The crisis in Venezuela

October 17, 2016

Mike Gonzalez analyzes the crisis in Venezuela in the first of a new series of longer pieces at the rs21 website. Go to the website for the full article. --PG

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Venezuela: for sale to the highest bidder?

rs21onOctober 14, 2016/0 comments

The theory of state capitalism has played a critical role in the International Socialist tradition’s critique of regimes claiming to be socialist. In the first of the new Revolutionary Reflections articles, Mike Gonzalez presents an account of the latest developments in Venezuela which draw on that tradition to make sense of changes that are taking place. His article explores changes to the system, and the growth of a new ruling class around President Maduro following the death of Hugo Chavez.

A PDF of this article can be downloaded here


The Bolivarian revolution led by Hugo Chavez from 1999, opened a new chapter in the global struggle for social justice. For anti-capitalists across the world, his ‘21st century socialism’ pointed ahead to a new kind of power, defined in the Bolivarian Constitution as “participativa y protagonista” – a participatory democracy in which the people were the active subjects.

It is hard to reconcile that hope with the realities of Venezuela today. The spokespersons of the new State continue to proclaim their revolutionary credentials. Yet they oversee a society in profound and worsening crisis, where hunger has reappeared in a country which just four years ago was congratulated by the U.N. for its virtual elimination of extreme poverty. The right wing media – nationally and internationally – have taken great delight in publishing photographs of food queues marshalled and overseen by armed National Guards. The supporters of Chavismo instinctively refuse to believe the images. But the social crisis they symbolize is real.

An economy in crisis

The levels of inflation in Venezuela have reached catastrophic proportions. The annual figure for 2015 was over 300% and in 2016, even official sources recognize that it is approaching 600% or more. Translated into real lives, it means that a basket of basic goods and services for a family is now calculated at 400,000 bolivars– set against average wages of around 60,000. The government responds by pointing to the fair prices it regularly announces. But in reality the basic products to which those fair prices are attached are rarely available, and it is even less likely that they will be sold at those prices. It is universally recognized that the various commissions and ministries set up to oversee price regulation have failed completely. In fact a number of people appointed to ensure them have been dismissed for involvement in fraud. The Local Committee of Supply and Production (known by its Spanish acronym CLAP) , is the assured baskets of basic goods to be delivered directly to consumers, and much heralded by the president, has been a failure too. They are administered by the government party, the PSUV, and distributed among its supporters – or to some of them at least. The CLAPs are not reaching their recipients, and when they do, are rarely complete. In many areas they are trafficked – as on the island of Margarita.

The enormous queues at practically every supermarket start to form at three or four in the morning. The minimum wait is four to five hours, but there is no guarantee of what will be available when you reach the shelves. The supplies of products at regulated prices are limited, and there are reports that the National Guard controlling the queues themselves take a proportion of the products for resale.

A glance at the contents of a plastic bag carried by a weary shopper finally emerging from the supermarket after a five or six-hour wait is telling. It will contain only basics – flour, oil, washing powder, perhaps rice or beans (the basis of the national diet), margarine (butter is a distant memory), perhaps milk or milk powder. Where there are vegetables and fruit available at farmers markets, their price is ten or twenty times what it was a year ago. Ten kilos of fruit and vegetables a week will cost at current prices around 30% of the monthly wage. Bread at the maximum allowed of two loaves per person, (assuming ten per week for a family) will amount to another 16% or so.

A number of external commentators in Europe and the U.S. have insisted that there is no hunger in Venezuela. There is. The calorific intake of most Venezuelans is falling. Electricity, transport, hospitals, schools are falling into physical disrepair and are increasingly unable to offer the services they promise. Water is rationed (to once a week), and electricity severely curtailed (public offices run three days a week, schools, four days). The situation of medicines and drugs is particularly distressing. Whole ranges of necessary medication are simply unavailable, and that includes aspirins and plasters, birth control pills and anti-convulsants. The growing number of incidents of looting, now a daily occurrence, are evidence enough of mounting frustration.

The crisis has been accelerating since late 2014. What is astonishing is there is no sign of any strategic response from the state or indeed the National Assembly. Instead, Nicolas Maduro, who is fond of long combative speeches, delivers daily denunciations of the “economic war”, the conspiracy that he insists is responsible for the dire situation most Venezuelans are now living through. The reality is a great deal more complex. The groups that dominate the supplies of food and drink are almost certainly hoarding goods, as happened in Chile before the coup against Allende in 1973. Then as now, the purposes are both economic and political. Prices are raised arbitrarily, and each time goods reappear on supermarket shelves after a long absence, their price has risen. Black beans are part of the basic diet; the fair price for half a kilo is 60 bolivars – they are currently on sale at 4000. This is one example of many, but the proportions are roughly the same for most products.

At the same time, the absence of the most basic goods, and the total unpredictability of their supply, adds to an atmosphere of collective anxiety and insecurity. Because wages cannot buy what is necessary, the phenomenon of “bachaqueo” has spread through every level of the society; it refers to the reselling of goods, acquired by a range of means, through networks. Some of those goods are the ones bought at fair prices and then resold, in the poor barrios, at higher prices, but still less than those of the local shop. This applies to everything, from food through spare parts to cement or cars. And if there is an economic war waged against the population, those responsible come from both the business sector and the state. Many members of government, of the state, and of the armed forces, are deeply enmeshed in the circuits of contraband and resale. These extend across the frontiers to Colombia, where vast quantities of goods of every kind are resold at even higher prices with the complicity of the military, the National Guard and in many cases local politicians too. Medicines unavailable in Venezuela are freely available in Colombian pharmacies, some (including the one where I bought medication in Bogota) are in fact Venezuelan-owned.

The heart of the problem, however, is the trade in currency, the buying and selling of dollars. The reality is that there exist two economies here, a bolivar economy and an unacknowledged dollar economy. The exchange system established under Chavismo offered dollars at a preferential rate to importers – a dollar can be bought from the Central Bank for 6 or 12 bolivars. The unofficial dollar price in 2016 has hovered around 1000, and the prices charged for imported goods reflect their black market dollar value. The profits to be made by speculators are enormous. 1000 dollars bought at official prices (say 12000 bolivars) could bring in over 1,000,000 when translated into goods or invested abroad. It was too tempting a prize to resist for all concerned, from functionaries, bank directors, importers to politicians.

Furthermore, the state itself is a major importer of services, technology and increasingly of materials and consumer goods. Every multimillion dollar trade involved equally gargantuan ‘commissions’ (bribes), money laundering and capital flight. The actual figures are hard to come by, given the extreme scarcity of government data. But the ex-Minister of the Economy, Jorge Giordani, in a letter signed by several leading ex-members of Chavez’s government, estimated that at least $460 billion had “disappeared” in this way. The real figure is likely to be far higher.

A second consequence of this combination of disinvestment and capital flight was the collapse of domestic production. Some capitalists, like the enormously powerful head of the Polar group, Lorenzo Mendoza, moved production outside the country (in his case to Colombia and later Miami). Others simply abandoned production altogether. In these cases the government bought the plants– it did not expropriate them, since it paid market rate compensation. But in every case production fell, as a result of mismanagement and corruption – even in the flagship EPS (social enterprise) sector. This is not a phenomenon exclusive to Venezuela – the ‘Dutch disease’ as it is called appears to afflict all oil-producing economies. There is, however, a fundamental difference here. The Bolivarian project assumed that oil revenues would be socialized and redistributed for the social good, and that a proportion (up to 60%) would be reinvested in new industries to diversify the economy and address the dependence on oil of which the Dutch disease was a manifestation.

If there in fact an ‘economic war’ under way then a radical government should surely respond by taking control of production, establishing control over foreign trade, aggressively preventing currency speculation and genuinely controlling prices. More importantly still, it would act resolutely against the corruption which has financed the emergence of a new ruling class which includes both the private capitalists and the new Chavista bourgeoisie who have collaborated to create a reorganized Venezuelan state capitalism. (The definitive proof of this reversal of the Chavista project is the Arco Minero programme, to which I return below.) Instead, the profiteers have continued to make their huge gains and the working population has faced increasing misery – while a ‘socialist’ government has looked on and done nothing.