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Will the recent nationalizations in Venezuela and Bolivia bring development? .
YES: Neoliberalism Has Failed. The Chávez and Morales governments have simply nationalized companies privatized in the 1990s. —By Mark Weisbrot* . While the reassertion of state involvement in Latin America is just beginning, the results so far have been overwhelmingly successful. The increased role of government is a necessary corrective to the neoliberal reforms of the last 25 years. Over the last nine years, Americans in at least six countries have voted repeatedly to reject what candidates have called “neoliberalism.” . Argentina has had the fastest-growing economy in the Western Hemisphere over the last five years, averaging 8.6 percent annually. The government’s policy of using the central bank to target a stable and competitive real exchange rate has enabled it to prevent Argentina’s domestic industry from being overrun by cheap imports and to keep its exports competitive. The government has also introduced price controls and other heterodox interventions, such as export taxes, that have proven remarkably successful. As a result, Argentina pulled more than 9 million people across the poverty line from the first half of 2003 to the second half of 2006. . In discussing Venezuela, it’s important to keep some perspective. While Venezuela is seen as the most radical of the new democracies, after nearly eight years of President Hugo Chávez’s administration, the private sector enjoyed a larger share of the economy at the end of 2006 (63 percent) than before the President took office (59 percent).(1) Although this year the government has nationalized CANTV (the telecommunications giant), some electricity production, and recently has taken a majority stake in joint oil ventures with foreign companies in the Orinoco basin, this probably remains true today. . This last step completes the Chávez government’s efforts to control its national oil industry. The industry was originally nationalized in 1976, but the state-owned company, PDVSA, had become relatively autonomous over time. PDVSA alone was responsible for $13.3 billion (7.3 percent of GDP) of social spending last year,(2) and revenues to the government have also increased substantially—even aside from oil price increases. Royalties on oil from the joint ventures with foreign companies have increased from one percent in 2005 to 30 percent today. . What has the government done with this revenue? The state now provides health care to millions of poor people who did not previously have it. In 1998, there were 1,628 primary care physicians for a population of 23.4 million. Today, there are 19,571 for a population of 27 million. In 1998, there were 417 emergency rooms, 74 rehab centers and 1,628 primary care centers compared to 721 emergency rooms, 445 rehab centers and 8,621 primary care centers today. Since 2004, 399,662 people have had eye operations that restored their vision.(3) In 1999, there were 335 HIV patients receiving antiretroviral treatment from the state compared to 18,538 in 2006.(4) .
Widespread access to affordable food is another benefit of
Venezuela’s state policies. By 2006, there were 15,726 stores
throughout the country that offered mainly food items at subsidized
prices (with average savings of 27 percent and 39 percent).(5)
These, plus expanded special programs for the extremely poor (e.g.,
soup kitchens and food distribution), benefited an average of 67
percent and 43 percent of the population in 2005 and 2006,
respectively.(6) The figures do not include the 1.8 million children
that were on a school food program in 2006, compared to 252,000
children . Greater state involvement has also produced major improvements in education. For example, the number of primary schools (“Bolivarian schools”) increased from 271,593 for the 1999/2000 school year to 1,098,489 for the 2005/2006 school year.(8) Over one million people participated in adult literacy programs. (9) . It remains to be seen whether the nationalization of CANTV and parts of the electricity sector will also produce positive results. CANTV, with a near-monopoly on land phones and Internet service, has been slow to expand access. Venezuela’s Internet access remains below average for the region, with 125 users per 1,000 people, as compared to 156 for Latin America.(10) If the private sector is unwilling to make the necessary investment in such vital infrastructure, then nationalization may make economic sense. . Meanwhile, in Bolivia, the re-nationalization of its hydrocarbons industry has earned the government an extra $670 million in revenue, or 6.7 percent of GDP,(11) equivalent to $900 billion in revenue for the United States government. . State involvement in the economies of America’s new democracies actually has been much less than in most of Western Europe. Bolivia’s general government total spending is 31.2 percent of GDP and Venezuela’s is 30 percent. Compare that with 53.4 percent for France and 55.5 percent for Sweden.(12) All that Venezuela and Bolivia have done so far is to begin to nationalize some of the companies that were privatized in the 1990s. . These nationalizations were a response to the neoliberal reforms that plunged America into its worst long-term growth performance in more than a century. Per capita GDP in the region grew by just nine percent between 1980 and 2000, and by five percent between 2000 and 2005. But in the preceding 20 years, between 1960 and 1980, a period when most of the region’s governments pursued state-directed development policies, per capita GDP grew by 82 percent.(13) . There is always a danger that these new democratic governments might mismanage the re-nationalizations. But so far the governments seem to be aware of the limitations with regard to administrative capacity. They have not taken on major new responsibilities, such as running large sectors of the economy or engaging in large-scale planning, that they cannot handle. . Although voters have given them a broad mandate to pursue alternatives to neo-liberalism, America’s new democratic governments have mostly acted with caution and pragmatism. . *Mark Weisbrot is co-director of the Center for Economic and Policy Research in Washington, DC. . . Rebuttal: In referring to the “radical Left,” my intention has been to distinguish these governments from the moderate, center-left administrations of Chile, Brazil and Argentina. Much of the economic success of the moderates comes precisely from recognizing the fundamental role that markets play in the development process. It is quite a stretch to label Argentina’s attempts to maintain a competitive exchange rate a heterodox policy.(1) The year before Chávez took office, PDVSA taxes and dividends paid to the government actually exceeded the firm’s profits by $1.1 billion. (2) The simple truth is that PDVSA can now pay more to the government because of the six-fold increase in Venezuelan oil prices. The case for government intervention is not bolstered by selectively citing meaningless statistics. One cannot draw the line between state-led and pro-market development strategies in 1980; Washington Consensus policies were only adopted after the debt crisis of the eighties. Private sector GDP in Venezuela went up in the series cited by Weisbrot because per capita oil production in this period declined by 18.6 percent (mainly due to government mismanagement of PDVSA). This constant-price series excludes the effect of oil price increases.(3)The number of primary schools in Venezuela has not multiplied by four—indeed, it has barely increased.(4) What has grown is the number of schools labeled “Bolivarian.” —F.R. . . _____________________________________________________________________ . NO: Economic Policies of the New Radical Left Will Fail. Venezuela and Bolivia are doing nothing to transform the productive base of their economies. —By Francisco R. Rodriguez* . The current economic strategies of the new radical left do not provide a sound alternative for the region’s problems. Instead, the policies currently being pursued by governments in Bolivia, Ecuador and Venezuela are a less-than-coherent mix of anti-market prejudices and blind voluntarism. These governments appear poised to repeat the set of avoidable policy mistakes that spelled the demise of many previous heterodox experiments in the region. .
Let me make clear: I am
far from a market fundamentalist. Most of my research has been
oriented towards understanding why economic liberalization doesn’t
always lead to greater prosperity in developing countries. Import
substitution as an economic strategy was far from the failure that
Washington Consensus advocates often claimed. And the blanket case
against government ownership of firms falls apart when you realize
that some of Latin America’s . However, America’s new radical governments are not attempting to frame a new economic strategy to learn from past experiences or to create institutions that can adequately address growth and equity problems. Quite the contrary. They appear to be giving very little thought to long-run economic objectives and to be preoccupied instead with accumulating political power. . These governments are pursuing macroeconomically unsustainable policies, increasing their countries’ resource dependence, failing to significantly improve social indicators, and substantially restricting their citizens’ political and civil liberties. . Witness the case of Venezuela. Awash with oil revenues, the government of Hugo Chávez has gone on a spending binge, tripling real government spending between 1999 and 2006. The result: Venezuela’s public sector ran a deficit of 1.5 percent of GDP last year despite experiencing the highest oil prices in two decades.(1) Venezuela’s economic expansion is clearly unsustainable even in the face of a moderate decline in oil prices. . The Venezuelan boom is basically consumption driven: private consumption now stands at 71.3 percent of GDP, considerably higher than the 52.4 percent eight years ago. In the same period, imports (adjusted for inflation) have grown by 154.5 percent. If there is an industrial policy aimed at increasing non-oil exports in Venezuela, nobody seems to know about it: non-oil exports actually declined by 8.5 percent last year. . The belief among progressive circles that the Chávez administration is at least redistributing the nation’s oil wealth among the country’s poor is simply wrong. The two most oft-cited statistics in defense of this claim are the decline in poverty and the reduction of infant mortality. The decline in poverty is a predictable result of the oil-driven economic expansion. Between 1998 and 2006, Venezuela reduced its poverty numbers by two percentage points for every point of increase in its per capita GDP.(2) But this ratio, which measures a country’s effectiveness at turning growth into poverty reduction, is actually lower than the average decline per point of growth of 2.6 percent estimated by Ravaillon and Chen (1997). . A similar argument holds for infant mortality. Between 1998 and 2004 (the last year for which there is comparable data for all Latin American countries), Venezuela’s reduction in infant mortality by 16.4 percent was actually lower than the regional average of 16.9 percent and well below the performance of Brazil (21.0 percent), Ecuador (25.9 percent) or Chile (28.7 percent).(3) . A closer look at other health and education statistics in Venezuela also shows no remarkable signs of progress. The percentage of newborns that are underweight or under height actually increased from 8.4 percent to 9.0 percent since Chávez came into office.(4) Although the Venezuelan government claimed to have eradicated illiteracy between 2003 and 2005, existing data do not back up these claims. Using data from the National Statistical Institute’s Households Survey, my colleagues and I have shown that in the second semester of 2005 there were 1.01 million illiterate Venezuelans over the age of 15, only slightly fewer than the 1.11 million illiterate Venezuelans before the start of the literacy program in 2003.(5) The observed decline appears to be traceable to changes in the demographic composition of the population, rather than to any effect of the government’s literacy program. . It is too early to tell how well policies are working in other countries where the radical Left has recently reached power, but the first signs are not encouraging. Bolivia appears to lack a strategy for economic diversification. During the first year of the administration of Bolivian President Evo Morales, non-traditional exports declined by 1.7 percent in the midst of an economic expansion.(6) The country’s investment rate—the lowest in the region—has barely changed. . Even more worrying is the trend toward the erosion of civil and political liberties, which undermines the institutions most needed to foster a stable climate for growth. This is most marked in Venezuela, where the government has packed the Supreme Court, taken over private media, blacklisted opponents who signed a petition to hold a referendum against Chávez in 2004, and politicized the armed forces. But it is also evident elsewhere. The recent efforts by Morales and Ecuadorian President Rafael Correa to re-draft their constitutions to allow the simultaneous reappointment of all branches of government are dangerous signs that separation of powers may soon disappear in these countries. . The governments of the radical appear to be squandering the resources derived from primary export booms while systematically concentrating power. . There is no doubt that America requires a reevaluation of the role of the state in economic strategy. But this can only be achieved through an open debate about formulating new inclusive and equitable national strategies for development. Framing this debate requires the existence of truly democratic spaces. . *Francisco R. Rodriguez is an assistant professor of economics at Wesleyan university and was the chief economist for the Venezuelan National Assembly from 2000 to 2004. . . Rebuttal: Rodríguez would have us believe that despite a quadrupling of real social spending per person under the Chávez government, poor Venezuelans are no better off. This is absurd. He makes the case through inappropriate use of selected data. For example, the household survey he uses for literacy is based on an interview asking the question, “Does this family member know how to read?”(1) That this crude measure has shown only modest improvement is compatible with hundreds of thousands of illiterate or near-illiterate people having improved their reading skills from literacy training. Measuring infant mortality in 2004, coming out of the oil strike/economic crisis that sent social indicators sharply downward, is also very misleading. His other data are similarly non-representative of the current economy that has grown 76 percent (real) in the current expansion, with unemployment dropping from 18.4 to 8.3 percent and poverty from 55.1 to 30.4 percent.(2) The allegations about civil liberties are even more exaggerated. No reputable international human rights group has claimed that Venezuela, Ecuador or Bolivia has suffered an erosion of civil liberties as compared to past governments.(3) Rodríguez’s criticisms of these governments are based on ideology, not economics. —M.W. .
Their exchange has continued in other
fora, with Francisco Rodriguez recently defending his conclusions in
a
working paper.
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