An Empty Revolution

The Unfulfilled Promises of Hugo Chávez

Francisco Rodríguez

From Foreign Affairs, March/April 2008

Summary:  Even critics of Hugo Chávez tend to concede that he has made helping the poor his top priority. But in fact, Chávez's government has not done any more to fight poverty than past Venezuelan governments, and his much-heralded social programs have had little effect. A close look at the evidence reveals just how much Chávez's "revolution" has hurt Venezuela's economy -- and that the poor are hurting most of all.

FRANCISCO RODRÍGUEZ, Assistant Professor of Economics and Latin American Studies at Wesleyan University, was Chief Economist of the Venezuelan National Assembly from 2000 to 2004.

On December 2, when Venezuelans delivered President Hugo Chávez his first electoral defeat in nine years, most analysts were taken by surprise. According to official results, 50.7 percent of voters rejected Chávez's proposed constitutional reform, which would have expanded executive power, gotten rid of presidential term limits, and paved the way for the construction of a "socialist" economy. It was a major reversal for a president who just a year earlier had won a second six-year term with 62.8 percent of the vote, and commentators scrambled to piece together an explanation. They pointed to idiosyncratic factors, such as the birth of a new student movement and the defection of powerful groups from Chávez's coalition. But few went so far as to challenge the conventional wisdom about how Chávez has managed to stay in power for so long.

Although opinions differ on whether Chávez's rule should be characterized as authoritarian or democratic, just about everyone appears to agree that, in contrast to his predecessors, Chávez has made the welfare of the Venezuelan poor his top priority. His government, the thinking goes, has provided subsidized food to low-income families, redistributed land and wealth, and poured money from Venezuela's booming oil industry into health and education programs. It should not be surprising, then, that in a country where politics was long dominated by rich elites, he has earned the lasting support of the Venezuelan poor.

That story line may be compelling to many who are rightly outraged by Latin America's deep social and economic inequalities. Unfortunately, it is wrong. Neither official statistics nor independent estimates show any evidence that Chávez has reoriented state priorities to benefit the poor. Most health and human development indicators have shown no significant improvement beyond that which is normal in the midst of an oil boom. Indeed, some have deteriorated worryingly, and official estimates indicate that income inequality has increased. The "Chávez is good for the poor" hypothesis is inconsistent with the facts.

My skepticism of this notion began during my tenure as chief economist of the Venezuelan National Assembly. In September 2000, I left American academia to take over a research team with functions broadly similar to those of the U.S. Congressional Budget Office. I had high expectations for Chávez's government and was excited at the possibility of working in an administration that promised to focus on fighting poverty and inequality. But I quickly discovered how large the gap was between the government's rhetoric and the reality of its political priorities.

Soon after joining the National Assembly, I clashed with the administration over underfunding of the Consolidated Social Fund (known by its Spanish acronym FUS), which had been created by Chávez to coordinate the distribution of resources to antipoverty programs. The law establishing the fund included a special provision to ensure that it would benefit from rising oil revenues. But when oil revenues started to go up, the Finance Ministry ignored the provision, allocating to the fund in the 2001 budget only $295 million -- 15 percent less than the previous year and less than a third of the legally mandated $1.1 billion. When my office pointed out this inconsistency, the Finance Ministry came up with the creative accounting gimmick of rearranging the law so that programs not coordinated by the FUS would nevertheless appear to be receiving resources from it. The effect was to direct resources away from the poor even as oil profits were surging. (Hard-liners in the government, incensed by my office's criticisms, immediately called for my ouster. When the last moderates, who understood the need for an independent research team to evaluate policies, left the Chávez camp in 2004, the government finally disbanded our office.)

Chávez's political success does not stem from the achievements of his social programs or from his effectiveness at redistributing wealth. Rather, through a combination of luck and manipulation of the political system, Chávez has faced elections at times of strong economic growth, currently driven by an oil boom bigger than any since the 1970s. Like voters everywhere, Venezuelans tend to vote their pocketbooks, and until recently, this has meant voting for Chávez. But now, his mismanagement of the economy and failure to live up to his pro-poor rhetoric have finally started to catch up with him. With inflation accelerating, basic foodstuffs increasingly scarce, and pervasive chronic failures in the provision of basic public services, Venezuelans are starting to glimpse the consequences of Chávez's economic policies -- and they do not like what they see.

FAKE LEFT

From the moment he reached office in 1999, Chávez presented his economic and social policies as a left-wing alternative to the so-called Washington consensus and a major departure from the free-market reforms of previous administrations. Although the differences were in fact fairly moderate at first, the pace of change accelerated significantly after the political and economic crisis of 2002-3, which saw a failed coup attempt and a two-month-long national strike. Since then, the Venezuelan economy has undergone a transformation.

The change can be broadly characterized as having four basic dimensions. First, the size of the state has increased dramatically. Government expenditures, which represented only 18.8 percent of GDP in 1999, now account for 29.4 percent of GDP, and the government has nationalized key sectors, such as electricity and telecommunications. Second, the setting of prices and wages has become highly regulated through a web of restrictions in place since 2002 ranging from rigid price and exchange controls to a ban on laying off workers. Third, there has been a significant deterioration in the security of property rights, as the government has moved to expropriate landholdings and private firms on an ad hoc basis, appealing to both political and economic motives. Fourth, the government has carried out a complete overhaul of social policy, replacing existing programs with a set of high-profile initiatives -- known as the misiones, or missions -- aimed at specific problems, such as illiteracy or poor health provision, in poor neighborhoods.