Venezuelan Oil and Its Debilitative Political Culture

Brian Safran - 28 April 2006

           Venezuela is perceived to have achieved a significant degree of economic growth as a result of its association with the oil industry. Unfortunately it is that very relationship, coupled with the political culture of the region that has actually prevented the country from reaching its peak prosperity and has placed Venezuela in its current state of crisis. In 1922, Venezuela had the distinct fortune to be the only country in South America to uncover vast amounts of oil beneath its surface (Hellinger, 2006). Since its discovery, economic development in Venezuela has shifted away from agriculture, and has virtually aligned itself with the ability of the oil industry to generate profit.

Political culture refers to the aggregate beliefs of individuals in their perception of government, politics, and economics. Throughout time, Venezuelan political culture has markedly influenced the course of its history. Contributing to public perception over time has been a leadership that has been plagued by a series of corrupt, self-indulgent rulers. Venezuela has witnessed the decay of traditional institutions and the alienation of its people from the government. This has affected its economy as a whole, its impact on the growth of the oil industry not withstanding. As a result, the political and economic policies adopted by the country have incorporated changes that promote short-term economic profit at the expense of lasting investments that could propagate long-term economic growth. The amount of revenue generated by the oil industry in Venezuela, if it had been managed efficiently, should have placed the country in the position of an economic superpower (Garner, 2006). However, by failing to use oil profits to promote industrialization and build up businesses unrelated to oil, the Venezuelan government has handicapped itself from attaining maximum economic achievement. By analyzing Venezuelan political and economic history, one can gain insight into a political culture that held on to its traditional ways of thinking and has resisted reform. The political climate has served to foster instability through social exclusion, political polarization and misperceptions (Escudero, 2003). The resultant state of political indifference and lack of foresight have prevented the country from charting a steady course towards maximum economic prosperity.

            Early Venezuelan political history was marked by a series of authoritarian, quasi-dictatorships. These governments were often run with a disregard for public opinion, and political culture was characterized by a lack of citizen involvement, as many took part in the rural agricultural lifestyle, which was distanced from the workings of the government. (Fox, 1982)  Furthermore, people felt that the government did not represent their interests (Hellinger, 2006). Government only benefited the privileged few and gave little concern to the poor majority (Escudaro, 2003). But shortly after the discovery of oil, the political culture of Venezuelan politics began to shift, as people began to criticize their leaders, organize into interest groups, and promote their beliefs. Juan Vicente Gómez came into power in 1908. He was a tyrannical dictator who struck fear in his subjects by imprisoning, starving and killing his opponents. He benefited greatly from the discovery of oil, having absorbed much of the original profits for himself and his family. (Hellinger, 2006) That which he did not take for himself, he dedicated to the reduction of the national debt, failing to use the newfound revenue to directly invigorate the economy. (Garner, 2006) Although people disapproved of Gómez’s policies, his authoritarian practices prevented many from speaking out. However, a group of Caracas University students known as the “Generation of 1928” could no longer remain idle, and led a revolt to oust Gómez. (Hellinger, 2006) Their efforts failed, but clearly, the new political culture of Venezuela could not be defined by passiveness.

Changes were occurring that were propagated in part by massive urbanization, the development of a middle class, a newly educated set of workers, and other forms of infrastructure that followed the growth of the oil industry. (Garner, 2006) By the time the explosive oil business had begun to take hold, democratic reforms had begun to sprout. People began to voice their concerns against the actions of the government, which perpetually continued to pay off foreign debt, rather than invest it back into the country. Critics felt that Venezuela had failed to “sow its oil,” or use its profits to develop other sectors of its economy (Wilpert 2003). This came to exemplify what is known as a “Dutch Disease,” an economic problem that occurs in economies that focus their resources on the development of a single commodity, at the expense of a lack of growth in other sectors (Wilpert 2003). The Venezuelan’s delighted in their newfound wealth, and the political culture at the time was defined by a society that was focused on ways to reap the maximum immediate satisfaction, rather than planning for the future. Unfortunately, it is this very predicament that would continue to plague the Venezuelan economy for much of its history.

Rómulo Betancourt, a revolutionary thinker at the time, designed a new political party entitled “Acción Democrática,” (AD) which focused its beliefs on “anti-imperialism” against the oil companies, using the profits to “modernize and diversify the economy,” and democracy based on direct political participation (Hellinger, 2006: 475). His party acquired knowledge of such concepts while in exile in Mexico, Europe, and the United States, and attempted to adapt them to Venezuela. However, the political culture of Venezuela was not ready for the sharp changes that Betancourt proposed, and he was unable to gain the support of the populace. Venezuelan politics have long been defined as a “zero-sum game,” with a “winner-take-all” mentality (Escudero, 2003: 1). If Betancourt were to assume leadership, a shift in political polarization, or the extremes of political thought, would have occurred in favor of the common people. But the populace was not ready for the “radical” ideas proposed by Betancourt. (Kanatsu, 2006) By opposing him early on, the Venezuelan populace forfeited their opportunity to rally in his favor, and thus obtain the early industrialization that could have brought them long-term economic stability.

Venezuela’s economic development was truncated by its persistent attention to exporting its product rather than focusing on the development of its own industries. The political culture of the region centered on an unrealistic assumption that wealth was a natural right of birth and heritage. Even as economic and political reforms began to be instituted, Venezuela was left almost entirely to the mercy of world markets. (Garner, 2006) The infrastructure that was needed to protect the Venezuelan economy did not exist, and most of Venezuela’s leaders failed to have the foresight to create it. In 1941, President Isaías Medina Angarita was able to force foreign oil companies to renegotiate their contracts, which served to increase Venezuela’s share of oil profits from about twelve percent to thirty percent. (Fox, 1982) With this major increase in earnings, the government again had the potential to reinvest in their economy and spur economic growth. Politically, Medina’s policies helped push Venezuela along a “gradual transition to full democracy” (Hellinger, 2006: 476). Public sentiment had softened and was more receptive to democratic ideals. The people were now ready to revisit the politics of Betancourt, and he returned with a more moderate stance, recognizing a need to work along side other representative organizations to accomplish his goals. In 1945, Betancourt was put into power as the result of a coup d'état, and was able to initiate a series of beneficial political and economic reforms during his party’s short three-year span of rule. (Fox, 1982) He was able to secure an even greater increase in Venezuela’s share of oil profits, by raising the ratio of profits between the Venezuelan and foreign governments to an even fifty percent. (Wilpert 2003) Betancourt then took the newfound profit from the oil industry and reinvested it in economic projects including housing, education, and even public investment. (Hellinger, 2006)

Democracy reigned when in 1947, Rómulo Gallegos, a member of Betancourt’s AD party became the first democratically elected President. (Fox, 1982) While he and Betancourt’s policies reinvigorated the economy and began to introduce methods that could have made the Venezuelan economy less dependent on oil, they were faced with powerful opposition from the Communist Party as well as the newly formed Christian Democratic Party (COPEI). (Hellinger, 2006) Despite their popularity amongst the masses, Betancourt and the members of his revolutionary party were met with extreme resistance from these other parties as well as the military, who felt excluded from the decision-making process and wanted to assume control. Eventually, the military was able to oust the AD, take over the government, and later place Marcos Pérez Jiménez, a Lieutenant Colonel, into power. (Hellinger, 2006) Over the next six years, Venezuela took a stance backwards towards its authoritarian past. This exemplified the fact that the political climate in Venezuela was so turbulent at the time that a small minority could assume control and initiate policy detrimental to the country and against the will of its people.

The rule of Pérez Jiménez was characterized as a time of a digression to the period of authoritarianism and repression. From 1952 to 1958, Pérez Jiménez initiated programs that wasted Venezuela’s oil profits (Fox, 1982). Some of these projects included the creation of an “impressive network of superhighways” and a never completed “massive spiral structure,” intended to house shopping malls and residential homes. (Fox, 1982: 121) Clearly, oil funds were being diverted to every possible economic sector other than competitive industry. Aside from these massive, unnecessary construction projects, the Pérez Jiménez administration was characterized by extreme amounts of governmental corruption. He ordered the torture and killing of many of his opponents, and in addition, was believed to have drained nearly two hundred and fifty million dollars from the Venezuelan treasury for personal use. (Rohter, 2001) The dictatorship of Marcos Pérez Jiménez demonstrates how the Venezuelan government’s failure to sponsor appropriate economic reforms and generate honorable leadership has served to the detriment of Venezuelan society. In addition, Pérez Jiménez’s rule exemplifies the relentless degree of political instability that Venezuela has faced, and shows how such unsteadiness has contributed to Venezuela’s inability to achieve maximum economic performance.

In January 1958, Pérez Jiménez was ousted from power via a coup d'tat, and Rómulo Betancourt and his AD party once again took control. Having learned from his prior mistakes, Betancourt entered into an agreement with the COPEI party, business organizations, and the military, and created the “Punto Fijo Pact,” in which power was to be shared amongst these privileged groups (Hellinger, 2006). The goal of the Punto Fijo Pact was to shelter democracy from the outside influences of Communism and Socialism, and to ensure consistent political control of those involved. From 1958 to 1998, the AD and COPEI parties formed a “partyocracy,” in which they sought to maintain party influence over all aspects of society (Country Watch, 2006). Under the Punto Fijo regime, the minimum wage was raised, unemployment fell, and various programs were initiated that strengthened the democracy by improving its social and industrial capacities. (Sylvia, 2003) The funding for such advancements remained dependant upon the petroleum industry, which increased its allocations after it became nationalized in 1976. (Country Watch, 2006) At this time, the country formed Petróleos de Venezuela S.A. (PDVSA), and falsely assumed that by placing the oil industry under their control, all of their economic concerns would be resolved. The then President, Carlos Andrés Pérez, wanted Venezuela to “get rich quick.” In order to do so, he borrowed against future earnings, finding the international community “eager” to lend his government money (Hellinger, 2006). Venezuela’s prevailing political culture at the time showed widespread support for the tightening of market reforms, a concept that is highly contested today.

Unfortunately, in 1982, the international oil market crashed and Venezuela found itself in crisis. The industries that were not directly connected to oil formed by Pérez during the 1970’s were not globally competitive, and worse, were inundated with corruption. (Hellinger, 2006) To compound the situation, the foreign debt had skyrocketed, and needed to be repaid. (Sylvia, 2003) Venezuela had made the mistake of relying on the international oil market to support its economy. After tapping all internal sources of revenue including the funds of the PDVSA, the country remained in crisis. On February 28, 1983, which later became known as “Black Friday,” the bolivar, the Venezuelan currency was devalued. (Hellinger, 2006) Unemployment and poverty rose exponentially. Venezuelan citizens were irate and wanted to know who was to blame (Hellinger, 2006). Since the Punto Fijo Pact became largely deemed to represent the interests of the political elite, it led to “decades of patronage,” with the majority of society feeling alienated and powerless from political affairs (Wingerter, 2006: 2). The people also felt that the leaders defined by the Punto Fijo Pact were spending more time negotiating with each other than they were directly with the people themselves. The populace became acutely aware of the depth of corruption that was occurring from the presidential level all the way down to the public employee, and they placed their blame on the elites. The prevailing sentiment was that since someone had to have benefited from the prior wealth of the country, and since it was not the poor, then the elites had to be held accountable. There was not going to be any self-reflection in this political culture.

In 1989, rioting broke out through the streets of Caracas, Venezuela. (Hellinger, 2006) The police turned against the government and assisted the people in looting businesses. The army was called in, but it only served to aggravate the situation. The politicians were shocked that the people not only opposed the current government, but also were so vocally and physically willing to overthrow it. (Hellinger, 2006) Despite the public display of opposition, the regime continued to prevail until 1998, when Chávez was elected president, marking the collapse of the Punto Fijo Pact. (Sylvia, 2003)

Enter Hugo Rafael Chávez Frías. He was born into a poor Venezuelan family, and his ancestry combined both African and European ethnicities. (Sylvia, 2003) The common Venezuelan identified with Chávez, and Chávez claims to advocate for a revolution on behalf of the poor. (Gunson, 2006) With his charismatic personality and his appeal towards the poorer citizenry, Chávez had clearly been able to gain the trust of those that had previously lost confidence in their government. Chávez’s form of politics remains polarized, but it is polarized in the opposite direction of that of the past. He claims to advocate for the masses as opposed to the elites, and his followers are a group of grass root, impoverished citizens that vow to “fight against those who stole the oil industry” from them (Hellinger, 2006: 469). Chávez’s followers like him for who he is, aside from his politics. After decades of political turmoil and alienation, the people may have found someone that they can trust as “one of their own.”

As a populist leader, Chávez’s domestic agenda has been characterized by an attempt to curtail the massive amounts of poverty by increasing oil profits without radically redistributing wealth away from the upper classes. (Sylvia, 2003) Some of the actions that he has taken in response to poverty have included the initiation of aid programs to help those that were affected by a series of devastating floods, a raise of the minimum wage, and a significant increase in the salaries of governmental employees. (Sylvia, 2003) In 1999, Chávez amended the Venezuelan Constitution after the voters approved the changes in a referendum. (Country Watch, 2006) Nonetheless, the new Constitution was met with criticism, as it restructured the executive, legislative, and judicial branches, and tailored them to Chávez and his policies, thus making it easier for him to accomplish his goals. In response, Chávez instituted a “Citizen’s Power,” which included the “general attorney[s] office, the general comptroller[s] office, and the defender of the people,” signifying Chávez’s attempt to offshoot criticism and bring the government closer to the people (Country Watch, 2006: 4).

Despite his courageous promises, around the turn of the millennium President Chávez brought his government into depression. The debt owed to both internal and external creditors had soared, and unemployment was on the rise. (Country Watch, 2006) In addition, Chávez had failed to provide concrete economic policies that would have brought in international business and investment. (Hellinger, 2006) Once again, the rising price of oil on the international market was the only rehabilitating occurrence that seemed to save the Venezuelan economy. In late 2000, Chávez spent much of his time defending his Presidency, as he had come up for reelection. (Country Watch, 2006)

Upon his reelection, Hugo Chávez set out to “diversify the economy” and decrease Venezuela’s dependency on oil by investing oil profits into non-productive sectors including “tourism, health, education, environment, and small business[es]” (Country Watch, 2006: 7). Unfortunately, Chávez did not utilize enough resources to develop these industries. Later that year oil revenues soared, but Chávez repeated the mistakes of Venezuela’s past by using the newfound funding to solve social concerns rather than investing in industry. By 2002, the Chávez government seemed unable to tackle the significant economic problems faced by the country, and public opinion seemed to have turned against him. (Sylvia, 2003) In April of that year, massive protests broke out calling for Chávez’s resignation, and included prominent politicians and military officers that felt that Chávez had failed to resolve economic problems, and was turning the country into a “Castro-like communist state” (Country Watch, 2006: 10). Chávez later surrendered to military officers, and for three days, the Venezuelan government was in a state of disarray. (Hellinger, 2006) It was not until millions of his angry supporters marched in rebellion to the ousting of Chávez from power that he was reinstalled. (Hellinger, 2006) In 2004, the economy again headed for an upswing with the rise of oil prices, but Chávez’s opponents remained pessimistic, as they believed that he had continued to support polices that would cause the economy to crash whenever the oil market took a nosedive. In August 2004, Chávez narrowly survived a referendum on his leadership. (Country Watch, 2006) In December 2006, Chávez will face the prospect of another election, and he has already faced tension both within his own party and from the outside. His critics feel that he has not kept up to his promises and has done nothing to truly maintain a stable economy other than “funnel billions of dollars” of the country’s oil wealth to the poor (Forero, 2006: 1). While it appears that a majority of potential voters still seem to approve of Chávez, it is clear that a significant amount of his initial supporters have been disillusioned by his inability to provide Venezuela with a stable economy that is capable of withstanding fluctuations in the oil market. Undoubtedly, political culture has played a large role in determining the progression of Venezuelan politics, and its continued instability has affected the government’s ability to tackle the complex issues facing the economy today.

Venezuela is a member of a very small club of countries that have had the privilege of striking vast amounts of oil beneath their soil. With growing worldwide markets for its product, Venezuela has taken in gigantic amounts of revenue from eager consumers around the world. Unfortunately, the country has been afflicted with severe amounts of political instability, an economic crisis, and a series of rulers that have sought personal gain through their position of authority. Furthermore, the Venezuelan government has often given into pressure and temptation by providing its impoverished masses with temporary solutions without focusing on long-term economic issues, thus perpetuating inequality. In many respects, the government has failed to achieve its objective of reinvigorating the economy by building domestic industry. But is the government solely at fault? The political culture in Venezuela has contributed substantially to the inadequacies of the government and the economy. Venezuelan’s sense of entitlement coupled with their unrealistic perception of their countries wealth has created a major obstacle for change. Public sentiment is suspicious of foreign investors and has been indoctrinated into believing that a redistribution of wealth will solve their problems. It is this mentality that keeps the Venezuelan’s in the dark and prevents them from striving for reform. While Venezuela was once seen as having the potential to become an economic superpower, it now faces many of the same economic problems that plague the rest of Latin American countries. Despite the various attempts that have been made to diversify its economy, Venezuela remains highly dependent upon the worldwide demand for its oil. Unfortunately, oil is a non-renewable commodity, and will eventually run out. The future prosperity of Venezuela lies in its ability to divert its current revenue into its internal industries. The next chapter of Venezuelan history will surely be more dependent upon the adaptation of its political culture than in any other era of its past.

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