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Magical Development or Magical Illusions? Oil, Dependency and Venezuela

by Tom Chodor on May 2, 2016

With oil prices nearing historic lows, a new round of introspection about the pitfalls of oil-based development has kicked off in the media and development policy circles. The arguments, as to be expected, rehash some version of the ‘resource curse’ thesis, which holds that resource richness, in particular in oil, represents not a blessing but a curse, with a host of negative effects, from corruption engendered by unproductive rent revenues, to the Dutch Disease. Venezuela features prominently in this discourse, given its reliance on oil revenues to power the ‘Bolivarian Revolution’ under Hugo Chávez and Nicolás Maduro over the past 17 years. With the country facing shortages of basic goods, widespread corruption and political polarisation, resource curse advocates seem to have no shortage of evidence to illustrate their thesis.

energyHowever, as I argue in a recent book chapter entitled “A Different Kind of Magic? Oil, Development and the Bolivarian Revolution in Venezuela”, the situation is much more complex. The resource curse thesis offers a one-sided account of the failures of oil-based development, which essentially boils down to the absence of capitalist modernity in oil-producing nations. Yet these failures cannot be understood as resulting from endogenous factors alone. Any analysis must also examine the larger question of the dependent insertion of oil-producing nations into the global economy, and the role played by foreign oil capital in perpetuating this dependence. Likewise, any attempt to use oil to achieve sustainable development must address this dependence if it hopes to succeed.

In this context, Venezuela’s past and present offer a perfect case study of oil-based development and its pitfalls. Its post-war development model was closely aligned with the West, seeking to ‘sow the oil’ by capturing a ‘fair’ share of revenues from foreign oil companies, to invest them in creating a modern, capitalist, industrial economy. This model represented oil as a means to Western modernity, without the need for revolutionary change in a country riven with racial and class cleavages. As the late Fernando Coronil argued, this was ‘magical’ thinking, with Venezuelan leaders acting like ‘magicians,’ claiming that oil wealth enabled them to pull a modern Venezuela out of the proverbial hat, without radical change and social upheaval.

However, despite periodic achievements, by the 1980s this model was failing, precisely because it failed to confront Venezuela’s dependent insertion into the global economy, and its social structure build on centuries of exclusion and exploitation. Internally, the oil economy skewed class relations, promoting the middle and skilled working classes, while marginalising the vast masses confined to the informal sector. On the other side, easy money doled out to local capital fuelled corruption, and meant that national industry never became competitive.  Externally, Venezuela remained reliant on foreign corporations, which defined the terms of production to suit their own needs, refusing to increase refining capacity or diversify export markets. Even nationalisation in 1976 failed to change much, with the management of the new national company Petróleos de Venezuela, SA (PDVSA) retaining an international focus, and the oil price collapse of the 1980s crippling hopes of a revenue boost.

As a result, Venezuela entered a long and painful period of economic crisis and stagnation, with 81% of the population living below the poverty line by 1998. Far from delivering modernity, oil had produced a flawed development model which reproduced internal domination and intensified external dependence.

It was in this context that Hugo Chávez came to power in 1998, attacking the post-war model precisely for its failure to confront Venezuela’s internal class cleavages and external dependence. In its place, Chávez offered a different kind of a magical project, one which also celebrated the oil wealth of the nation, but which sought to use that wealth to explicitly challenge dependence.

Externally, Chávez sought to gain control over PDVSA and change its orientation from international to national goals. The first five years of his presidency revolved around the former objective, with the short-lived coup in 2002, the oil industry strike of 2002-2003 and the recall referendum in 2004 all having at their core the question of control over the company. Supported from below, Chávez won these struggles, and set out to transform PDVSA by increasing refining capacity, diversifying export markets, decreasing reliance on the American market, and using oil to promote regional integration through programs such as Petrocaribe. In sum, Chávez sought greater autonomy for Venezuela from the whims of the global economy.

In itself, this was hardly radical. Indeed the government of Carlos Andrés Pérez employed similar policies during the 1970s. However Pérez never sought a radical rupture with the old order. Chávez, on the other hand, sought to use the oil wealth to explicitly challenge Venezuela’s class cleavages by empowering those marginalised under the post-war model. This included, for example, the doubling of social spending from 11.3% of GDP in 1998 to 22.8% in 2011, paid for largely with increased oil revenues, and channelled through a parallel system of ‘missions’ established directly in the barrios where previously the state did not reach, and administered by the communities themselves via newly established Communal Councils. The aim of the government was not simply alleviating socio-economic disadvantage, but also empowering the masses, by using the oil wealth to facilitate self-determination. On a macro scale, the Bolivarian Revolution also sought to utilise the oil wealth to transform the economy, creating a ‘social economy’ enclave, where experiments with cooperatives, co-managed factories and Social Production Enterprises sought to satisfy collective needs rather than considerations of profit. This enclave was surrounded by a larger state-led economy dedicated to increasing Venezuela’s autonomy and diversifying from oil through measures such promoting agricultural production, implementing currency controls and tariffs, and seeking new sources of investment from the Global South.

For a while, this alternative model seemed to make real strides. Poverty more than halved between 1999 and 2012, and Venezuela moved up nine places on the UN Human Development ranking, as the country became the second least unequal country in Latin America. Moreover, the country experienced the largest increase in support for democracy in Latin America, with 87% of the population sporting democracy in the country in 2013. Importantly, this enthusiasm had a class dimension, with 85% of barrio residents believing that there was democracy in Venezuela, compared with only 55% of residents in middle and upper class neighbourhoods. Likewise, efforts to diversify the economy saw the size of the oil sector as a share of GDP decrease from 19.18% in 1999 to 11.55% in 2009, with services and finance making the biggest gains.

However, over the past couple of years, most of these gains have either stalled or reversed, and the country once again tethers on the brink. For the proponents of the resource curse thesis, this is proof that the Revolution was nothing more than oil populism, spawning corruption and failing to implement the ‘good governance’ measures necessary to make the most of oil wealth.

magicalYet, whilst corruption undeniably remains a problem, and governance standards often leave a lot to be desired, there are deeper issues at play here, which are ignored by the resource curse advocates. What the current crisis in Venezuela illustrates is the difficulty of transforming a social order shaped by centuries of marginalisation and exploitation, both internally and externally. Internally, the Bolivarian model has found itself under constant attack from domestic capital, which mobilises its economic, political and social power to effectively go on strike whenever its fundamental interests are threatened. This is especially true since Chávez’s death in 2013, with an investment strike coupled with the political opposition’s regime change strategy paralysing the country and the economy. Likewise, despite efforts at diversification, Venezuela continues to rely on oil for 96% of its export revenues. With international prices plunging, this puts the entire model under threat, especially as PDVSA struggles to find a balance between being a capitalist and a social enterprise, undermining production and refining capabilities. In the face of these problems, the government of Nicolás Maduro seems paralysed and short of ideas on how to confront the economic, political and social crisis now unfolding in Venezuela, especially with a  resurgent opposition using its recent capture of the Congress to try to remove him from power. Thus, while in the 2000s Venezuela represented a powerful example of the possibilities of different paths to oil-based development, it seems that in the end it did not manage to free itself from its internal and external dependencies sufficiently to construct a genuine alternative to the status quo. Despite its undeniable achievements, the Bolivarian Revolution may turn out to be yet another magical illusion.

Tom Chodor
Tom Chodor is a Lecturer in Politics and International Relations at the School of Social Sciences, Monash University. His research focuses on the global governance of the global political economy and the role of non-state actors in contributing to and contesting global policy agendas. He has published articles in Review of International Political Economy, Globalizations and Global Governance, and is the author of Neoliberal Hegemony and the Pink Tide in Latin America: Breaking Up With TINA? (Palgrave 2015).

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