Jun.
23
2014

Venezuela Syndrome

In the second part of the interview, Ricardo Hausmann, Professor of the Practice of Economic Development at Harvard University and former Venezuelan Minister of Planning, explains the causes of the decline of his oil-rich home country.

According to him, the main reasons are the over-reliance on the oil’s price on the world market, the decline in the oil income capita, the introduction of price controls, and the abuse of power by the government.

Zentai Péter: How would you explain the fact that Venezuela, one of the world’s leading oil producers, has not been able to profit from the persistently high prices of raw materials in the last few years? I am always hearing, reading that basic necessities are missing from the stores and that the authoritarian regime is not able to cope with growing crime. Does that mean the people of Venezuela are not better off than 10 years ago?  In the meantime, in the similarly autocratic Russia, standard of living is higher, and in the Gulf States – being dictatorships, as well – welfare improvement is apparent…

Ricardo Hausmann: One of the determining factors is the amount of oil produced per capita. When I was born, in the 1950s, Venezuela was exporting 3 million barrels of oil a day and was a country of 7 million people. Today, we sell less than 2 million barrels of oil a day, while the population reaches 29 million. In other words, the per capita oil production has gone by a factor of one sixth over the past 60 years.

Why did the production fall from 3 million to 2 million barrels a day?

Oil is a non-renewable resource. In order to maintain or increase oil production, the country has to continuously provide all necessary means for it, replace the oil extracted , explore new oil reserves, build infrastructure, renew technology, and train professionals. This is strongly capital intensive and technology intensive but not really a political work. Now, in Venezuela, the oil production and oil export have been completely politicized.

Is it different in Russia or are there any similarities between the ideas of the two governments?

This also happened in Russia where production fell by half until the 2000s. Since then, however, new oil reserves have been explored and the production has recovered a by 4 million barrels of oil a day. In the Gulf States, the per capita oil production is even more extraordinary. Saudi Arabia, for example, has five times more oil per capita than Venezuela or Russia!
We also need to consider another element: the oil income per capita. The price of oil on the world markets determines – indirectly – the income of the people of Venezuela, Russia, or the Gulf States. The energy crisis in the 1970s generated a spectacular increase in incomes per capita. In 1980, Venezuela received about 3 500 dollars per capita in oil tax revenues, which has gone down to 1 000 dollar. The economy was impoverished by its over-reliance on oil and its inability to diversify away from oil.

In the light of this, it is understandable that the Venezuelans elected a strong president who takes a firm stance against foreign economic powers and places national interests above everything else. Both Chavez and his successor Maduro came to power democratically. As they say, this is the real democracy.

A democracy is not a situation where if you get 50 percent plus one of the votes, you get 100 percent of the power. The courts only operate to prosecute the opposition and to give a kind of impunity to anybody who belongs to the government. Separation between party and state no longer exists: all of the public resources can be used for party purpose. How could something be called a democracy where journalists are intimidated, television and radio stations are closed down in order to bring them into compliance? Where news and events that are not pleasant to the government do not make it to the national TV or the press? This is the lack of voices, lack of participation, and lack of checks and balances that create these polarized political outcomes and that make social peace hard to achieve.

As far as I know, the majority of the people accept that; the system is popular after all…

The system was without a doubt quite popular. Today, however, people find it hard to imagine that the reason why bread or toilet paper is missing from the stores is because of a conspiracy by the Americans. As the non-publicizeable opinion polls show, they believe that this is mostly a government failure. It is not so much the ideology as it is coercion that is maintaining the regime on power. The government tries to create fear so that people do not raise their voice or protest against it in popular areas. Those people rely on public employment and subsidies that can be taken away from them if they misbehave. So I do not think that the system only relies on people being confused but, to a large extent, on people being misinformed and forced.

This situation is not sustainable in the long term. Sooner or later, this system of government will collapse and they will return to democracy. Not to mention the other Latin American countries, such as Chile, Peru, Brazil, and Colombia, where – unlike in Venezuela – a sustainable economic recovery and a process of democratization are going on at the same time. Venezuela cannot keep up with this… Besides, the Unites States is nearby.

It does not mean anything. I do not believe that a bad system will necessarily collapse and then return to normal. There is no automaticity in history; there is no inevitable return to anything. The United States, the West, or the democratic Latin American countries have not done much to help Cuba free itself of the dictatorship. It has been 50 years in Cuba and it has only been 15 years in Venezuela. I am not optimistic about international affairs changing the domestic situation.  It will be up to Venezuelans together with encouragement, with moral support, and voices from the rest of the world but it will not happen automatically. It will have to be constructed.