Recently, I have read an Economist article titled “Oil, missions and a chat show” (May 12th 2005) which basically looked at Hugo Chavez’s new twenty-first century socialism. I would post a link but you have to have an online subscription in order to see the article.
Chavez has created missions, which are social programs and worker’s co-ops, in order to realize his idea of the Bolivarian revolution. This means setting up health institutions, creating programs that teach adults how to read, building subsidized state shopping centers, and establishing co operatives that make shirts and what not. The state has also steadily increased its intervention into the market, creating a state owned airline, phone company, and TV channel in addition to the state owned oil monopoly. Politically, Chavez also has essentially expanded his power greatly. The article claims that “Mr Chavez now exercises complete control over all the institutions of the state.”
I am not sure if Chavez’s intentions are good or bad, but it seems like Chavez is going to run
Venezuela into an economic disaster. Since the economy and thus the missions are based off of Venezuelan oil, the economy is subject to any sort of price fluctuation in the oil market. A good example of this would be a crude-oil exporting country in
Africa which bases its budget on oil revenue, and thus experiences huge fluctuations in its budget due to changing oil prices. Although I am not completely sure about this, my belief is that
Venezuela outside of the oil industry does not have much to offer economically, thus they are very vulnerable.I also feel that this huge spending binge on workers co-ops and what not is a waste of money. I highly doubt that they will work in the first place, despite how nice they seem. It would be more beneficial for Chavez to wean his country off of its oil dependency through the development of another industrial sector. All of these social programs would be for nothing anyway if the state runs out of oil money to fund it, so instead of spending tons of money on programs that probably will fail, Chavez should focus on developing a stable domestic economy that can survive independently from
Venezuela’s oil revenue. Perhaps Chavez believes that creating these worker’s co-ops would strengthen the domestic economy, but I would assume that these co-ops would lose money and would require state subsidies to survive.
The article also points out the 1970s abysmal failure of General Juan Velasco in
Peru who established many co-ops and expanded the state role in the economy. I guess I would assume the same thing would happen in this case too. However, with all of that stuff aside whether or not socialism does or doesn’t work and if Chavez is a dictator and what not, such high spending on the faith on a fluctuating oil revenue to the neglect of strengthening domestic industry will eventually ruin the Venezuelan economy.
Also perhaps on a somewhat related note:
What does anybody (if the Jefe is still moderating or anyone else checks up on this site occasionally--and hopefully they do because then I would feel like less of a nerd) think about direct import substitution? I believe this means that (in the spirit of Gunder Frank's dependency theory) that these economies need to excise themselves from the exploitative international economic structure that only seeks to extract all the wealth/resources from these Latin American countries. As a result they tried to subtitute imports with their own domestic industry to become independent. The context I heard it in seemed to suggest that this was bad. To the extreme, I suppose it is pretty bad. A single economy can't possibly produce all of the goods that they import. However, I do think that Gunder Frank's dependency theory has a lot of merit (although it may be a little defeatist) and at least
some import substitution needs to happen, at least in critical industries. I mean, US steel is artificially propped up by the US government, isn't it? Hardly anyone is more vocal about free markets than the US. So the same can apply to these countries too. Or perhaps I am misinformed (which is entirely possible).
