Five Little Problems with Venezuela’s Brand of 21st Century Socialism

Is socialism viable and sustainable in Venezuela or any other Latin American country in the 21st century? Does Venezuela’s model make any sense for Nicaragua? The five “little problems” discussed here are actually colossal, well worth reflecting on before applauding, preaching… or copying them.

Raúl González Fabre, sj

Venezuela’s President Hugo Chávez was reelected in December 2006 with over 60% of thevote. During the campaign and ever since, he has insisted that voting for him amounts to supporting 21st-century socialism, although he never offers a very precise definition of it. At the same time the core of his campaign consisted of increasing public spending, giving rise to a populist piñata in which money and imports flowed with an abundance that recalled the first term of his arch-rival Carlos Andrés Pérez.

First problem: Rent socialism?

There are a few little problems with Comandante Chávez’s notion of socialism for the 21st century. The first is that not even he can delude himself that receiving income from the state, basically in exchange for one’s vote, then producing to the maximum of one’s capacity without any profit motive, only to benefit the collectivity, aren’t opposed movements of the human soul. If sympathizers and voters are recruited through the first procedure, it will be extremely hard to get them working in the other direction as well.

In fact, Adam Smith noted that the attitude of those who live off the rent of capital goods, and are thus accustomed to earnings without work or worry, is contrary both to the capitalist class’ self-interested entrepreneurial initiative and to salaried workers’ survival and social climbing efforts. People don’t tend to involve themselves in the complications and risks of investment or the sweat of productive em-ployment if they can resolve their economic problems with income from landholdings, stocks, the state or some other source.

That is why Asdrúdal Baptista has insisted that 20th-century Venezuela’s great economic project, which consisted of using oil revenue for the primary accumulation of a modern capitalist system, was internally contradictory. He’s completely right. Entrepreneurs in the oil revenue system (protection, contracts, incentives, overpricing, preferential dollars, non-reimbursed loans…) already have their earnings assured: they have no need or desire to go out and compete in uncertain markets with Colombians who have a knife between their teeth or Chinese who work 16 hours a day. The income that was going to feed our endogenous capitalism actually stifled it after the initial push. When the moment of truth came and earnings fell seriously, not a single private enterprise was capable of competing without state support in open markets and kick-start development.

Rent capitalism paralyzed entrepreneurial capitalism, even though both shared the same fundamental motivation: profit. Now, socialism a la venezolana is trying to convert the rent capitalist it cultivated through handouts, campaigns and missions into socialists able and willing to produce efficiently while pursuing communal interests at least as much as their own. Rent capitalism was impossible because it was internally contradictory and rent socialism will fail even more emphatically for the same reason. There won’t be socialism in Venezuela, but rather another gargantuan distribution of income through schemes that are even less productive and less able to generate economic modernity than those of the capitalism that preceded it.

Second problem: Nationalizing
with a state that doesn’t work

Chávez didn’t ruin the Venezuelan state; he came to power precisely because it was already a mess. Our state passed from being society’s modernizing instrument to representing the main obstacle to that modernization: a huge, costly, inefficient apparatus. It’s not only torpid but drags its social initiatives down with it, increasingly failing in its basic responsibilities of ensuring public security, education, health and infrastructure.

The 20th-century Venezuelan state understood itself to be a distributor/investor of oil income with the aim of modernizing the country. It failed not so much because of the poor design of the successive modernizing projects, but rather the existence of an underlying distribution criterion that was always the same, yet always different than what each modernizing project had proposed. That criterion was and remains the distribution of income according to the receiver’s connection with the provider. That connection can be personal, business or political, and is frequently all three at the same time. Our Venezuelan state is capable of turning any modernizing plan into a feast of oil income divvied up through networks of individual links.

Chavismo seems aware of this, so isn’t using the Venezuelan state. Rather it has duplicated it in its various plans and missions, borrowing organizational capacity from the Armed Forces and the Cuban state. Despite this practical recognition of the state’s inefficiency, the centerpiece of the economic design of 21st-century socialism is the re-nationalization of the backbone of the economy: communications, energy, mines and hydrocarbons, and perhaps later also food, tourism, banking, education… declaring them to be “strategic,” critical to “national security,” etc.

A government that doesn’t know what to do with the Venezuelan state’s basic social functions so goes around subletting them to the military and to Cubans is a constant source of surprise. Yet the government is planning to use this same dysfunctional state to take on large-scale economic operations that the private sector is conducting reasonably well, with greater or lesser benefit for its stockholders and at no cost whatsoever to the public sector.

We already know what will happen a few years after nationalization, because we’ve seen it all before: we only need to rewind to the period of President Lusinchi. The nationalized industries will eschew the entrepreneurial business logic that keeps them standing on their own two feet.

Managers, employees, clients, contractors and providers will all understand that the company has changed its nature: it’s no longer producing benefits for its shareholders, but rather distributing oil income to all connected to it. Each will try to get his or her slice: managers will fatten their accounts abroad and cultivate political clients; clients will seek frozen ‘social’ rates; employees will pressure for union protection for their job posts and bring their relatives into the company; providers will sell at scandalous markups; and contractors will ally with anyone on the inside who will guarantee them a share of the business. Investment and productivity will fall. Individual relations, be they family, economic or political, will soon predominate over the more or less rational rules that the company’s state-owner tries to impose.

The public businesses and decentralized entities played a decisive role in the economic collapse of the so-called Fourth Republic precisely because they were part of a profit-distributing state and therefore incapable of conceiving of themselves as long-term businesses. It is astounding that an economic model that failed so visibly with better institutional conditions and a greater professional capacity than this regime boasts is being replicated.

Given its peculiar political structure, the Chávez government can only acquire the professional capacity to manage these companies by paying inflated wages, whether to the middle class, which it hates and hates it, or to Cuba, if it exists there and the Cuban government wants to continue sending its own state abroad. And it can only respond to the profit-based expectations of its social base regarding the nationalized industries by destroying their business model and converting what was once a source of benefits for their owners—and taxes for the state—into oil sumps already being drained through numerous internal and external channels, leaving virtually no capitalization for the country.

Third problem:
Business without businesspeople...

If the backbone of 21st-century socialism is going to be a bunch of large state companies, then all kinds of “social businesses” can be expected to blossom around them and the ministers, municipal governments, missions, etc., to act as providers, contractors and subcontractors. There is no privileged model: as one is tried and fails, another will be tested.

Cooperatives, co-administered businesses, mixed state-worker businesses, various micro-businesses, communes, “social production businesses” and “independent producers” have all been set up on a greater or lesser scale, with spectacular failures in some cases and no replicable success stories worth mentioning. Illustrious widows from all socialisms that deserve the name are continually turning up with new ideas under their arm, seeking to catch the Comandante’s attention and install their social experiments here, with the Venezuelan people’s muscle and money. Private companies will of course also stay, above all if they haven’t “signed on,” although they might be modified by law to introduce a political commissar onto their board of directors.

The new entrepreneurial forms of 21st-century socialism share three main characteristics: forced by the state, they depend on state or bank financing for their formation; they depend on state or public company contracts for their survival; and they don’t want businesspeople in the capitalist sense of the word, i.e. subjects with initiative and risk-taking capacity who coordinate the factors of production and promote the business’ success in the market in order to make a profit. There is a marked preference for some sort of assembly-like administration of the production unit, which, as anyone with a lick of experience knows, is much more complicated than ordinary business administration. Of course, if the assembly-like administration fails, as is to be feared, it can always be replaced by bureaucratic administration under the direct responsibility of state functionaries, as in Cuba and probably with the same splendid results.

Furthermore, it must be said that these new possibilities have not been very enthusiastically welcomed as a production model by the base of workers who already have formal employment. With some reason, the workers see more possibilities of their rights and labor stability being respected (Caldera Law) if they are directly employed by the state than if they belong to a cooperative contracted by a municipal government or public company. That’s why they’re calling for complete nationalization if their company is going to be brought under state control in any event. The unemployed, on the other hand, probably prefer some labor support from the state over nothing, and are more willing to sign up for these business gambles. Given the serious problems maintaining labor discipline in conventional companies in Venezuela, the difficulties could be even greater in these new units with their more complicated decision-making and sanctioning mechanisms, staffed by workers who are only barely accustomed to formal employment.

These companies, which are hyper-dependent on the state and not backed up by any true entrepreneurial vocation, will have a hard time becoming competitive enough to hold their own in open markets. In reality, they will have to participate in a different kind of competition, of a political nature based on contracts with different kinds of public entities, very similar to the private companies of the old rent capitalism. As always, such contracts will be granted through family or political connections or the granting official’s economic ‘participation.’ After using up the initial credit or ministerial contribution, those businesses that fail to win contracts will still remain, as has already happened with many cooperatives and a few co-administered businesses. Rather than simply dissolve if they have nothing better to do, they will pose a social problem, with their managers demanding their fundamental socialist right to be propped up by the government.

...and markets without merchants

Nonetheless, 21st-century socialism won’t wear itself out clinging to the state. The new non-state or only partially state economic units may possibly produce directly for the market, but it will mainly be a domestic market that is well protected by the government. After all, without a decided entrepreneurial vision in control of the company, there’s no way to achieve the international competitiveness that others are now achieving in Latin America.

The market, like the the entrepreneur, annoys 21st-century socialism, as demonstrated by the price and foreign exchange controls, possibly inspired by Lusinchi, that are already beginning to bear their fruit of supply shortages and severe problems for producers. But controls only screw up the market. Much more ambitious is the idea of replacing it altogether with barter based on chips that will only have value for certain times and places, thus recreating the experience of pelts as currency with a different value in each village, which the West left behind a thousand years ago when the trade routes reopened at the end of the Dark Ages and metals began circulating again.

As any first-year economics student learns, the more open, competitive and fluid the markets, the more efficiently they coordinate the economic agents. That’s why Europe united its economies into one great market and its currencies into the euro. The socialism of the 21st century promises the opposite: to fragment the market and currency down to the local level.

Impeding business action, segmenting markets into local units for exchanging bananas for hemp sandals, forming social pseudo-businesses to which contracts are granted under political criteria and other macroeconomic initiatives of 21st-century socialism will have its consequences. First of all, these measures will reduce the power and freedom of economic action of all non-state agents, including the poor. That in turn will give the government greater control over society, so that virtually nobody can survive without its approval. And second, they will further increase the inefficiency of the production-distribution system, which will be papered over using oil income to finance the massive imports needed to maintain consumption and keep the regime’s social bases happy as long as possible. The repression will probably come later.

Fourth problem: Reliance on the ‘new man’

The regime’s answer to such obvious observations is to charge that this kind of prognosis can only come from a neoliberal capitalist mentality and that socialist education will bring us a New Man able to work in solidarity for the collective, independent of what portion of the profit is returned to him. “From each according to his ability to each according to his need,” said Marx.

There are various problems here, the first of which is that this New Man, who is laborious and “solidarious” at the same time, will not appear as the result of socialist education or any other kind of education for that matter. Adult human existence occurs amid certain constitutive tensions, which can be experienced as either creative or destructive. The tension between individuality and community is one of them. Education can help young people engage these tensions constructively, but cannot resolve them for each person. That is the task of each individual’s entire moral life. The state can’t replace people in this without weakening society’s very nucleus: people as moral subjects implementing projects for themselves and the world. If it attempts to do so, the result will be social paralysis not solidarity.

Historic experience confirms this. Socialism has been governing countries for 90 years, constructing the New Man from its monopoly on education, propaganda, the media and repression. Raymond Barre noted in the seventies that the 3% of the USSR’s cultivated land dedicated to family vegetable gardens produced as much as the other 97% collectively exploited in the koljoses (production collectives) and sovjoses (state farms). When the Soviet regime disappeared, all that was left was the vodka mafia, not the New Man. In China, 30 million New Men duly inserted into grassroots communes starved to death during the Great Leap Forward; in contrast, today’s economic take-off began in the mid seventies when reforms permitted a return to private land ownership. Today, China’s private sector generates three fourths of the national product. Closer to home, Cuba offers another interesting example: nearly fifty years guided by the New Man in person and it still can’t fully meet the demand for toilet paper.

Building a socioeconomic model on anthropological fictions has proved extraordinarily costly in time, money, blood and dignity. A more reasonable approach is to take people as they are on average, without assuming that extraordinary moral or cultural changes can be rapidly triggered from political power. On that basis, society must be organized in such a way that inhibits negative tendencies and reinforces positive ones.

We already know how

The 20th century has clearly shown how to do this: power has to be distributed as much as is functional in the state and society, so that the tone of political life is provided by civilized negotiation, mutual control and respect for agreed-upon rules.

And mixed economies have to be established in which approximately 60% of the product is administered in free, open and competitive markets of private goods and the rest through a democratic government with strong political, legal and journalistic oversight for the production of public goods, the conservation of common resources, and a certain equalizing of opportunities.

The details have to be adapted to each country, but this general formula has been successfully tested in European, North and South American and Asian contexts, in very different countries formed by normal people with your usual moral qualities and motivations.

In Venezuela we’re going to do precisely the opposite—concentrate power and plug up the precarious existing markets—which obviously won’t be successful with the normal Venezuelan. It would require a whole new kind of person who acts according to motivations diametrically opposed to those that moved so many ordinary people to vote for Chávez.

All the talk about the New Man indicates that this project is headed for internally constructed economic failure: we will see Chávez battling this ghost again and again, protesting that his own people aren’t acting as they need to for 21st-century socialism, demanding a non-existent Venezuelan for the kind of state he wants rather than asking himself how to adjust the state to the Venezuelan he inherited in hopes of making both more functional. And he’ll end up concluding, like Adolf, that we didn’t understand him and didn’t deserve him.

Fifth problem: Governing by bright ideas

The main problem of the political economy is probably how to coordinate the actions of the innumerable agents of a complex society to produce an efficient administration of scarce goods. In capitalist theory, that coordination occurs through the decentralized initiative of the economic agents, guided by prices determined impersonally in open and competitive markets. In standard socialist theory, the state takes on the task of coordinating the agents through centralized planning, setting prices and production quotas for many goods and services and designating which agents must produce what and who should receive it. Markets are marginal and state planning becomes the key to the economy.

A good part of the failure of real socialism lies in the fact that the precise information needed to efficiently conduct this planning is not within the state’s reach in today’s complex societies with their well-developed individual and collective subjectivities, where cultural creation and technological innovation play a decisive role in generating economic value. One reason for this is that the bulk of such information is subjective, so each individual agent only knows his or her own. Furthermore, the invasion of the economy by bureaucratic logic continually distorts the generation and transmission of information, falsifying it at each level. Without the kind of effective horizontal controls that are found in open societies, citizens lie, politicians lie, each according to his or her own interests. These problems are common to all centrally planned systems, but in the case of real socialism they proved fatal.

Planning has never been a Venezuelan specialty, so we have every reason to fear that what failed in Eastern Germany would be even more likely to fail here. Happily, we’re not going to have this problem, because 21st-century socialism consists not in centrally planning the economy but in governing according to the caudillo’s bright ideas. Unlike Lenin’s “all power to the soviets and electrification of Russia,” Chávez’s slogan is ‘The Comandante orders; we obey.’ This is the economic coordination technique of socialism a la venezolana, which is actually very similar to that of the pharaohs of the 6th dynasty, who also ruled in the 21st century... BC. So there’s no need here for any other economic information; all we need is what the Comandante sees fit to give us at each step with his great pedagogy. Who could ask for more?

The Comandante is an ideas man, so he orders this and that according to his inspiration: today African palm, tomorrow vertical henhouses; here hydroponic farms, there Indian buffaloes; first cooperatives, then co-administered enterprises; make me a mixed company, like this, but on May 1 you’ll break the contract for me; there’s nobody here so build me a federal city but a lot of people are there so why haven’t they built housing?... The ministers discover many initiatives it falls to them to implement as they’re being announced to the country, so with hands still smarting from all their applause, off they run to figure out how to get it done. In most cases it never happens and the economic result is a cemetery full of formally announced projects abandoned a couple of years later after a good chunk of change was sunk into them.

In short, 21st century socialism will be something genuinely new: a nationalized economy built on a crumbling state; businesses without businesspeople and markets without merchants for an economy of imports or empty store shelves; inspired improvisation by the Caudillo rather than market-based coordination or even central planning; and above all, distribution of oil income in exchange for political obedience, with money circulating free from either effort or risk to keep the people and the spongers in Chávez’s pocket. For this trip we really don’t need a man any newer than the Venezuelan who voted for Lusinchi because his party backers “thieve and let thieve.”

Raúl González Fabre, sj, is an engineer and philosopher. This article first appeared in sic magazine, March 2007.

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