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Venezuela Tries To Create Its Own Kind of Socialism
Chávez Taps Oil Wealth in Effort to Build System That Favors 'Human Necessities'

By Juan Forero
Washington Post Foreign Service
Monday, August 6, 2007

CARACAS, Venezuela -- At a sleek, airy factory built by Venezuela's populist government, 80 workers churn out shoes -- basic and black and all of them to be shipped to Fidel Castro's Cuba, a leading economic partner.

With no manager or owner, the workers have an equal stake in a business celebrated as a shining alternative to the "savage capitalism" President Hugo Chávez constantly disparages.

"Here there are no chiefs, no managers," said Gustavo Zuñiga, one of the workers, explaining that a workers' assembly makes the big decisions.

There's also no need to compete -- production is wholly sustained by government orders.

Like the Venezuelan economy itself, the assembly line here is designed to put workers ahead of the bottom line and, in the process, serve as a building block in Chávez's dream of constructing what he calls 21st-century socialism. According to a 59-page economic blueprint for the next six years, free-market capitalism's influence will wane with the proliferation of state enterprises and mixed public-private firms called social production companies, the objective being to generate funding for community programs.

"The productive model will principally respond to human necessities and be less subordinate to the production of capital," the report says. "The creation of wealth will be destined to satisfy the basic necessities of all the population."

In year nine of Chávez's presidency, Venezuela's economy is undergoing a sweeping, if improvised, facelift as a president with powers to pass economic laws by decree enacts wholesale changes.

The transformation includes thousands of new state-run cooperatives, the government takeover of companies and new trade ties to distant countries such as Iran and Belarus, which the United States has dubbed "Europe's last dictatorship." The Chávez administration has recently announced plans to build factories to produce agricultural goods, cellular telephones, bicycles and a variety of other items.

Venezuela's state oil company, the engine for what Chávez calls a peaceful revolution, will have an even bigger role: The president has approved the creation of seven subsidiaries of Petroleos de Venezuela to grow soybeans, build ships and produce clothing and appliances.

Venezuela has also taken majority control of the oil sector, driving out Exxon Mobil and ConocoPhillips. Venezuelan officials hint that the government might nationalize production of natural gas by the end of the year. Chávez and other officials have also raised the possibility that the government will inject itself in banks, steel production and private hospitals.

The big question -- still not spelled out in detail by government officials -- is what exactly is 21st-century socialism?

"Chávez is, of course, radicalizing his model, but not in the Cuban way," said Luis Vicente León, a pollster and political analyst. "This is not communist. This is not capitalist. What is it? It's a mix."

Economic advisers and strategists, including Haiman El Troudi, who helps develop economic policy at the state's International Miranda Center in Caracas, say Venezuela is learning from failed economic models.

"We're distancing ourselves from the errors committed in the socialism of the past century," El Troudi said. Though El Troudi asserts that capitalism has failed, he said private capital is needed here -- as long as it is employed in "a new kind of company that dignifies the human condition."

In a country that was once as Americanized as any in Latin America, the economic alterations have resulted in a strange blend.

Workers are tutored on socialist values, and officials frequently call for the creation of a selfless and patriotic "New Man." The one prevailing feature of economic policy here is high government spending, particularly on popular social programs. The budget has gone from $20 billion in 1999, Chávez's first year in office, to $59 billion last year.

The excess liquidity, ironically, has helped generate unbridled capitalism, as construction, banking and other sectors are flooded with government spending. In a money-fueled, go-go consumer culture, inflation is elevated, cars sell for $100,000, elegant shopping malls thrive, a black market for American greenbacks is growing and fashionable art galleries sell paintings for tens of thousands of dollars.

The contradictions have not escaped the attention of economic policymakers, who say Venezuela needs to distance itself from the American-style capitalism Chávez frequently derides.

"That's not the society we want to build," Jorge Giordani, minister of planning and development and one of Chávez's oldest associates, said in an interview. "The Venezuelan economy is not just capitalist, but the wealth is concentrated, and it's dependent and underdeveloped. There's enough qualifiers for us to be worried and try to change it."

Although Giordani said foreign companies continue to be welcome in Venezuela, he criticized their quest for big profits. "We have to condemn it because, in the end, it leads you to misery," he said.

With oil income rising fourfold during Chávez's presidency, the economy has registered double-digit growth the past three years. Gross domestic output has gone from $103 billion in 1999 to $174 billion last year, according to recent testimony on Capitol Hill. Increased royalties and taxes leveled on private oil companies since 2004 have generated nearly $6 billion for government coffers, Chávez said last month, and authorities are cracking down relentlessly on tax evaders.

But in frequent speeches, Chávez has also lauded the bounties of Marxism, praised Castro's economic management and threatened private businesses with takeovers. That has helped unsettle markets. Foreign investment has screeched to a halt, registering an outflow of $543 million last year. The Caracas stock exchange has lost much of its volume after the government nationalized CANTV, the telecommunications company, and the Caracas electric utility. Perhaps most significant, Venezuela's state oil company has seen production decline over the past decade.

Though a solid majority of Venezuelans approved of Chávez's influence on national events, according to a recent poll by the Pew Research Center, an even higher majority, 72 percent, agreed that people are better off in a free-market economy.

For business leaders here, the big concern is that the economy is structured more on ideology and the whims of one man than on sound policy.

"Venezuela is on a path where politics and ideology appear to be a priority for those who have power," said José Luis Betancourt, a cattleman and leader in Fedecamaras, the country's most influential business federation. "The reality is there's a hegemony in terms of control of the economy and political power, and that leads to a situation where the development of private business is seriously affected."

Rigoberto Lanz, a senior adviser in the Ministry of Science and Technology, acknowledged that Venezuela is going through "a very risky time," as businesses wait to see exactly what kind of economic model the country will develop.

"In the short term, Venezuela will not be an attractive market for foreign investment, because this search to define an economic model, 21st-century socialism if you will, is a bit complicated," he said, explaining that officials are still working on that model. "They're trying to develop something to fit Venezuela, and that's not done in one day."

Some respected Latin American economists say the growing state role, coupled with the improvisation, could unravel the economy.

"It might look great for a while, but we know these are formulas that don't work," said Hernando de Soto, a Peruvian economist who has written extensively about how to legitimize informal economies.

In co-ops and state companies, Chávez's policies have generated legions of devoted followers like Iris Pinto, 31, who said her life had been dull, mostly cleaning homes. Now she's at the shoe factory.

"He's a wonderful president, really socialist," she said. "President Hugo Chávez Frías gave us this opportunity, and it's been completely successful."

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