The most prominent issue in Venezuela’s recent National Assembly elections was the economic crisis. What should be done, what can be done, and what is likely to be done? Venezuelans have proposed a variety of solutions that fall into five broad categories: neoliberalism, market-based reform, correction and maintenance of current policies, socialism with the state, and socialism without the state.
These five options appeal to different political groups. Opposition leaders and their wealthy supporters generally favor neoliberal capitalism. Government supporters debate the merits of the other four options. However, the PSUV’s defeat in the Dec. 6 election should not be read as an endorsement of neoliberalism. The people demanded decisive action on the economy, not full-scale austerity. More likely is that Venezuela’s path out of economic crisis will be a mixture of policies drawn from all five categories.
Several obstacles have blocked a comprehensive response to the crisis: violent destabilization by the opposition, organized and unorganized economic sabotage, corruption within state institutions, the drop in oil prices, the lack of political will to change faulty institutions, and the weakening of community-based organizations. Added to these factors is that the opposition now controls the National Assembly. This could cause governmental paralysis and divert attention from the economy, while the MUD and PSUV battle over political issues such as releasing opposition politicians from prison, having a referendum on the presidency, and revoking laws.
The opposition’s neoliberal program would mandate fiscal austerity: the government would lay off workers, cut social spending and re-focus the state oil company on purely oil-related activities. To stop inflation, the Central Bank would become more politically independent and deny the government’s requests to print money to finance social spending and the government’s deficit. It would also raise interest rates on savings to combat capital flight and raise the available stock for investment. The government would raise revenue by privatizing many of the companies it has nationalized, deregulating gasoline prices, and selling its dollars at the market-determined exchange rate. Privatization would include an “opening” (apertura) of the oil industry – a pseudonym used in the past to refer to partial privatization. To stop hoarding, contraband, and speculation, exchange controls and price controls would be eliminated, and prices would be determined by competitive markets. The state would also withdraw from commercial importing. Finally, the government would have to be more transparent with data on key indicators and policy plans.
Such policies were already attempted during the regional debt crisis of the 1980s and 1990s in many Latin American countries, including Venezuela, Brazil, Bolivia, Argentina, and others. Although in some cases the policies reduced inflation and stabilized parts of the economy, they also led to an increase in poverty, unemployment, and inequality. In Venezuela, these policies sparked the mass upheavals that led to the violent crackdown known as the Caracazo in 1989, and they remain unpopular among the poor and middle classes. Polls show that Venezuelans are principally concerned with shortages of basic goods, not inflation, so the anti-inflationary thrust of neoliberal reforms may appeal more to the rich owners of assets than to the poor. However, if the economic crisis is allowed to worsen substantially, neoliberal reforms may garner widespread support because they promise stability.
Knowing that neoliberalism is unpopular, opposition leaders use language that softens the tone of their policy proposals. For example, in a recently released list of legislative proposals, their proposal to repeal laws that combat price speculation is part of the “Law on Full Food Provision”. Their reform of the labor law would allow workers to access benefits like vacation and severance pay “without aggravating even more the compromised situation of employers”. The law that would decentralize and contract out public utilities to private firms is framed as a way to “abolish the monopolies” of the government. The list of proposals avoids directly addressing the highly polemical issues of fiscal and monetary policy, the currency, and the foreign exchange system.
Summary of the Neoliberal Approach
Independent Central Bank
Raise interest rates
Privatize state-owned companies
State withdrawal from production and importing
Floating exchange rate
Remove capital controls
Improve government transparency
Market-based reforms, in contrast to neoliberal reforms, view markets not as natural and self-regulating, but as socially constructed institutions that can yield positive outcomes if governments manage them well.
A commonly discussed market-based reform is to switch from a fixed exchange rate to a managed floating exchange rate. Venezuelan economist Victor Alvarez, U.S. economist Mark Weisbrot, and many others recommend this policy. A managed float would mean eliminating the multiple official exchange rates and allowing the market to determine the exchange rate. The government would manage this floating rate by buying and selling currency and assets on the open market, perhaps specifying a band within which the currency can float. It may also use some capital controls to prevent destabilizing inflows and outflows.
Managed floating rates would help to close the gap between the official rate and the market rate and reduce informal dollar market activity. It would also help to stimulate domestic production, because it would raise the price of imports to their market value, opening opportunities for domestic producers to compete.
Along with the managed float, another market-based reform would be to relax or totally phase out price controls. If only market-determined prices existed, there would be much less incentive to engage in contraband or the form of arbitrage known in Venezuela as bachaqueo, where people re-sell subsidized goods at market-determined prices. It would also encourage domestic production by removing a price disincentive.
Although many predict that moving to a managed float and market-determined prices would cause inflation, this is not necessarily the case, since most prices in Venezuela are already adjusted to the parallel dollar (in massive violation of price controls). However, the policy changes could provoke a rush to buy dollars, or capital flight, which would devalue the bolivar substantially, cause investment to decline even more, and put upward pressure on prices. It could be argued that this would only be a short-term adjustment that would soon bring medium-term stability. Yet markets and floating currencies do not always bring stability in small economies that are dependent on one volatile commodity. If Venezuela cannot effectively implement capital controls, a floating exchange rate could lead to large, rapid inflows and outflows of capital whenever global markets change, causing instability in the exchange rate.
There is also the problem of declining real incomes. To protect the incomes of the working class, wages would need to rise and labor protections would need to be strengthened. Currently, the minimum wage – even with food tickets – is well below the cost of living. The government could issue discount cards to people below a certain income threshold to purchase essential items. Another option would be to increase income transfers to the poor using the extra revenue from the sale of oil dollars at the market-determined rate, as Weisbrot points out. Venezuela could also consider moving to a guaranteed basic income for all, as U.S. economist Peter Bohmer has suggested.
Other moderate market-based policy options focus on increasing investment and production. Alvarez suggests the government refrain from direct participation in production, and instead give priority in government purchases to products made in Venezuela. Alvarez also recommends laws that protect foreign direct investment while ensuring technology transfer, workforce training, and local reinvestment of profits. The Maduro administration has also considered establishing special export zones along key border regions to attract investment and diversify exports.
In summary, market-based reforms might reverse the current disequilibrium in the Venezuelan economy as intended, or they might prompt a new round of capital flight and economic dislocation. Also, these reforms would embolden the Venezuelan private business class, especially exporters and producers who compete with imports. Although this might create jobs, it would not empower and enfranchise the poor and marginalized in the way the Bolivarian Revolution has sought to do.
Summary of Moderate Market-Based Reform
Managed floating exchange rate
Relaxation or removal of capital controls
Remove most price controls or adjust them more frequently to market prices
Protect real incomes, for example by increasing transfers to the poor using increased revenue from dollar sales, or implementing a guaranteed income for all
Increase wages and strengthen labor protections
Issue discount cards to secure access to essential goods for the extreme poor
Government generally refrain from trade and direct production
Strike a deal with foreign investors: secure investments in exchange for technology transfer and workforce training
Aid domestic businesses competing with imports
Correction and Maintenance of Existing Policies
Those who favor moderate market-based reforms tend to see the fixed exchange rate, capital controls, and price controls as short-term measures intended to stabilize the economy after the coup and oil strike in 2002-2003. An alternative view is that these policies were part of a strategic development model: they gave the government important tools to allocate capital to strategic investments, restrict certain imports when necessary, control inflation by controlling prices, and provide affordable basic goods to the poor. According to this view, Venezuela should keep the current policies but revise them to stimulate production and combat price speculation, contraband, corruption, inflation, and other problems.
One important measure would be to adjust the official exchange rate to be closer to or equal to the parallel market rate. Many Venezuelans refer to this as unificación, meaning the multiple exchange rates would become one, rather than liberación, which would eliminate the official rate and allow the market to determine the currency’s value. As Ernesto Villegas suggests controlled prices would also need to be adjusted, but not liberated entirely.
Maintaining controls on the exchange rate and prices would require increased enforcement in order to prevent contraband and bachaqueo. This could include a sustained and systematic program to improve the border patrol, inspect businesses, impose fines, offer rewards to those who comply, and root out corruption within the national guard. The government could also give substantial institutional backing to communal councils and popular assemblies that create auditing committees to enforce price controls in the businesses in their communities.
The effects of these measures will be short-lived if the government continues to run fiscal deficits and increase aggregate demand without also increasing production. This causes inflation and widens the gap between regulated and market prices, which fuels the informal dollar market, contraband, and bachaqueo. To achieve fiscal balance without accepting neoliberal austerity, the government can increase tax revenue relative to oil revenue. Tax revenue is money taken out of circulation before being put back into circulation through government spending, whereas oil revenue, when spent on social programs for example, is a net addition to the money in circulation. The tax system should become more progressive, meaning those with higher incomes contribute a larger portion of their wealth to the government’s budget. Currently Venezuela relies more on the sales tax, oil rent and taxes, and customs duties.
Another possible correction to the existing system would be to target subsidies on goods and dollars toward strategic economic priorities, which would include improving living standards for the poor and fostering productive industries – two goals that sometimes contradict each other. The government could stop guaranteeing subsidized dollars for travel, remittances, and non-essential imports, since many of the parallel-market currency scams take place in those activities. By making a broad variety of imports artificially cheap, the current exchange system has contributed to a decline in domestic production and the rise of the speculative importer class. Instead, the government could offer subsidized dollars for only essential products imported by state-owned markets, health clinics, and distributors, while raising barriers such as quotas or even tariffs to limit the import of other goods that Venezuela could produce. The subsidized dollar could also be offered for capital goods imports and other investments to help increase production. This would require improved management in state-owned companies and the creation of coordinating commissions to work with private industry leaders and small-scale producers.
One potential weakness in the option of maintaining and rectifying the existing policies is that this approach has failed before. In the months prior to the December 6 election, the government enacted a prolonged closure of the border with Colombia, stricter laws limiting profit margins, and arrests of hundreds of national guard soldiers, PDVSA employees, and Health Ministry officials for smuggling goods such as oil and medicines. In the past, the government on multiple occasions adjusted price controls, revised the list of imports eligible for the preferred exchange rate, created multiple exchange rates, and gave Maduro law-decree power to combat corruption and economic sabotage. All of this has culminated in a deeper economic crisis and a resounding defeat at the polls. What evidence is there that another round of reforms will make the current policies function as intended?
The essential problem may be that Venezuela is still a market economy, and market forces have overpowered the government. Nothing shows this more clearly than the prolific expansion of bachaqueo, which is rational economic behavior in a market economy. Thus, the fourth approach is to move decisively against markets and toward a socialist economy.
Summary of Correction and Maintenance of Existing Policies
Adjust value of currency to close gap with parallel rate
Narrow the list of goods and services accessible at the official subsidized rate: remove subsidies for luxury goods, travel, remittances sent abroad, etc.
Adjust controlled prices to close gap with parallel prices
Increase enforcement of price controls
Increase anti-contraband efforts
Combat corruption within government
Make the tax system more progressive
Increase tax revenue relative to oil revenue
Target subsidies on goods and money toward strategic economic priorities
Use discount cards to ensure access to essential goods for the poor
Raise barriers on some imports and coordinate capital investments with domestic producers
Socialism with the State
Those favoring a decisive move toward socialism believe that the Bolivarian Revolution is facing difficult obstacles but will – and must – ultimately prevail. This is an optimistic vision that Socialism of the 21st Century is fundamentally right and also possible.
In a recent public spat with higher-ups in the PSUV, the Young Communists made the following declaration outlining their agenda: “We propose a gradual tax reform, the nationalization of foreign commerce under state control, an audit of the external debt which could even mean a refusal to recognize parts of it, organized combat against subcontracting in state and private workplaces, a general raise of wages and salaries, the establishment of a national network for workers’ control of the distribution of essential goods, the termination of non-priority expenses on the part of the state apparatus, and the definition of a national plan for industrialization on a vast economic scale and not through the failure of limited community property.”
The establishment of a state-owned company to manage all imports and exports has been proposed by many Venezuelan organizations and individuals. Often this proposal is accompanied by the proposal to nationalize the banking sector. If the state in fact established true control of commerce and banking, Venezuela would be able to plan and coordinate its development with its social objectives in the forefront, rather than being subject to destabilizing market dynamics.
These state-owned companies and banks would need to be effectively audited and eventually controlled by democratic management. Auditing could be carried out by independent investigative commissions backed by popular assemblies, workers’ councils, and communal councils. One such independent audit has already been carried out, but it has not gained the formal support of the government. This audit found more than US$230 billion unaccounted for in PDVSA’s budget, and it hypothesized that the money was illicitly transferred abroad. The auditors called for a transparent public accounting of oil revenue as well as a publicly available oil dollar budget published alongside the government’s budget in bolivars.
In addition to auditing, large-scale anti-corruption measures would be necessary. Many public bureaucracies would need to be overhauled, top ministers and program managers replaced, and corrupt functionaries dismissed. The government would need to train a new generation of socialist program administrators, reduce luxurious perquisites for public officials, and promote visible indicators of shared sacrifice for the public good.
To advance toward democratic management of the economy, Venezuela could build on the experiences it has already cultivated with worker control, cooperatives, and communes, many of which have been successful. The participants of these projects could become educators who articulate their experiences through mass media and train other communities and workers’ councils to launch their own projects. Meanwhile, the government could revamp state-owned companies. Eventually all of these projects could be integrated into a national network of socialist investment banks, producers, distributors, and retailers. The state-owned import/export company could serve this network with access to subsidized dollars for imported inputs to production.
The move toward a socialist economy implies a large degree of democratic organization. There is debate among revolutionaries about whether the state would elevate or enervate democratic organization. Some groups have adopted the word socialización as an alternative to both nacionalización and privatización to describe the process of transferring the economy to democratic socialist management, rather than management by the state or private owners. From this discussion about the relationship and interaction among social movements and the state emerges the fifth approach to solving Venezuela’s crisis.
Summary of Decisive Move Toward Socialism with the State
Progressive tax reform
Nationalize foreign commerce
Nationalize the banking sector
Create a national plan for industrialization
Reduce government waste and combat inefficiency
Replace current council of ministers with movement leaders of demonstrated integrity
Public audit of PDVSA, foreign debt, and other government agencies
Establish permanent independent auditing commission open to the public
Protect labor with safeguards on wages, subcontracting, and workplace security
Gradually establish worker control of production, distribution, and sale of goods
Integrate a network of socialist enterprises and expand their scope to gradually take over the economy
Socialism without the State
Many activists in community-based organizations, indigenous rights movements, worker-controlled cooperatives and enterprises, feminist organizations, and other movements view the the state – both in actuality and in the abstract – as part of the problem rather than part of the solution. For these groups, the PSUV and the Maduro government, despite having some virtuous and highly committed individuals within them, are intractably corrupt and saturated by the hierarchical, elitist, clientelistic practices of the Fourth Republic.
According to this approach, any path out of crisis must be led by horizontally structured social movements. These must be prefigurative, meaning they practice in their internal power structures the democratic and non-oppressive relations they hope to see in society as a whole eventually. They are committed to cultivating profound and sincere cultural change to promote solidarity and socialist values rather than rational, individualistic, modern economic behavior.
Many communities are already creating community-based solutions to the crisis. They are occupying vacant land and expanding community centers to include more educational activities, small-scale productive enterprises, and cultural activity. These movements build upon a rich history of communal councils, cooperatives, rural land occupations, indigenous revitalization, and other movements. The degree of autonomy of these movements ranges from nothing to significant support and guidance, but all such movements tend to sympathize with the need for revolution that reaches far beyond the state as Venezuela inherited it.
Some organizations in Venezuela call the goal of this approach to be “Popular Government.” This refers to government managed and led by the people rather than by the state. Popular government would unite the disparate movements that have developed organically and independently to address greivances of particular oppressed populations, such as women, indigenous people, LGBT people, evicted tenants seeking housing, or workers attempting a factory occupation.
On the whole, the social movement approach reflects the perspective that the Bolivarian Revolution’s greatest achievement has been to demonstrate that people have the power to engage democratically in their communities and workplaces to improve social well-being. This may include support from the state, but it is not led by the state. Venezuelans have sown the seeds of a new, democratic, ethical, social economy. They have shed light on the idea that merely re-aligning the government’s policies with market forces will not ameliorate Venezuela’s economic woes.
Summary of Social Movement-led Alternative
Gradually transfer control of political decisions and economic activity to organized communities
Submit all government positions and functions to open public auditing and regular revision
Promote cultural and political re-education to promote new socialist-humanist values
Support occupations of factories, vacant and idyle land, buildings, and other spaces by the dispossessed
Assist in the growth and evolution of “popular government” and fully participatory-democratic economy
Constraints Moving Forward: State Capacity, Opposition Power, and Market Pressure
Venezuela’s path out of crisis will likely draw on policies from all of the distinct approaches outlined above. For example, it may switch to a managed floating exchange rate, adjust controlled prices, approve public auditing of state-owned enterprises, renew efforts to promote worker control, and expand support for community-based socio-productive enterprises.
No matter what combination of policies is chosen, the government will be constrained by its lack of capacity to implement large-scale changes. One source of weakness is corruption within state institutions. A second is inefficiency in the provision of public services and programs. A third is that the economic crisis has exhausted community-based organizations and dampened their enthusiasm, weakening the popular base for the construction of socialism.
Another constraint will be the opposition’s growing political and economic power. It now controls the National Assembly, and it has demonstrated the ability and willingness to use violent street demonstrations and sabotage to shut down large parts of major cities. Such power will make even relatively minor policies like raising taxes on the rich very difficult to carry out.
The Maduro government can confront the opposition, negotiate with the opposition, or do both. If it chooses confrontation, it will need more power, which it can garner by re-mobilizing the Chavista base. Maduro has already begun to do this by initiating “street assemblies,” a parallel legislature, and popular assemblies. In addition, the legislature could re-energize communal councils and other community-based organizations.
The option of negotiating or even collaborating with the opposition recalls the longstanding discussion of whether President Chavez wanted to forge a “strategic alliance” with the national business class, as did Peron in Argentina and Vargas in Brazil during those countries’ early efforts to industrialize, or merely a “tactical pact” meant to achieve short-term gains. As Steve Ellner discusses in a recent interview with Aporrea, Chavez made a tactical pact with those industry leaders who did not support the neoliberal policies of FEDECAMARAS and the 2002 coup. However, Chavez later took a harder line on private industry in general during his nationalization of larger portions of the financial sector and strategic industries. This hard-line legacy has made it difficult for Maduro to establish mutual trust with rich business owners. Some analysts assert that the business class in Venezuela, as in most other countries, is intractably transnationalized because of the globalization of financial capital, precluding any true alignment between the business class and the interests of the nation. All of these factors will impact Maduro’s negotiations with the opposition in the coming years.
Other constraints are external. No matter what measures are enacted, Venezuela will continue to exist in an international capitalist market. It will continue to be dependent on a single primary commodity export, at least in the short-term. And the U.S. and other major powers will continue to intervene to undermine any economic policy regime that challenges their interests.
Finally, no plan will work if the people don’t believe in it. One of Chavez’s greatest strengths was his ability to awaken people’s belief in their own ability to make change. Cynicism is fuel for the current economic problems, so government and community leaders need to find the Chavez within themselves and work in their own way to inspire many, many others to forge ahead despite the uncertainty and doubt – to maintain hope that the Bolivarian Revolution can endure.
James Suggett can be reached at email@example.com.