Chavez Reinvents 'Socialism' in Venezuela
'Social production' companies serve as backbone of Hugo Chavez's socialist economy in Venezuela
CARACAS, Venezuela, Jul. 6, 2006
By NATALIE OBIKO PEARSON AP Business Writer (AP)
(AP) A landslide all but wiped out Wilfredo Rodriguez's small shoemaking business last year, entitling him to a loan from President Hugo Chavez's government _ money he says he never would've 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 co-managed "social production" companies such as Rodriguez's shoe factory are the backbone of the new "21st century socialism" that Chavez 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, Chavez'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.
Economists say it's uncertain whether Chavez's new model, greatly dependent on high oil prices, is sustainable.
But in the meantime, they say the Chavez 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 Chavez has already achieved some success by simply posing a challenge to U.S.-backed economic theories.
Chavez 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 Chavez'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 Chavez 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 Chavez 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 Chavez is creating the conditions for long-term growth. The economy remains dominated by oil; capital flight continues; and nearly half the work force 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 Chavez'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.
Chavez, 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 Chavez'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 Chavez'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 Chavez, 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."