Roger Lowenstein: The ‘Devil's Excrement'
Venezuela imports two-thirds of its sugar. The shortage of toilet
paper is blithely reported as a sign that people are eating more.
Venezuela should perhaps be on the minds of American voters. Even in the country's salad days in the late 1970s, its democracy was hardly perfect. Parties were self-interested, politicians were corrupt, progress was halting (or worse). Then in 1998, voters elected a populist strongman, Lt. Col. Hugo Chávez, who promised to clean house and purge the political establishment. In the intervening years, Chávez, who died in 2013, and his equally inept and tyrannical successor, Nicolás Maduro, have pulled the plug on Venezuelan democracy, civil order and property rights, and (did I forget to mention?) fathered runaway inflation and economic depression.
Raúl Gallegos's “Crude Nation: How Oil Riches Ruined Venezuela” is a superbly reported dissection of this mess . For him the villain is the country's oil wealth, which ruined the incentive to work and put Venezuela on the path to bankruptcy.
This thesis explains much but not all. Venezuela discovered its oil bonanza in 1914. While local politicos always worried that easy wealth would lead to corruption and sloth (an energy minister famously referred to oil as the “Devil's excrement”), the country was both reasonably prosperous and reasonably democratic for most of the second half of the 20th century.
The seeds of Venezuela's malaise, though, were planted well before the oil appeared, and the problem lay not underground but in its political culture. Tomás Lander, a 19th-century journalist and politician, sagely assessed his country as “a nation of accomplices.”
I worked in Caracas in the late 1970s and got a hint of his meaning as a cub reporter for the English-language Daily Journal listening from the press box to an airy debate in the gold-domed Congress. My Spanish was still tentative, so I frantically inquired of a fellow reporter what was being said. Without raising his hands from the typewriter, or even pausing in his furious tapping, he replied, “ Pura mentira ”—pure lies. Not that he shared such a view with his readers. Later I was to learn that reporters were commonly tamed with cash.
The winking extended in every direction. Soon after my arrival, the business manager for my newspaper called me in to complete some Venezuelan tax forms. “How many kids do you have?” he asked. As I was 24 and single, the question perplexed me. “None,” I replied. Without elaboration he said conclusively, “We'll put seven.”
Such examples were manifold. The press, business, politicians—all were accomplices in one fashion or another. On the surface, democracy was vibrant. Ten parties jousted for power, vaguely reminding me of what I had read about America in its frontier years. Yet too few young Venezuelans ventured to open a business or study medicine, too many dreamed of becoming a political savior. A mercantile culture inherited from Spain had distilled the premise that wealth and opportunity derived from the state. Market incentives were buried under sheaves of government controls. For a while, oil riches provided a Band-Aid. But starting in the 1980s, the weakening oil market, combined with recurring debt crises, spelled the end of imported Scotch, weekend escapes to Miami and the good life.
Frustrated with politics as usual, Venezuelans elected Chávez. Mr. Gallegos, a risk consultant and former reporter for this newspaper, paints a vivid picture of the desperate, upside-down economy that has resulted from the regime's relentless strangulation of both business and democratic process.
For a while, Chávez's massive social-spending programs and nationalizing of companies was sustained by a buoyant oil market. But when oil tanked, he resorted to price controls, numbing regulations and arbitrary confiscations. The government never got the elemental economics lesson that if you control a product's price, demand soars and supply evaporates. Venezuela now imports two-thirds of its sugar and 60% of its corn. Government stooges blithely declaim that the shortage of toilet paper is a sign that people are eating more. And according to state TV, the shortage of health-care staples is a blessing; women making menstrual pads at home help Venezuela “avoid becoming a part of the cycle of savage capitalism.”
Mr. Gallegos does a good job of explaining how artificial exchange rates (Venezuela actually has four rates) distort the economy; every Venezuelan is forced to become a speculator or a smuggler to change money—an accomplice, if you will. Successful manufacturers are those who curry favor with the government and procure hard currency at preferential rates.
It can do this thanks to the state oil company, Petróleos de Venezuela, which Chávez turned into a piggy bank for social services and political favors. (Oil executives who disapproved were fired live on national TV, a Trumpian gesture.) Petróleos squanders its earnings on agricultural projects to help feed Venezuelans while neglecting investment in its oil fields. Production has plummeted, but the payroll has mushroomed to 150,000 workers, most of them hacks who report to work in red shirts to show their allegiance to the government. Saudi Arabia's state-owned oil company, by comparison, produces 3.5 times as much oil as Venezuela's with 40% of the workforce.
“Crude Nation” is full of such facts. Blaming oil, Mr. Gallegos writes Venezuela “became a different country when it discovered crude.” Yet other mineral-rich countries (Chile, Norway) escaped this fate. What Venezuela lacked was long-enduring institutions that could manage the boom. And it did little to develop an adequate education system. In such acrid soil, democracy flourished as popular sport, superficial and vulnerable.
If this is hardly the time for gringos to be giving lectures on democracy, we should, at least, thank Venezuela for reminding us that dysfunctional politics can always get worse. “Change” is not always for the better.
Roger Lowenstein is an American financial journalist and writer. He graduated from Cornell University and reported for the Wall Street Journal for more than a decade, including two years writing its Heard on the Street column, 1989 to 1991. Lowenstein's latest book, America's Bank: The Epic Struggle to Create the Federal Reserve (The Penguin Press) was released on 2015 and is now out in paperback. Petroleumworld does not necessarily share these views.
Editor's Note: This commentary was originally published by The Wall Street Journal on November 3rd., 2016. Petroleumworld reprint this article in the interest of our readers. Link to original article.
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