It’s an opposition mantra: the Chavista economic model has failed Venezuelans and it’s time to move on. Personally, I have no intention of defending chavismo’s legacy of economic mismanagement. But that’s a far cry from stating that the model was broken by the late President Comandante Eterno. Truth is, the model has been broken for a while.

For example, did you know that income per capita in Venezuela started decreasing in real terms since the late 1970s? Of course you know. We’ve all heard the stories of the Saudi Venezuela and thought to ourselves: Why couldn’t it stay that way? Why?! But looking at the chart helps put things into perspective.

Domestic Income per Capita Venezuela

As you can see, Venezuela had a spectacular run between the 1920’s and the 1970’s. That’s 50 solid years of sustained growth, during which the economy grew tenfold. So, what happened? Why did we stop growing?

The answer lies in our institutional foundations, those silent heroes which allow the national government to pursue a winning strategy while relying on an external and volatile financier like the international oil market, instead of letting productivity work its charm by telling us what we’re good at, and what we’re not. Yet despite having over one century of oil history to look back on, Venezuela’s oil institutions, and the intrinsically linked economic model, have never quite found their footing.

The easiest way to understand our current economic model is to know how it was built. So, here goes a little bit of contemporary history.

How the model came to be:

That’s what made consumption explode in Venezuela like never before: we were buying development with petrodollars.

Oil turned things around for Venezuela during the 1920’s in the hands of General Juan Vicente Gómez. Although most of the chitchat about those days centered on corruption scandals, the breaking point of that period was that, for the first time, a poor country like Venezuela started to collect income taxes and royalties from the most lucrative industry in the world.

Oil windfall was so large that Gómez was single-handedly able to pay all of Venezuela’s foreign debt going back to independence, and start the first large public infrastructure program.

Among other things, four central features of Venezuelan economy were set under his rule:

  1. A close relationship between the oil industry and the country’s President, because he was the one handing out the concessions.
  2. An artificially appreciated local currency, courtesy of the epic Convenio Tinoco.
  3. The empowerment of the national State as the main economic agent, since the stronger the government became, the less likely Gómez would be overthrown.
  4. The idea that the national Government should be responsible for administering all matters related to the oil business in the name of Venezuelans.

Oil then became the backbone of politics and public policy in our country, as well as the dominant sector of Venezuelan productivity, all at the hands of an almighty Executive Power.

The early success shown by the oil industry promoted a key piece of legislation: the Reciprocal Trade Agreement between the United States and Venezuela of 1939. Under the agreement, US companies would invest in Venezuela –not just in the oil industry, but also in commercial goods, heavy industry, airlines, tourism, retail, etc. – and, in exchange, Venezuela would be able to sell duty-free crude oil to US refiners. That’s what made consumption explode in Venezuela like never before: we were buying development with petrodollars.

Asdrúbal Baptista has coined the term Rentier Capitalism, an industrialization process based on capturing international rents derived from a scarce commodity as a means to reward capital investments, instead of depending on the creativity of national agents to become ever more competitive. Our factories thus never came to be because we were good at something, or because the market told us to make this or that, but rather because we had oil capital.

With the agreement, our country became the most important US partner in the region, a fact that President Medina Angarita leveraged to bargain with FDR for a new and more favorable framework for the oil business under the Hydrocarbon Law of 1943. The law simultaneously satisfied two sets of interests: it allowed the government to increase taxes on the oil industry, so they were able to blow up public spending. It also allowed foreign oil companies a 40-year timeframe to develop projects under new concessions, which, pushed by the World Wars, helped Venezuelan oil production to grow from less than 500 kbd in the 1920’s, to 3.7 MMbd in 1971.

Overall, the scheme through which the central government collected oil revenues and fed them into the economy through controlled initiatives seemed stable, but it had one big flaw: political opposition –back then, the leftist democratic movement– despised the idea of letting foreigners handle the country’s wealth.

Betancourt and Co. voiced their opinions on how Venezuela should nationalize its oil industry, asserting the premise that Venezuela was called to become a truly independent country, apart from the American empire and foreign interests –you may verify this in his book Venezuela, Política y Petróleo. Should the industry be nationalized, he said, oil revenues would be used to pay for cheap gasoline, universal free education and healthcare, and plenty other public services.

The nationalist narrative was powerful amongst the popular classes, which gained Betancourt’s Acción Democrática many voters to win the elections when the time came.

Puntofijo Democrats developed their own ideas about how the oil industry and its rent should be managed, but without reviewing Gómez’s ways.

When you put politicians in charge of a business, decisions back away from criteria like efficiency and productivity, and move closer to things like los lineamientos del partido.

Their first fully fleshed out petroleum policy was set out by OPEC promoter Juan Pablo Pérez Alfonzo, of devil’s excrement fame. The Petroleum Pentagon, as he called his plan, had five lines of action:

  1.  A reasonable participation in oil rights for the national government. This meant the government would try to maximize the rent extracted from the oil industry, based on the premise that hydrocarbon resources belonged to the national state.
  2. No more concessions to private agents, nationals or foreigners. Pérez Alfonzo thought oil was too strategic a sector to let private enterprises manage.
  3. The creation of a Coordinating Commission for the Conservation and Trade of Hydrocarbons. Amongst other things, the CCCH was in charge of determining the “fair price” of Venezuelan oil exports and dictate production levels since, in Pérez Alfonzo’s mind, the country was running out of oil.
  4. The creation of the first state-owned oil company in Venezuela: the CVP, which would progressively take over national operations.
  5. Maintain leadership in OPEC, in order to coordinate with other large stakeholders on a “fair price” for oil exports.

As you may realize, the Pentagon was still based on premises that allowed the national government to conduct the economy and increase central planning. They believed oil should be produced, managed and administered by the national state; private initiatives had to be rooted out like weeds. And we all know what happens when you put politicians in charge of a business: decisions back away from criteria like efficiency and productivity, and move closer to things like los lineamientos del partido.

This policy allowed the national government to grow more powerful than ever before. Larger quantities of oil revenue were captured by the national government, who then kept its promise to boost public spending. The State began spreading its corporate tentacles across the country, from banks to heavy industry, to electricity, dwarfing private investment in the most competitive sectors of the economy. At the same time, public administration grew quite large and social benefits skyrocketed.

How the model operates:

With the implementation of Pérez Alfonzo’s Pentagon and the new development strategy defined by the national government based on the distribution of oil rent and state owned enterprises, our economic model took the shape it still has today, and that we keep hoping will work again.

Oil is our main value generator. We develop the resources by extracting and refining our oil and gas, and later on selling its products abroad. Oil revenues are captured by the state through several forms of taxes and royalties, and a good deal ends up in the hands of the national government. Then, the government lets the oil rent flow throughout the economy through two channels: Public Investment and Social Spending.

The model only works when the combination (Oil production)x(Oil prices) goes up and outgrows population increase.

Public Investment refers to things like infrastructure projects and preferential imports. They benefit both from an artificially appreciated exchange rate and service contracts with the government. These mechanisms usually disproportionately benefit the business groups related to the government.

On the other side we have Social Spending, which is captured by an inflated public administration payroll, or directly on social programs; both elements are commonly used as propaganda instruments.

Once the primary rent has been captured, some groups invest it and add a limited amount of local value, mainly related to food production and services. The rest is simply consumed or saved overseas to be protected from recurrent devaluations:

Screen Shot 2016-04-22 at 3.05.24 AMAs you can see, most of the economy’s value flows from the top down, creating a dependency relationship between those who capture and distribute the rent and those who seek and consume it. As long as the rent keeps flowing, everyone is happy.

How it all went downhill:

The model worked while oil production outgrew population growth, making oil rent per capita ever-growing, until the industry was nationalized and oil prices crashed after a massive boom. In my opinion, Pérez Alfonzo’s Pentagono backfired.

PDVSA became so important that it transformed into a state within the state, and many years later, Chávez would make it into a parallel state.

The reasonable participation made it possible for the government to unilaterally increase income tax exclusively on oil companies until the government take took up almost 90% of the revenue from each barrel, right before the nationalization. Foreign companies stopped trusting the government, putting a hold on investments, slicing production levels by more than 1 MMbd within one decade.

Not only did the no more concessions slogan sponsor a massive expropriation process of national and foreign investments (called “nationalization”), it also put a full stop on exploration operations, which is why reserves stopped growing and people thought we’d run out of oil reserves in 20 years.

The creation of the first state-owned oil company CVP eventually led to the birth of PDVSA. PDVSA became so important that it transformed into a state within the state, and many years later, Chávez would make it into a parallel state.

The leadership in OPEC was progressively lost. When OPEC was created, Venezuela ranked among the world’s top 5 producers. But as production decayed, so did its leadership within the organization. While Venezuela pushed its production down, the Middle East pumped it up and soon took over the lead of the organization.

Furthermore, the long-time appreciated exchange rate hindered the productive sector because it was always easier and cheaper to import foreign products. Some industrialization did occur, but only under protectionist policies that in the end failed to create a competitive enough environment. National industries started to depend on preferential credit lines from the government, preferential exchange rates, protection taxes, and in some cases, direct capital investments from the national government, once again dependent on oil rent.

The whole scheme was designed during a period in which prices were either stable or rising, so for a moment it all seemed possible. But the honeymoon was abruptly interrupted by the 1980’s price depression and that’s when it all went to hell because the original input of the model, the international oil rent, was significantly reduced.

The model only works when the combination (Oil production)x(Oil prices) goes up and outgrows population increase. If this pattern cannot be kept, the growth becomes unsustainable since you’re not able to withstand the oil income per capita ratio.

Screen Shot 2016-04-22 at 3.13.41 AM

But as the image shows, during the 1980’s both production and prices went down, stressing the country’s hard currency cash-flow for almost a decade. The situation was deteriorated furthermore by the overwhelming dollar-denominated debt payments due –does it sound familiar?

Thus, poverty became an epidemic in Venezuela. Poverty went from 12% in 1980 to 63% in 1989, and kept growing during the 90s, surpassing levels of 80%. The reason is because it was politically impossible to accept oil rent was not enough and that other sectors of the economy had to be activated, and that the distribution mechanisms for oil rent had to be reviewed. For example, is it worth having free public universities when hospitals have no supplies? It’s like we never realized money became a limited resource and trade-offs had to be made.

 The illusion was repeated, coincidentally, during a large period of Chavez’s government. While international oil prices reached historical highs, Venezuela’s GDP grew 304% in the 2003-2012 period and everyone thought that it would all be alright again.

Now, oil prices have gone down, as well as production, and we are back in the same place we were in the 80s.

Looking towards the future:

For over 40 years we have been so focused on what to do with the oil rent that we haven’t realized the oil industry, as lucrative as it is, is insufficient to bear the weight of an entire economy. We, as a society, keep trying to preserve our own rent-seeking mechanism instead of paying attention to how sustainable the whole scheme is.

We should be asking questions like: should the government continue to control oil investments? What kind of public services are a priority? What are we doing to mitigate and adapt to climate change? What other sectors of the economy have potential for growth in Venezuela?

Recently, Deputy Crown Prince Mohammed bin Salman of Saudi Arabia announced that the country has started to deploy a strategy to move the country’s economy away from oil, in preparations for the post-oil era. Not a single word was heard from Venezuelan leaders, government or opposition, on this matter, or on what Venezuela should do to bring its long-term planning up to date.

It has become urgent that Venezuelan policy makers start to think and speak about these issues with the public in order to redirect the economy into a more sustainable path. Otherwise, we will keep leading the way of undeveloping countries, until we make the list of Least Developed World.

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  1. Very well written. As they say, “The road to hell is paved with good intentions”.

    For KSA, I don’t think their post-oil sovereign fund is going to save them. Their problems run way too deep for a fat savings account to solve. Bill Gates said it best when asked by the Saudis how they can develop an advanced tech sector in their economy. “If you aren’t fully utilizing half the talent in your country, you’re not going to get close to being near the top.” (in reference to how they treat women).

    For VZ, a fat sovereign fund isn’t going to help unless corruption is removed. All it will do is attract more corruption.

    • Right. And being beholden to and reliant on a medieval religious sect as the ideological justification for an absurd political model of kings and princes and tribes is not exactly conducive to nimble and forward looking policy making or meaningful reform.

      At least Venezuela is not facing that kind of self-generated toxic road block.

  2. Excelente artículo, no de esos que hay que guardar o recordar porque ahorra muchas horas de lectura en otras partes. Aparentemente habla sobre el petróleo pero en realidad es una radiografía de la sociedad venezolana. Su artículo no solo describe la historia del pais los últimos cien años sino la de los cien siguientes. Si desde finales de los cuarenta Venezuela no ha podido superar esa barrera de los cuatro mil dólares de un modo contínuo (muy interesante esa primera estadística) difícilmente lo va a hacer ahora por muy urgente que realmente sea el que “Venezuelan policy makers start to think and speak”. Venezuela es un país subdesarrollado porque lo lleva en la sangre y para dejar de serlo tendrían que estar dispuestos a permitir que “productivity work its charm by telling us what we’re good at, and what we’re not”, en vez de esperar a que brote el maná desde el subsuelo. Esto es algo que choca directamente contra la idiosincrasia del venezolano y no va a ocurrir.

    Excelente trabajo una vez más (y saludos desde España)

    • What you say is not true, in my observation. I have traveled a lot of world, and I’ve never seen stone walls built like they are in Venezuela. And I’ve watched one being built, fascinated. Nor have I seen home gardens tended as well. Many of the houses down there are of designs that put Frank Lloyd Wright to shame. There are some gorgeous homes down there, built as solid as fortresses, in both Spanish and Modern styles – with some in between styles no one has identified yet. I’ve seen colonial era homes down there that make the Japanese feng shui look clumsy. Have you never seen Paseo los Proceres? It’s stunningly beautiful. The best piece of beef I’ve eaten to date was at a ternera. It was as tough as an automobile tire, but the flavor was out of this world. And I have to mention El Rey del Pescado Frito on the ocean front again.

      The problem has been too much government interference in major industries. Still, in spite of that, there are many more than just one or two Venezuelan owned and operated industries which are fully capable of competing at international levels. Negative thinking will not win in today’s world.

      An underdeveloped nation is, in one sense, a nation of people who have some catching up in learning to do, in today’s high-tech in everything from growing tomatoes to making microchips. That does NOT mean its population are lazy or stupid, and it does NOT mean its population do not know how to do anything right. They may know how to do things no one else in the entire world can do! Hey – I know next to nothing at all about plumbing, and your average Venezuelan plumber would laugh at me. I have a college degree – it just isn’t in plumbing. I saw a wooden boat being hand-built down there, probably twenty feet long, six between the gunwales – I was amazed. You could not find a gap between the beams even if you had a laser.

      I can post until I’m blue in the face and my fingertips have callouses. Heaven forbid, I might even have to learn to touch-type. As Fransisco said once, “Cono!”

      • Fuck, I feel the same way. I see these euro-snobs as just as dettached from reality as socialists.

        I have never, ever seen anyone hussle like poor Caraqueños hussle. That they have a good attittude about it and about life is a great fucking plus that promises awesome potential that these snobs obly read as lazyness. Go to France or something and stop whining. All vzla needs is a gvt that doesnt get in the way, because it’s not just the poor man’s hussle and the artisan’s meticulousness and the uncalculable benefit of how cheap everything is, it’s young wealthy kids who have inmense drive to start new and exciting challenges.

      • Sincerely, I don’t know with whom you are talking. Venezuelan stone walls are surely great but its government and how economy has been handled during many decades sucks. I never said that Venezuelan people are lazy or stupid, those are your words. Your country have a cultural and intellectual elite at the same level with any other country. Unfortunately they are working in those other countries because Venezuela right now has nothing to offer them, your society has not been able to organize themselves around values and ideas that flourished in Northern countries but not in the Caribbean ones. This is just a fact. If it hurts you should review your way of thinking

        • “…I never said that Venezuelan people are lazy or stupid,”

          “…Nunca dije que la gente venezolana fuera floja o estúpida…”

          Lo dijiste cuando dijiste que “Venezuela es un país subdesarrollado porque lo lleva en la sangre…” y cuando dijiste que “Esto es algo que choca directamente contra la idiosincrasia del venezolano…”

          Ese es el tipo de excusas fatalistas ridículas y estúpidas que buscan disolver la culpa de los fracasos del país achacándoselos a los que nunca tuvieron poder de decisión alguno para influir en nada acerca de los mismos, excusas que los chavistas usan muy seguido desde que agarraron el poder, como en el caso del problema de la electricidad, donde alegan que el peo es culpa de los usuarios porque “preden aires acondicionados” o “conectan muchos cargadores de celulares” o algunos más imbéciles todavía, que dicen “¡es que ustedes los escuálidos se bebieron el Guri y quien gasta hoy a pedir se quedaaaaaaa!” como si decir algún refrancito “de pueblo” estúpido fuera a darle alguna validez a la babosada que acaban de berrear.

          Como bien indica el artículo, la culpa de esto la tienen dos: Gómez al usar el petróleo como instrumento político para fortalecer su dictadura, y la izquierda, que quiso usar el petróleo como instrumento político de control de la sociedad.

          • Si pensaste que me pondría ahora a defenderme de cosas que yo no he dicho te equivocaste. Gracias en cualquier caso por escucharme y hacerme tanto caso y perdona porque yo no te haga ninguno.

          • Piensa lo que quieras, Diaz, ahí se ve que te leíste lo que comenté, cosa que parece que tocó un nervio por tu forma de responder.

            Que mal para tí que en esta página los comentarios no se pueden editar una vez que se mandaron, así todos ven como acabas de estrellarte por decir y que ahora pretendes negarlo.

          • In agreement with Ulamog says everything up to the last paragraph: it is not just Gómez or la izquierda, even if they do share much of the blame for Venezuela’s long-term problems–on some level to just point them out is also to fall prey to the fallacy of pointing to individuals when we are talking about structural issues. Now, a whole set of actors tied to state institutions, and the oil industry since the 1910s (many of whom will inevitably remain anonymous) seems like a more likely culprit.

        • “Your country have a cultural and intellectual elite at the same level with any other country.” Y ademas los que no son tan elites, digo yo. Quedemosnos en eso. Yo no se si tendra udsted 20 o 90 anos de edad, si es peludo o calvo. En blogs gente escribe cosas que nunca se dirian en persona – no vale la pena cambiar insultos medidos para aparecerce mas sabio.

          La “filosofia” podrida del communismo – una serie de crimenes armados – ha deceptionada y traicionada a milliones, y ha causado la muerte de milliones.

        • Those “elites” have been the most dedicated enemies of freedom and competitiveness since they took power 200 years ago, particularly in the 20th when they received loads of easy oil-money and fought to death against anyone trying to get between them and what they consider “theirs”.
          Chavez (Fidel Castro) tricked them and convinced them that he would be another Gomez, their wet dream, but we all know how it all ended… And that’s why we’re here, not because of the poor and uneducated who have never had any real opportunity to make or oppose decisions.

  3. Thank you for the interesting and informative account. I’d just add, somewhere along the way – I don’t know just where- a giant vanity project called the military was grossly expanded beyond all reason and was widely perceived as a great career path, and it now seems to hold the balance of power in this tension between a diminishing value resource and a growing population.

  4. Thank you for an excellent article. I would only comment that this just a summary, given the space available. Something which is even more commendable because writing summaries without losing the point,about a very complex situation, is very difficult. I would only add that the involvement of the military in the economic decision process, these last 15 years, has converted an already complicated situation into a total disaster. As an example, just look at poor General Motta Dominguez’ face announcing electrical stoppages. That problem is way out of his head. Imagine the rest of the generals trying to understand this article.

  5. Excellent summary ……our.thanks and congratulations to Amanda for making clear the history of how oil has affected (for good and evil) the life of the country .

    At another level of analysis one perceives that Venezuelans have failed to see the Venezuelan Oil Industry as what it fundamentally is …… a BUSINESS , in fact as a NATIONAL BUSINESS , that can provide a great amount of wealth to the country but only if it is allowed to be run with managerial and professional competence by organizations which seek to rationally maximize its money making potential by optimizing its operations and marketing on strict technical and commercial terms !!

    Under that conception there are no price subsidies , people pay what the oil when transformed into consumable products costs to produce , there are no favoured price and payment conditions to external purchasers of our oil , customers pay the ordinary market price at customary commercial conditions ,contracts are not adjudicated to the least competent and more expensive contractors and suppliers simply of the basis of their countries presumed ideological affinities with the ruling political regime , no borrowing is made which mortgages the countrys future production des-optimizing the posibility of its future more advantageous commercial disposition…….., the organization is abocated to the running of the business and not to doing politically useful p.r. activities which have nothing to do with the core business.

    Problem is that this view of our oil industry as a National business is ignored by most Venezuelans who instead see it as a GRAND PATRIOTIC SYMBOL OF LIMITLESS VENEZUELAN WEALTH AND POWER , feeding our CONCEIT as owners of that resource thru the STATE which has the duty of MAGICALLY and MUNICIFENTLY providing for all our whims and needs !! Because of that to have foreign companies participate in OUR oil industry makes us sore because it implies that we are not good enough to handle our own wealth.

    Professional pols of course see this a bit differently, because they see the oil industry as the magic wand that allows them access to those SYMBOLIC MAGICALLY LIMITLESS resources for use in bribing the masses support of their political ambitions ( and megalomania) and to superbly pad their own personal nest eggs.

    Its clear that if the National Oil Industry had been allowed to operate as a normal business , many of the privations we now suffer would have been avoided …..much more resources would be available to help Venezuela face the current crisis. !!

    Of course this isn’t the whole story , there is more to it than is mentioned above but that will have to come later , this piece is already overlong ….my apologies !!

    • Hello Bill,

      You wrote:

      “Under that conception there are no price subsidies , people pay what the oil when transformed into consumable products costs to produce , there are no favoured price and payment conditions to external purchasers of our oil , customers pay the ordinary market price at customary commercial conditions…”

      I once had an unintended ‘faux pas’:

      I was visiting Venezuela and a family member asked to buy our dollars, so I went to some website to set a price and when I stated it this family member asked me for a break. I pointed to the website and noted the price and added that selling at a ‘discount’ would muddle business and gifts which would detract from the value of either. So either they want a gift or they want to do business.

      I bring this up, because the culture of entitlement runs deep as this article alludes to.

  6. Enlightening – informative – article with some hard facts. I did a paper in International Finance years ago in college, and got an A+. The subject was Venezuela, my conclusions were that it had to lessen its oil dependence. I got the A+, but I never felt I did a complete job on the paper. I could not find the data I needed. I did not have time, and did not think of a way, to research history. Your article filled in what I felt I would have needed. So I guess you get an A+, too!

    I still think one of the contributing factors to the decline you noted as beginning in the 1970’s is attributable to the exodus of people who knew how to organize and get things done. It was not just the oil people, it was those around them, and it was Venezuelans who began to leave, too. That ethic of know-how was drained outwards, and so was capital investment – is my bet. I do not have data on that.

    I’ve asked here various times if anyone has a solution to make the transition back to a private enterprise country (which would succeed!). No takers. It cannot be done the way that led to the Caracaso. One thing the country needs now is capital investment. It works magic. For that, there must be rock-solid guarantees of property.

  7. Hi Amanda. Pretty good article. I am afraid it left out few many things that are of important consideration. some of those are in fact mentioned in Perez Alfonso’s “Devil’s Excrement”:

    — Perez Alfonso wanted to keep PDVSA split in the many companies it once conformed the national oil producing conglomerate. You may remember Maraven, Corpoven, Lagoven, etc. He was fully aware that it was arguably the only mechanism to keep politicians away from the industry. Perez Alfonso was all to concern that a single National Oil entity would end up like PEMEX, corrupt and fully controlled by the Mexican government.

    It was Gustavo Rossen that thought he could amalgamate PDVSA back and keep it away from the government. He, Gustavo, like Juan Pablo knew the risk he was carrying by getting PDVSA back together as a single company. He wanted to eliminate the inefficiencies of the many national companies and foster competition by opening the concessions back to market (the famous “Apertura”) hence the “interpretation” of the 1975 Nationalization Law and the bending of the law through the “service agreements”. He also knew that a strong and unified PDVSA would mount the real power in Venezuela which it end up happening.

    – There was always an oil economy diversification strategy that was aimed at a harmonic economic approach with oil exploitation. The best example are power generation (EDELCA) and aluminum and iron ore mining (CVG), and the agrarian reforms of the 70’s. Still commodities but out of the hydrocarbon sectors.

    – The issue is not oil per se or the rent coming from it. It is the use of the rent and the immense wealth coming from oil that actually corrupted the hearts and minds of Venezuelans, not only as society but as individuals. Money could have come from other sources, oil just happened to be the one wealth available source after Satan shitted over Venezuela few million years ago.

    – The basis of the model are still the same, oil money went to a few while a quite good amount of people got the scraps. So lots of corruption and opportunism. But people tend to forget that oil bought: free education for many generations through the UCV, the USB, LUZ, UC, UBV etc.., low taxes – no taxes for public servants, universal health care, almost free homes and apartments, el metro and what you may call modern cities, early retirement, full pensions for some, electricity for almost everyone regardless if you pay or not, etc. Venezuela life style of the ’70 would cost lots of tax money if you would live in US, Canada or UK.

    I believe the issue here is not the oil rent but the maturity of our country to manage it. That is translated to waste reduction, the waste of money and resources, accountability, strong judicial system and the reinvention of the Venezuelan society. The waste has transcended Chavez and Co., it transcends oil rent and any other Dutch Disease, it even transcended alternative economy generators. The waste is historical and engrained (kinda most recent):

    – CAP 1 and his twelve apostles with an unknown amount of money squandered
    – Lusinchi and his $36 billion lost in Recadi
    – CAP 2 and the $250 million secret provision
    – Chavez and his $300 billion

    We have achieved a stage were corruption deviance is accepted because someone was more corrupt in the past and the obvious lack of law enforcement. If we do not correct the principles of our own deviance, it will not matter were the money is coming from being oil or the miraculously creation of “The Venezuelan Apple Inc”, someone will end up stealing or squandering if we do not correct the fundamentals.

  8. This article shows something that I had not clearly realized. When a country has a stream of “free money”, even well-meaning and honest efforts to use the money for “worthwhile” purposes can be destructive.

    Perhaps the only good answer, in the end, is to distribute all the money to the populace at large. The state would then have to pay for infrastructure, social welfare, and defense by collecting taxes, making these costs visible and subject to proper debate. Industry would have to raise investment capital from private investors (large and small; the latter perhaps operating through mutual funds), and reward them by making profits and paying dividends. And the country would avoid the distortions from petromoney dependency.

    Yes, the people would be to a degree corrupted by the “free” oil money. But they would see it coming in, there would be no fighting over where it went or who gets it, and price variation would be transparent to the people. They’d soon identify the oil money as a bonus – nice to get, but undependable.

    As to Saudi Arabia – they and other Gulf States have been trying to move off oil revenue dependency for a long time. They subsidize various kinds of factories. (I’ve seen cookies made in a Gulf State in local grocery stores.) But it’s very hard. For one thing, Saudi Arabia is almost all worthless desert – much of it as uninhabitable as Antarctica. The Saudis might be best off distributing the revenue and emigrating en masse.

  9. Excellent article!

    Venezuela must realise that having a functional economy does not equate to run (badly) an oil industry to subsidize everything else.

  10. Interesting. ..I just returned from Dubai…where they make nothing I use on a daily basis…not parts nor food or textiles…but the place is going full blast…Beautifuly thought out …no crime…safe at anytime any place,even for a gringo… everywhere…no restrictions.
    Chavista Model?…Oxymoron?….could there be bigger morons on the planet than “Revolutionary Chavistas”…Ok..”Cubanistas”……I apologize. ..I can’t help myself from insulting them….my point is…shouldn’t Caracas look like Dubai? …that’s a true shame

  11. Have a small quibble with the idea that merging the various operating afiliates into a single Pdvsa structure (whatever the practical merits or flaws of suh decision) made politization easier , the truth of the matter is that for all practical purposes the operating companies, before the merger, did work in full coordination with each other under the overall direction of Pdvsa .

    On the idea that its commercially and operationally better having many independent oil companies each working in their own separate business , rather than an strategically integrated group of companies, thats not entirely correct . there are many optimizations and strategic decisions of much benefit to the country oil industry which were achieved when the various international concesionaires where replaced by a host or operating companies under the corporate guidance of Pdvsa ,If you have a dozen companies each optimizing its profits in a different international centre the much bigger optimization achievable when they all join forces is lost ……

    Problem of course is that for such optimization to happen you have to have a well organized technocratic structure with a unified corporate culture which the new Pdvsa is totally lacking ……..Nowadays the participation of well managed international companies in whatever is done with the Venezuelan oil industry is a must……!!

  12. Gómez creó el monstruo para beneficio privado, AD y COPEI lo intentaron domar (y fallaron) para beneficio común, y chiabe solo lo dejó suelto para que comiera lo que quisiera (incluyendo a la misma República).

    Por cierto, eso de que “lo llevamos en la sangre” no me parece muy acertado. Al final es el mismo pseudoargumento bobo de “Estamos mal porque Venezuela está llena de venezolanos”. Si es así entonces vamos a suicidarnos y se acabó el peo, ¿quién empieza?

    O dejemos que el chavernment nos mate de hambre y mengua para que nos reemplacen por chinos y cubanos… Francamente.

  13. Creo que cuando alguna gente habla de que lo llevamos en la sangre lo que realmente sugiere es que hay factores culturales , de personalidad o ethos que tradicionalmente rigen el animo y conducta de muchos venezolanos y que dificultan la tarea de nuestra modernizacion, de nuestra transformacion en un pais desarrollado y productivo. El obstaculo que ofrecen no representa una barrera fatal que determina por siempre nuestro destino pero si rasgos que no podemos ignorar al intentar explicar algunos de nuestros fracasos historicos.como pueblo.

    Muchos de estos rasgos lo compartimos con otros paieses del Caribe, y tienen parte de sus raices en usos sociales de nuestros ancestros del mediterraneo espanol……esta demostrado que las experiencias historicas marcan el ethos o praxis de los pueblos mas alla de la generacion que las vivio …..!!

    Tampoco es cosa de que todos los Venezolanos estemos marcados por esos rasgos de caracter e inclinacion o que bajo circumstancias distintas no podamos superarlos , es notorio como hay muchos venezolanos que transplantadas sus vidas a otras tierras exhiben eponimos talentos y logros que quizas no hubieran desarrollado si hubieran permanecido en Venezuela .

    Siempre he sospechado que hay no una venezuela sino distintas venezuelas que comparten un espacio territorial y hasta social pero que tienen modos muy contrastantes de responder a las cosas , de moverse en su espacio vital y que no todas ellas constituyen un modelo del tipo de personas que debemos ser para alcanzar forjar esa venezuela que deseariamos habitar .!!

    • Pues yo encuentro esa afirmación profundamente racista… Y no sólo contra los venezolanos. La pregunta en este caso es ¿A dónde queremos ir como sociedad? Ser “perfectos” y suicidarnos como lemmings al estilo japones, sueco -o norteamericano, donde los niveles de suicidios han subido de manera alarmante- o ser un poco menos “transaccionales” e infinitamente más felices como esos pueblos del mediterráneo a los que se refiere con desprecio. Ahí están Italia y España, que han tenido problemas recientemente ciertamente, pero los han ido arreglando, y nadie puede decir que sean países en vías de sub-desarrollo. Buena parte de los Europeos del norte sueñan con irse a vivir a allá, aún estando conscientes de todas las diferencias.. Comenzando con los muy disciplinados y ricos alemanes.

      “Contra la cultura nada” es un mantra de los estudios sociales. Lamentablemente, nuestros modelos de gestión, liderazgo y, en general, el “sentido común” de nuestras “élites” “educadas” tienen la fantasía de imponer a nuestra gente maneras de ser y hacer que no tienen nada que ver con lo que somos y las maravillosas posibilidades de nuestra propia cultura. He sido testigo de eso en mi trabajo en una conocida escuela de negocios de Caracas. Es una verdadera desgracia la incapacidad de ver más allá del complejo nor-eurocentrista. Sacarle a la gente el disquito del desprecio es una labor difícil, pero absolutamente necesaria.

      Lo invito a leer los trabajos de la Sociedad Venezolana de Psicología positiva acerca de los valores de nuestra gente y se sorprenderá, hay material de más para hacer maravillas. Igualmente le recomiendo los trabajos del padre Alejandro Moreno, que si bien no son necesariamente optimistas, sí hablan de nuestra gente sin asumir esa postura eurocentrista que condena todo lo que somos y no ayuda para nada a resolver nuestros problemas.

      • Creo que soy racista si por racista se entiende que hay gente ( de todos los colores de piel) cuya forma de ser los habilita para ser los protagonistas de un estilo de vida signado por el ethos del trabajo , la responsabilidad, el orden , la honestidad , el autocontrol, la disciplina en los planos laboral y familiar, que les permite por su propio esfuerzo labrarse una vida de bienestar y holgura como el de los paises mas desarrollados .

        He conocido y trabajado con gente de origen humilde , muy criolla en el humor y en el talante que le ganaban a los alemanes , escandinavos y gringos en la manera como practicaban las anteriores virtudes , tanto asi que llegaba a ser los jefes de estos ultimos , recuerdo un senor de origen guajiro , bajito y muy energico que una transnacional mando a alemania para que ‘metiera en cintura’ a un plantel de alemanes que se les habia relajado un tanto la etica del trabajo y el sentido de dedicacion. Con todo y su rigor profesional las parrandas de este senor eran proverbiales.!!

        Lamentablemente esos no somos todos los Venezolanos , hay muchos que son viva la pepa, tramposos, incumplidos , irresponsables (como padres, esposos y trabajadores) eso si muy amigos de la guachafita y del ron , alegres y amigueros , ingeniosos para la improvizacion , que si tuvieran que laborar para vivir en una economia moderna estarian de desempleados profesionales …….!!

        Claro si una persona bien dispuesta carece de los medios para superar sus origenes nunca podra alcanzar el potencial que lleva dentro , pero sin la vocacion nada se puede aunque se gaste mucho en planes sociales y en munificentes.incentivos estatales . Los mejores siempre seran minoria y si los recursos escasean hay que concentrarlos en esas personas que puedan identificarse como los mas calificados para que desarrollen su capacidad no solo academicamente sino poniendolos en organizacione elites donde aprendan las mas productivas experticias ……!!

        Hay una elite sin formar que espera su turno , es tarea de los Venezolanos de hoy darle su oportunidad para que desarrollen lo mejore de sus talentos y habilidades , sin consideraciones de piel ni de origen ……….si eso es racismo entonces hay que fomentar ese racismo lo mas que podamos sin sensibleras patrioterias…..


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