Venezuela: Why capitalism, not socialism, is to blame for corruption

June 17, 2016

“Oil didn't wreck Venezuela's economy, socialism did.” That's what Pascal-Emmanuel Gobry, of the Washington-based conservative think tank Ethics and Public Policy Center, wrote earlier this year in his reflection on Venezuela's deepening economic crisis.

Gobry, a prolific writer for Forbes and the Wall Street Journal, criticised Venezuelan analysts who scapegoat oil, even though he recognised that declining oil prices have aggravated the nation's difficulties.

“The culprit is clear and obvious,” Golbry contends. “The problem is Venezuela's authoritarian socialism.”

The deteriorating quality of life in Venezuela feeds into Gobry's uncompromising statements, as well as those of the right-wing Venezuelan opposition.

The pressing problems facing Venezuela, ranging from triple-digit inflation to hours-long lines to purchase basic goods and visible cases of corruption — have provided the opposition with ammunition to discredit the left's political and economic project.

Glorifying neoliberalism

Either explicitly or implicitly, this emerging narrative glorifies neoliberalism on the basis that state intervention in the economy, a distinguishing feature of the 14-year government of late president Hugo Chavez, is doomed to fail — no matter the form it takes.

According to some critics of Chavismo, the inevitable by-product of Chavez's economic policies was the flourishing of corruption at the hands of Chavista bureaucrats, in cahoots with corrupt Chavista businesspeople.

Without exonerating the Venezuelan government's serious policy errors, a broader analysis of relations between the Chavista government and the private sector highlights the complex nature of the current crisis. It serves to debunk the neoliberal claim about the inherent flaws of Venezuela's leftist model. It also raises issues worthy of debate in order to draw lessons from the rich experience of Chavista rule.

One major conclusion is that circumstances, including attempts to topple the government, forced Chavistas to make compromises and enter into tactical alliances with economic groups that did not share the stated goals of the broader Chavista movement.

These accords were not an error; the error was not doing enough to strengthen the only force capable of checking the abuses that should have been anticipated: Chavismo's rank-and-file and the country's grassroots social movements.

Anti-socialist narrative

Conservatives in Venezuela say much the same as foreign pundits like Gobry. The conservative Caracas-based think tank CEDICE has conflated socialism and Keynesianism — and in doing so, reaches similar conclusions about the dangers of state intervention writ large.

CEDICE economists have attributed the economic calamities in Venezuela to “the policies implemented in a country where there exists total [state] control of the economy, along with a total absence of capitalism, thus generating poverty and unemployment”.

Much of the organized opposition accepts this unambiguously neoliberal line. Former Central Bank economist Jose Guerra, now a national deputy and the opposition's main spokesperson on economic policy, told Televen news recently that “21st century socialism has ruined the Venezuelan people”.

Notably, this anti-socialist narrative ignores the fact that Venezuela's economy continues to be more than 70% privately owned.

The view that blames socialism, or even Keynesianism, for the acute scarcities of basic commodities, which over the past two years have been Venezuela's most pressing economic problem, passes over the real factors at play. Major causes include the plunge in international oil prices and the well-documented “economic war” consisting of politically induced disinvestment on the part of the private sector.

A third factor is more complicated. It involves the disparity between government-regulated prices and black market prices for goods (including foreign currency).

The system of regulated prices is often an effective measure favouring popular sectors. But when black market prices are more than double those of official prices for high-demand commodities, as has been the case in Venezuela since late 2012, corruption and contraband become commonplace.

Former planning minister Jorge Giordani estimates that in 2012 alone, companies defrauded the government of US$20 billion by purchasing cheap dollars for phony or overpriced imports from the Central Bank. These companies were then able to reap handsome profits by selling the currency on the black market.

Opposition leaders are careful not to blame their allies in the private sector for this type of fraudulent activity. Instead, they point the finger exclusively at the so-called boliburguesía — those Venezuelan businesspeople who have been associated with the Chavista movement and are outside the fold of Venezuela's traditional capitalists.

Carlos Tablante, a former governor, underscored this allegedly intimate relationship between the Chavista government and “Chavista” businesspeople by stating “a new caste now governs the country.”

Ignoring inconvenient corruption

The anti-Chavista discourse that equates socialism with corruption ignores a few important facts, however. For one, the most blatant corruption scandals in Latin America over the past century occurred during the neoliberal governments of the 1990s: Carlos Salinas (Mexico), Carlos Menem (Argentina), Alberto Fujimori (Peru), Fernando Collor de Mello (Brazil) and Carlos Andres Perez (Venezuela).

It is no coincidence that corruption proliferated under the watch of neoliberals. Deregulation, free trade and laissez-faire policies in general open the doors for unethical dealings. In his The Political Economy of Latin America, political scientist Peter Kingstone noted that “although neoliberals argued that the withdrawal of the state would decrease the opportunities for corruption, the reality is that it created new, different opportunities”.

The argument that socialism has bred corruption also ignores facts revealed by several empirical studies of Venezuela's 2012 currency-corruption scandal. According to those probes, traditional economic groups, multinational corporations and emerging businesspeople were all guilty parties in the $20 billion dollar rip off.

But one of the studies, by political analyst and activist Luis Enrique Gavazut, concluded that “the lion's share of the fraud in 2012 was perpetrated by large multinational corporations that have subsidiaries in the nation”. Gavazut said that some of the illicit activity (involving dollars) could not have been carried out had US authorities monitored shady operations in Florida and other states where the dollars were eventually deposited or invested.

Thus, the $20 billion Venezuela currency scandal in many ways resembles that of Brazilian state oil company Petrobras. In both cases those guilty of unethical actions span the political spectrum, from right to left.

In the case of Venezuela, businesspeople belonging to traditional business associations like Fedecamaras (which twice spearheaded the effort to overthrow Chavez in 2002) share the blame with emerging capitalists, some of whom call themselves Chavistas.

Who is to blame?

Beyond a shadow of a doubt the Chavista government, like any government, holds the brunt of the blame for ethical wrongdoing committed in the public sector.

In the first place, government policies that ignored market conditions and allowed for a wide disparity between official and black market prices paved the way for widespread contraband and corruption.

Secondly, the government of President Nicolas Maduro has stopped short of carrying out an all-out campaign against corruption. This is true even though indictments of public functionaries (at both supervisory and non-supervisory levels) for unethical behavior far surpass the record of establishment parties prior to Chavez's rise to power in 1998.

Thirdly, the Chavista government has done little to overhaul the shady and unprincipled system of favouritism in granting public works' contracts. This process became institutionalised and all-pervasive in Venezuela long before 1998 and includes routine kickbacks for contracts.

It is well known in Venezuela, for example, that whenever a governor or mayor is replaced — even by someone of the same political party — a whole new set of construction firms gets the lion's share of the contracts.

The country's governing United Socialist Party of Venezuela (PSUV), which is run by Chavista ministers, governors, and mayors, has failed to serve as a check on these activities. The PSUV's rank-and-file envisions its role as a corrective counterweight to the party machine, with the power to denounce abuses wherever they arise.

Internal party primaries in which all candidates are given equal opportunities — as Chavez had called for — would facilitate this dynamic. But in recent years, the cards have been staked against those aspirants for elected office who lack backing from above.

Emerging vs traditional capitalists

At the same time — and contrary to opposition claims — emerging businesspeople have been far from unconditional supporters of the Chavista government, nor are they a monolithic group. Indeed, many of the businesspeople dubbed by the opposition as “boliburgueses” have turned out to be anything but Chavistas.

Consider the new owners of the once rabidly anti-Chavista TV channel Globovision. In 2013, Miami commissioners declared new Globovision president Raul Gorrin and his co-owners personas non-grata, calling them “rich boliburgueses of the Venezuelan government.”

The city's newspaper, El Nuevo Herald, referred to the Globovision owners as “friends of Chavismo” and claimed they had purchased millions of dollars in property in south Florida and drove around Miami in pricey sports cars.

Globovision's new head fit the boliburguesía bill. Gorrin began his career with little capital. He originally held subordinate positions in banking institutions that Chavez held responsible for a financial breakdown in 2009. The late president ordered the arrest of several of the banks' owners shortly thereafter.

Critics of the new Globovision predicted that the station would quickly become a mouthpiece of the government. Upon assuming the presidency, Gorrin committed Globovision to “objectivity and impartiality” as he modified the programming by toning down the channel's aggressively anti-government slant.

Nevertheless, as the Maduro government lost popularity, particularly following its defeat in the December National Assembly elections, Globovision became increasingly critical. Earlier this year, Maduro affirmed, “One watches Globovision and it is April 9, 2002 all over again” — a reference to the media-promoted coup staged that day against Chavez.

Another so-called Chavista businessperson is Alberto Cudemus, who left Fedecamaras after two unsuccessful attempts at becoming its president. Cudemus called for harmonious relations between business and government at the same time that he received generous contracts to supply pork to state food outlets. His stance also earned him a degree of contempt from those who called him a “socialist businessman”.

But after Maduro assumed the presidency in 2013, Cudemus put forward an all-encompassing critique of the government's economic policy that differed little from that of Fedecamaras. Cudemus charged that Maduro was surrounded by “inept functionaries” and that his “economic model” was flawed.

Cudemus's list of allegedly ill-advised policies included the government's cap on profits, a labour law filled with job security provisions, excessive printing of currency, the expansion of bureaucracy, the non-payment of debts to the private sector and a lack of business input in policy formulation.

Such criticisms go against the media's portrayal of Venezuela's emerging business groups as squarely located in the Chavista camp, to say the least.

Firebrands on the right also accuse various well-established capitalist groups of having “sold out” to the Chavistas. One example is billionaire Gustavo Cisneros, who some in the opposition called an “accomplice” in the electoral fraud allegedly committed by Chavez in the 2004 recall election.

Cisneros's Venevision TV channel went from open support for the April 2002 coup to even-handed coverage after June 2004, when former US President Jimmy Carter arranged a closed meeting between Chavez and the media magnate.

Evidently, the Chavez government accepted the renewal of Venevision's concessions in exchange for its abandonment of Fox News-like reporting. Subsequently, the Chavez government refused to renew the concession of Radio Caracas Television (RCTV), which had also actively supported the 2002 coup.

RCTV was Venevision's main competitor. Some opposition commentators insinuated that at the Carter-mediated meeting, Cisneros sold his soul to the devil for the sake of commercial expansion.

Chavista strategy

The Venezuelan opposition's line about the boliburguesía being a Chavista phenomenon ignores why ties with emerging businesspeople were established in the first place. Namely, the opposition has erased the fact that the government's favouritism toward politically neutral businesspeople was a reaction to the hostility of Fedecamaras that culminated in two attempts to overthrow Chavez in 2002.

The Chavista strategy of embracing certain sectors of the business community was a bid to neutralise an aggressive business class, not to win it over. Indeed, the anti-Fedecamaras businesspeople rallied behind the banner of political neutrality, and not leftist policies.

The Chavista leadership, in effect, ruled out a strategic alliance with supposedly progressive businesspeople. That strategy had been advocated by Chavez's right-hand man Luis Miquilena. However, Miquilena broke with Chavez and ended up supporting the abortive coup in 2002.

To this day, the ties between the Chavista movement and the private sector, including emerging business groups, are, at best, tenuous. Both traditional and emerging business interests are critical of key aspects of the anti-neoliberalism adopted by the Maduro government, such as caps on profits.

Similarly, the policy of exchange controls first implemented by Chavez in 2003 impedes the ability of businesspeople to convert their profits into dollars to send abroad, as Third World capitalists in Latin America are prone to do.

Finally, the Chavista anti-capitalist rhetoric cannot be favourably viewed by the owners of any fair-sized business, be it a traditional one or one of recent origin.

Larger implications

The opposition's claim regarding the rise of a new ruling “caste” in the form of the boliburguesía reinforces the old notion that socialism is inherently flawed. Throughout much of the 20th century, apologists for capitalism pointed to the Soviet Union as proof that socialism and democracy were by nature incompatible.

In recent times, academics writing on 21st century Latin American politics have claimed that the failure of leftist “populist” governments to achieve high levels of productivity demonstrates the inherently unsustainable nature of socialist policies.

Similarly, the proponents of the boliburguesía thesis claim to document a relationship between corruption and socialism. This is why it is important to debunk their arguments by demonstrating the shaky and unstable ties between emerging business groups and Chavismo — and why the ties between the two were established in the first place.

The complicity of companies affiliated with the anti-government Fedecamaras and multinationals in cases of corruption further puts in relief the spuriousness of the anti-socialist narrative now taking hold across much of the region.

Temporary ties between a socialist government and business groups may be inevitable in any prolonged process of bringing about socialism by democratic means. An internally democratic party with a degree of autonomy vis-a-vis the state is the best guarantee that such ties will not solidify in time, and that corruption is kept in check.

In Venezuela, as elsewhere in Latin America, the building of such a party is needed to achieve authentic democracy. The democratisation of the PSUV and greater input from the grassroots are more imperative now than at any other time for the survival of the Chavista project and the success of its strategy for change.

[Slightly abridged from Steve Ellner teaches economic history at the Universidad de Oriente in Venezuela. His most recent book is his edited Latin America's Radical Left: Challenges and Complexities of Political Power in the Twenty-First Century.]

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