Defending Chavez’s ‘Bolivarian Revolution’

This article was originally published by Red Pepper (www.redpepper.org.uk)

In Venezuela, the political climate has become increasingly radical and polarised. Chávez`s supporters and opponents no longer seem to speak the same language. As a result, any attempt to analyse what is going on comes up against the problem that the normal sources of information are notoriously biased. Nevertheless, beyond the rhetoric and the confusion, the basic options open to the society are becoming clearer. On the one hand, the hard core of the opposition to Chávez is more evidently committed to neoliberalism; and, on the other, a government characterised by the multiple contradictions typical of populist regimes begins to take important measures, which point in the direction of an alternative.

Although the events of 2002, and particularly the April coup and the December strike, indicated that the hard-core bourgeois opposition is desperate to get rid of Chávez, there are sectors of the Left which argue that the Bolivarian Revolution is pure demagogy, that its rhetoric against globalisation is mere bluff, that its economic policy has been neoliberal, favouring foreign capital at the expense of local entrepreneurs and, finally, that it is destroying the public oil company, Petróleos de Venezuela (PDVSA), and will be obliged to sell off at least part of it to foreign capital. I think that they are mistaken.

Let us focus on neoliberalism and on the conflict over oil policy, taking neoliberalism as a global project that responds to the interests of transnational capital. Its maximum practical expression was the aborted project for a Multilateral Agreement on Investments but the same objectives are currently incorporated into the US proposal for a Free Trade Area for the Americas (FTAA). The problem is not whether or not any country accepts foreign investments. I think there is no longer a government in the world, which rejects them (maybe North Korea?). The problem is the terms on which foreign capital enters a country.

The Chávez administration has criticised the joint ventures with foreign capital in the oil industry during the nineties, precisely because the contracts on which they were based were notoriously favourable to the associated capital and prejudicial for the country. It is working on their revision and is trying to establish a coherent policy for future investments. Furthermore, Venezuela, together with Brazil, is spearheading the Latin American opposition to the terms proposed by the United States government for the FTAA, precisely because it rightly understands that they would hamstring the nation-state and amount to the unfettered rule of foreign capital.

A second field of vital importance for evaluating the overall thrust of the Chávez project is social policy. After apparently interminable (and really unpardonable) delays, the Law on Social Security was finally sanctioned during the December strike. Despite the confusions and vacillations of the government in the course of trying to define its policy, what was finally adopted was the very antithesis of neoliberalism. Coverage is universal and not selective. The system of financing is collective and not individual. And, finally, it is run by the state and not dominated by the private sector. Nothing could be further from the solutions offered by neoliberals.

Apparently, the only serious ‘technical’ problem with the system the government is committed to introduce, is that it is very costly for the state and the current financial situation offers little room for manoeuvre. The only potential source of finance on the scale necessary to introduce the proposed social security system is the oil industry.

This makes it very difficult to believe the accusation that the government is bent on ‘destroying’ the state oil firm. Government spokesmen argue that, on the contrary, it is trying to recover the firm for the nation. As the fate of PDVSA is absolutely crucial for the future of the country and conditions all the other options at stake, we need to examine the problem in some detail. Let’s start by registering the dimensions of the political confrontation between the top PDVSA executives and the government.

The April 11th coup was preceded on the 9th by a work stoppage of the executive staff in PDVSA, in protest against the Board of Directors appointed by the government in February. They argued that the composition of the Board amounted to a political intervention in a firm, which had traditionally based its promotions on technical merit. As the Board had been appointed with a view to implementing the structural reforms contemplated in the Law on Hydrocarburates (November 2001), the political issue was clear: the executive team inherited from the previous administration was questioning the right of the owner of the firm (the government) to introduce the policy changes implicit in the new law. In the euphoria of a celebration in PDVSA on the day following the coup, Edgar Paredes, one of the top executives, announced the end of oil exports to Cuba and increases in production (which implied the end of any cooperation within OPEC).

When Chávez returned to the Presidential Palace on the 13th, he concentrated his efforts to strengthen his position on what had apparently been his weakest flank: the military. He adopted a more conciliatory attitude toward the opposition and backed down on the issue of PDVSA. A new Board of Directors was appointed and the top executives who had been dismissed before the coup were reincorporated. Alí Rodríguez was persuaded to resign as General Secretary of OPEC and assume the Presidency of PDVSA with the task of persuading the executive team to accompany the government.

Despite his recognised talent as a political negotiator, Rodríguez failed, as became evident in December when the same executives who had been dismissed in April led a much more carefully planned strike that was the key element in the second major opposition attempt to overthrow Chávez. Once the strike had failed to achieve its objective, the government took advantage of the fact that there had been no labour dispute to justify the stoppage, in order to dismiss about a third of the PDVSA employees (16.000) for ‘abandoning their work’ and Rodríguez began the process of restructuring the firm. By March, production had been largely restored, the importation of gasoline had ended and the interminable queues at the gas stations were no longer to be seen.

When the opposition refers to the ‘destruction’ of PDVSA, it is obviously anticipating that the consequences of such massive dismissals will necessarily be catastrophic. It assumes, as the oil executives have always argued, that PDVSA was a model of corporate efficiency, and that it has been sacrificed by an incompetent government whose only objective is to extend its power in all spheres of national life until it achieves the type of control characteristic of totalitarian regimes. There will undoubtedly be problems as a result of the dismissals but it may well be that they were unavoidable if the government was to recover its control over what is, after all, a nationalised industry.

The basic question is whether the government has a coherent policy for the industry and, if so, whether it is capable of implementing it in such a way that it could generate the additional resources necessary to reactivate the economy and finance its overall project, including the ambitious social security system.

There are too many political imponderables in play for us to gauge the chances of success in implementing the policy but I would argue that, as far as the coherence of its policy is concerned, the government has a strong case that is supported by a realistic diagnosis of the state of the industry it inherited. Furthermore, it seems clear to me that the policy it is pursuing is designed to promote national interests totally incompatible with the neoliberal thrust of international corporate interests.

Let’s start by debunking the opposition argument that PDVSA is a model of corporate efficiency under threat from irresponsible political interference. The myth of corporate efficiency is remarkably fragile. In the international business statistics (for 2000), PDVSA heads the list of the 50 largest firms in Latin America and its executives proudly point out that it is in the same league as the private oil giants of the North. But the statistics also reveal that it is not as efficient as we had been led to believe.

If compared to the oil giants, labour productivity appears remarkably deficient. It is calculated that Texaco generates $1.9 million per employee per year, Exxon $1.8 million, Shell $1.6 million, BP-Amoco a mere $1.3 million but the PDVSA employee produces only $770.000. When compared with its Latin American equivalents, the picture becomes even more disconcerting. Here we cannot count on the same measure of efficiency but if we examine ‘profits on sales’, Petroecuador appears ranked 2nd with 85 per cent Petrobras Nº 32 with 20 per cent and PDVSA Nº 49 with 13.7 per cent. If we take ‘returns on assets’, Petroecuador again appears in second place with 70.7 per cent, Petroperú 6th with 50.3 per cent, Ecopetrol 28th with 25 per cent and PDVSA ranks Nº 50 with 19.2 per cent.

It would be tempting to conclude that we are faced with clear evidence of sheer technical incompetence but this is not the case. The technical competence of those PDVSA employees dedicated to production is comparable with that of any of its competitors; indeed, it may well be that international comparisons would be as favorable as the public image suggests. Of those aspects of PDVSA’s activity which could be regarded as ‘technical’, the problems are much more administrative: for instance, an inflated labour force and a top-heavy executive nominee evidently increase costs unnecessarily. Nevertheless, the basic reasons for the unfortunate international comparisons are to be found elsewhere: it has become clear that over the last two decades, while the firm was transformed into a transnational corporation, it not only did not seek to maximise profits; on the contrary, it sought to minimise them.

On the face of it, it seems difficult to believe, let alone understand, how a nationalised oil company which is at the heart of the Venezuelan economy and by far the most important source of the state’s finances, could have applied such a policy, even more so if we take into account that, in addition to limiting profits, its managers sustained a permanent battle to reduce the proportion of those profits available to the state in the form of taxes.

To try to understand it, we need to start by registering the paradoxical fact that, since the 1976 nationalisation of the industry, the successive governments have had progressively less influence in defining oil policy. On the grounds that the industry needed to be protected from the threat of irresponsible political clientelism and maintained as a serious corporation, the Board of Directors, dominated by executives inherited from Shell, Exxon and BP, rapidly succeeded in reducing the role of the Energy and Mines Ministry in policy formulation until it finally became little more than a rubber stamp. While the Ministry was losing its capacity to influence policy, Congress abandoned the vigilance it had exercised when the industry was in foreign hands. PDVSA was rapidly transformed into a ‘state within the state’, as secretive as any large corporation but with the difference that its secrets were not even available to the owner of the company, in this case represented by the government.

The decisive impulse for a policy designed to limit profits was probably the decision of the Herrera administration in 1983 to use PDVSA currency reserves in order to try to stave off currency devaluation. From then on, the resources generated by PDVSA were increasingly invested abroad, buying refineries and even a chain of service stations in the United States. The recent independent auditing of the firm suggests that many of the assets bought were not good business. It also reveals the extent to which PDVSA has used transfer pricing to favour its foreign subsidiaries and limit its own declared profits. In the case of the Citgo service stations, these subsidies have been passed on to the consumers by offering the cheapest prices available in the United States. What’s more, these foreign subsidiaries never transferred profits to PDVSA and, of course, never contributed taxes to the Venezuelan Treasury. The terms of the joint ventures with foreign capital in Venezuela during the nineties also proved costly to the state and left international capital contented.

The only aspect of oil policy, which was still more or less managed by the government, was that which involved agreements with other governments, particularly the agreements on quotas within the framework of the OPEC. Nevertheless, in the last two years before Chávez won the elections, PDVSA was clearly sabotaging the OPEC agreements and pushing a policy of increases in production which would inevitably have led to an open conflict with the organization Venezuela had helped create more than three decades earlier.

In short, PDVSA oil policy over recent decades had seriously limited the resources available to the successive governments and was characterised by a fluid relationship with foreign capital. It is hardly a coincidence that Luis Giusti, President of PDVSA during the Caldera administration and one of the main architects of the internationalisation of the firm, appeared on the cover of Time Magazine as ‘Manager of the Year’ and subsequently found employment in the White House as Advisor on US energy policy.

As is widely recognised, the Chávez administration rapidly confirmed its commitment to the OPEC and contributed decisively to the recuperation of prices on the world markets. To reassert government control of PDVSA more time would be needed, the obstacles were much greater and, during almost three years, the government didn’t seem to have a clear idea of how to do so. The passing of the Law on Hydrocarburates in November 2001 provided the legal basis for resolving the problem but also helped to provoke the political crisis in 2002. Even if the government had proved less clumsy in its relations with PDVSA executives, it is hard to believe that it could have persuaded the top executives of the need to give up the power they had accumulated in previous years and implement new policies more in accordance with national interests (and much less tuned in to the neoliberal vision of low, uncontrolled energy prices and weak governments).

A final word for my left-wing friends: one thing is to try to maintain a critical distance in order to evaluate what is really going on and what is really at stake in Venezuela; quite another is to accept, lock stock and barrel, the more far-fetched accusations propagated by an opposition increasingly desperate to overthrow Chávez.

Dick Parker is professor of Latin American Studies in the Sociology School, Universidad Central de Venezuela, Caracas.