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Socialism: The Failed Idea That Never Dies

Socialism of the twenty-first century

In this series we will publish weekly cutouts from the book by Kristian Niemietz

VENEZUELA UNDER HUGO CHÁVEZ: ‘A DIFFERENT, AND A BETTER WAY OF DOING THINGS. IT’S CALLED SOCIALISM


The socialist experiments which were most popular with Western intellectuals were the ones that were least tainted by associations with earlier, now discredited, experiments. Intellectuals had to be able to convince themselves, and others, that they had found a genuinely novel model of socialism, which had nothing in common with those earlier ones. It was not enough for a country to just adopt socialism: it had to contain the promise of a fresh start, a promise that ‘this time will be different.

Mao-mania started at the time of the Sino-Soviet split. Hoxhaism started at the time of the Sino-Albanian split. The Cuban revolution was popular because it was homegrown. The same was true of the Sandinista revolution in Nicaragua. Pilgrims of a more romantic disposition were drawn to politically isolated places such as North Korea and Cambodia, because isolated places could not be tainted by associations with earlier, now discredited, attempts to build a socialist society. The German Democratic Republic, in contrast, received some praise, but it never inspired starry-eyed enthusiasm. 

‘Venezuela-mania’ is an extension of this pattern. It took off around the time that the Venezuelan government started to brand its policies internationally as a new model of socialism. It defined this new model not just in opposition to capitalism, but also, crucially, to earlier socialist models.
In 2005, President Hugo Chávez was a keynote speaker at the World Social Forum, an annual conference of various anti-capitalist groups from around the world. Chávez said:

[T]here is no doubt in my mind […] that it is necessary to transcend capitalism […] through socialism, true socialism, with equality and justice. […] We have to re-invent socialism. It can’t be the kindof socialism that we saw in the Soviet Union, but it will emerge as we develop new systems that are built on cooperation, not competition […] We must transcend capitalism. But we cannot resortto state capitalism, which would be the same perversion of the Soviet Union. We must reclaim socialism as a thesis, a project and a path, but a new type of socialism, a humanist one, which puts humans and not machines or the state ahead of everything. 

Chávez’s catchphrase – ‘Socialism of the 21st Century’ or ‘21st Century Socialism’ – quickly caught on. A few months later, it was used in headlines in the New York Times.. It turned out that adding ‘21st century’ was all it took to cleanse the term ‘socialism’ of its associations with earlier attempts. And that was, of course, the whole point. The phrase had originally been coined by Heinz Dieterich, a German-born, now Mexican, sociologist. In 1996, Dieterich had published the book Der Sozialismus des 21. Jahrhunderts. As he explains:
The term [socialism] comes with a lot of baggage, and that was a problem when I wrote my book […] If you use the term, it evokes the experience of the GDR and of the Soviet Union. If you leave it out, you exclude a lot of people whose heart still beats on the left. I wanted to illustrate the continuity of an alternative to the market economy, but I also want to make clear that it has nothing to do with the socialism of the 20th century. Hence ‘Socialism of the 21st Century’. 

Among Western admirers of the Chávez government, the term quickly developed a life of its own. Although Dieterich was an advisor to Chávez for a while, most Western Chavistas will never have heard of him, or his specific version of Marxist theory. In practice, ‘Socialism of the 21st Century’ simply meant ‘Socialism, but without the negative connotations’, or ‘Socialism, but somehow different’. It worked. A few months later, Venezuela-mania was in full swing. In 2006, a Chávez speech in Vienna attracted a crowd of about 6,000 supporters. And Venezuela had become a popular pilgrimage destination. The Guardian reported:

To sceptics they are naive westerners seduced by hype
[…] Meet the revolutionary tourists, a wave of backpackers, artists, academics and politicians on a mission to discover if President Hugo Chávez really is forging a radical alternative to neoliberalism and capitalism. From a trickle a few years ago there are now thousands, travelling individually and on package tours, exploring a leftwing mecca which promises to build social justice in the form of ‘21st century socialism’. 


But what had actually happened in Venezuela? Chavismo was not a complete break with Venezuela’s prior economic history. Take the following description:
Venezuela’s new leaders concentrated on the oil industry 
as the main source of financing for their reformist economic and social policies. Using oil revenues, the government intervened significantly in the economy. […] [T]he government addressed general social reform by spending large sums of money on education, health, electricity, potable water, and other basic projects. […] Increased public outlays manifested themselves most prominently in the expansion of the bureaucracy. […] The government established hundreds of new stateowned enterprises and decentralized agencies as the public sector assumed the role of primary engine of economic growth. […] In addition to establishing new enterprises in such areas as mining, petrochemicals, and hydroelectricity, the government purchased previouslyprivate ones. 

This could easily pass as an account of Chavismo. But it actually refers to the 1960s and 1970s (Haggerty 1990). Opponents of Chavismo like to point out that before Chávez, Venezuela was the richest country in Latin America. This is technically true. Before Chile overtook it in the early 2000s, Venezuela had the region’s highest GDP per capita (PPP) (IMF 2017). 
But it was nonetheless not an economic success story. It was a petrodollar economy, built on the world’s largest proven oil reserves. In the 1960s and 1970s, Venezuela was awash with oil money, which the government spent lavishly on social programmes, public works projects, asset purchases and subsidies. Venezuela became a patronage economy, and the Venezuelan state became a client state. It was an economic model that was built on high and rising oil prices. The 1970s therefore became the country’s golden age. But in 1980, global oil prices peaked, and entered a nearly twodecade-long period of steady decline (Macrotrends n.d.). During that period, the country’s economic performance became volatile and erratic. The government tried to maintain the high public spending levels that the population had grown accustomed to by borrowing and printing money. Between the early 1980s and the mid-1990s, government debt increased from less than 30 per cent of GDP to around 70 per cent. Inflation increased from about 10 per cent to over 60 per cent. Successive governments tried to come to grips with these macroeconomic imbalances, but found it politically impossible. Adjustment packages were initiated, but never seen through. As Corrales (1999) explains: Venezuela has been stuck in an ax-relax-collapse cycle of reform. Each cycle begins with […] harsh cutbacks and adjustments – the ‘ax.’ After some initially positive results, the reforms soon lose momentum, becoming either haphazardly implemented or prematurely abandoned – the ‘relax’ stage. This culminates in yet another economic crisis – the ‘collapse.’ […]

Venezuela is thus neither a 
case of reform avoidance nor of neoliberal transition, but rather of reform non-consolidation. It is in these conditions that the left-wing populism, of which Chavismo would become the most extreme variant, was born. Both of Hugo Chávez’s predecessors had campaigned on an explicitly anti-‘neoliberal’ platform. Both had blamed external forces for the country’s woes, and promised a return to the old, free-spending ways of the 1970s. Once in office, both of them quickly had to U-turn, simply because denying the existence of economic constraints does not make those constraints go away. Venezuela had become the perfect illustration of Thomas Sowell’s dictum that ‘the first lesson of economics is scarcity:

There is never enough of anything to satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics’. Had oil prices remained constant after Chávez’s election, his presidency might well have followed the same pattern: some initial populist grandstanding, then a U-turn with spending cuts and adjustment measures. This might well have been followed by the emergence of the next populist, who would have denounced Chávez as a neoliberal sell-out. But Chávez was exceptionally lucky. Oil prices reached their historic trough a few weeks before he took office, and then rose steeply and almost constantly for the next fifteen years, surpassing even their 1970s levels (Macrotrends 2018). Even today, oil prices are not particularly low by historical standards. They have merely fallen back to where they were in the mid-2000s, i.e. at around the time Venezuela-mania started Due to the oil price boom, Venezuela’s oil revenue more than quintupled in real terms (Mahoney 2017: 5–6). Chávez had promised a return to the free-spending ways of the 1970s. The oil price explosion meant that he could actually deliver that. Government spending increased from under 30 per cent of GDP to over 40 per cent (Quandl 2018).

The spending splurge was not entirely without precedent – it was a turbocharged version of what had happened 
in the 1970s – and something similar would probably have happened under any other government as well. What made Chavismo different was the copious use of microeconomic Interventions , such as price controls and exchange rate controls, which then begat further interventions. When the initial interventions did not produce the desired effect, or when private sector actors did not behave in the way the government wanted them to behave, the government railed against the industry in question, and intervened in more heavy-handed ways. This often culminated in ‘revenge nationalisations’.8 For example, in 2009, The Economist reported: 

A rice plant belonging to Cargill, an American company, was seized […] Two plants owned by Empresas Polar, Venezuela’s largest private conglomerate, were taken over ‘temporarily’ to enforce production of pricecontrolled rice. Like other companies, Polar argues that controls force it to sell at a loss. […] Mr Chávez rejects this argument, and threatened to expropriate all Polar’s businesses.

Thus, under the Chávez government, nationalisations were 
not led by strategic considerations. The government did not have a recognisable theory about which sectors ought to be state run and in which sectors private ownership was tolerable. Instead, nationalisations were used as a disciplining tool, a way to punish recalcitrant private sector actors. In this sense, ‘Socialism of the 21st Century’ was an ad hoc ‘revenge socialism’. Previous Venezuelan governments had been interventionist, but they had remained broadly within the rule of law. The Chávez government was different in that it rode roughshod over the rule of law. This can be seen in the decline of various key governance indicators.

One need not be a believer in free markets to realise 
that Chavismo could never have been a workable economic model. The fact that price controls lead to shortages is not Friedmanite or Hayekian economics – it is just GCSE-level economics. The fact that a predatory government, with norespect for the rule of law, deters economic activity is not even economics at all – it is just basic common sense. Nor does it take a lot of imagination to see that a rapid expansion of public spending programmes increases the scope for corruption, patronage and nepotism.

And indeed, the problems we currently associate with Venezuela long predate the drop in oil prices. They were already in evidence at the height of the boom. In 2007, The Guardian reported:

Welcome to Venezuela, a booming economy with a difference. Food shortages are plaguing the country at the same time that oil revenues are driving a spending splurge […] Milk has all but vanished from shops. Distraught mothers ask how they are supposed to feed their infants. […] [E]ggs and sugar are also a memory. […] When supplies do arrive long queues form instantly. Purchases are rationed and hands are stamped to prevent cheating. The sight of a milk truck reportedly prompted a near-riot last week. Up to a quarter of staple food supplies have been disrupted. 

Over time, such shortages became more severe, and affected a wider range of products. In 2013, when oil prices were still abnormally high, The Guardian reported
[C]ertain items long gone from the shelves are hitting a 
particular nerve with Venezuelans. Toilet paper, rice, coffee, and cornflour […] have become emblematic of more than just an economic crisis. […] For Asdrubal Oliveros, an economist at Ecoanalítica, […] this […] is the result of […] price controls and […] the decrease in agricultural production resulting from seized companies and land expropriations. ‘More than 3m hectares were expropriated during 2004–2010. […] That’s a perverse model that kills off any productivity,’ he says. Venezuela’s central bank, which has been publishinga scarcity index since 2009, puts this year’s figure at an average […] similar to countries undergoing civil strife or war-like conditions. 

But for as long as the oil price boom lasted, many other economic and social indicators looked very positive. Western admirers of Chavismo attributed all of those gains to Chávez’s policies. As mentioned, Chávez defined his version of socialism explicitly in opposition to previous models. This was not empty rhetoric. Under Chavismo, there were genuine attempts to create alternative models of collective ownership and democratic participation in economic life. In particular, the formation of worker cooperatives and various forms of social enterprises was heavily promoted. Exact figures are hard to come by, but, according to Piñeiro Harnecker, the number of worker-run cooperatives increased from fewer than 1,000 when Chávez was first elected to well over 30,000 in less than a decade. By the end of Chávez’s second term, cooperatives accounted for about 8 per cent of Venezuela’s GDP and 14 per cent of its workforce. 

Venezuelan socialism would later show many of the negative features associated with earlier forms of socialism, but it was never government policy to replicate any of those earlier models. When Western Chavistas insisted that the Venezuelan government was trying to create a different model of socialism, they were not deluding themselves. 

Data on the economic performance of this statecreated cooperative sector are scarce, but it is safe to say that the sector never became self-supporting. It remained dependent on government subsidies throughout. But then, its primary purpose was never an economic one. The social sector was seen as a training ground where workers could develop a socialist mindset, and thus an incubator for a more advanced stage of socialism. The government believed that working in an economic environment characterised by cooperation, sharing and joint democratic decision-making would instil socialist values and habits in them. This was part of their programme of building socialism from below, rather than imposing it from on high. 

It did not work out that way. Piñeiro Harnecker (2009) conducted a study into the attitudes of Venezuelan cooperative workers, based on interviews and surveys. Although the tone of the paper suggests that the author is strongly sympathetic to the Chavista government, she concludes, with barely concealed disappointment, that the cooperative sector has not had that effect.

She notes: 

It soon became clear to Venezuelan policy makers thatmany cooperatives were behaving like capitalist enterprises, seeking to maximize their net revenue […] For example, rather than supplying their products to local markets […] some have chosen to export them to other countries where they can sell them at higher prices […] Also, many cooperatives have refrained from accepting new members. […] [T]hey fear that including new members is going to affect their income. […] [M]any members I interviewed were against having to start paying taxes […] They asserted that […] they arealready contributing enough to their local communities. […] All this has occurred despite President Chávez’s frequent calls for solidaristic behaviour. 

To her great dismay, the cooperative workers she interviews often sound very small-c conservative. 

[T]he most common argument used to oppose contributing to neighboring communities was the claim that their cooperatives’ economic success was the result of their own efforts alone. Ignoring the inadequate capabilities that some have […] some workers claimed that community members ‘were not trying hard enough’ and had to ‘help themselves like we are doing in the cooperatives’ […] Others stated that their revenue was not large enough to be redistributed, as if only they were entitled to it. 

Many cooperative workers were, of course, engaged in their communities in various ways. But so are many people who do not work for cooperatives, and Piñeiro Harnecker provides no evidence that cooperative membership made a difference. She does, however, find that cooperatives’ social engagement remained limited to their own local areas. Some were happy to support their communities, but that ‘community’ was not the nation as a whole and ‘there were only a few instances where cooperative members’ solidarity towards distant communities had materialized’. 

Realising that cooperatives were not a stepping stone towards socialism, the Chávez government grew increasingly disillusioned with them.

As Chávez himself said
:
‘The model of cooperatives [cooperativismo] does not guarantee socialism because a cooperative is collective private property; that is, if we are 20 in a cooperative, we are going to work for the benefit of us 20, and that is merely capitalism. Cooperatives need to be impelled towards socialism’. […] Chávez suggested that an enterprise is only ‘socialist’ or of ‘social property’ if it is controlled by society, thus satisfying social needs. An enterprise of social property, he elucidated, ‘belongs to the entire community and […] operates under a direction, a plan; it produces in accordance with the interests not only of the cooperative members but of the entire community’. 

This is also Piñeiro Harnecker’s conclusion. Capitalism, she laments, cannot be overcome via the formation of cooperatives, because these fail to promote socialist norms. They are just a different business model under capitalism. What is needed, instead, is planning at a higher level, a level which takes the needs of the whole community, not just of one organisation, into account. 

Despite the emphasis on how Venezuelan socialism was supposed to be incomparably different from Soviet socialism, this sounds suspiciously like the Soviet Union again.

 

Dr Kristian Niemietz is Senior Research Fellow at the Institute of Economic Affairs (IEA), and author of the books ‘Redefining the poverty debate’ and ‘A new understanding of poverty’. He holds a PhD in Political Economy from King’s College London, and an MSc in Economics from Humboldt Universität zu Berlin.

Special thanks to Kristian Niemietz for the permission!

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