Chavez's uncertain experiment

Posted on Fri, Jul. 07, 2006

VENEZUELA | ECONOMY
Chávez's uncertain experiment
Cooperatives and government-sponsored companies are the backbone of the
'21st century socialism' pushed by Venezuelan President Hugo Chávez.
BY NATALIE OBIKO PEARSON
Associated Press

CARACAS - A landslide all but wiped out Wilfredo Rodriguez's small
shoemaking business last year, entitling him to a loan from President
Hugo Chávez's government -- money he says he never would have found
elsewhere.

It came with strings attached -- his workers get limited co-ownership
and he must make mandatory donations to community projects. But no
matter. The factory is thriving. Its 14 workers produce 1,200 pairs of
shoes per month and has begun selling sandals to Cuba.

Cooperatives and comanaged ''social production'' companies such as
Rodriguez's shoe factory are the backbone of the new ''21st century
socialism'' that Chávez is trying to create.

Venezuela's iconoclastic leader is fond of saying he's inventing a new
sort of economy that won't just forever alter Venezuelan society but
will also serve as an egalitarian model for the entire world.

Such claims may sound exaggerated for a country buoyed by oil wealth
where capitalist businesses continue to drive the economy. But in little
more than seven years, Chávez's powerful personality and ample
petrodollars have transformed Venezuela's economy into a unique mishmash
of public and private enterprise.

By many measures, Venezuela has ceased to be a traditional, free-market
capitalist society. Billions of dollars are now diverted annually to
state-directed social spending; cooperatives jointly owned and operated
by workers are favored for government loans and contracts; and new
state-owned companies challenge private sector heavyweights, producing
everything from tractors to laptops for the poor.

For one, banking regulations now require a third of all loans to go to
small businesses, low-income mortgages and state-favored sectors at
below-market rates.

MODEL QUESTIONED

Economists say it's uncertain whether Chávez's new model, greatly
dependent on high oil prices, is sustainable.

But in the meantime, they say the Chávez experiment -- to subordinate
private enterprise to broader social aims -- has become a powerful
symbol in Latin America, where U.S.-backed free-market policies of the
1980s and '90s have caused deep disillusionment.

''I think we are seeing something innovative. Venezuela is aspiring to
represent an alternative way of organizing society,'' said Laura
Enriquez, a Latin America expert at the University of
California-Berkeley. She explained that Chávez has already achieved some
success by simply posing a challenge to U.S.-backed economic theories.

Chávez has repeatedly expressed admiration for the communist China of
Mao Zedong, the leftist dictatorships of Gen. Juan Velasco in Peru and
Gen. Omar Torrijos in Panama, and Libya under Moammar Gadhafi whose
economy was similarly oil-based and marked by state cooperatives.

But he has also emphasized that Venezuela is not modeling itself on
failed examples of the past such as the Soviet-style command economy.

''Whether it's going to be successful is the question,'' says Steve
Ellner, a political science professor at Venezuela's University of the East.

Under Chávez's ''people's'' action plan, the state also helps pay
stipends to workers in various farming and industrial cooperatives --
which now total 108,000 in the country, up from about 800 when Chávez
came to power, and account for about 5 percent of all jobs.

Official statistics reveal some positive signs: 9.4 percent economic
growth last year -- South America's highest -- and a poverty level that
has declined from 48 percent of the population in 1997 to 37 percent
today. Last year, Venezuelans' per capita income was about $4,900
compared to $42,000 for Americans.

Mark Weisbrot, an economist at the Washington-based Center for Economic
and Policy Research, says that since Chávez took office, Venezuela has
recovered from one of the world's worst economic declines when per
capita income plummeted 35 percent between 1970 and 1998 -- worse than
sub-Saharan Africa's record in the same period.

''That is what this government will be remembered for,'' he said.

But others say problems lurk beneath the surface. They don't believe
Chávez is creating the conditions for long-term growth. The economy
remains dominated by oil (a dependency that prior presidents have also
been unable to break); capital flight continues; and nearly half the
workforce is estimated to remain in the informal economy in dead-end
jobs, including street vendors and laborers.

The conservative Washington-based Heritage Foundation think tank found
Venezuela's business climate inhospitable and ''repressed'' this year,
ranking it 152 out of 157 countries -- just above Zimbabwe and North Korea.

And Pedro Palma, an economist at Venezuela's IESA business school,
believes Chávez's policies are not creating the conditions for new
private investment needed to outlast the current oil bonanza. A fall in
oil prices -- Venezuela has repeatedly seen oil booms turn bust -- could
force a massive devaluation.

PRIVATE INVESTMENT

Chávez, nevertheless, says he embraces private businesses: Central bank
statistics show the private sector accounted for more of the economy
last year -- 62.5 percent of gross domestic product -- than when he was
elected in 1998, when it stood at 59.3 percent.

Last year, foreign direct investment was more than a third below the
average for the second half of the 1990s, according the U.N.'s Economic
Commission for Latin America and the Caribbean.

Meanwhile, private investment is less than 10 percent the total value of
gross domestic product -- far less that what's needed to ensure stable
growth, central bank director Domingo Maza Zavala said recently.

The United States remains, despite Chávez's hostile rhetoric against its
leaders, Venezuela's largest trading partner and by far the largest
buyer of its oil. And those revenues are important to Chávez's
revolution. Oil sales will fund more than $4.5 billion in social
programs for the poor this year.

Changes have even filtered into the oil industry; last year, the state
oil company replaced its registry of regular contractors with a list of
social production companies to ''democratize'' the bidding process.
Traditional contractors can still bid for jobs, but they are being
pressed in other ways to take a more socialist bent, including mandatory
contributions to a government fund for community projects.

Capitalism, maintains Chávez, is inherently inhumane and Venezuelans
must learn to abandon their thirst for wealth -- their vigorous
consumerism includes an affinity for American products from Coca-Cola to
shampoo to Hollywood movies -- in the new world of 21st century socialism.

''Those who are really with me must be with me in their spirits -- they
must be ready to die with me . . . they must be able to forget material
goods and rid themselves of all,'' he said recently. ``Supreme love is
the love for the collective.''

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