The interesting experiment in Venezuala

Hugo Chavez gets a lot of bad press in the U.S., most of it because he was elected by the poor majority of Venezuela and has moved to take the oil companies over so that the revenue goes to the Venezuelan people instead of a few rich families and the oil companies. The members of OPEC got similar bad press when they muscled the oil companies out and took control of their oil production, also.

It shouldn't be any surprise that Chavez has done what he did. Venezuela is sitting on massive oil wealth and has been for most of the twentieth century, and literally none of it was going to the Venezuelan people. Chavez did not take power in a coup, and in fact was able to avoid being removed in a coup that was clearly recognized and applauded (if not instigated) by the Bush administration. The New York Times has an interesting article on the upcoming election which will revise the Venezuelan Constitution and create what one commenter calls a "centralized Oil-based socialist state."

In two weeks, Venezuela seems likely to start an extraordinary experiment in centralized, oil-fueled socialism. By law, the workday would be cut to six hours. Street vendors, homemakers and maids would have state-mandated pensions. And President Hugo Chávez would have significantly enhanced powers and be eligible for re-election for the rest of his life.

A sweeping revision of the Constitution, expected to be approved by referendum on Dec. 2, is both bolstering Mr. Chávez’s popularity here among people who would benefit and stirring contempt from economists who declare it demagogy. Signaling new instability here, dissent is also emerging among his former lieutenants, one of whom says the president is carrying out a populist coup.

“There is a perverse subversion of our existing Constitution under way,” said Gen. Raúl Isaías Baduel, a retired defense minister and former confidant of Mr. Chávez who broke with him in a stunning defection this month to the political opposition. “This is not a reform,” General Baduel said in an interview here this week. “I categorize it as a coup d’état.”

Chávez loyalists already control the National Assembly, the Supreme Court, almost every state government, the entire federal bureaucracy and newly nationalized companies in the telephone, electricity and oil industries. Soon they could control even more.

But this is an upheaval that would be carried out with the approval of the voters. While opinion polls in Venezuela are often tainted by partisanship, they suggest that the referendum could be Mr. Chávez’s closest electoral test since his presidency began in 1999, but one he may well win.

“We are witnessing a seizure and redirection of power through legitimate means,” said Alberto Barrera Tyszka, co-author of a best-selling biography of Mr. Chávez. “This is not a dictatorship but something more complex: the tyranny of popularity.”

Venezuela faces the same problem of any nation whose national income is primary from the sale of oil and which has no real middle class. This usually leads to an authoritarian government which represses the poor, while the wealthy live far beyond the possibilities any of the poor ever have a chance to achieve. This has frequently been the pattern in oil-rich nations, and in both Libya (1967) and Iran (1979) it led to a revolution which replaced the old and corrupt government with a revolutionary one. It is also the reason why the Muslim Brotherhood is so powerful in Egypt and why the Mubarak does not allow real elections while running an authoritarian nation. Much of the trouble in Nigeria can be traced to this pattern. The power that resides in control of the flow of income from oil allowed Saddam Hussein to keep the various sects and tribes in Iraq from successfully revolting, until George Bush removed him and left the whole kettle to explode.

When the export is oil, only a very few individuals control how the income from that oil is distributed. There is no middle class unless the government takes action to create one. Without a middle class, power remains centralized and the normal course of action is to repress the poor while catering to the wealthy.

Chavez seems to be moving to make Venezuela different. By nationalizing the oil production he has obtained control of Venezuela's international wealth, and has been taking action to distribute it to the average Venezuelan citizen. He has avoided a nasty revolt like those in Iran and Libya. He also needs to avoid central planning of the economy except for oil production and perhaps banking. Everything else normally works a lot better using market prices as signals, and neither of those industries is actually controlled by any market except the international price of oil and the government control of the money supply.

The accusation that he is centralizing power probably means that he is taking it away from the wealthy. If he can create a middle class, then new power centers will appear. Note that while his revision of the Constitution allows him to run for President indefinitely, it does not make him President-for-Life as so many men with his control of an oil rich nation have done.

I can see why the wealthy Venezuelans and both George Bush and Dick Cheney detest Chavez. He is what they hate and fear - a socialist who really is working to improve the status of his people in a manner that unrestricted exploitation of Venezuela's oil wealth has not done in nearly a century.

As I say, it is an interesting experiment. The two biggest mistakes I see likely are for the government to become overly repressive if there are too many coup attempts and attacks on the government, and for the attempt to create a middle class to fail. As long as Chavez avoids both of those threats, it seems to me that he can continue to be reelected for life, and should be. And if he fails, then he can be elected out.

As I say, this is going to be an interesting experiment.