It’s April 10th 1948.  Inocencio and Manuela live in a humble house in La Guaira but that day they rushed to Clínica Venezuela in La Candelaria for the birth of their first son.  It’s a boy and they name him Aurelio.  

Inocencio is the son of an unmarried couple; he didn’t finish primary school and worked as shopkeeper selling fruit juices and imported food products in the Mercado de La Guaira (later on, he will open his own mechanic shop).  

Manuela is the daughter of hard working immigrants from Spain that arrived to Venezuela in the 30s on the Vasco da Gama steamship looking for a better life after the great depression.  She narrowly escaped becoming a nun and dedicated her life to raising her family of six.  Neither Inocencio nor Manuela come from a privileged background.  

Thanks to Manuela and Inocencio’s determination, pigheadedness and access to decent public health and education, young Aurelio worked his way through and graduated from Liceo Razetti, a quality public high school.  He is selected for a spot in Universidad Central de Venezuela (UCV), and after surviving the shutdown of the university by Caldera in the 60s and an active militancy in the Socialist Youth, he graduated as Electrical Engineer.  He begins a career from the very bottom of Compañía Nacional de Teléfonos de Venezuela (CANTV) –a state-owned company, of course.  

Fast forward to the 1970s and after few years working Aurelio embarks to see the world thanks to a merit based scholarship he won from Fundación Gran Mariscal de Ayacucho (Fundayacucho) to do his graduate degree at the University of Paris I.  

In the city of love, he meets a girl (and what a girl), he marries at the Mayor’s office (rather than church) and has his first child.  Of course, while in Europe he doesn’t miss the chance to visit the USSR, keeping his leftist flame burning.  

They return to Venezuela just after oil industry is nationalized.  Aurelio first works in the public sector. Later on, he goes into independent management consultancy.  They move to the Avenida Roosevelt in el Cementerio, where Aurelio’s parents lived.  At first they live with Aurelio’s parents and, later on, they buy an apartment in one of those block buildings from the 60s.

The story of Aurelio —not his real name— is not at all uncommon.  His life is intimately bound with the story of Sembrar el Petróleo.  It’s a story of social mobility, mostly in times of democracy, and enabled by social policies financed by the rent extracted by the Venezuelan state from the oil business at a time before PDVSA even existed.  A time when the Venezuelan petro-State invested not just in agriculture, or in industrial development or infrastructure but in people.  The opportunity was there, so with a bit of luck, hard work and support from the family regular people could climb the ladder.  I personally know many, many Aurelios.

Were the rents sometimes sowed inefficiently, unequally and corruptly? Of course they were. But to jump from that to saying they weren’t sowed at all is to make an indefensible leap.  

It wasn’t just a small elite that benefited from it all. In Venezuela, between 1960 and 1998 according to the World, Bank:

  •      Life expectancy increased from 59 years to 72,
  •      Infant mortality dropped from 81 per 1,000 to 24,
  •      Cereal production increased from 500 thousand metric tons to 2,100,
  •      Food exports (yes, exports of food from Venezuela to the world) increased from 1.4% of total merchandise exports to 3.9%, and
  •      Fixed telephone subscriptions increased from 2 per 100 people to 11.

Each of these advances was made on the back of heavy state intervention fuelled by oil rents. Often, granted, those investments crowded out private investment. At times, they went hand in hand with corruption and often their reach across the country was unequal. You were much better positioned to catch the rents if you were in Caracas than in Guasdualito, and much better placed if you came of age in the 60s than in the 80s or 90s. All these frustrations help explain chavismo.

And yes, from 1998 to 2015 most of these indicators continued to improve, but often at a slower rates than in the 1960-1998 period (well, except food exports).   

So what if, instead of this sterile debate on diversification and economic structure, we focused on the area where we can all agree investment is needed? What if we stepped back from thinking about sectors and started thinking about people instead? What might that look like, going forward?

Realistically, in any transition scenario, oil rents are going to remain the State’s main source of income and the nation’s overwhelming source of foreign exchange.  The State will also be practically broke.  Oil revenue will remain lower for longer due to declining production and depressed oil prices.  Increasing oil revenue will take time.  At best, unlocking The Shocking Potential of Natural Gas and Condensate and removing the Obstacles to Producing all that Oil should start to deliver private investment and revenue in two to three years’ time.  So there won’t be much oil left to sow beyond than maintaining the State’s basic services and holding together a fragile society that is gravely ill and starving.

In that context, we can’t afford the wasteful approaches to diversification we’ve seen in the past. The model has to change. And if you really have to focus your oil rents on one sector, to me, the choice is obvious. You go big into “human capital” —to use the jargon: you spend on schools, you spend on hospitals, you spend on maternal health, you spend on early childhood interventions, you spend on worker training and vaccines and sanitation. You spend on the things only the government can provide and provide well. Most importantly, you spend on people, not industries or state owned companies.

That’s how you use oil rents to defeat rentismo: by changing the model to focus on human capital, which delivers returns to society as a whole, rather than on picking winners, which simply burns through petrodollars while enriching the well-connected.

We need to reimagine “Sembrar el Petróleo”, in other words, as something quite different from what Adriani and Uslar Pietri originally intended: not as a strategy for refocusing away from oil, but as a strategy to allow people to thrive under any sectoral structure.

And that could happen faster than what you think. Human capital can be replenished by attracting some of the Venezuelan brains and capital that emigrated over the last decades, returning the expropriated or nationalized businesses back to entrepreneurs who actually know how to run them (RCTV, Aceites Diana, Café Fama de América, Agroisleña, Lácteos los Andes, just to mention a few) and creating the conditions for new investments -particularly in the hydrocarbon sector as I have written about in previous pieces and which will remain to be Venezuela’s source of comparative advantage for decades to come.  

In the long term, giving equal chance to access public healthcare and education opportunities to millions of Venezuelans will allow our society to crop the multiplying benefits of individual initiative.  In this model the State, rather than giving everything to everyone, actually gives equal access to opportunities so individuals and their initiatives can reach their maximum potential. It’s when we focus on people, and set aside this fixation with determining the structure of the economy centrally, that we’ll finally be able to turn rents into real social well being.

6 COMMENTS

  1. Definitely, emphasis on people is beneficial. And it is certainly far better than rampant corruption.

    Emphasis on values is important, too. The contributions of free-market capitalism cannot be ignored. As investment becomes viable, individuals will find opportunities to meet market demands, and enterprises such as those mentioned in your article spring up. Foreign capital is attracted, too, as are foreign personnel who know how to run things. University education is essential, but training and experience give the young college graduate the opportunity to put what he has learned into production. The values and the morale of production are propagated into the society. Others see evidence of production success not just in attitude and high morale, but in material forms as well (good food and health, new clothes, new kids, new car, new house). And others want some of that, too, and see how to get it, as long as they can make the correct associations that it is personal production and contribution, and not gifts.

    Somehow, I think I ended up “trained” to spot errors or omissions, and not trained to find good points to reinforce. I’m trying to focus more on finding positives, even when I see errors. The error I see with reliance on government to shape an economy or population is that it establishes a “train of thought” as it were, of expecting government to be the primary source of things. Then you get people claiming “rights” to “free” goods and services, and those claims apparently tend to perpetuate themselves, and undermine production.

    My error here is not giving weight to the “oil surplus”, which is not “tax money” taken from the upper sectors of the economy. As long as that surplus is there, then I find it difficult to argue with investing it in people, just as you say. But it should NOT be viewed as a permanent surplus, nor as a primary function of government.

    Providing a stable environment for private capital investment and free-market trade and commerce allows the flow of goods and services as demanded by the population. The world has always functioned on that basis, in spite of and sometimes in defiance of, government intervention and meddling. That is the primary function of government.

    While talking about investing in people, the talk is necessarily in terms of decades, if not centuries. I’m not saying that government investment in schools, hospitals, and such, especially if surplus trade capital is available, is wrong. I think virtually every nation has some of that. But even in developed nations, private services are preferred. The bulk of real estate taxes go to public schools, so even in the public sector, community residents are aware that they are paying their money in exchange for services, and they can feel good about using those services because they see that it is not a gift they must owe someone something for – there is no sense of being subordinate. The expectations of government, as an “accepted thought”, should be limited expectations, in my view. That view is based not just on theory or personal opinion but on hard practical experience.

    Teach that in socialist schools, and you will have a good economy for hundreds of years.

    I’m sure you know what you’re talking about, I am just leery of socialist ambitions. The world has seen so much failure and distress caused by that. An individual feels good when he knows he has done well and has earned his wealth.

  2. Interesting proposal. I wonder which period in our country was closest to this ideal, and which countries reasonably try to approximate it.

  3. I think that is the best interpretation of “Sembrar el petróleo” that one can make. And precisely, the failure has been that Venezuela did not manage to use that oil riches to secure that development for the people; that development of independence. It had a lot of cases like the one being described, yes, but the temptation for the other model, for the one that said that, being rich, you didnt not have to do anything but to pledge your alliegance to the source of richness – whoever is in control of the source.

    That was the “successful” model, and it has reached its more perfect incarnation in the Chavista period. The other, the one in which the richness of the oil resources allowed people to get the opportunites they could not have otherwise to grow and have their own independence, to get the education, contacts, learning, and institutions that ensured they could lead productive and fullfilling lifes that they controlled, themselves, without mediators, patrons, without having to be a willing or unwilling “jalabolas” sycophant? It has been destroyed, and the old model of begging for somebody to give you something because you know is the only real way to get it, the model of client networks of people dependent on the good will of somebody for everything, won.

    Chavismo is not interested in real development, but in that it just perfected and gave “revolutionary” form to what happened before; the realization that the kind of leadership that struggled for converting that oil richness into people real wealth – having a life you control, having to answer to no one for your dignity because you can stand with your two feet – was replaced or transformed into one that lived through the progressive marginalization of society.

    Because a society of beggars is one that can be controlled easily (“votame y te doy una lata de leche en polvo”) while a society of free people that have their own opportunites and plans and the tools to do them without having to abase themselves, that is a group of people that cant be ruled by mediocre, venal, corrupt “leaders”. Chavismo just replaced the standard indignity of having to beg your AD/Copei patron to throw you something, with the psychological trick of making people think that if they wear red and are as vicious and brutal against the “escuálido oligarcas”, they were now part of the bosses side. While their noise and their irrational worship of the Comandante is just the new form of humilliation required to become a client.

  4. Guevara,

    This article leaves me a little meh …

    Nobody can dispute that health care and education are good long-term investments. If anything, they are the moral thing to do. But the question is not in the what, it’s in the how. That is, how do we make sure that all Venezuelans have equal access to good education and health care.

    Your solution seems to rely on repeating the failed policies of the 60s and 70s. Free university education leaves us with bankrupt universities where mostly the middle classes benefit (and, yes, Aurelio is middle class). Free health care leaves you with bankrupt hospitals. There has to be another way – voucher systems, or perhaps financing the demand for education and not the supply.

    The political economy of Venezuela is such that if you promise free public education and health care, you will not be able to cut spending in all the other stuff you need to cut in order to completely fund these. We’ve seen the results of this, and they are not good.

  5. Actually, Guevara, you have a really correct sense of direction. Education is fundamental. So are religious values. Insights, maybe especially when they are really good ones, are often greeted with skepticism. Don’t let that reaction discourage you from developing your thought.

    Fransisco’s article today June 21st 2016 “Dogma” highlights (to me) the value of education as “looking at what works”. I’m not an specially “religious” person, but I easily see that the values of religion – principally I’m thinking of Christianity – of living a good, honest, productive, compassionate life – are what works. The principles of free market capitalism are not at all incompatible with Christianity. On the opposite pole, communism explicitly opposes religious values, just as it opposes everything else that is practical and works.

    There’s no question that focusing on human capital is correct. The education itself has to be good, though – not just dogma forced down students’ throats. And there has to be some sense of earning or paying for that education.

    Along with investing in one’s own mind, one must also invest in oneself. The soul is the man.

    So, you know, in short, your crazy idea of this “horseless carriage” is, well, very pretty theory … but it will never work. “Internal combustion engine”, that’s for scientists in laboratories, at best, a waste of time. It’s obvious you need a horse to pull a carriage. But nice try, trying to actually sell that toxic black junk oozing out all over your land!

  6. I agree that the problem is not whether we sow or not. The problem is the squabbles over how, leading to weird deadlocks that corruption loves to breed in. This is why I sympathize with pure open markets along with some institutions for the poor, like health care and food, as they are needed. It doesn’t allow for decisions, thus deadlocks or tiranny , on such big scales.

    If there is any approach other than pure free markets with care for the poor as needed, it will have to be one that also negates awesome narratives that take over on a whim. Aggregate small scale decisions is what best runs a state, this is why markets are so powerful, and chavista thievery (which I respect for historical reasons) as well. Coherent systems that are only loosely affiliated to any big narrative.

Leave a Reply