Tuesday, July 24, 2007

"Hugo Chavez has an oil strategy... but can this lead to liberation?"

23 July 2007. A World to Win News Service. Following is the first of two instalments of an article by Raymond Lotta reprinted from the 1 July 2007 issue of Revolution, newspaper of the Revolutionary Communist Party, USA. ( revcom.us) It is a part of a fuller analysis being developed by a writing group about Hugo Chavez and what has been happening in Venezuela since Chavez came to power in 1998.
 
The nature of Hugo Chavez's "Bolivarian revolution" is a highly important and widely discussed issue among progressive and radical-minded people. Chavez has carried out a host of social and economic measures whose stated aim is to empower and improve the lives of the poor and politically disenfranchised in Venezuelan society; he has condemned the US as an imperialist and bullying power; and in 2005 he announced that Venezuela was embarking on a project of   "21st-Century Socialism". At a time when the US is waging its "war on the world" and at a time when the US has been spearheading a pounding and brutalizing neoliberal economic agenda for the countries of the Third World – developments in Venezuela have attracted great interest.
 
But what is the actual programme and outlook of Hugo Chavez, what is the character of the process unfolding in Venezuela, and where is it heading? Does Chavez's programme represent a real alternative to imperialist-led exploitation, a viable road to liberation in today's world? And what is the meaning of socialism in today's globalized world?
 
Our view is that the "Bolivarian revolution" does not represent a fundamental break with imperialism, nor embody a vision or path to truly radical societal transformation. But understanding why this is so is a complex matter requiring close analysis. In the full analysis soon to be published, we discuss the historical factors shaping Venezuela's development, the economic model that Hugo Chavez has been bringing forward, the role of the army and new popular institutions in the "Bolivarian revolution", the social and class forces involved in and leading this movement, and the larger debate about "21st-century socialism" and the real challenges of making revolution in today's world.
 
While we offer this critique of the Chavez project , it in no way cuts against our stand with the Venezuelan people and our total opposition to any attempts by US imperialism to undermine or openly commit aggression against the Chavez regime.
 
This article focuses on Venezuela's oil economy. We start here because oil has been so central to Venezuela's historical domination by imperialism and to Venezuela's economic-social development, and because oil figures centrally in Hugo Chavez's programme to reclaim sovereignty and change Venezuelan society.
 
Our goal is to contribute to understanding, to learn from analysis of others, and to deepen dialogue and debate about these crucial issues.
 
During his electoral campaign for president in 1998, Hugo Chavez took on the old elite this way: "Oil is a geopolitical weapon, and these imbeciles who govern us don't realize the power of an oil producing country." 1 He expressed his strategic thinking about oil in a 2006 interview:
 
"We are today implementing a strategic programme called the Oil Sowing Plan: using oil wealth so Venezuela can become an agricultural country, a tourist destination, an industrialized country with a diversified economy. We are investing billions of dollars in the infrastructure: power generators using thermal energy, a large railway, roads, highways, new towns, new universities, new schools, recuperating land, building tractors, and giving loans to farmers. One day we won't have any more oil, but that will be in the 22nd century. Venezuela has oil for another 200 years." 2 
 
Chavez has spoken often about weaning Venezuela away from excessive dependence on the oil sector. But as the above statements and concrete policy underscore, oil will continue for some time, certainly for the medium term, to be the backbone of the economy and the keystone of Venezuela's foreign policy.
 
What kind of resource?
 
There is no question that Venezuela is rich in oil. Venezuela possesses the largest conventional oil reserves in the Western hemisphere (more than three times the proven reserves in the US); has trillions of cubic feet of natural gas; and has, by some estimates, untapped reserves in the Orinoco belt of the country that may exceed those of Saudi Arabia. Nor is there any question that oil revenues can grow astronomically: the price of oil is approaching near-historic highs, in the range of $65 per barrel.
 
But why is oil as a sphere of investment and as a "petrodollar" financial instrument "black gold"? Oil has become a source of productive and monetary wealth within a certain set of social production relations. The growth and contemporary expansion of world capitalism has produced a profit-based agro-industrial structure that relies heavily and disproportionately on a non-renewable resource, oil, as an essential economic input whose world price has impacted production costs, profits, and competitive advantage. In the post-World War 2 period, new oil-based and oil-related industries like auto, petrochemicals, and plastics, arose. Moreover, the exploration, extraction, refining, and marketing of oil form a highly profitable sector of the world economy. 3 
 
An historical trajectory of oil-fuelled development under world capitalism has been ruinous of human lives and planetary ecology. The production and consumption patterns of the advanced capitalist countries – where 25 percent of the world's population lives but which consume 75 percent of the world's resources – are now culminating in a global climate crisis. A just and rational world economy would neither be organized around a social structure of exploitation and inequality nor be based on this kind of non-sustainable technical-resource foundation.
 
Oil has also become a weapon in world politics. This too is a function of imperialism. Power relations are integral to imperialism. Control over resources yields geo-economic advantage and geo-political domination – in which some powers gain privileged and monopolistic access to resources and the ability to control other economies and states. Oil has been an object of imperialist rivalry, collusion, and conquest, including through local proxy wars. Oil has been a means of propping up and controlling neocolonial regimes awash in oil revenues and corruption, like Nigeria. The modern, imperialist global military machine runs on oil.
 
Oil and Venezuela
 
Venezuela has played a certain historical role in the imperialist international division of labour: as a strategic exporter of oil. And the economic pillar of the modern Venezuelan state system has been the extraction of rents from oil companies, the charge for allowing them to pump oil out of the ground. Over the last half century, oil income has both lubricated a certain kind of growth and development in Venezuela and locked Venezuela in to an international oil economy dominated by Western imperialism.
 
Oil, with its booms and busts, reshaped the economic geography of the country. Caracas, the capital city of Venezuela, more than doubled in size between 1920 and 1936, and doubled again between 1936 and 1950. Then it tripled between 1950 and 1971. The oil economy gave rise to a new middle class dependent on the state and disbursement of oil revenues, while shantytowns of the rural poor spread through and literally seeped into the muddy slopes of western Caracas. Today, almost 90 percent of Venezuela's population lives in the cities and half of the population of Caracas lives in poverty. One measure of oil's distorting effects on the economic and social structure of Venezuela has been the vast growth of the "informal economy" in the cities: the urban self-employed (like peddlers and street merchants) and workers who perform unregistered or "off-the-books" labour and services. 4 
 
Oil has produced and perpetuated a developmental trajectory marked by great economic and social gaps: between the productivity of the petroleum sector and the productivity of the non-petroleum sectors; between the development of the rural and urban areas; and between rich and poor, in the cities and in the countryside.
 
Let's step back. From 1958 to 1998, Venezuela earned some $300 billion in oil revenues. What has this meant for the masses of people in Venezuela, and what kind of development has resulted from subordination to the dynamics of the world imperialist economy and the world oil industry within that?
 
The production of oil has actually stifled any significant industrial diversification. Much of the new infrastructure built between the 1960s and 1980s is decaying for lack of maintenance. Floods and mudslides, aggravated by uncontrolled urbanization, have washed away towns. Health hazards stalk the shantytowns in which 60 percent of Venezuela's urban population lives. The number of people living in official poverty nearly doubled between 1984 and 1995; and, today, more than half of Venezuela's working population works in the precarious informal economy. 5 
 
Hugo Chavez has decried the oligarchic oil economy with its corruption, patronage, and extremes of glittering wealth and grinding poverty. He has spoken of the need to revive the peasant economy. But can a different form of oil economy produce a just and viable alternative to the neoliberal economic model and lead to socialism? And just how different will such an economy be if it requires the massive infusion of foreign investment capital and a gamble in a game of oil markets?
 
A programme that cannot break out of the status quo; a programme wracked with contradictions
 
Chavez has pinned the success of his programme of social equity and diversification of the economy on oil revenues. His main economic order of business, as he repeatedly states, is "sowing the petroleum." This is a phrase and programme that has been part of Venezuela's populist-nationalist politics and discourse since the mid-1930s: the government is to assert greater control over oil revenues, use oil wealth to promote development, and allow more people to share in the oil bounty. Chavez is counting on high and rising oil prices to undergird vast increases in government spending, a growing state presence in the economy, and subsidized prices for certain domestic products (mainly gasoline but also imported consumer goods, including food). In 2004, $1.7 billion of the state oil company's $15 billion budget was allocated to fund social programs; soon thereafter it went to $4 billion a year. 6 
 
Chavez, after having restructured the management of the state oil company, is moving along three tracks to maximize oil revenues to make good on his programme. He is seeking to expand oil production. He is seeking to increase state ownership and the government's share of earnings, royalties, and taxes deriving from foreign-based activity in the hydrocarbon sector (oil, natural gas, and coal). And he is seeking out new markets for oil, both to absorb expanded output and as a cushion against possible US pressure and retaliation. These are not simply technical tools of economic management; they are bound up with a capitalist logic, and are fraught with the contradictions of dependent, imperialist-led development.
 
On the first track, the strategic 25 year Plan Siembra Petrolera (Oil Sowing Plan), in its first phase for 2005-2012, calls for an increase in production from current levels (2006 estimates range from 2.8-3.3 million barrels a day) to 5.8 million barrels of oil per day in 2012. In the gas industry, similar large-scale development is also planned.
 
The Venezuelan state oil company Petroleos de Venezuela (PDVSA) estimated in 2006 that this phase of the expansion plan requires some $75 billion to finance new investment. Where is this money coming from? Most will come from the state oil company. Some 25 to 30 percent is expected from external, private sources: borrowings from banks, offset by anticipated oil earnings, and investments by the foreign oil companies operating in Venezuela. 7 
 
Chavez is counting on increased output from the so-called Orinoco Petroleum Belt, a region in the centre of the country that has been the site of major investments by the state oil company and foreign operators, like Exxon-Mobil, ConocoPhillips, and France's Total SA. Since the 1990s these imperialist transnationals have invested more than $17 billion, which may have grown in value to $30 billion. The extraction and processing of this extra-heavy crude oil requires expensive investment in heavy machinery, treatment, and storage complexes. Partial processing of this oil on the spot, to make it liquid enough to flow in pipes, produces enormous amounts of waste material.
 
There is a sharp contradiction. On the one hand, the state must extract financial resources from the oil industry to underwrite its development and social spending plans (and, increasingly, to meet rising popular expectations and shore up the political base of the Chavez regime). On the other hand, the state must invest to maintain the competitiveness of the oil industry as a capitalist enterprise in the international capitalist market.8 
 
Again, there is great tension here. In the last two years, social programmes have absorbed a larger share of the state oil company's budget than has spending on maintenance and new oil capacity. This social spending by the government puts strains on needed investments in the oil sector. To say investments are "needed" is not to make some pure technical statement; rather, investments are "needed" from the standpoint of an oil-exporting economy and the dictates of the world market – improving efficiency and compensating for possible price declines with expanded output. Because Venezuela's wells are so old, output declines 23 percent a year – and so it is necessary to drill new wells just to maintain capacity. 9 There is a pull exerted by competition on the world market, intensified by low levels of investment in Venezuela's oil sector relative to other oil-producing countries, to upgrade and expand the industry, and maintain profitability.
 
If foreign investment comes forth to finance a major share of Plan Siembra, this investment carries with it real control and puts real leverage in the hands of those foreign investors. This is important to bear in mind. Venezuela is not unusual in having formal sovereignty over its oil. Some three-quarters of the world's oil and gas reserves and half of global output are controlled by national state oil companies like Saudi Aramco, Kuwait Petroleum, and the Algerian state company. But the national-state oil companies rely on international finance, work through international trade and marketing channels, and collaborate with the large, Western-based transnational oil companies, like Exxon-Mobil. These transnational corporations and their service company networks have strong competitive advantage: in scale, reach, and core managerial and technological competences, financial capabilities, support by the Western imperialist governments, and the ability to pull up stakes in a country like Venezuela.
 
In terms of the second track: higher tax and royalty payments. In April 2006, Chavez announced his intention to increase PDVSA's share in major projects to 60 percent from 40 percent. The Chavez government is creating new forms of joint ventures (what are now called "mixed companies") with Shell, Chevron, British Petroleum, and others. Oil resources and oil profits are jointly owned in the form of single new enterprises – only now, the Venezuelan government obtains a higher proportion of profits than it had previously, while the foreign oil companies, with heavy investments, benefit from current high oil prices and prospect of profitable new oil fields. At the same time, the government has negotiated with the 22 foreign companies operating in Venezuela to agree to a new tax law that is being enforced retroactively.
 
On May 1, 2007, Chavez made good on his ultimatum to the foreign companies that they accept a larger share of ownership by the Venezuelan government or cease operations. Chavez may be a tough negotiator (and did succeed in getting a larger slice of rising oil revenues from companies who want to stay put in order to recoup the value of their investments and make huge profits). At the same time, to keep these projects alive, to go forward with expansion plans, Chavez must reach some kind of understanding with foreign capital, as these firms are providing essential finance and technology. So the threat of takeover was sweetened with a commitment to compensate the firms. 10 
 
The third track of the oil programme is to restructure Venezuela's external trade relations away from dependence on the US as a market and source of investment capital and technical expertise. Venezuela accounts for some 12 percent of the US's daily oil imports, and plays a certain strategic role in the US's ability to project power in the world. But the other side of the equation is more telling, illustrating an aspect of Venezuela's structural dependency: that 12 percent share of US oil imports accounted for by Venezuela represents 60 percent of Venezuela's total production!11  
 
In seeking to diversify markets, Chavez has opened negotiations with China and has plans to sell Venezuelan oil to China, the world's second-largest energy consumer, and to India as well. But there are high costs of servicing these markets. Venezuela does not have a Pacific port, and large tankers cannot make it through the Panama Canal. So Venezuela would need to construct pipeline through Colombia in order to ship the oil. But shipment to Asia is costly, owing to the long distances involved. Further, China does not have adequate capacity to refine Venezuela's sulphur-rich crude. China is investing substantial sums to increase that capacity, but China is also exploring for oil and gas closer to its shores in the South China Sea and angling as well for deals in the Caspian Sea region.
 
The US connection is a difficult knot for Chavez to cut, especially if oil is to be the centrepiece of development. There is the close proximity of the US market and low transportation costs. There are the refineries in the US adapted to processing Venezuela's oil. And the US continues to be Venezuela's most important trading partner (US-Venezuela trade actually rose 36 percent in 2006). These are among the pressures operating on Chavez to maintain stable economic relations with the US, 12 even if the US has other plans.
 
Part of Chavez's strategy for diversification involves inviting foreign companies from outside the traditional circle of the big Western oil majors to invest in Venezuela's petroleum industry and to participate in his plan for a continental gas pipeline project stretching from Venezuela down to Argentina. These form part of Chavez's efforts to create more multilateral investment and trade links. Chavez is courting companies from India, China, Russia, and elsewhere. Chavez hails investment plans in Latin America as anti-US regional integration.
 
But whether in Venezuela or elsewhere in Latin America, the essence of these projects is: investment by capitalist firms... according to capitalist methods of exploitation...to be measured by capitalist criteria of profitability. These projects have enormous social consequences for local populations, including dislocation of indigenous peoples. And they have enormous environmental consequences. 13 
 
Chavez must assure long-standing Western and new investors of a relatively stable business-receptive environment. It is revealing that the Chavez regime has designated the oil sector a "strategic industry." The state-appointed management tightly controls this sector (and the oil industry is one where worker co-participation, the limits and real nature of which will be discussed in a subsequent instalment of this series, is forbidden).
 
One critical-minded supporter of Chavez has observed, "the joint ventures provide a reality check to those used to only a diet of Chavez speeches...[B]ut in the current circumstances, paradoxically, a Faustian pact with foreign capital may be necessary to keep the forces of imperialism [US pressure and intervention] off Venezuela's back." 14 
 
This captures much of the "best-case" thinking about Chavez's oil-based strategy of development. But this "best-case" thinking rests on a misunderstanding of imperialism. As desirous of genuine social change as many Chavez supporters are, that cold-water splash of "reality check" is worth pursuing further.
 
Modern-day enclave development
 
Imperialism manifests itself not simply through economic bullying or military threat and intervention – and US military action against Venezuela is by no means "off the table". It is also expressed through the structure and functioning of the world economy and the existing economic and social structure of Venezuela, which reflects and reinforces dependency on oil and subordination to the world market.
 
Chavez is perpetuating a form of export-led growth centred on the oil industry. The irrationality of an economy so geared to oil is expressed in the fact that only 20 percent of Venezuela's total oil production enters into the domestic economy. 15 It is expressed in the fact that while Venezuela's state oil company (PDVSA) is the country's single largest employer, with about 45,000 on its payroll, employment in the oil sector accounts for less than 1 percent of Venezuela's total work force. 16 It is expressed in the fact that, despite high oil prices and earnings, official unemployment in Venezuela has ranged from 8 to 15 percent in the Chavez years, with the poverty rate at 30 percent at the start of 2007. 17 
 
This is a profoundly distorted economy: today, the oil sector accounts, and this has been a long-standing pattern, for about one-third of Venezuela's Gross Domestic Product (GDP), 50 percent of the government's revenue, and 80 percent of Venezuela's export earnings. As one of the world's top oil producers, Venezuela is a top emitter of CO2 emissions in Latin America and has the region's highest per capita rate of carbon emissions. 18 
 
The oil-export economy induces a form of "enclave" development. Such development responds to external sources of economic dynamism: the world oil market, conditions of demand in the major imperialist and regional economies, the rhythm and direction of world capital flows, etc. And such capital-intensive mono-export development is a barrier to integrated, all-around agricultural and industrial development in the exporting country.
 
Here it is necessary to elaborate on two related aspects of dependent development: lopsidedness and heightened exposure and vulnerability to the world market.
 
In the oppressed nations, the oil sector requires massive investment in advanced equipment and technology. These technology demands are met disproportionately from outside the economy – much of the advanced technology required by the oil sector is either imported, requiring that foreign exchange be generated to pay for imported capital goods, or obtained through the joint ventures (the foreign oil and oil-service companies involved, like Halliburton, provide the technology in-house or purchase it on the world market).
 
Moreover, much of this technology cannot be widely diffused and adopted throughout the economy to revolutionize social production. This is so for two reasons. First, much of the specialized oil-drilling and oil-engineering technology is not appropriate to overall conditions of social-economic development. Second, even where some of this technology could have useful direct and indirect spin-off applications, there does not exist a broad-based industrial structure to which the benefits could accrue – exactly because the oil focus has constrained broader development.
 
The oil sector is not significantly stimulating new demand for locally produced industrial products, nor is it resulting in a rising socially useful skills level of the overall work force. You do not have a process of agricultural and industrial development unfolding that strengthens local capacity to innovate and adapt technology. These are consequences of enclave-like, oil-based development. 19 
 
Under Chavez, PDVSA, the Venezuelan state oil company, has been seeking agreements with foreign oil companies requiring as a condition of entry that they source (obtain) more oil-service supplies locally. But as oil resources are depleted, and as the extraction and processing of Venezuela's heavy crude and rich-rich oil grows more challenging, new technology requirements appear. And as these requirements are met with even more specialized and sophisticated technology, the technology gaps between the oil sector and the rest of the economy are reproduced on a new level. 20 
 
Meanwhile, the huge port, pipeline facilities, and other infrastructure investments to facilitate the exploration, extraction, and shipment of oil and coal are often out of scale to the needs of the overall economy – again, since they serve these more self-contained, outward-oriented investment projects, like the Orinoco Petroleum Belt plans.
 
As mentioned earlier, the oil sector overall accounts for a very small fraction of total employment. Chevron's huge $3.8 billion investment in the Orinoco Petroleum Belt initially will have created 6,000 jobs – upon completion, the project will only need 700 permanent employees.
 
These are phenomena of the enclave-like character of oil-based development. But here is the rub: the overall agro-industrial structure is profoundly influenced and skewed by the oil sector. There is heightened unevenness as between the productivity and wage levels and technological dynamism of a modern oil sector and other segments of the economy; and, as will be discussed shortly, the oil industry has negative feedback effects on domestic agriculture and food production. At the same time, the build-up of the state-capitalist oil sector strengthens class interests and class forces that have a strong stake in maintaining the dominant macro-economic structure.
 
To develop an agricultural base that could meet the food needs of society, provide rural employment, and develop through mutually reinforcing links with an integrated and balanced industrial structure would require a) a very different allocation and prioritisation of resources serving the needs of the now exploited and oppressed, and b) a break with the economic logic, structure of options, and pressures of the local and world capitalist market system (what Marxists call the law of value).
 
Footnotes
 
1. Cited in Nicholas Kozloff, Hugo Chavez: Oil, Politics, and the Challenge to the US (New York: Palgrave Macmillan, 2006), p. 7. No original Spanish-language source available.
2. Greg Palast, "Hugo Chavez," Interview in Z, July 2006. www.zmag.org.
3. See Larry Everest, Oil, Empire, and Power: Iraq and the US Global Agenda (Monroe, Me.: Common Courage Press, 2004).
4. On the growth of Caracas, see Allen Gilbert, The Latin American City (London: Latin America Bureau, 1998), pp. 7-11.
5. See J.P. Leary, "Untying the Knot of Venezuela's Informal Economy," naclanews, December 6, 2006. http://news.nacla.org.
6. US Department of Energy, Energy Information Administration, Country Analysis Briefs, Venezuela, June 2004. www.eia.doe.gov.
7. On the 2006-2012 expansion plan and its costs and financing, see the statements and interviews by PDVSA officials at www.pdvsa.com.
8. These kinds of contradictions are pointed to in Fernando Coronil, "Magical Illusions or Revolutionary Magic? Chavez in Historical Context," NACLA Report on the Americas, Vol. XXXIII, No 6, 2000. See this article and also the highly important analysis of the historical development of the rentier oil economy and modern Venezuelan state and various incarnations of plans to "sow the petroleum" in Fernando Coronil, The Magical State: Nature, Money, and Modernity in Venezuela (Chicago: University of Chicago Press, 1997).
9. See David Luhnow and Peter Millard, "As Global Demand Tightens, Oil Producer Has Agenda," The Wall Street Journal , August 1, 2006.
10. See Simon Romero and Clifford Krauss, "Deadline Nears in Chavez Fight Against Big Oil," The New York Times , April 10, 2007; Simon Romero, "Chavez Takes Over Foreign Controlled Oil Projects in Venezuela," The New York Times, May 2, 2007. In his July 2006 interview with Greg Palast (see zmag.org), Chavez says about the foreign oil companies, "[W]e don't want them to go, and I don't think they want to leave the country, either. We need each other."  
11. Claude Larsimont, "Hugo Chavez, the Bolivarian Use of Petrodollars and the Oil Market," ESISC Background Analysis 10/05/2006.
12. See James Surowiecki, "The Financial Page: Synergy With The Devil," The New Yorker, January 8, 2007, p. 26.
13. On the environmental and human rights issues posed by Chavez's petroleum and natural gas regional initiatives, see David Hallowes and Victor Munnik Poisoned Spaces: Manufacturing Wealth, Producing Poverty, www.groundwork.org.za , October 2006; "Open Letter to President Hugo Chavez," Sociedad Homo et Natura, posted at www.nadir.org in April 2006.
14. Steven Mather, "Joint Ventures: Venezuela's Faustian Pact with Foreign Capital," Venezuelanalysis.com , September 30, 2006, www.venezuelanalysis.com .
15. Year-end data for 2006 from US Department of Energy, Energy Information Administration.
16. "Venezuela: Minerals," Encyclopedia Britannica Online, www.britannica.com. [back]
17. Bernardo Alvarez, "Venezuela's Global Agenda: Six More Years," April 5, 2007, Venezuelanalysis.com , www.venezuelanalysis.com .
18. Data from US Department of Energy, Energy Information Administration, Country Analysis Briefs, Venezuela, September 2006, www.eia.doe.gov]
19. The question of appropriate technology and whether raw materials investments spur linkages to other parts of the economy has been a long-standing topic of research and analysis on the part of radical, dependency, and Marxist theorists. The 2003 report by the Economic Commission for Latin America and the Caribbean, Foreign Investment in Latin America and the Caribbean, 2003 examines patterns of foreign investment in Latin America and questions supposed benefits and spillover effects resulting from natural resources investments.
20. On new oil seismic technology and highly sophisticated secondary and tertiary recovery methods, some of which are now being used in Venezuela, see Jad Mouawad, "Oil Innovations Pump New Life into Old Wells, The New York Times, March 5, 2007.

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