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Talking Policy: Raúl Gallegos on Venezuelans' Relationship with Oil

In his book, Crude Nation: How Oil Riches Ruined Venezuela, Raúl Gallegos tells a story of Venezuela replete with paradoxes. Venezuelans can fill up their tanks for less than $1, but they cannot find toilet paper in stores. A minimum-wage worker can only afford an iPhone with three years’ salary, whereas others go into debt from plastic surgery. The country boasts the 12th-largest source of renewable water on the planet, but water shortages are endemic to cities for long stretches of time. World Policy Journal speaks with Gallegos, a former Caracas-based oil correspondent, about Venezuelans’ relationship with the government and with oil over the past century.   

WORLD POLICY JOURNAL: Oil was discovered in Venezuela in 1914 and the country is, perhaps unexpectedly, an OPEC country. How would you describe Venezuela’s relationship with oil and how has it evolved over time?

RAÚL GALLEGOS: I would say that the best way to describe Venezuela’s relationship to oil is an addiction. Since Venezuelan society discovered oil, it has become addicted to the dysfunctional reality that comes with having more money than you know what to do with. That applies to both individuals in the street and to politicians. This society has grown accustomed to buying almost everything overseas, spending money on, in many cases, unsustainable programs—even corruption or unnecessary projects—and wasting a lot of wealth in times of high oil prices and then ending up with food lines and without toilet paper when oil prices decline.

Unfortunately, oil is like a drug. You have a high, and when you're at that high, you’re not thinking of what’s going to happen tomorrow. When you’re at a low, you want that high again. This addiction problem essentially means that Venezuelan society has never learned to properly and responsibly manage its wealth for the future, so that future generations can enjoy it, so that there is sustainable spending over time, instead of high peaks of glory and absolute disaster once oil prices decline. I'm afraid that unless Venezuelans come to terms with the fact that they have these problems—that they have not properly learned how to manage their oil wealth, that they are addicted to quick riches and to spending sprees, and that they need different policies to save them from their worst selves—we're going to continue to have the type of situation that we're seeing right now.

WPJ: Within this Venezuelan mentality, what role did former Venezuelan President Hugo Chávez play and which of Chávez’s legacies are alive in Venezuela today?

RG: If I’m completely honest and fair, this is a man that initially touched on very real issues at the time: poverty, exclusion, rampant corruption. People were desperate to have someone address these issues, especially someone who was an outsider to the established political order. Chávez raised those issues and promised to address them. But it pretty much ends there. While a lot of people would argue that many of the social programs that Chávez initiated were good—that some of them were well meaning and could have even been sustainable if they had become established policies—many of them were not sustainable, and a lot of them essentially became recipes for corruption and waste. They were also used by the government in a very cynical way, to purchase the political support of a number of people.

And so, in a way, because the Chávez government refused to take steps different to what every other government had done before it in the past 100 years since oil was discovered, it ended up essentially falling into the same trap, which was declaring a national party when oil prices were high—although in this case, the government was more focused on helping the poor. This extra spending, which was also very corrupt in many cases, ended up repeating the pattern of not saving anything, not thinking of the future whatsoever—not investing in infrastructure, not investing enough in the oil sector itself that provides the country with its wealth, and not investing money in future generations, like Chile has done with copper, or Norway, Alaska, and some Middle Eastern countries have done with oil. Alaska, for example, gives dividends from its oil funds to citizens. These are not superhuman countries, but simply countries that were savvy enough to adopt sound policies, restrict spending, and save some wealth for the future so that they would not end up like Venezuela. They did not want the “Venezuela Effect.”

Sadly, Venezuela has been a recurrent poster child of what you should not do with oil wealth. It has really been an example of what not to do for generations. And the political class that is in control today, even the opposition that wants to come to power and everyday Venezuelans still don’t get it, either for political reasons, or simply because many people feel that culturally the country is not ready for economic reforms.

WPJ: I think one of the most interesting parts about this story is that people still believe and put their trust in the government—you mention in your book that almost half of the Venezuelan population believes the government can solve most of society’s problems. But at the same time, everyday Venezuelans are left with very little. How can you explain this discrepancy? 

RG: For generations, Venezuelans have learned to depend on the generosity of their government. That has in many ways shaped their political inclinations, their tastes, the way they see individual responsibility and innovation. This is a culture that, with over 100 years of misspent wealth, has learned to depend on the generosity of their politicians. They feel that eventually the government will take care of it, whatever it is, and it may be graft-laden and corrupt, but they might get a piece of it. The mentality of everyday Venezuelans has become, "I want to elect the guy that gives the most toys, and gives out the most trinkets to me and my family because that makes life easier." They still think in terms of, "the wealth is ours, therefore the government should give out as much as possible and I should position myself in a way that I can get the biggest share of it."

We're talking about consumers, we're talking about workers, we're talking about the private sector, we're talking about politicians—everyone. Everyone is really looking to be positioned in a way so that they can capture a bigger share of the wealth. That’s really why I say it’s an addiction—the country has really deformed the incentives of society in many ways. In the private sector, there are companies, entrepreneurs, and business people who expect to have far higher profits in their work than in any other country in the world. This applies to banks, too. Because there's so much money flowing around, because the government spends it all in a massive way, prices skyrocket and it's easy for companies to derive far higher rents for their activities than they would in any other country. Individuals want to work for the government so that they can be placed in a position where they can benefit as well. Politicians want to be able to remain in power for a very long period of time, so they shower voters with money.

Venezuelans are a wonderful people, and the country is beautiful and has a lot to offer—but in a very real way, it’s a sick society. The constant mismanagement of the wealth has really turned the country upside down and kept it there.  

Mind you, it's very important to mention that I do not believe in the resource curse. What I do believe in is the mess that happens when you mismanage oil wealth. If you have a resource and you manage it properly like a number of other countries have done, it can be a real blessing and you can do a lot of things in your society. But sadly in this case, it has really deformed the incentives of everyone, even ordinary people.

WPJ: How are we seeing this history reflected in the current political crisis in Venezuela today? 

RG: Right now, we’re seeing the bottom of this addiction—a country that is facing up to what happens when oil prices decline and you have not done anything to anticipate this very natural course of events. We're also seeing a government that has understood that the way to stay in power is to continually shower voters with money and now doesn't have more to give. Regardless of the fact that it’s unpopular, this government doesn't want to leave power. If you don't have money, you use force, and now we're seeing the force part.

This government was for many, many years allied ideologically with the Castro brothers in Cuba, who were very close advisors with Chávez and also with the current President Nicolás Maduro. The group of people that have essentially been running Venezuela for the last 18 years have been very closely following the advice of Fidel and Raúl Castro, learning from some of the savviest politicians in the Western Hemisphere—people who, in a very forceful and cynical way, have managed to stay in power in Cuba for an extremely long time by pacifying the population through force and intimidation. Earlier on, it was not necessary to be so blunt and obvious in Venezuela, because the Chavista regime was gradually taking over all the different levers of power and all the branches of government. They could hold elections because people still supported them—because they continued to shower people with money. Let's not undermine that there was also an ideological affinity and a sense of inclusiveness—a lot of people saw themselves reflected in Chávez and in Maduro, because these were people that came from very poor backgrounds, which suggested that you could be poor and still become president.

But in the end, it was a more utilitarian relationship: These leaders were ready to give out a lot of wealth and benefits and they had the money to do it because they just happened to be in power during the strongest rise in the value of commodities the world has seen in a very long time, if not ever—a torrent of money was coming in Venezuela. But now that’s gone. Now we're seeing a government move from one that used to at least respect the forms of democracy. They still used money to win elections and took advantage of their strength as a government that controlled massive oil wealth, but elections were held and in the end, votes were counted. Now elections are being delayed, now they’re being scrapped, now opposition politicians are being thrown in jail and consistently disqualified from running for office, now you’re seeing a government that is going to change the constitution if necessary so they can continue to cling to power, despite the vast majority of people that no longer want them there.

WPJ: What role do you envision for Venezuela in the future global energy economy? 

RG: For Venezuela to play any meaningful role in the global energy industry, the first thing necessary is a regime change, preferably a democratic one. It needs to be a government that understands how business works, that believes in incentives, that doesn’t just believe in ideology and convincing people through sheer force and through purchasing loyalty. I believe that if you create incentives, people do things in a certain way. The idea, for example, that you put price controls on products and therefore no product should sell above the established price—as if you can decree those things—unfortunately doesn’t quite work. If you force people to sell goods below cost, they just won't produce them and a black market will be created.

This regime change should be as much about establishing a different mentality that understands how business works and that stimulates business, as it is about helping the poor move forward and including the poor in the development of the economy. You can walk and chew gum at the same time—you can apportion money for social spending and still put some away for a rainy day.

A new regime should also understand the need to invest in the oil sector; investment is necessary in order to get more oil out. If run well, Venezuela could play a meaningful role in the future oil sector as long as it comes to terms with the problems it has had for the last 100 years, adopts the right policies, and becomes a sound, sustainable country.

After their last dictatorship ended in 1958, Venezuelans from all different parties came together to create a national agreement to respect democracy and gave power to all participants in this democracy (excluding the left, but that’s another story). Looking forward, a similar sort of agreement could be made that reflects the mistakes of the last century and advocates for saving some wealth, that adds stringent measures to the constitution so that politicians cannot just use the country's wealth as a piggybank in order to stay in power. I hope there is a political class or leadership that eventually gets it and the right time comes when that type of approach can actually happen.

Now, I'm not very optimistic about Venezuelan politics over the next few years. The government has shown an inclination to cling to power, regardless of what it takes, and it’s very likely that we will see a Chavista regime still in power in a couple of years—it's likely that Maduro himself might manage to hold on despite what we’re seeing on the streets today, unless the international community really cracks down on this regime. But right now the speeches and posturing of the U.N. and the Organization of American States are not capable of destabilizing the government. This government really doesn’t care what the international community says—that's quite clear.

Internally, as long as opposition remains somewhat weak, is unable to really take steps to destabilize the government, and paralyzes the country through sheer protest, it's very unlikely that the regime will feel inclined to leave. It’s going to be a tough couple of years, especially because oil prices don’t seem to be recovering to the levels they were at a couple of years ago. It looks like the situation in Venezuela will continue to deteriorate both politically and economically. Based on the structures of power and the fact that the military continues to support Maduro, I don’t see an easy way forward for Venezuela at the current moment.

*****

*****

This interview has been edited and condensed for clarity.  

Visit the Talking Policy archive page for more World Policy interviews!  

[Interview conducted by Natasha Bluth]  

[Photo courtesy of Raúl Gallegos]

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