speri.comment: the political economy blog

The unravelling of Chavismo?

The unique experiment represented by the Bolivarian Revolution in Venezuela is potentially on the brink of a painful and protracted crisis

Dr Matthew L. Bishop, Associate Fellow, SPERI & Senior Lecturer in International Politics, University of Sheffield

Matthew Bishop

Matthew Bishop

One of the most difficult jobs we have as analysts of political economy is cutting through the fog of debates that are polarised between seemingly irreconcilable viewpoints.  The unfolding crisis in contemporary Venezuela presents us with just such a conundrum.  Since early February, there have been waves of protest against the Maduro government, with a number of people so far dead, a prominent opposition member, Leopoldo Lopez, now in custody having surrendered, and three US consular officials expelled from the country.

For critics of the Bolivarian Revolution, the main lines of argument have been well rehearsed: a populist regime with a creeping tendency towards military authoritarianism has corrupted the state; presided over a dysfunctional economy in which oil rents are diverted to its enormous client base amongst the urban poor; consciously armed militias to police the revolution by systematically terrorising the wider population; and turned a blind eye to the explosion in crime and violence.

For its supporters, though, the Bolivarian Revolution is something else: a genuinely revolutionary process of change bringing with it massive upheaval of a deeply corrupt and elitist order and necessarily provoking a backlash from powerful vested interests that seek to resist its logic.  By distributing resources to the poorest – and pre-Chávez, they were very poor indeed – Venezuela has made huge advances in almost every measure of development, all of this carried out, what is more, by a government with greater electoral legitimacy than many others globally.  The current crisis, on this reading, is little more than an attempted ‘neo-fascist’ destabilisation led by the Venezuelan right-wing elite in tandem with US security agencies, redolent of the failed imperialist coup of 2002.

However, this is not 2002.  In fact it’s getting on for two decades since Hugo Chávez first swept to power and much has changed since then. To understand this, we need to cut through the hyperbole and consider instead the deeper political economy of contemporary Venezuela.

Many facts are not in doubt. The most obvious success of Chavismo was the enfranchisement of large sections of the previously abandoned.  Rafts of progressive social policies have seen spectacular and unprecedented improvements in the poverty rate, literacy, maternal health, life expectancy, child malnutrition, equality (including gender equality) and GDP per capita.

But these changes have been accompanied by significant costs.

First, mismanagement of the national oil company, PDVSA, has seen production plummet by as much as 20% over the decade.  This matters, since oil still accounts for around 95% of exports, with dependence on energy rents having essentially strangled attempts at economic diversification.

Second, inflation has been rampant.  I was in Venezuela in 2011: the official Bolívar-US$ exchange rate was 4.3 to 1, with the black market rate hovering around twice that.  In early 2013, the official rate was devalued to 6.3, yet by Christmas inflation was running at 56% and US dollars were changing hands for up to 50 Bolívares.  Today, the official rate is approximately 11.7, but it takes as much as 87 Bolívares to buy a single Greenback on the black market. This has led to some bizarre effects; for example, those with access to dollars – including much of the Chavista elite – have been able to finance living standards many times greater than would otherwise be possible.  Yet international airlines are suspending flights because the government has not honoured payments for tickets purchased in dollars, and foreign exchange reserves have halved from US$40bn in 2008 to around US$21bn today.

Third, there is the question of violence. Venezuela is today ‘the most weaponised country in the world’, recording 24,000 murders in 2013 alone. Since Chávez came to power in 1999, a staggering 200,000 people have been murdered, a statistic which bears comparison with Iraq. And all are vulnerable: in January 2014, there was an outcry after Mónica Spear, a former Miss Venezuela, and her husband were brutally murdered in a robbery.

Consequently, the country in 2014 really is very different – both for better and worse – to the one that Hugo Chávez inherited and so forcefully reshaped.

A key problem is that, in so dramatically empowering the poor, Venezuelan populism has necessarily been predicated upon the simultaneous disenfranchisement of another significant swathe of the population.  In 1999, when this group was principally a small, reactionary and bourgeois elite, this was perhaps not so problematic.

But today this is not the case. The people demonstrating against the government constitute a broad church, led by students for the most part, but also apparently including some from poorer neighbourhoods. Moreover, President Maduro himself enjoys distinctly less legitimacy than did Chávez; he was only elected in 2013 on a wafer-thin majority, with the country effectively split between him and the opposition leader, Henrique Capriles.  And the three issues highlighted above – economic decline, the collapse of the currency and widespread violence – do not discriminate: they terrorise the poor and lower-middle classes too.

This is something that, uniquely, I get to witness living in Trinidad, just seven miles from Venezuela across the Gulf of Paria and home to thousands of émigrés from Caracas, who are part of an ever-growing exodus.

These people – some of whom are my friends – are, perhaps unsurprisingly, not members of a neo-fascist elite.  They are just everyday working and professional people who have come to Trinidad in search of opportunities and personal security.  They acknowledge many of the social achievements of Chavismo, but they angrily reject its downsides.  Many believe they will never return home to live again; they watch as their parents’ savings evaporate; they recount tales of vicious ‘kidnap express’ robberies inflicted on their terrified friends; and when they go to Caracas to visit – assuming that they are able to find a ticket on a ghost flight – they travel laden with suitcases full of toilet rolls, toothpaste and, remarkably, imported corn flour from Venezuela.

For a long time, I felt that the benefits of Chavismo outweighed the negatives.  But I’m increasingly coming to a distinctly less sanguine view.  We are now potentially witnessing the opening chapters in what could be a long and painful denouement of the Bolivarian Revolution. Amidst the screaming on either side of the debate, what Venezuela really needs is balanced analysis, skilled leadership and thoughtful compromise to manage the transition, repair the economy and stitch together a heavily fractured society.  It barely needs saying that, today, the space for such intellectual and political reconciliation looks extremely limited.

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Categories: Development, SPERI Comment | Tags: , , , , , | 2 comments

Articles and comments posted on this blog reflect the views of the author(s) and not the position of SPERI or the University of Sheffield.

Comments (2)

  1. Very interesting article, Matt. I’d be interested to know more about the dynamics behind the currency volatility we’ve seen in a host of countries including Argentina and Turkey as well as Venezuela. Is it related primarily to capital flight in all of these countries??

    Robert Peston recently reported that the Turkish central bank had to raise interest rates to 10% (up from 4.5%) to prevent high levels of capital leaving the country (http://www.bbc.co.uk/news/business-25942239) and investment seems to be a problem for Argentina as well resulting in projected inflation of around 30% this year (http://www.bbc.co.uk/news/business-25871675).

    Is this related to the return to growth of economies such as the UK, which are offering more lucrative returns on investment? And if so, why would this be having such an impact on some countries in your region and not others? Controls on capital flows perhaps? Or were they more reliant on FDI?

    Interestingly, this comes at a time when – as Ha Joon Chang is explaining in today’s Guardian (http://www.theguardian.com/commentisfree/2014/feb/24/recovery-bubble-crash-uk-us-investors) – there is excessive levels of liquidity in the UK (strongly related to Quantitive Easing) relative to the number of attractive investment options in the core economy. Consequently, we are seeing this excessive liquidity inflate new bubbles in asset prices, share prices, etc. If this is true then I suppose we have geographic movements of capital which should be a deeply concerning for both the bubbly Anglo-liberal economies and the currency-troubled countries such as Argentina and Venezuela.

    Very interesting indeed, Matt. Thanks!

  2. Great comment Dan, cheers. I can’t comment on Turkey, but I think Argentina is definitely seeing something similar to Venezuela. They have a parallel currency there too: at present it is only valued at about 1.5 or so above the official rate, but is also sliding. My sense is that it’s a fairly obvious side effect of an economy which is dependent on commodities, and, during the boom, has distributed the rents that have thereby accrued, rather than investing them into diversification activity. The Economist has a report (http://www.economist.com/news/leaders/21596515-there-are-lessons-many-governments-one-countrys-100-years-decline-parable) on Argentina just this week, and this is the broad thrust of its article.

    I have to say I find the glee – and thinly disguised ideology – which pervades the Economist’s analysis pretty distasteful; there is, for example, a big debate to be had about the merits of distributing resource income to the poor, and Argentina’s social statistics since the crash of 2002 are pretty impressive. But the question then comes back to whether or not the growth that permitted this to happen was actually a product of the boom, and therefore a bit of a chimera.

    I like the way you link everything to the flows of money coming back into the Anglosphere, which is not something I’d thought about that much, but quite plausibly an extra factor (not least since the pound is rocketing in value at the moment, and causing my salary to be worth much less!) I reckon the lesson, though, for the UK is just the same: what do you do with the proceeds of the bubble as it grows, and how might that insulate you when it inevitably deflates? My guess is that, in about 9 months’ time, we’re going to discover the answer, and it will be tax cuts and a re-run of the Lawson boom of 1986/7 (and the subsequent crash).

    For Venezuela, of course, the broader currency problem is far more intense than in Argentina. Oil is literally all the country has to sell at the moment; any devaluation to something a bit closer to the market value of the Bolivar would be inordinately painful for the people at large, and especially the poor, but it would also have an enormous impact on the export profile of the country more broadly.

    On a more important note: I like the ‘bubbly’ imagery. Surely there’s a pun-tastic paper title in there which links to City financiers and the state of the UK economy more broadly…

    Finally, if anyone reading is interested in a balanced and sensible, but more pro-Chavez piece than mine here, Owen Jones had a good one in the Independent today. Nice to see Venezuela finally starting to get a bit of coverage in the UK press: http://www.independent.co.uk/voices/comment/owen-jones-socialisms-critics-look-at-venezuela-and-say-we-told-you-so-but-they-are-wrong-9155295.html

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