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Back to the Future in Venezuela

Wednesday, January 10, 2007

Hugo Chavez's decision to nationalize the telecommunications and electrical industries points Venezuela down a backward path.

On the eve of his third inauguration as president of Venezuela, strongman Hugo Chavez is in the headlines again. This time the news hook is a decision to nationalize the country’s telecommunications and electrical system, part of a process to “deepen” and “radicalize” what Chavez likes to call his revolutionary process. At the same time, he has asked his national assembly for a constitutional amendment to eliminate the independence of the central bank, which would legally give him unlimited access to the government cash box.

"Venezuela entre la neblina" by Flickr user Joaquín WindmüllerIs Venezuela on its way to socialism? Chavez says it is, quoting Marx, Lenin, and Trotsky in his recent announcement. But for those who know the country’s recent history, there is really nothing new here. For many years it had one of the largest public sectors in Latin America, munificently funded by revenues from the petroleum industry, which itself was nationalized in 1976. Unfortunately for Venezuela, oil prices plunged to record lows in the early 1980s and did not resume their upward movement until very late in the next decade. Successive governments found themselves unable to properly maintain public service facilities and short of capital to expand or update them.

The only way to meet the crisis was to invite foreign investment. Thus, for example, to bring the phone system up to world-class levels it was sold off to a consortium of companies from the United States and Spain, with the government and Venezuelan unions holding a minority share. Likewise, although there was no sale of existing nationalized oil facilities, private companies were invited to search and develop new deposits under a different legal regime.

Now Chavez wants to put the machine in reverse. (It is still unclear whether he intends to buy out foreign investors or expropriate them tout court.) As long as oil prices remain high he can do what he wants, raiding the treasury if necessary to compensate for the corruption and inefficiencies historically associated with state enterprises in Latin America. In the Venezuelan case, this is no idle prediction; according to the most recent report of Transparency International, Chavez’s government is the second most corrupt in the world after Haiti. It is ironic that Cuba—the country Chavez takes as the model—after a half-century of socialism is courting foreign private capital for joint ventures and is also running short of sugar, which for over a century was its principal export. Cuba’s problem is not just one of world sugar prices, which have slumped for decades, but also maintenance of equipment and subordination of management to political considerations. Perhaps instead of quoting Trotsky, Chavez ought to study more carefully the only actually existing socialist revolution in Latin America. It points in the direction he has chosen for his country—poverty, backwardness, and breakdown. No wonder he is in such a hurry to truss Venezuela into an authoritarian harness before the full consequences of his economic policies can be felt.


Mark Falcoff is resident scholar emeritus at the American Enterprise Institute.

Image credit: "Venezuela entre la neblina" by Flickr user Joaquín Windmüller.

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