Venezuela’s “Demonstration Effect”: Defying Globalization’s Logic

The continued ability of President Hugo Chávez to carry out significant reforms in the face of U.S. hostility and a fierce U.S.-supported domestic opposition has important implications for progressive Latin American struggles. Chávez’s success places in doubt the view that effective resistance by Latin American and Caribbean countries to the “free-market” neoliberal order is no longer possible.

The continued ability of President Hugo Chávez to carry out significant reforms in the face of U.S. hostility and a fierce U.S.-supported domestic opposition has important implications for progressive Latin American struggles. Chávez’s success places in doubt the view that effective resistance by Latin American and Caribbean countries to the “free-market” neoliberal order is no longer possible.

The “no-alternatives, resistance-is-futile” view is borrowed from Margaret Thatcher’s famous observation that alternatives to free-market policies no longer exist. It is reinforced by the ongoing market-based conditionality of all assistance (including debt forgiveness) from the United States and U.S.-dominated international financial institutions. That the Chávez experience goes against Thatcher’s dictum—and against the Washington Consensus—raises the interesting question of whether the Venezuelan road is applicable to other countries in Latin America and the Caribbean. The rise to power of center-left governments in Argentina, Brazil and Uruguay in recent years puts this question in sharp relief.

From the outset, Chávez’s key aim has been to achieve—and hold on to—state power in order to propel radical change. To that end, he has built a powerful national party, the Fifth Republic Movement (MVR), which has governed since 1998 in alliance with smaller leftist parties. Before coming to power, he criticized Francisco Arias Cárdenas, his second-in-command in the abortive military coup he led in 1992, for running for a state governor’s office in 1995 rather than concentrating on achieving national power. In response to the local path chosen by Arias, Chávez stated, “The thesis of progressive changes, the conquest of power through a mayoralty or a governorship to have a platform to make further advances, is a lie that will always drown you in a swamp.” (1)

The radical thrust of Chávez’s actions since his initial electoral triumph in 1998 goes beyond style and discourse. Many of his reforms and actions, undertaken in the name of the poor, have undermined the economic interests of powerful Venezuelan and transnational groups. The MVR government, for example, has put a halt to the privatization schemes of social security, the aluminum industry and the all-important oil industry, schemes that were set in motion by Chávez’s neoliberal predecessors. Government allocations favor the poor, and therefore the percentages of the national budget assigned to education, health, employment and credit for small-scale businesses have significantly increased. Furthermore, Venezuela’s activist role in OPEC, more than that of any other member nation, has helped restore oil prices to their high 1970s levels. Finally, in recent months, a Chávez-appointed “Intervention Commission” has been reviewing the legality of agricultural land deeds, thus threatening large landowners with loss of property.

The U.S. response to Chávez following his election in 1998 was guided by the then-conventional wisdom regarding the inevitability of his eventual coming around to neoliberal policies. U.S. Ambassador John Maisto supported a soft-line approach and successfully argued within the State Department that Chávez should be judged by his actions, implying that nothing would come of his radical rhetoric.(2) At the time, Maisto’s thesis seemed plausible. Indeed, during the presidential campaign, Chávez had toned down his position in favor of a moratorium on foreign debt payments and concentrated on his proposal for a constituent assembly that would bring about internal political changes.

During his first two years in office Chávez stressed political reforms. In 2001, however, the MVR government passed legislation with significant socio-economic content, including an agrarian reform and a statute confirming the state’s control over all oil industry operations. By chance, the radicalization of the government coincided with the assumption of power of the Bush Administration in Washington, and then with the confrontational hardening of the U.S. global stance following September 11. These U.S. developments emboldened Venezuela’s opposition, which began to boast that Chávez’s days as president were numbered. The U.S. attitude toward Chávez began to coincide with that of the traditional parties of the opposition, which had all along maintained an intransigent stand.(3)

The Bush Administration’s support for the short-lived coup against Chávez in April 2002, its approval of the equally futile ten-week general strike later that year, and its more recent efforts to isolate Venezuela from its South American neighbors have been motivated by concerns that go beyond its worries about threats to its specific economic interests. What Washington fears is a “demonstration effect,” the influence the Venezuelan example can have on the rest of the continent.

A quite different demonstration effect had worked in Washington’s favor ten years earlier with the collapse of the Soviet Union. Champions of neoliberalism and globalization had pointed to the fate of Soviet socialism as hard proof that all forms of state intervention in the economy were doomed to failure. By placing in doubt the possibility of any effective challenge to the dominant system of global capitalism, this demonstration effect hurt leftists worldwide, no matter how they felt about the Soviet Union. Washington’s fear is that Chávez’s Venezuela may exert the opposite effect by demonstrating the feasibility of defying the neoliberal model and establishing the viability of alternatives.

Chávez’s hemispheric influence can be felt at both the popular and diplomatic levels. Chávez has become a hero to millions of non-privileged Latin Americans who admire his courage and take careful note of his political successes. Some activists and leaders have reacted in a similar way. Unlike the mixed reaction to Lula’s speech at this year’s World Social Forum in Porto Alegre, Brazil, Chávez received thunderous applause. Chávez emphasized his commitment to grassroots struggle when he told the crowd: “I am not here as the President of Venezuela… I am only President because of particular circumstances. I am Hugo Chavez and am an activist as well as a revolutionary.”

On the diplomatic level, Chávez has been careful to avoid Cuba’s early error of promoting popular struggle throughout Latin America and in so doing, forfeiting a strategy of alliances with existing governments. Because Cuba failed to form firm hemispheric alliances, the United States was able to isolate it from the Latin American community of nations. By contrast, despite his fiery rhetoric, Chávez has maintained cordial relations with neoliberal-oriented presidents such as Mexico’s Vicente Fox, Chile’s Ricardo Lagos and Peru’s Alejandro Toledo, all three of whom quickly repudiated the 2002 anti-Chávez coup. Before Bolivia’s President Carlos Meza was forced to step down this past June, Chávez called on Bolivia’s combative social movements to refrain from forcing him from office, saying he should be allowed to complete his term.

Chávez’s leadership and diplomatic initiatives may potentially lead to dramatic changes in Latin America—undoubtedly the source of much concern for Washington. The left has made electoral inroads over the last few years; and the triumph of center-left candidates in next year’s presidential elections in Mexico and Peru would further alter the correlation of forces in the continent.

Such a political shift could lead to collective action on a variety of fronts along the lines Chávez has already outlined. He has called for the creation of a Latin American hemispheric union, the “Bolivarian Alternative for the Americas” (ALBA), as an alternative to the Washington-promoted Free Trade Area of the Americas (FTAA), which would include and be dominated by the United States and Canada. His pro-ALBA diplomatic activity is credited with having thwarted Bush’s long-cherished plans to set up the FTAA by 2005.

Chávez’s advocacy of the collective negotiation of the Latin American foreign debt is even more detrimental to U.S. interests. In this vein, at numerous international conferences he has insisted that 10% of the payment of the foreign debt go to an International Humanitarian Fund that would provide assistance to social programs without attaching the customary neoliberal strings. Chávez gained official support for the Fund plan at the Iberian American Presidential Summit held in November 2003.

On an even more sensitive subject, Washington has been particularly concerned about the de-dollarization of international oil sales.  The U.S. economy is bolstered by the pre-eminent use of the dollar for international exchange and as the world’s principal reserve currency. Under Chávez, Venezuela has established non-monetary barter deals for its oil with over a dozen Latin American and Caribbean countries, arrangements that bypass the dollar. He has called on the other OPEC nations to reach similar accords. One such swap agreement involves Venezuelan oil for the work of some 12,000 Cuban doctors and paramedics who have set up shop in impoverished areas throughout Venezuela.

Within OPEC, Chávez has stressed the dollar’s declining purchasing power as an argument for raising dollar-denominated oil prices. And several representatives of the Venezuelan government have suggested that Venezuela might begin to sell some of its oil in euros. The country’s ambassador to Russia, Francisco Mieres-López, raised this possibility at a 2001 conference in Moscow called “The Hidden Threats of Currency Crises.” More recently, the possibility has been mentioned by Alvaro Silva Calderón, the Venezuelan energy-expert who is OPEC’s outgoing secretary-general. Were Venezuela to decide to switch partially to the euro—a move that would make economic sense should the dollar continue to depreciate and the European Union get its house back in order—other OPEC and Latin American nations would very likely follow suit. 

For Chávez, power and self-determination go hand-in-hand. The defense of national sovereignty and the right of the Venezuelan government to formulate its own policies without foreign interference is at the heart of the Chavista movement. The military officers who rose up in 1992, and followed Chávez in subsequent years, view the defense of national sovereignty as the military’s sacred mission. Some of them, such as Admiral Hernán Gruber Odremán, believe that the United States since the end of the Cold War has worked to convert the Latin American military into a colonial police force, which he calls “an offense to national honor.” (4)

Chávez sees national sovereignty as well served by the goal of creating a “multi-polar world.” Like much of his rhetoric, this term has been translated into concrete policies. He has taken steps to diversify commercial and military relations in order to lessen dependency on the United States, efforts that have been intensified over the last year. In January he traveled to Beijing in an attempt to win the Chinese over to a plan to build an oil pipeline from Venezuela to Colombia’s Pacific coast in order to facilitate exports to China. Indeed, Chinese-Venezuelan trade is expected to more than double this year. Furthermore, Chávez has recently bought military goods from Russia, Spain and Brazil, purchases that Washington has attempted to block. Venezuela is currently negotiating the purchase of Russian MIG-29s as a replacement for F-16s acquired from the United States in the early 1980s.

When Chávez lashed out at “U.S. imperialism” for the first time last year, he directed his fire at the Bush Administration without making reference to U.S. economic domination. Despite the tense political atmosphere, U.S. oil companies, which continue to do business in Venezuela, have shown no signs of wanting to pull out. At the height of the ten-week general strike designed to topple the government, Chevron-Texaco signed a well-publicized contract to exploit gas in the Orinoco Delta region, a contract that Chávez used to his political advantage. (5)

At the same time, however, the tensions within the oil industry are very apparent. Early this year Exxon-Mobile announced that it was considering arbitration to challenge the government’s royalty increase from 1% to 16.66% on sales of non-conventional oil exploited in the eastern part of the country. Exxon-Mobile claims that the hike violates legally binding contracts, while the government points out that earlier agreements were reached when oil prices—and profits—were just a fraction of their current levels. Concurrently, red flags have been raised by the foreign private sector. Deutsche Bank recently downgraded its outlook for U.S. Conoco Phillips, a major investor in Venezuela, due to its concern that the now-profitable relationship between transnational oil companies and the Venezuelan state may soon change.

The Venezuelan experience is a counter-example to the current writing on globalization that minimizes the role of the nation-state, particularly in underdeveloped countries. Prominent anti-strong-state writers have argued that in the current global economy, the assertion of national sovereignty by strong third-world governments has no potential for transformation, and may not even be feasible. Writers who support this thesis extend from the right to the left on the political spectrum. Those on the right, who defend U.S. foreign policy and neoliberal formulas, associate strong third-world states with local oligarchies and “crony capitalism,” which they blame for the abysmal failure of neoliberalism to live up to expectations. 

Some leftist writers who analyze globalization also consider the strengthening of third-world states to be a lost cause. As we have seen, Chávez’s goal from the beginning was to achieve power at the national level. This goal is highly suspect to those writers who laud struggles for local autonomy and express solidarity with groups like Mexico’s Zapatistas but who write off the importance of the nation-state. (6)

 Michael Hardt, for example, co-author of the much-acclaimed book Empire, points to two distinct positions concerning “the role of national sovereignty” that have emerged at the World Social Forums. On the one hand, he says, those who control the leadership of most internationally recognized organizations defend third-world national sovereignty “as a defensive barrier against the control of foreign and global capital.” The second position is defended by members of social movements organized around a diversity of causes that complement one another, and undoubtedly represents a majority of those who have attended the World Social Forums. This second group “opposes any national solutions and seeks instead a democratic globalization.” While the second position is inherently democratic and confronts capital, argues Hardt, the first one is top-down and potentially authoritarian. Thus, Hardt claims that “the centralized structure of state sovereignty itself runs counter to the horizontal network-form that the movements have developed.” (7)

But contrary to what Hardt asserts, Chávez’s six-and-a-half years in power demonstrates that third-world governments can forcefully defend national sovereignty and at the same time promote a nationalist, progressive agenda that, indeed, confronts capital. Hardt’s characterization of the dubious democratic credentials of third-world governments of “national liberation” belies the complexity of the transformations currently occurring in Venezuela. Thus while the Chavista movement began as highly “vertical,” two sets of internal elections within the MVR (one for party leadership and the other occurring this past April for the selection of candidates in local elections) are important steps in the direction of internal democratization.

It is also frequently argued that Chávez’s Venezuela is too distinct from the rest of Latin America to have any lasting influence. High oil prices finance popular programs and thus place Venezuela in a separate league. Furthermore, Chávez derives crucial support from a military structure whose officers IN VENEZUELA HISTORICALLY [tend to] come from the middle and lower-middle class, in sharp contrast to the caste-like nature of the armed forces found throughout most of the continent.

These are well-taken points, but the Venezuelan “revolutionary process” nonetheless holds important lessons for those in Latin America who favor social justice and the far-reaching changes necessary to achieve it. A first lesson is that the cultivation of a substantial electoral majority is necessary for the implementation of democratic social change. Chávez has received about 60% of the vote in the nine elections held since 1998. These results seem to substantiate the observation that a slim majority or plurality of votes such as the 36% that elected Salvador Allende in 1970 does not represent a mandate for radical far-reaching change.

Second, active participation and mobilization are key components of the process. Chávez has relied on more than just electoral, or passive, support. He has followed a strategy of ongoing popular mobilization to face his insurgent adversaries, actions that have proven essential for his political survival including his comeback after the April 2002 coup. The massive street actions that have supported the Chavista process have been made possible by the conviction among rank-and-file Chavistas that Chávez’s rhetoric is not manipulative but rather is based on substance and commitment to thorough change.

A third lesson of the Chávez experience is the importance of timing and the constant deepening of the process of transformation via the introduction of new goals following each political triumph. Victories that were followed by new slogans and proposals include the holding of the national constituent assembly in 1999, the defeat of the coup in April 2002, the defeat of the general strike in February 2003, the defeat of the recall election in August 2004 and two months later the gubernatorial elections, which the Chavistas won in all but two states.

Nonetheless, Venezuela is far from having developed a new economic system that would allow Chávez to package and export a model to the rest of Latin America. At this year’s World Social Forum he declared himself a “socialist” and added: “We must reclaim socialism as a thesis, a project and a path, but a new type of socialism, a humanist one that puts humans, not machines or the state, ahead of everything. That is the debate we need to promote around the world.” But Venezuela is not yet establishing anything close to socialism. If a new model is emerging it is based on state prioritization of social needs; the emergence of worker cooperatives and small producers both in the countryside and urban areas; and the rejection of alliances with large capitalist groups but the creation of a possible modus vivendi with them.

Venezuela’s ability to influence the Americas is contingent on the successful implementation of Chavista policies and strategies. At this stage the most important aspects of Chávez’s demonstration effect are his nationalism, which leads him to spurn U.S. impositions, his anti-neoliberalism, which puts a halt to privatization, and his social priorities that have created special programs in the fields of health and education. The emulation of many of Chávez’s policies by neighboring countries would show, if nothing else, that third-world governments are very much at the center of political struggle and that national alternatives do exist, in spite of the dire warnings of many of the writers on globalization.


1. Chávez, Habla el comandante [interviews by Agustín Blanco Muñoz]. Caracas: UCV, 1998, p. 311.

2. Steve Ellner, “Venezuela’s Foreign Policy: Defiance South of the Borders” Z Magazine, November, 2000.

3. This attitude was not only governmental. An article in Foreign Affairs, for example, ended ominously with the prediction: “the political clock in Venezuela is running out.” Kurt Weyland, “Will Chávez Lose his Luster?” in Foreign Affairs, Nov.-Dec., 2001.

4. Hernán Gruber Odremán, Mi voz en la prensa. Caracas: Fondo Nacional 1999, pp. 14, 47.

5. Some anti-Chavista political commentators accuse Chevron-Texaco of propping the Chavez regime. See Tom Fenton, Bad News: The Decline of Reporting, the Business of News and the Danger to us all: Regan Books, 2005, pp. 208-209. 

7. Michael Hardt, “Today’s Bandung” New Left Review, pp. 114-115; Empire.