Changing Income Distribution in Venezuela: Sorting Out Data and Bias

All
statistics, including economic statistics, can be manipulated, or only partially
revealed, so that they demonstrate a foregone ideological conclusion rather
than reality. For instance, from 2004
until the beginning of 2006, the United States State Department and the
Venezuelan political opposition claimed that the Venezuelan economy was being
destroyed by President Chavez and his policies.
As evidence, they kept showing the disastrous results for 2003, a year when
economic production plunged and the number of people in poverty climbed.

The
enemies of Chavez chose not to reveal that the Venezuelan economy was growing by
leaps and bounds in 2004 and 2005, and that more people were employed and
enjoying significantly higher incomes.
And, of course, they did not mention their part in causing the economic
disaster of 2003, which was not a result of government policies, but of the
opposition's effort to sabotage and shut down the oil industry and other
business enterprises while the U.S.
government cheered from the sidelines.

By 2006
and 2007, it was impossible to hide the evidence that the Venezuelan economy
had been growing at a tremendous rate for four years running, and that income was
being redistributed to the poorer classes in an unprecedented fashion. Some of
the relevant economic numbers appeared in a 2007 report generated by two
private consulting firms, AC Nielson and Datos, for VenAmCham (The Venezuelan
American Chamber of Commerce and Industry).
They showed that the poorest economic class, Level E, had more than
doubled its income in three years, but their interpretation was still tinged
with an anti-government bias.

For
example, the title over the table of figures provided in the AC Nielsen/Datos report
sounded discouraging, "In the last three
years, only the income of Level E has grown in real terms." Since there are 6 household income levels
customarily used in Venezuela — A,B,C+, C-, D, and E — this doesn't sound like much of an
achievement. That is, until the reader learns
that level E consisted of a solid majority, or 58% of the population in
2003. Level E's income grew by a
whopping 130%, after being corrected for inflation. This in itself should have
been reported as extraordinarily good economic news. [i]

But was there bad news?

The
same report from AC Nielsen/Datos showed that the next two income classes,
Level D and Level C-minus, which comprised 23% and 15% of the population
respectively, were doing poorly by comparison. Level D average incomes declined
by 6% and Level C-minus declined by 16% between 2003 and 2006. Since these two groups made up nearly 40% of
the population, it certainly appeared as if sizable numbers of Venezuelans were
being left out of the economic boom.

But not
really. Those who prepared the report
made a poor decision, or perhaps, a biased decision. They began their calculations in a really
poor economic year, 2003, when the shutdown of the state oil company, instigated
by its former management and the economic elite, threw the nation into a
mini-depression. It would have been better analytical practice if the report had
begun with a relatively stable year such as, when solid economic growth was putting
Venezuela
on a more even footing. If we look at the numbers for 2004-2006 that were cited
by AC Nielsen/Datos (see below), they don't show a huge single-year jump in the
incomes of the poorest citizens, but they do reflect a very impressive picture
of movement toward a more egalitarian society where the vast majority is
improving its economic status.

From
2004 to 2006, there was growth (after adjusting for inflation) in average
incomes for all three income groups, E, D. and C-minu (97.6% of the population).

(*income
adjusted for inflation in 2006 bolívares; the official exchange rate is 2,150
bolívares to the dollar, so, roughly speaking, 1000 bolívares equal about 50
cents, and 1,000,000 bolívares equal about 500 dollars.)

Add another bit of information, things look
even better

But
there was more to cheer about that was not included in that particular report. Another study, prepared for the Venezuelan
Chamber of Commerce in 2007, showed that people at Level E were doing so well that
many of them had moved into higher income classes. When 2004 was compared to
2007, the percentage of the population at Level E had shrunk dramatically, from
58% to 45.7%, while the level above, D, had grown 23% to 33.6%. And at Level C-minus, which roughly consists
of the lower-middle and middle classes, the percentage also grew, from 15% to
18.3%.[ii]

In the
table above, level D showed a healthy increase in its average household income
of 14.3%, but this doesn't appear very significant compared to the average
household increase at the lower level E of 42.3%. This perception changes, however, if we note
that a great many people, more than 10% of the total population, moved up to
level D from level E between 2004 and 2007.

This
suggests that there's another way to look at the social impact of incomes
earned by those at level D. Instead of
looking solely at the increase in average income, one should also consider the
aggregate increase in household income at this level. That is, if the total income earned by
everyone at level D in 2006 is compared with the total income in 2004, the
change is outstanding. The income growth
for level D as a whole jumps to 67%.

Increases
in aggregate income at the lower income levels in Venezuela, 2004-2006

Discouraging news for a few

A truly
discouraging number, at least for the political opposition and the big business
class, was the one that demonstrated that the small, high-income classes
— Levels A,B, and C-plus — were
shrinking. Together they comprised 4% of
the population in 2004, but only 2.4% by 2007.
While it is difficult to assess exactly why this happened, we can
speculate that at least two factors were probably at work. First, a considerable number of well-off
Venezuelans have been moving to the U.S.,
Colombia, and Europe in recent years, where they either reinvested
their capital or pursued high-salaried professions. Secondly, the high rate of inflation in Venezuela
has taken a toll on some higher-income people who have fixed earnings derived
from interest, rents and domestic investments.

For
this reason, the status of the citizens at income level C-minus might not be as
rosy as it appears in the table above. Since the number of households at this
level increased from 15% to18.3% of the population in just two years, the aggregate
income earned by all the households at level C-minus (that is, all of their
incomes added together) grew by 22%.

However,
there's a catch here – obviously some people that moved to Level C-minus are not
doing as well as they once did. As the percentage people inhabiting the three high-income
levels shrank from 4% to 2.4% of the population, many of the missing 1.6% (those
who did not fly off to Miami)
ended up living a Level C-minus existence.
Because of this factor, it would probably be a mistake to overemphasize
the aggregate income growth at this level.

The overall picture looks rosy

Obviously,
some people who belong to, or used to belong to, the tiny high-income groups
are feeling some discomfort. Perhaps their future looks grim. But otherwise,
there are three more ways of measuring economic progress in Venezuela that make things look
rosy for the huge majority.

First
of all, by combining all of the people in all three bottom income groups, which
comprised 96% of the households in Venezuela in 2004, and 97.6% at the
beginning of 2007, it's possible to show
their overall average income gain from 2004 to 2006.

Growth
of the average income for 96% to 97.6% of households*

For the
three bottom levels, C-minus, D, and E combined, monthly income in bolívares

(*these levels
constituted 96% of the population in 2004, and 97.6% of the population by early
2007)(income adjusted for inflation in
2006 bolívares)

Second,
there is a significant way to measure the egalitarian effects of recent income
changes in Venezuela. The rapid growth in the incomes of poor and
working class incomes is having a rapid leveling effect. In two years, not only did many from level E and
level D move up to higher levels, but those who remained within those two
classifications, nearly 80% of the Venezuelan population, made gains in
relation to level C above them.

The
leveling effect of changes in average monthly incomes in Venezuela

(*these figures
are adjusted for inflation in 2006 bolívares)

Third,
an October 2007 article in one of the dominant opposition newspapers, El Universal, provides some long-term evidence
that confirms the rosy picture above. In
an article titled "Consumption grows 16% for the fourth consecutive year,"
reporter Mariela Leon quoted experts who work for the business
establishment. José Antonio Gil Yepes,
director of the consulting firm Datanálisis and featured speaker at the annual
convention of the National Association of Advertisers, said that "Level D has
increased its real income by 60 percentage points in eight years, and Level E
by 100 percentage points."[iii]

The 16%
percent annual increases in consumption, compounded over four years, are equal
to 81%, about halfway between the long-term gains in income for Levels D and E
(60% and 100%.)

Not all
business representatives are upset by the consumption boom. The remarks of Eduardo
Hernandez, the president of the National Association of Advertisers, indicated
that those in the publicity business are simply adapting to the new economic
realities. He said that companies have begun to tailor their messages and their
products to a different and larger clientele: "There is an orientation of
products and services directed much more toward the families with fewer
resources."

Information needed for future analysis

It
would be helpful to have more information about what's happening at the top of
the income scale, at Levels A, B, and C+, which together comprise 2.4% of the
population. It is quite possible that
their high incomes have gone up at least as fast as everyone else's, especially
since they represent a smaller percentage of the whole population than they did
previously, and because many of them are business owners. There has been
significant growth in banking and the local stock market, and a big boom in the
construction of housing, roads, rail lines, hospitals, schools and other public
facilities, and almost all of it is contracted out to private businesses.

An even
more interesting number would be an estimate of the value of all the government
benefits that are now reaching a majority of the population through the social
missions: for example, the 40% discounts
on food at Mercal stores, free medical care at Barrio Adentro, free community
sports and cultural programs, and free education classes for people studying at
all levels. All of these things amount
to significant "extra income" that is not included in the calculations
above. Perhaps more important than their
monetary value is something incalculable. These programs give a sense of full
citizenship to a great many people who were previously marginalized in Venezuelan
society.

In Conclusion

Under
the Chavez government, most Venezuelans, particularly the lower classes, are
receiving a much larger piece of the economic pie. No wonder this rattles Bush
and the ultra-conservatives in the United States,
whose political project is causing exactly the opposite effect: the economic
status and social well-being of most U.S. citizens have been
deteriorating for decades.(For more
on that score, see Steve Brouwer, Sharing
the Pie: A Citizen's Guide to Wealth and Power in the United States (Henry Holt,
1998) and Robbing Us Blind: the Return of
the Bush Gang (Common Courage Press, 2004.)

(A word of
thanks to Oil Wars, the valuable
website that posted many of the economic numbers that I have used in this
article.)

Author Steve Brouwer
is currently living in a village in the mountains of Western
Venezuela and writing about rural people and their involvement in
the Bolivarian process. He is sharing some of his observations at http://venezuelanotes.blogspot.com/

[i]
"Rebuilding the middle class, bit by bit," http://oilwars.blogspot.com, August 2, 2007

[ii] Ibid.

[iii] Mariela Leon, "Consumption grows 16% for
the fourth consecutive year," El
Universal, October 17,
2007.