Venezuela’s Cyclical Rent Crisis

Any attempt to understand the economic crisis currently ravishing Venezuela should not ignore the important role that oil rent has played and is playing in the country’s economy.

Since its genesis, with the advent of large foreign capital, oil revenue has changed Venezuelan society in all aspects. It has forced the modernization of the state, altered the composition of the social classes, and reorganized the national geography according to its interests and as a new dynamic factor of political and economic processes.

It also became the main issue of dispute among the ruling classes, giving way to rent-claimers and rent-seekers as Professor Bautista Urbaneja describes the two major sectors of society (1): those seeking to gain control of the rent by occupying political or economic power, and dispossessed sectors that seek to organize themselves in order to demand larger shares of the rent through social aid, expansion of public services, etc.

The Venezuelan state, through a long-standing dispute with transnational oil companies, has become the main administrator of oil revenues. This is not, of course, as an “objective” administrator guided by an absolute managerial rationality. Rather, it is quite the contrary.

The fate of the sometimes abundant and sometimes diminished resource is defined by the interests of the Venezuelan ruling classes, the correlation of forces underlining their internal conflict and the demands of the other sectors of Venezuelan society.

The ways in which the Venezuelan state distributes the rent vary considerably according to the [historic] moment in which the state finds itself, presenting itself as a conciliatory benefactor at times of rising rent levels but neoliberal when international oil prices fall, the well-known crises of Venezuelan rentier capitalism.

It is our intention to reveal here how the relationship between political and economic factors impacts the behaviour of a particular actor, in this regard Theotonio Dos Santos (2) tells us:

When we approach a specific historical situation and identify its determining factors, we see that the game of the political forces has its possibilities of action conditioned by a limited number of economic possibilities, which become ever narrower the deeper the crisis. Therefore, in acute crisis situations, possible solutions become tougher and more prominent. Thus, it is the political act that decides (i.e. the man/woman) which path should be followed, but the historical possibilities are available within certain economic possibilities. The determination that begins in the economic sphere becomes a reality through the conscious or political act, and then returns to the economic arena, acting on it within the conditions that are established.

To illustrate more clearly, one can review cases in the recent history of the country, in particular the governments of [president between 1974-79 and later 1981-93] Carlos Andrés Pérez.

When comparing his administrations, we will observe this phenomenon very clearly. If we take the first Pérez government, which took place within the framework of one of the greatest oil bonanzas, we will see that the behaviour of the state is that of a strong one, which actively intervenes in the economy, creates jobs, increases wages, launches programs of industrialization and nationalization of private enterprise, etc. The appearance of a strong state is formed, founded on endless abundance, abundance that it in turn shares with the rest of society, or supposedly does so.

In the period of rising oil revenues, the Venezuelan state is relieved of the tension between those who claim larger shares of the income. Usually a process of transferring rent to the bourgeoisie is started by establishing a fixed exchange rate that artificially overvalues the bolivar [national currency] against the US dollar. This overvaluation acts as a direct transfer to importing sectors which benefit from a low exchange rate that allows them to initiate a massive import of consumer goods brought from industrialized countries. The few productive sectors are, in turn, subsidized by an increase in loans or benefit from the import of intermediate goods.

On the other hand, the working class also receives an increase in the share of the rent earmarked for them: wages are increased, bonuses are awarded, there is an expansion of public services that extends to the most peripheral sectors where the workers and their families reside, debts are written off in the countryside, loans are granted to small landholders, etc.

Likewise, the state rapidly expands in this period, creating new institutions and intervening directly in the economy. To give us an idea, during Pérez’s first period the state increased its share of gross fixed investment from 32 percent in 1970 to 59.5 percent in 1976 (3).

The apparent abundance and wealth of Venezuelan society in these periods of growth lessens tensions in the struggle for power and control over the rent in Venezuela. Social conflict is also reduced and the state plays the role of benefactor and providing assistance.

Hector Hurtado, who was the finance minister almost until the end of the first Pérez government, sums up what actually happened very well in an interview with Terry Karl in 1978 (4).

The most important weapon of a finance minister when faced with multiple budget requests is to be able to say “no.” But how could I say that, with that pile of money out there? And how could I say no when any applicant could go and ask someone else?

Pérez’s second government, on the other hand, is very distant from the first. He received a nation in crisis resulting from the reduction of oil revenues and the burden of an external debt that hallowed out the national treasury.

This government, which counted among its ranks an arsenal of neoliberal technocrats, planned and implemented a program of economic austerity to reduce public spending: “The Great Reversal” or the VIII Plan of the Nation.

This programme generally consisted of shrinking the state, reducing the number of institutions and giving rise to privatization. It also reorganized the exchange rate system that would move to a floating regime, leading to a 150 percent devaluation of the bolivar. This impacted the transfer of income to the importing bourgeoisie but also caused a move to more flexible legislation in favour of foreign private investment, as he sought to attract capital to the nation.

Of course, cuts were also made in the transfers of resources (or rent in the context of the petro-state) to the working class through consumer subsidies: wages were reduced with a fall in real wages of about 30 percent (5) as a result of price liberalisation and the rising cost of services.

In this period, the conflict increased and the same Puntofijo system began to enter its terminal crisis: the party system, the [Chamber of Commerce] FEDECAMARAS and sectors of the Armed Forces all experienced internal conflicts and the large popular majorities ceased to grant legitimacy to the system.

This phenomenon occurs again in a much shorter and much more recent time period, if we compare the economic development of the governments of [the Venezuelan President from 1999 to2013 Hugo] Chavez and [current President since 2013 Nicolas] Maduro, we will find troubling similarities with the economic facts and behaviour of the Venezuelan state between 1970 and 1998.

In the next part of the article we will detail some similar policies between the different economic adjustments in Venezuela, particularly the “Great Reversal” of Carlos Andrés Pérez and the “Venezuela Agenda” of [Christian Democratic Venezuelan President between 1969-1974 and later 1994-1999] Rafael Caldera.

Did the old adjustment package finally come?

Prices. Both in the “Great Reversal” and the “Venezuela Agenda” the question of price controls was key, with the first having called for a “reduction” of them and the second aimed at a “liberalization” of the system.

During the governments of Chávez and the first of Maduro, the opposition again and again pointed to price controls as one of the main economic policies responsible for the country’s problems. After more than a decade and a half of the “implementation” of this policy, today it is sufficient just to wander around a supermarket in any part of the country to see that both adjustment policies have been de facto implemented, both the reduction of controls (which were never very present) and the liberalization of prices.

As a direct consequence, it is true that products now abound where they were once scarce. An example is the case of precooked corn flour, which currently costs 14,000 BsS (6), while in the table published in the [government’s August 2018] Recovery Plan the agreed upon price was 20 BsS. For sure, as with everything else, there has been no official lifting of the controls, although it is clear that there is an agreement to do so, albeit by omission.

Value-added tax (VAT). Value-added tax, which appeared in Venezuela in 1994 with an aliquot of 10 percent, has had a turbulent path over the last 25 years. If austerity plans have anything in common, it is to raise the VAT as much as possible, to the point that in 1996 it reached its highest rate of 16.5 percent. Since August last year it was at 16 percent, the highest level in the last 17 years. In the face of this, sections of the left and the workers have consistently called for its elimination due to it being regressive tax on the people’s pockets

Promotion of foreign investment. During efforts to shrink the state and shift the centrality of the Venezuelan economy away from oil, the “Great Reversal” proposed the total lifting of international restrictions on foreign investment. Likewise, on December 29, 2017, the Law on Productive Foreign Investment was passed [by the sitting National Constituent Assembly], which seeks to stimulate investment in areas such as hydrocarbons, mining and telecommunications. Its changes included the elimination of [government-run currency control mechanism] CENCOEX, the reduction of the required time spent in the country to begin sending remittances abroad, an increase from 80 to 100 percent of the utilities which can be sent back to parent companies and establishes ten points of favourable conditions that investing companies can enjoy. For several months [left-wing influential Venezuelan author] Luis Britto García denounced this law, both during its elaboration and after its approval.

From indirect to direct subsidies. The “Venezuela Agenda” directly proposed the creation of targeted social programs and, in general, in the face of income reductions and the consequent shrinking of the state (when its leadership so wishes) indirect subsidies are replaced by direct ones. In recent times, the Venezuelan government, through its various spokespersons, has announced a policy of changing the type of subsidy. Although the substitution has not been total, because there are still several indirect subsidies in different key areas of services, the Homeland Card was born as the instrument for the implementation of a policy of direct subsidies. Earlier this year, the government said that the Homeland Card has reached 18,429,000 people, which means that more than a third of the population has no access to direct subsidies, assuming that they reach all of those with the Card.

Worsening of wages. If Pérez’s “Great Reversal” lashed out at the working class in its objective of “restructuring the country’s economy” by significantly reducing wages, Nicolas Maduro’s government has opted for the same formula under the Recovery, Growth and Economic Prosperity Program. Memorandum No. 2792 of October 11, 2018, lays the groundwork for the elimination of collective contracts and unifies a fixed wage scale based on the minimum wage for all sectors of the workplaces. In order to “rationalize the fair distribution of wealth,” the government chose to adjust all public sector wages to the lowest level, violating Article 4 of the [2012] Labour Law which prohibits the deterioration of wage rights previously won. In this way, collective bargaining, as a historical gain of the working class of the country, is left to the good will of the unilateral decision of the public or private employer.

Reduction of tax expenditure. The deterioration of public sector wages does not respond to an isolated policy, but is due to a growing reduction in fiscal spending, another measure that characterized both Pérez’s and Caldera’s neoliberal austerity plans, both in the context of a sharp decline in oil revenues. In November 2014, President Maduro, in the face of falling crude oil prices, announced a cut in public spending for the first time that included a review of all salaries of government ministries and state-run firms. But this cut in fiscal spending was not limited to 2014 nor was it expressed only in wages. The currently increasing privatization of public enterprises shows that the state looks to save significant expenditure by ceding these companies to private capital.

Privatization of public enterprises. Caldera’s III adjustment programme “Agenda Venezuela” created the privatization plan for public enterprises to overcome the banking-financial crisis and as a plan previously agreed upon with the International Monetary Fund. Without the mediation of a financial institution, the government of Nicolas Maduro has developed an expanding plan for the privatization of public enterprises, the systematic nature of which reveals that these are not isolated cases, but a state policy. The Bicentenary Supermarket chain, ALBA Rice Plant, Balanced Animal Food Plants, the José Leonardo Chirinos Pig Farm and some PDVSA operations are just a few examples that demonstrate that this policy aims to resolve the crisis by privatizing the public sector and in a less transparent way than in the 1990s.

Increase in the price of utilities. The increase in public service rates has been noted in the government policy of recent months. Domestic and commercial gas service have seen considerable increases in several states in the country in recent days, such as Bolivar State, where the price increased from 0.00178 to 500 BsS per liter in residential areas and to 1000 BsS in commercial areas. Similarly, the increases have been worrying in the states of Lara, Carabobo and Nueva Esparta.

These cases have followed the policy which began in Caracas in January this year. That is, in most cases, because PDVSA’s Communal Gas branch has delegated the distribution of this service to the local authorities of each state, in which private companies have mostly been used. This raises suspicions of a possible privatization of the sale of gas cylinders and PDVSA Communal Gas operations.

Also, in the face of the impossibility of state-owned company SUPRA CARACAS solving the problem of litter in the capital, outsourcing the market to a trucking service was resorted to in October 2018, which has led to high-level percentage increases in the cost of this public service since November last year.

Regarding electricity, although [state-run electrical company] CORPOELEC has not formalized any increase, the rates have gradually increased. In the first half of the current year, several areas of the Capital have reported 150 percent increases in the cost of this service, in which from April to May saw price increases from 2,000 to 5,000 BsS, without any official announcement.

In the case of the internet, the public company CANTV announced its new adjustment plan last April, which raises its rates from 899 BsS to 7,192 BsS. However, various sectors of the capital have reported increases of up to 3600 percent.

All this fails to even mention the unstoppable increase in bus fares which were recently raised to 700 BsS, without the government having authorized it, demonstrating a total lack of control in the public transport sector.

Breaking the cycle of the crisis

Departing from the fact that the Venezuelan state was built around oil exploitation and took on the role of rent administrator by placing that single product on the world market, we have attempted to show that the variations in the oil sale prices affect the state itself, its formation and the policies emanating from it, expanding itself in times of bonanza and contracting with the fall in oil prices.

Governments such as those led by Pérez and Caldera, which we have taken as an example of this phenomenon, responded to the crises resulting from the fall in crude oil prices and international debt by applying “neoliberal prescriptions” consistent with the political orientation that characterized them. However, these measures are difficult to differentiate from those currently taken by the government of Nicolas Maduro, which at least in discourse is not identified with neoliberalism. It is of great interest that, given the crisis, the logic that is imposed is that of a purely administrative nature, aiming to cut spending to the detriment of those who have the least responsibility for the crisis, even going so far as to sacrifice the historical [Chavista] project as we are currently seeing.

The crisis cycle of Venezuelan oil rent cannot be overcome by always applying the same logic when this will lead us into a new cycle of economic boom and subsequent debacle, as recent history shows.

Reducing the problem of the rent crisis to the purely administrative field and assuming that Venezuela’s problems are solved with leadership and good management as the technocrats have always claimed, does not allow one to see the background of class interests in the management of the rent, interests that are upheld both in the economic boom and in times of crisis in order not to lose historical or newly achieved privileges. Modifying the class interests in the administration of the rent, replacing them definitively with the interests of large national majorities, historically excluded and easily disposable under neoliberal logic in times of scarcity, could break the wheel of the cyclical crises of Venezuela’s oil revenue.

Breaking this cycle means overcoming the logic of technocracy and relying decisively on the organic social force that has managed to build local production in recent times, trusting in the capacity for management and direct control over local territories that communes have achieved, in the capacity shown by the campesinos in land reclamation processes and their attempt to sustain production, in some workers’ organizations’ capacity for direct control and self-management over productive spaces.

The qualitative difference between this historic moment of crisis and those faced by the Pérez and Caldera governments is that there are organic conditions generated by the historic Chavista project that have left a huge cluster of people willing to take over direct management of the territory, companies and the countryside, creating real and tangible results so far, despite having to navigate multiple difficulties.

However, progress in this regard requires transparency on the part of the government concerning all of the processes that it is pushing in the context of the crisis. As such, some social movements recently ventured to raise their voices beyond a superficial analysis and propose a series of ideas in the document “Dialogue for a Chavista Overcoming of the Crisis.” These voices rightly highlight the call for transparency in the processes undertaken in economic adjustment plans and, in general, in all the decisive factors for the life of Venezuelans.

The apparently easy way out [of the crisis], which is the reduction of administrative costs as a typical recipe of neoliberalism, reduces the state to its minimum expression with its already known consequences, and reveals the class composition (or at least the interests it defends) of a particular government. If it is insisted that we repeat schemes which in the past have laid the heavy burden of the crisis on the backs of the weakest, when we have the opportunity to take alternatives paths, it is unlikely that a truly revolutionary way out of the current crisis can be achieved.

Notes

1. Urbaneja, Bautista, D. La renta y el reclamo: ensayo sobre petróleo y economía política en Venezuela

2. Dos Santos, Theotonio. Obras reunidas de Theotonio dos Santos. Tomo I: Desarrollo, democracia y socialismo

3. Battaglini, Oscar. Ascenso y Caída del Puntofijismo. pág 139.

4. Urbaneja, Bautista, D. La renta y el reclamo: ensayo sobre petróleo y economía política en Venezuela. pág 273.

5. Battaglini, Oscar. Ascenso y Caída del Puntofijismo.

6. Translators note: At the time of writing a minimum salary is 65,000 BsS (equivalent to US $2,80). Price references throughout the article should be understood in this context.

The views expressed in this article are the authors’ own and do not necessarily reflect those of the Venezuelanalysis editorial staff.

Translation by Paul Dobson for Venezuelanalysis.