The New Cooperative Movement In Venezuela’s Bolivarian Process

Spaces for small enterprises, especially cooperatives, have been opened by a great number of Venezuelan local governments, public institutions, and enterprises, including Venezuela’s oil company, PDVSA. The cooperative production model has increasingly come to define the development strategies of the “Bolivarian Revolution.”

I arrived in Caracas in July 2005 with a few contacts at different cooperatives, anxious about how I would sort through the more than 70,000 cooperatives that the Superintendencia Nacional de Cooperativas (National Superintendence of Cooperatives- SUNACOOP) had referred to in its recent press statements. Indeed, I found cooperatives everywhere. Between one night and the next morning, I stumbled on four cooperatives in some rather unexpected places: a group of artisans in the neighborhood near my hotel, a group of tour guides who entertained children in a nearby park, the cleaning crew of an office building where I went to conduct an interview, even the taxi drivers in front of the hotel where I was staying had left their private employer to form a cooperative.

Spaces for small enterprises, especially cooperatives, have been opened by a great number of local governments, public institutions, and enterprises, including Venezuela’s oil company, PDVSA. These agencies have established contract-bidding procedures that, while demanding competitive quality and costs, don’t discriminate against small enterprises and cooperatives. They have also encouraged workers employed by private contractors to form cooperatives. For example, CADELA, one of the five regional branches of the state-owned national electric company, encouraged their maintenance and security subcontract workers to leave their private employers and form their own cooperatives. CADELA is an enterprise under co-management, and has been very supportive of cooperatives.[i] Similarly, most of the stations of Caracas’ state-owned rapid transportation system are maintained by cooperatives created by employees of former private businesses. The Public Works Division of Caracas’ main municipality has promoted Local Works Cabinets where neighbors organize themselves in working tables to decide which public works on infrastructure should be done, and supervise them. The community also decides which cooperatives in the neighborhood carry out the work.[ii]

When President Hugo Chavez assumed power in 1998, there were only 762 cooperatives in Venezuela.[iii] These cooperatives, as the rest of Venezuelan society, had survived the structural adjustment measures started by the presidency of Carlos Andres Perez in 1989. In the last two decades, Venezuelan GDP fell almost continuously, and inequality became extreme. An estimated 80 percent of the population lived in poverty and more than half of the employment was in the informal sector.[iv] The Venezuelan economy is also heavily dependent on oil revenue, with most of its GDP coming from oil exports.[v] Much of the food is imported, well under FAO’s minimum food production levels for food self-sufficiency.[vi]

To deal with this social and economic situation, the Chavez administration has embraced a new development model, referred to as “endogenous development.” Its conceptualization draws heavily from Osvaldo Sunkel’s ideas in Development from within: toward a neostructuralist approach for Latin America (1993), which calls for an adaptation of import substitution policies where local development, adjusted to their specific conditions and employing local resources, equity and human development are prioritized. The official interpretation of endogenous development also emphasizes the importance of local, diversified and sustainable development, and the commitment to respect Venezuelans’ different cultures and identities.[vii] Most significantly, drawing from its commitment to include the historically-marginalized sectors of the Venezuelan society, the Chavez government also recognizes the need to “democratize” the economy, combat inequalities and encourage solidarity in order to pay the accumulated “social debt” to the popular sectors.

The cooperative production model has increasingly come to define the development strategies of the “Bolivarian Revolution.”  In its August 2005 report, SUNACOOP registered a total of 83,769 cooperatives, with more than 40,000 cooperatives created in 2004 and almost 30,000 more cooperatives formed in the first eight months of 2005. The total number of associates in October 2004 was 945,517, up from 215,000 in 1998.

This proliferation originates in the recognition of cooperatives throughout the 1999 Bolivarian Constitution as key economic actors within the nation’s social economy, portrayed as tools for economic inclusion, participation (article 70), and state decentralization (article 184). More significantly, the state is expected to “promote and protect” cooperatives (articles 118 and 308). It wasn’t until the Ley Especial de Asociaciones Cooperativas (Special Law of Cooperative Associations) was published in September 2001 that numbers started growing with almost a 1,000 cooperatives in 2001, more than 2,000 the following year, and more than 8,000 in 2003.[viii]

In March 2004, the Misión Vuelvan Caras was created to “change the nation’s economic, social, political and cultural model in order to attain a State of Justice and Law sustained by an endogenous socio-economic development, as asserted in the Bolivarian Constitution.”[ix] Most students were recent graduates from other educational missions that allowed Venezuelans to finish primary and secondary education. The missions are social programs to promote education, health, culture, funded by the surplus from oil revenue and managed directly by the executive. They were created by the Chavez administration as parallel structures to avoid the bureaucracy inherited by the existing ministries.

Through Vuelvan Caras, between December 2004 and May 2005, 264,720 students graduated from semester-long to year-long classes on technical, managerial, and historical subjects, as well as on citizenry and cooperative values. During this period, students received a scholarship and the opportunity to improve their quality of life, especially health and housing conditions. Although graduates from Vuelvan Caras are free to seek individual employment or form micro-enterprises by themselves, it was made clear that cooperatives were a preferable form of organization, which would be prioritized for state support. Students in the mission were encouraged to form cooperatives and 195,095 graduates, or nearly 70 percent, did, resulting in 7,592 new cooperatives.[x]

In September 2004, the Venezuelan government created a Ministerio de Economía Popular (Ministry of Popular Economy- MINEP) to support and institutionalize the Vuelvan Caras program, and to coordinate the work of the existing and newly created lending institutions.  Its role is to coordinate and draft policies to promote micro-enterprises, cooperatives, and other self-sustaining productive units that contribute to collective well-being and dignify productive labor.[xi] MINEP’s publications maintain that Vuelvan Caras is not a employment program, and that cooperatives are not promoted in order to fulfill its commitment to provide employment for all Vuelvan Caras graduates, but because cooperatives are seen as a central component of “an economic model with a rationality centered towards collective well-being rather than capital accumulation.”[xii]

After the Chavez government won a recall referendum that left his opponents reeling, Chavez defined the “new strategic map” for a subsequent stage of the “Bolivarian Revolution” in a meeting with government officials in November 2004. Among the 10 strategic objectives that Chavez mentioned was the commitment to “advance in the conformation of a new social structure”, “a new democratic model of popular participation”, and to “speed up the construction of a new productive model towards the formation of a new economic system.”[xiii]

The creation and support of cooperatives integrated in Núcleos de Desarrollo Endógeno (Endogenous Development Zones – NUDEs) by MINEP, is a key strategy towards that aim. A NUDE is formed by one or more Vuelvan Caras’cooperatives that join to design a project, with the assistance of MINEP’s specialists, for a physical space (land, factories, installations) they have identified and can be made available by MINEP. When the project proposal is finished and accepted, the cooperatives receive on-site technical support and the necessary credit, generally at zero interest and with some grace period; and the physical space, generally provided in usufruct. In May, 2005, there were 115 active development zones with a total of 27,975  Vuelvan Caras graduates (near 10 percent of all graduates) in 960 cooperatives (near 12 percent of all cooperatives created within the mission)- 73.5 percent in agriculture with 20,411 graduates in 699 cooperatives; 14.8 percent in industry with 4,377 graduates in 155 cooperatives; and 10.4 percent in tourism with 3,063 graduates in 103 cooperatives.[xiv]

In visits to a NUDE specializing in manufacturing, one specializing in agriculture, and another specializing in tourism, I could observe a great deal of all the effort required and difficulties involved in establishing a NUDE. MINEP’s specialists provided constant on-site technical assistance and pushed bureaucracy so that the infrastructure and inputs that were supposed to be obtained by the cooperatives from public institutions, as it was stated in their contracts, were actually delivered.  Most cooperative members referred to internal communication problems as the greatest challenge, but seemed to be hopeful that time and practice under equal rights would solve them. Most cooperatives have little administrative and management skills, and only few have started taking the classes on management and administration provided by MINEP. However, most cooperatives I talked to seemed to be very aware of the importance of productivity. Their commitment to productivity is not only moral (“Vuelvan Caras has to be a success”), but also rational in the economic sense. In order to receive new credits and maintain the resources given in usufruct, cooperatives have to pay off their loans and comply with their contracts.

The majority of the cooperatives are in the production of goods and services and in agriculture.[xv] MINEP’s focus on agricultural and manufacturing cooperatives is indicative of the priority given to production of those goods necessary to provide basic needs. It is also consistent with the Chavez administration’s aim of achieving food security and reducing dependency on imports of other products necessary to satisfy basic needs.

Since March, 2005, MINEP has been in the process of installing regional technical committees to decentralize its functions and services. Each regional technical committee encapsulates all state institutions subordinate to MINEP, including SUNACOOP, the National Institute for Cooperative Education (INCE; which provides most of the logistic and specialists) and the six specialized funding institutions, several of them created by the Chavez government. The aim is to create a decentralized “synergy” of public institutions characterized by public accessibility and administrative transparency, allowing more citizen oversight. Additionally, this organizational approach is designed to prevent bureaucratization, inefficiency, corruption, and other evils. Towards its goal of placing all graduates, MINEP soon plans to activate another 140 development zones.[xvi] It also aims to provide funding for all Vuelvan Caras cooperatives, 60 percent of which (4,036) have already received more than $265 million, while an additional 30 percent were expected to receive it in September 2005.[xvii]

In September 2005, MINEP held the first of a series of regional meetings with the goal of “debating and solving strategic aspects of the Vuelvan Caras mission’s performance in each state of the country.”[xviii] Once all cooperatives and development zones are active (having received installations, technical assistance and credit, if necessary), MINEP plans to start a new cycle of the Vuelvan Caras mission. Vuelvan Caras II is expected to start in January 2006 with more than 700,000 students and hopes to organize them in another 2,000 cooperatives.[xix]

In addition to providing technical assistance, infrastructure, credits for cooperatives and micro-enterprises, MINEP also seeks to ensure markets for cooperatives’ production and to help arrange contracts with state institutions and enterprises through business summits. The agency works to integrate small and medium enterprises with cooperatives in production chains, and to facilitate contracts with foreign buyers through bilateral agreements. Although cooperatives are expected to initially produce for self-sufficiency and those local markets they can reach with their own resources, production for national and foreign markets are not rejected, but actively pursued. The principal idea is that cooperatives or development zones should integrate with other cooperatives to add value through processing and transformation, and to distribute and commercialize goods while avoiding intermediaries.

Critics of these policies of the Chavez administration point to the increasing corruption resulting from the handling of credits to cooperatives. But although there is always some way of circumventing a set of rules, MINEP’s funding institutions try to prevent this by tightening loans to the list of specific resources mentioned in the project, which the cooperatives obtain in kind. More importantly, new legal mechanisms established in the Bolivarian Constitution, the Ley Contra la Corrupción (Law against Corruption, 2003), the Ley Orgánica de Contraloría General de la República (Organic Law for the General Auditor of the Republic, 2003) and Ley Orgánica de la Administración Pública (Organic Law for the Public Administration) have been created to allow all citizens to exert “social control” of state resources and make public officials accountable. However, the permanence in public institutions of inherited bureaucrats who are not committed to change, or who use their positions to sabotage the process, seems to be limiting the effectiveness of these mechanisms for social control.

Once oil prices go down, the resources spent in these policies will have been lost, critics argue. Many worry about the size of Venezuela’s oil reserves and have predicted from 25 to 100 years of supply. However, by investing in human capital and promoting small and medium enterprises, the Chavez administration is basically doing what most economists, including neoliberals, have advised. It could be the case that cooperatives are not the most economically efficient way of allocating a nation’s resources, but until a different way of democratizing the economy appears, it seems like a desirable alternative. Although the implementation of these policies is not free from problems, if we consider the limitations and ills of large-scale industrialization, it is hard to envision a better way to create employment, stimulate the economy, and reduce dependency on exports.

In numerous press reports and personal interviews, SUNACOOP’s superintendent and other officials have admitted that there are many deficiencies among the newly formed cooperatives, mainly due to a lack of cooperative values and administrative skills. MINEP’s minister acknowledged that some regular enterprises “have been transformed into cooperatives, but not with the intention of transferring power to their workers […] but to evade national taxes from which cooperatives are exempt.”[xx] Of the irregularities detected by SUNACOOP in the fewer than 300 cooperatives audited by July 2005, 50 percent involved bookkeeping and administrative wrongdoings, 30 percent stemmed from the exclusion of members from surpluses, 22 percent from undemocratic decision-making, and one percent from subcontracting wage workers for more than temporary (three-six months) periods.[xxi] Many steps have been taken in order to deal with these deficiencies, which also result from the fact that SUNACOOP was not prepared to deal with such a rapid increase in the number of cooperatives. Indeed, SUNACOOP operated with only eight auditors, and each audit requires an average of two days.[xxii] Since June 2005, SUNACOOP has launched an accelerated effort to certify and audit all cooperatives in order to identify problems and address them. They now have at least one auditor in each of the 24 states (as part of the decentralization process) in addition to six auditors in Caracas, and are planning to audit 1,742 cooperatives from September to December 2005.[xxiii] The plan is to audit all cooperatives in order to provide them with a “pedagogical” evaluation, including recommendations and measures that must be taken in order to avoid sanctions or cancellation. SUNACOOP’s budget has been increased and will receive more personnel, equipment, and technology. Since “cooperativism has become a transversal axis of the national government’s public policies,” SUNACOOP is expected to work in conjunction not only with MINEP but also with other state institutions.[xxiv] In August 2005, they concluded the first round of a series of meetings to discuss the situation of the cooperative movement and obtain inputs for policy suggestions and changes that should be made to rules and laws. These meetings are also an attempt to push towards the integration of the new cooperative movement with the traditional or pre-Chavez Venezuelan cooperative movement.

When talking to members of Venezuela’s traditional cooperative movement, I noted that although they had been invited to participate in the writing of the Law of Cooperatives, they felt excluded from policymaking. They argued that the government’s promotion of cooperatives is irresponsible and opportunistic because they have made it too easy to create a cooperative (the requirement of proving feasibility was eliminated), and that they are been used for political agendas. Most new cooperatives are doomed to failure, critics say, because they are dependent on state resources and they lack management and administrative skills. They also criticize MINEP for creating cooperatives with members who don’t share the cooperative values and for corrupting them by providing easy credit and too much paternalistic aid.  At times where the political debate over the Chavez administration in Venezuela was highly divisive, tensions ran strong.

But there are signs that the relationship is improving, as SUNACOOP publicly invited these traditional cooperatives to participate in the debates over a cooperative national council and revision of the laws. In September 2005, the Venezuelan Foreign Ministry held a meeting with the National Central of Venezuelan Cooperatives (CECONAVE; the main integration body of the traditional cooperative movement) to explore ways to support them, especially to help them access external markets, and to learn from their successful experiences.[xxv]

It’s still too early to asses the real impact of cooperatives in Venezuela. But it wouldn’t be totally misguided to assert that they have contributed to the increase in formal employment[xxvi] and economic output not derived from oil exports.[xxvii] Most importantly, the new cooperatives in Venezuela are expected to be committed to the well-being of the community in which they are located. In articles three and four of the 2001 Law of Cooperatives, it’s stated that “social responsibility” and “commitment with the community” are, respectively, among the values and principles of cooperatives. In interviews with 25 cooperatives I could observe that these ideas were widely shared. Regardless of their short life and scant resources, many cooperatives have made donations to the community and provided temporary employment to those who are most desperate. Groups of socially-conscious community activists have created non-profit cooperatives to provide much-needed services and improve their communities’ standard of living. To consolidate this “social responsibility,” the Chavez administration is urging cooperatives and other enterprises to become Empresas de Produccion Social (Social Production Enterprises- EPS), which are expected to be highly responsive of the communities in which they are located.

Even if many of the new cooperatives fail, it wouldn’t be an indicator that the promotion of cooperatives is an undesirable development policy. Rather, it would show that development requires effective state support both in terms of providing education and resources to break with the cycle of poverty and underdevelopment. As Chavez has said, borrowing from Bolivar’s teacher, Simon Rodríguez, “if we don’t try, we’ve already made a mistake” (“o inventamos o erramos”). The key for the success of the new cooperatives is Venezuela seems to be to finding a balance between voluntarism and pragmatism, so that it the impetus for change is effectively translated into concrete and lasting transformation.

[i] 575 cooperatives have been contracted for more than $3.2 million worth of services in 2004, and for nearly $3 million from January to June 2005 [CADELA: Informe NO. 21040-0000-26. July 2005].

[ii] In 2004, 50 percent of all the projects in the municipality were carried out by 170 cooperatives, amounting to almost $1 million [Marta Harnecker: La Experiencia del Presupuesto Participativo de Caracas. December 2004].

[iii] SUNACOOP: monthly report. August 2005.

[iv] Albo, Greg. 2005. Venezuela under Chávez: the Bolivarian Revolution against Neo-liberalism. In “The Unexpected Revolution: the Venezuelan People Confront Neo-Liberalism.” Socialist Interventions Pamphlet Series.  March 2005.

[v] ECLA.  Statistical Yearbook for Latin America and the Caribbean, 2004.  Santiago: United Nations Publication, April 2005.

[vi] PROVEA.  Situación de los Derechos Humanos en Venezuela: Informe Anual: Oct.

2003- Sept. 2004. Caracas, 2004 pp. 57

[vii] MINEP: Informe de Gestión para la Asamblea General de la OEA. May 2005.

[viii] Ibid.

[ix] Ibid.

[x] Ibid.

[xi] Ibid.

[xii] Ibid.

[xiii] Ministry of Communications and Information: Taller de Alto Nivel “El nuevo mapa estratégico.September 2004.

[xiv] MINEP: Informe de Gestión para la Asamblea General de la OEA. May 2005.

[xv] Of the total number of cooperatives, 54 percent are in goods and services production, 30 percent are in agricultural production, 9 percent in transportation, 4 percent in social services, 2 percent in consumption, and 1 percent in savings and credits [SUNACOOP: monthly report. August 2005].

[xvi] Ibid.

[xvii] MINEP’s press: Financiadas 60% de cooperativas de Vuelvan Caras. MINEP inicia gabinetes regionales. September 2005

[xviii] Ibid.

[xix] MINEP’s press: Vuelvan Caras II buscará consolidar el modelo económico cooperativista. September 2005.

[xx] SUNACOOP’s press: Presupuesto Nacional 2006: MINEP destina 13 millardos de bolívares para SUNACOOP. September 2005.

[xxi] SUNACOOP: Plan de Fiscalización Nacional de Cooperativas. September 2005; and other reports.

[xxii] declarations of SUNACOOP’s audit department officials

[xxiii] SUNACOOP: Plan de Fiscalización Nacional de Cooperativas. September 2005

[xxiv] SUNACOOP’s press: SUNACOOP profundiza vigilancia en las cooperativas. September 2005.

[xxv] VHeadline: Foreign Ministry (MRE) to help Venezuelan cooperative movement to expand abroad. September 16th, 2005.

[xxvi] The unemployment rate decreased from 16.8% in 2003 to 13.7% in 2004. Most significantly, the employment rate in the formal sector increased from 47.3% in 2003 to 54.2% in January-June 2005 and the employment rate in the informal sector decreased from 52.7% in 2003 to 45.8% in 2005 [National Statistics Institute: June 2005].

[xxvii] In the first semester of 2005, construction grew at 20.3 %, commerce and non-governmental services at 20.3 % and manufacture at 12.4 % [Governmental Economic Report. 2005 at http://www.gobiernoenlinea.gob.ve].