and people whose skills were not in demand he promised that they would be enriched through taxes on the most successful private sector workers (and that the new higher taxes would not discourage those private sector workers from continuing to work as hard as they formerly had). (3) To most voters he promised that they could enjoy a better standard of living without either working more diligently or learning new skills (i.e., the government would either raise wages or reduce prices). (4) That he would protect citizens from foreign invasion/influence via an expensive military. (5) That he would reduce income inequality.
If Chavez’s results have not been as good as those of politicians elsewhere who have made similar promises it could be because his implementation has been poor (and the author of the book that I’m reading says that Chavez has done a poor job executing his plans), but it could also be partly due to the fact that Venezuelan society is not as rich as the societies presided over by other politicians.
If I push the power lever on a Cirrus SR20 forward I’m doing the same thing as the pilot of an F16 fighter jet, but the result is different.