Venezuela’s Future


he questions, below, were asked by Michael Albert. Translation from English to Spanish and from Spanish to English was done by Greg Wilpert. Alfredo Serrano is perhaps the foremost economic adviser to President Maduro of Venezuela. The interview took place in Caracas in early July 2016.

Q: To introduce yourself, can you start by telling us a little about your past in Spain and how you came to be involved in Venezuela? 

A: In 2006 I was working in an Institute that works on Bolivia, Ecuador, and Venezuela. I was living in Bolivia during the whole constitutional process and following that in Ecuador and finally in Venezuela. My last project was a book on the iconic thought of President Hugo Chavez.

Is that how you came to be in Venezuela, because you were working on that book? What brought you to Venezuela?

It was the Bolivarian process, that was going against the stream, that brought me here.

You have been here now for a while. What kind of activity have you been engaged in? What role have you played? What has been your connection to the government?

I have been writing and have been participating in conferences, and since the publication of the book I’ve been spending a lot of time in Venezuela, advising as well, meeting with people, giving my opinion about the economic situation, and continuing to write.

I know this is a hard question to answer quickly, but what is your idea of the goal of the Bolivarian revolution? Not so much in the moment, but for the future.

I think there is a goal that has been established since the second half of the first decade of the 21st century, since 2005, when it was said that the goal is socialism of the 21st century. It’s an economic and political transformation that’s quite radical. In the economic realm it’s a humanist bolivarian economy that is connected to the people.

But if somebody were to ask you, what is the difference in institutions, between this 21st century socialism and 20th century socialism, what would you say? It’s presumably not just attitudes, but also institutional differences. What are these?

I think one of the main differences between 21st century socialism, there is an aspect that’s been completely forgotten and left out – the adjective “bolivarian”, which further qualifies it. It’s not just 21st century socialism, but bolivarian socialism, which is very important because it indicates something home-made, which does not copy pre-existing recipes. That makes it more difficult to explain what is bolivarian socialism.

It’s something very new and sometimes it creates new institutions, such as the missions. Also, often the urgent issues take a priority over the long-term vision. That is, there is an element of the “right now,” of resolving urgent issues.

Another aspect that’s very important is that there cannot be a revolution inside the country if there is none outside. This differentiates it from some of the nationalist projects of the 1950’s, 1960’s. Also, the bolivarian approach created a new political structure with five powers. for example, the electoral power, which is new, and a more participatory democracy, which is not just representative.

There is something else that Chavez was very clear about, with regard to economic issues, which is the recovery of sovereignty, as a base for any economic and political project. There’s also an aspect that’s taken from Simon Rodriguez, who said, we either invent or we fail. In difficult moments such as this, the usual thing to do would be to copy someone else’s approach. In today’s Venezuela, though, there is a lot of inventing going on.

We will get to the current crisis in a moment, but I still want to focus on aims. Suppose we have a 20th century socialist factory on one side, Soviet-style, and on the other side we have a 21th century bolivarian socialist factory. What is the difference in each factory, and what is the difference in how factories are connected to each other? On one side we would have central planning. How would the other be different?

For one thing, the workers in the bolivarian factory would have their social rights guaranteed. For example, with a labor law that would protect their labor rights. Also, before coming to the factory, they would have their right to education, health, and food guaranteed. The centrality of the worker in the factory isn’t really the worker, but the human being. This is an important difference. The working subject is created afterwards, after the human subject is created.

A second phase of the bolivarian revolution, perhaps, would focus more on the working subject. As for planning, these issues have not really been discussed yet.

What do you think is the source of the bolivarian project slowing down and the cause of the suffering that is now endured by a lot of people here in Venezuela? Where is the source of this in your view?

There are internal and external factors. The external factor has to do with the decline in the price of oil and the international financial pressure against the government. For example, the country’s risk indicators have risen for no clear reason.

And then there are internal issues that fall into two categories. On the one hand there is the economic war that is trying to topple the government and which is speculating a lot and is idle, unproductive, and anti-democratic. Another internal issue are the distortions within the Venezuelan economy, which make it possible for the economic war to be efficient.

With regard to this last point, there are a few things that should be highlighted. Import rentierism, that is, the process of importing goods and making money only off of that, without actually producing anything has been a major problem. The economist Samir Amin refers to the import bourgeoisie in this regard. Also, Chavez cited Istvan Meszaros, who writes about a capitalism that is post-capitalist in a sense.

When the Venezuelan economic system tried to challenge the oil rentier system, capitalism lost that first battle. Capital tries to challenge the oil rent system by appropriating the revenue once it is in the hands of Venezuelans. Instead of challenging oil rent as it is produced, it challenges it once it’s in the hands of Venezuelans. The capitalist system attempts to insert itself via important activity that is non-productive.

Venezuela’s socialist model democratized consumption. However, there was no corresponding increase in supply, to match the rising demand. This is quite typical for Latin American economies. The private sector does not produce, but simply asks for hard currency and purchases things outside the country, on the basis of oligopolistic structures within the country. This is the basis on which the economy war against us can be efficient.

Also, there is a very serious issue in terms of distribution. That’s another sickness of the Venezuelan economy because previously it counted on a very low level of consumption among the general population. However, the socialist process in Venezuela contributed to an increase in consumption, but there was no adequate plan for increasing domestic production. Another aspect is that there is a very strong state, but the state has not unleashed productive capacity. In short, there are two issues that need to be dealt with: the external economic war and the other is the internal disequilibrium in the economy.

Can you explain the scarcity in the stores – not just that not enough is being produced, but that much of what is being produced is going elsewhere. Likewise the crime and corruption. What are the sources of these things? In the United States, the reporting is that the source of all this is socialist aspirations: “this is the product of socialism.” So one has to address those things and explain their source. 

In 2014 the average price of oil was $88 dollars per barrel. In 2015 it was $44 and in 2016 it dropped to $26 per barrel. During this entire time, though, social spending remained the same and poverty didn’t increase. Unemployment is at 6.5%. Inequality remains constant.

While state income is down, as Stiglitz says, you don’t negotiate social rights. In Europe, for example, you go from a welfare state to a “bad-fare” state whenever there is an external shock. That’s not the case here. What European countries do is go into debt, but Venezuela does not. Also, there is an issue of the lack of productive capacity. There is also the very speculative nature of Venezuela’s business class.

For example, there is the problem of a lack of supply of milk. However, there is plenty of yogurt. There are problems with the supply of toilet paper, but there is plenty of hygienic towels. There is a speculative aspect, which isn’t the only reason. But it is an important and complicated problem, with many competing interests within and outside the country. It is difficult to maintain supply with these structural problems in a way that does not depend so much on foreign currency and at the same time maintains social spending. One has to decide, in a moment of emergency what to prioritize. Currently the decision is to maintain health care and housing and to produce more in order to make sure that there is less scarcity.

There is the issue of smuggling and corruption, which the President recognized yet again a few days ago. It is important to transform the metabolism of the economy, in order to prevent the occurrence of so much corruption, smuggling, and shortages. It is a difficult challenge, in which short-term problems need to be solved, while also constructing the long term to make sure that 15 years or so down the line we are not confronted with the same problems again.

Suppose you were in Miraflores, you were President, and the public wants to know what would you do in the next three months to change the shortages, to reduce speculation and black market behavior, and to reduce crime and corruption. What would you do now?

The current bolivarian economic agenda indicates the program for the next couple of years. Complex problems cannot be resolved with a magic wand. Neoliberalism teaches us to throw ourselves over a precipice, trying to convince us that there is no alternative. Currently the economic theses of bolivarian socialism are being discussed for the next 20 years. This is a moment for interpreting what Chavismo needs to do. It is essential that there be a tax revolution. Because when resources are lacking from outside, you need to find them within in order to sustain the social mission and during a time of a low oil price, a tax revolution is necessary. There is a huge margin for something like that. Also, you can develop a tax system that incentivizes productive activity. It’s important to have a higher tax collection, where those who earn more pay more. This would allow you to maintain social programs.

Also, the entire system of production and distribution needs to be re-thought. The CLAPs, the local committees of production and supply, is a response to the current situation, which is very welcomed by the population, but a plan for distribution and commercialization for the entire population is needed.

Also, you need to manage the hard currency income in a smart way. The method of currency assignment needs to be transformed. Corruption becomes possible when there is no clear method. The president refers to the need for an “acupuncture” of the management of the currency, in order to make sure that there is a rate of productivity associated with every single dollar that are allocated to different sectors.

Also, there is a need to diversify hard currency income. Currently there is the development of the “Arco Minero” (mining arc) as well as tourism, as a sector that is very underdeveloped in Venezuela. Other sources of export revenue must be found that have their own source of hard currency.

In addition, there is the issue of prices, which must be approached in holistic manner – not to believe that only adjusting the exchange rate would resolve the price problems. In a very capitalist economy it would be simple to resolve the price problems. Price levels would be allowed to rise and you exclude the majority of the population from consumption. The IMF would then call this, “macro-economic stability”.

I think, if I were asked about the pricing policy, I would allow for a larger profit margin for domestic producers than what would be allowed for imports. It is necessary to not only have a discourse in favor of production, but we also need the appropriate policies.

In addition, there is an invisible actor, the financial system. Banks are currently having the largest profit margins of the past 15 years. As a result, you need to make sure that the financial system supports the productive system. It cannot be that you have the real economic system on one side and the financial system on another. This does not mean that the banks need to be eliminated, but that they need to be re-oriented.

Also, there is another fundamental actor, which is the communal power, which is a political subject and should participate in economic activity. I think it is necessary to transition as rapidly as possible, from political subjects that were created in the revolution, to economic subjects.

I would like to focus on three tactics or actions that the government might take. The first has to do with prices, simultaneously with the black market and the implications that that kind of behavior might have on the psychology of the people. Also, whether people can afford to buy food that they would like and whether the food is on the shelves. The idea that I have heard floated, and I would like to know what your reaction is, is to let prices seek their level, to remove the incentives for people to cheat to gain super-profits, but, in addition, to let the price of gasoline go up. Obviously, the wealthier sectors can pay for that and so there would be revenues just as from a tax revolution, except that a tax revolution would take longer. Then the revenues from the much much higher price of gas would be circulated back to the public, the poorer public, so that they can now afford the higher-priced food that’s now on the shelves. What is your reaction to that kind of step?

The gasoline price increase has already been approved, in a first phase, last February. And there is a plan to further increase it progressively, in this idea to redistribute the current subsidies because the economy needs to be re-organized. With regard to the prices, I am not convinced that there would be such a linear reaction. That is, if you allow prices to rise, surely the economy will stabilize very rapidly, but what kind of economy? I think this economy has de-mercantilized many things. You do not need to acquire many basic things, such as housing and education. There has been a discussion between use values and exchange values. It’s a theoretical discussion, but it is very important.

For example, if a basic good is only subject to the exchange value, you could leave out a large segment of the population, which has generally been the trend in the 20th century. There is a system of “just prices” that needs to be transformed. Nonetheless, I don’t think it’s just a matter of letting prices rise. For example, if you allow the price of a yogurt to rise to a high level, but you do not have hard currency to pay for the packaging, then you cannot guarantee the product’s supply. It’s not just a matter of allowing prices to rise so that the products appear. There’s also the issue of distribution and commercialization. When prices are discussed, it’s not just a nominal issue, but also a matter for the real economy. When one discusses prices, there is a recognition that the pricing system is chaotic at the moment. Nonetheless, an ordered pricing system cannot be at the expense of creating an exclusion of the majority.

I understand, of course. But let’s say I don’t have much money. Right now the prices for many things that I like are very low, but the goods aren’t there. I can afford them, but I can’t find them. 

The task thus is to produce the products so that they can be found, not just changing the prices.

What if the reason for the scarcity is that it is more profitable to sell the products elsewhere in the black market? Now let’s say the prices go up in a capitalistic manner. All of a sudden I can see the stuff, but I can’t buy it. so that’s terrible too. The solution thus needs to be that either Venezuela changes the world to a different allocation system, with use value pricing, or somehow Venezuela allows the prices to go up but augment’s incomes sufficiently so that people can afford the items. The tax system with redistribution downward might do that, but it would take time. It seems to me that that you don’t see the time as being an issue. Whereas to me, coming from the US, it looks like there is a gigantic urgency here to solve this quickly. In which case, collecting and then dispersing to the poor funds from higher gas prices sounds good.

You are touching one of the central problems of the Venezuelan economy. The question of time is a determining factor. I said earlier that the Venezuelan economy is characterized by the need to resolve urgent problems. The tax revolution is necessary for the medium-term, though. But it’s also true that neoliberalism uses urgency to exclude the vast majority. For example, in the 1980’s the inflation and debt crises. If you increase the prices, it could be an incentive for products to become available. But in the short term you still don’t have the income. So you go to the store, but in the short term your income is not going to rise as rapidly as the prices.

Why not via dispersing the gasoline revenue?

That’s because the income from the gasoline price increase is for the social missions and not for incomes.

I am not referring to oil revenues from exports, but to the gasoline price increase within the country.

Yes, that’s what I am referring to too. Those are for the social missions. The oil revenue income is for imports, they are in dollars. The bolivars from the gasoline sales are for social programs.

OK, but if you increase the price of gasoline by a significant amount, you would have significantly more income for paying higher salaries or a direct distribution of funds for people to spend.

True. But at the moment this income is for social missions or for socialist mission debit cards. The idea is to subsidize the individual and not the product. This already exists, but it is still very small. Once the price of gasoline rises more it would allow to provide more direct subsidies to families. This exists already, but prices cannot increase faster than the prices increase. If they increase faster, you generate a problem of exclusion.

Is the reason why you do not increase the price of gasoline by a large amount, fear of the reaction? 

There is a little bit of fear and a feeling it has to be done progressively. There are two reasons. One is an economic reason. It could increase the prices of transportation, which could then be an excuse to raise prices more generally. It’s not just that a gasoline price the rest of the economy will remain the same. There are speculative activities in Venezuela that can generate – as it did during the Caracazo – so it must be done progressively. And the income subsidies thus must be synchronized with the price increases. If from one day to the other prices are increased dramatically, but the direct subsidies take three years to effect, then there will be gap in which people are excluded from the economy.

True, if it takes three years, then that will be a problem. It’s one thing for there to be price differentials for milk, where you might try to sell the officially priced product on a black market. If the government did increase the price of gasoline, though, you can freeze the price of public transportation. And no one could make super-profits by selling public transportation to the Colombians. And if a private firm violates the law by selling at a black market price, then it is nationalized. It seems you can deal with that side of the problem. But if you cannot re-distribute the gasoline revenues to the general public in less time, since it doesn’t seem like you have three years, in fact it doesn’t even seem like you have one year, since it feels like Maduro would lose a recall vote or worse, if something doesn’t change. I hope that’s a wrong impression, but it is the way it looks.

Two things: one, this year, the amount of changes in the economic policy have been a lot, so that one cannot say that Maduro hasn’t done anything. The exchange rate has been changed and there is an official rate that is at 640 bolivars to the dollar. A couple of months ago it was at 200. the exchange rate has change by almost 400%. Many of the prices of goods have increased recently. For example, an issue that was discussed a lot last year, is the price of eggs. It has now been raised to be quite close to the price on the black market. Shampoo, diapers, rice, coffee, have all had price increases – but has this changed anything? Are the products appearing? No. But the official price has gone up. Why? The problem is more complicated.

Sometimes it’s because of speculation, but sometimes is because of lack of raw materials for production. So increasing the prices by themselves does not guarantee supply. When one analyses the situation, we need to look at what has happened in those areas where prices have gone up. It’s true that there are goods where there are issues with regard to the production costs. But those areas where the prices have been adjusted, it has not solved the problem of lack of supply. But there is another thing – the reference price on the black market is far above the international market price. There are profit rates of over 1,000% percent in the black market. Neither the regulated the price has been adjusted to the actual production cost, but the black market price cannot be a reference point for any economy in the world. The prices need to be adjusted, but when it has, this has not solved the supply problem. The reason is that there are speculative dynamics as well as structural problems in the Venezuelan economy.

If you have a problem with supplying a product, it cannot be resolved via prices, but is a logistical problem. You could have the best prices in the world, but you need an effective distribution process. This is why logistics of transportation need to be transformed, from the ports, of raw materials, to the commercialization, or to more socialist distribution mechanisms. This is not just a problem that can only be resolved via prices. It must be studied and considered as part of a large equation.

 

One explanation of the products not appearing is that the final product’s price went up, but the prices of the inputs have not gone up.

No, all of the inputs for the products prices have also gone up.

So the explanation for the products not appearing is sabotage?

No – well, on one hand yes – but there is also a problem, for example, with importing productive components in a context of a hard currency scarcity, there is a great dependency on imports. And this cannot be resolved just with prices.

So even if the price of shampoo has gone up, the shampoo company cannot import because the company lacks the revenues from the oil industry? 

Shampoo is imported in almost its entirety. There is practically no shampoo production in Venezuela. If you don’t have dollars, you cannot import it.

This is related to one of the criticisms one hears lot from the opposition, that if there were no currency control, anyone could go to the currency market in order to import something.

Yes, of course, if there is no currency control there are two problems with this. This is a huge topic of discussion that’s related to the price controls. The argument is that if you allow the currency to float, you will be able to resolve all of the economic problems in the country immediately. But what does a free floating exchange rate mean? On the one hand, it means that anyone can go to the market to buy dollars. The first question is, who provides dollars? Because in Venezuela you can not create dollars via software, as you can in the US.

Now the state has few dollars because the price of oil is low. It uses these dollars for the most essential things. And the private sector does not want to provide dollars. The exchange rate went from 200 to 640, but there still is an insufficient supply of dollars. They are waiting for the exchange rate to rise to the value that they choose.

The Argentine case is a good example. They allowed the exchange rate to float and the private exporting sector, such as agriculture, does not sell dollars in the country. And they are allies of the president. Here, there is no private supply of dollars. So you have to decide whether you should let the currency float, of if you direct the dollars to basic needs. This is a major question when discussing this. If I now have only $40 dollars and previously I had $100, I need to decide whether to use it to allow people to buy, without having any idea what they will do with these dollars – perhaps they will buy ships to travel to caribbean islands. That wold be free. During the 21st century that’s what freedom means. This is the first problem.

But you can also face the problem that people might buy dollars only to save it, without directing it to any further economic activity, neither boats nor cars nor medicine. Only to remain calm in a time of high inflation. This is why the current exchange rate has two exchange rates – a protected rate for basic goods and another, that is freer, that is for buying and selling whatever. The discussion about the free exchange rate is like the state amputating one of its arms so that it cannot direct dollars to priority needs. This is the difficulty with the exchange rate.

What is your view and the government’s view of nationalizations and pursuing them with a lot more vigor?

I think there is an emerging common sense about nationalizations now, which is that all of them have failed. But that is not correct. The Bank of Venezuela, which was nationalized by Chavez in 2008, I believe, and which used to belong to the Banco Santander, is a successful bank. It has a low level of loan defaults, the second highest number of clients and so there are nationalizations that have worked well. Surely, there have also been some, especially in the area of production, that did not work. In the next phase it is necessary to think about how to deal with what is already owned by the state before incorporating more into the state. The state has a sufficient number of tools to intervene in the economy and to change its direction. Perhaps in the financial system there isn’t enough power yet. But in the rest, in almost all of the basic industries there is a strong presence of the state and the priority is to make sure that they produce. This is the challenge for the revolution at the moment.

Chávez, during his final campaign in 2012, the second topic that he talked about was efficiency or nothing, for the socialist model. It is important that all of the industries, petrochemicals, mining, begin to produce. That is, to make the nationalizations that have happened more effective and that can then change the metabolism of the economy.

Let’s assume you have a capitalist company, that is producing at a good rate and you nationalize it and if it produces at a significantly lower rate, which you seem to say has happened, why? What happened?

The issue of management has not been considered as a central political issue. Management of industrial businesses has not been that central in the past five years in Venezuela. There are many reasons for this. This is a country that constantly has to respond to things such as the Obama Decree [declaring Venezuela to be a threat to US national security] or to attacks from the OAS. It is not just any country. Nonetheless, management of public enterprises needs to be improved. The challenge is to find the best managers for state enterprises. A revolution is not sustainable if you do not have the best professionals in these areas.

President Maduro recently said, this year a new management school needs to be created. As you might know, the most highly qualified people that were inherited from the previous government, are not in favor of the bolivarian revolution. A lot of time has passed since the start of the revolution. But at first it had to democratize access to a university education and to primary education. The next jump has to deal with management, which needs to be resolved as rapidly as possible and perhaps with alliances outside of the country. The Ecuadoran case is very interesting in that regard.

Let’s assume for a minute that there is a 50-50 division in the population between those who support the bolviarian revolution and those who oppose it. In order to proceed with the project you ideally need 60-40 or 70-30 in favor. Ordinarily that means organizing the population, reaching in to the other constituency, talking to them and moving them from one side to the other. This really doesn’t seem to be happening. Do people understand this and are they doing anything about it?

I agree with much of what you are saying here. I have two observations to make. The reason is, first, not all of the chavistas voted for chavista candidates in the last election. So you cannot stop talking to them. This was the first time that almost two million chavistas did not go to vote. It’s true that they have to be talked to. The roots of this revolution lie in confrontation. This is something that is not so easily understood outside of the country.

Chavismo came about via its confrontation with a different model. This needs to be considered when trying to understand the polarization. However, I think we are caught in the language of the past. Almost all processes of change in Latin America have difficulties talking about the future. I am currently writing about the “David Complex”, as in David versus Goliath. Chavismo always thought of itself as being David to a Goliath. The problem is that David keeps growing, but continues to talk as he were small. This is normal. Still, it’s necessary to talk more with a future orientation in order to convince people. You need to talk about expectations. I think the last elections that were lost, demonstrate to me that we lost the battle of expectations.

Also, it’s necessary to talk to a new class. I don’t like the term “middle class” that the World Bank tends to use. But I do think there is a new class that needs to be studied. It’s not the middle class, but there is a restructuring of classes in Venezuela and we need to identify how to talk to these new classes. For the future, it’s necessary to talk to develop an aesthetics for the future. We cannot just defend the revolution, but we also need to need to offer something for the future.

For example, President Maduro recently created the Ministry for Urban Agriculture, which has been one of the most highly valued policies of the past six months. Why? Because it is something new, creative, inclusive, and also allows the combination of individual interests with collective interests. I agree, we need to re-think the way in which we communicate politics in order to move people from one side to the other, always when the one side does not go somewhere else. That’s the problem we are currently facing.

When I listened to government people speaking over the past two days, to the extent that they were trying to make a case for the government, it was always about what they delivered in the past. I could not help but think of a baseball team that is losing its fans and the manager tells the fans, “But just three years ago we won a championship!” So what? The fans don’t care. They want to know what happens now and tomorrow.

A virtue of the bolivarian economic agenda is that after some time it is talking about the future again. In the past year there were many references to the past. Sometimes I think you need to stop saying, “They will not return,” which is a common chant. Sometimes you need to talk about plans for the future. President Chavez was always very oriented towards the future. In 2004 he proposed the leap forward, using the maoist term. More recently he used the term, strike at the helm. These were forward-looking concepts. But it is difficult when you are constantly being hit, as in a boxing match, to say, “let’s fight tomorrow.” What you need to say is, “ stop hitting me!”

There is an Ecuadoran author who is an advisor to President Macri in Argentina. He has become someone who we need to study very carefully, from the right. His name is Duran Barba. He is professor who advised an opposition mayor in Ecuador and now is in Argentina and surely he is also working with the opposition in Venezuela. He is one of the people who best understands what we are talking about here, from a right-wing perspective. He even does not want to talk about things in terminology of the 20th century. He distances himself from the formulas of the old right. We are currently in a phase of post-materialist values. In a recent meeting in Guayaquil, Ecuador, with Pepe Mujica of Uruguay, President Correa of Ecuador, and others. I heard Mujica ask everyone of the Latin American left, “what is going to be our message with regard to ecological issues?” “Regardless of whether we agree or disagree with these issues, we must talk about these. Because for young people this is a major issue.” Also, what is our policy with regard to social media? This is another language that chavismo needs. A friend of mine says, people say they are tired of fighting all of the time. At times they like to have fun. It is important to propose ideas, not necessarily of having fun, but of positive expectations.

1 comment

  1. Neddy Merrill September 2, 2016 3:14 am 

    Serrano is widely considered a compete quack. He is ridiculed in Spain. Venezuela doesn’t need more government control of its faltering economy. It needs free markets and democracy. Geez. This is obvious to all but the leftist ideologues. Give these poor people a break from your ideology so they can get something to eat.

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