Article by Peter Maass

Mirage

Crude World  |  03/01/2013
The Venezuela of Hugo Chavez

(Excerpted from “Crude World: The Violent Twilight of Oil” by Peter Maass)

The addictions of Hugo Chávez, president of Venezuela, are regularly
in full view. On his television show, Aló Presidente, Chávez sips espresso
from a white porcelain cup, and because the program can last from
morning until night, with Chávez talking and singing and crying and
joking and taking phone calls from Fidel Castro, the nation watches
him drink cup after cup. Quite famously, the paratrooper-turnedpresident
is wired on caffeine. That’s not his only craving. In the halls
of American power, Chávez is known as a leftist who appeared at the
United Nations a day after President George W. Bush and proclaimed,
crossing himself and sniffing the air, “The devil came here yesterday,
and it still smells of sulfur.” In his disobedience of political etiquette,
Chávez acts with intended provocation. His defiance extends to the
realm of economic strategies, because he is trying to overturn the dismal
conventions of third-world resource management.
If, in the last century, you watched in dismay as oil profits were
stolen or wasted, you might have been hopeful when Chávez was
elected president and vowed to use resource wealth to help the needy.
Though Venezuela has the world’s seventh-largest reserves, most of its
26 million citizens are exceedingly poor. The enclaves of wealth in
Caracas are surrounded by coils of angry slums. It is a classic example
of what economist Joseph Stiglitz calls “rich countries with poor people.”
Chávez’s desire for a fairer economic order was not new, because
radical and well-meaning leaders across the globe had tried to make oil
a blessing. Nigeria had had one or two presidents who preferred
reform to looting, and even Huey Long tried to spread the oil wealth in
Louisiana. But Louisiana remains one of the poorest states in America,
and Nigeria is, well, Nigeria. I went to Venezuela to see whether
Chávez could perform the magic that had eluded so many others, and
my first stop was the barrio of Gramoven, where a new paradigm of
resource management was being built.

***

Gramoven, at first glance, seems a model for little more than worldclass
squalor. Its crowded streets are lined with bare-essentials shops
selling everything from sacks of flour to used shoelaces. Young men
linger on corners in the way of the unemployed, swapping rumors
about jobs that are hard to find. There is a wariness in their eyes, on the
lookout for not just work but danger, because on these unkind streets
even the jobless are mugged. Other hazards include manhole covers
that have been stolen, which means that if you do not watch your step,
you can disappear into a black hole. In a general sense, Gramoven is a
black hole of poverty from which few escape.
Gramoven was hosting a vision of the future that went by the awkward
name of Fabricio Ojeda Nucleus of Endogenous Development.
The “nucleus,” located on a side street near the barrio’s heart, consisted
of three main brick buildings the size of low-slung dance halls.
One building housed a medical clinic, while the others held cooperatives
that produced shoes and clothes. The well-tended complex covered
just sixteen acres and had, at its center, a small amphitheater for
meetings and performances; off to one side were an organic garden and
a sports field. This nucleus was a model for Chávez’s effort to plow oil
money into social development. There were plans for hundreds like it
across Venezuela, and not only did the funding come from oil, but the
state-owned oil company managed everything. At the time I visited in
2005, the nucleus had received more than $7 million from Petróleos de
Venezuela S.A., and a PDVSA manager, wearing a company badge,
helped run the place. It was a showcase of sorts, because Chávez had
broadcast an Aló Presidente episode from it, and its visitors included
Harry Belafonte, Danny Glover and Cornel West.
The shoe cooperative, suffused with the aromas of leather and
glue, was brightly lit and freshly painted. Its sewing and cutting
machines were not crammed together, as they might be in a typical
sweatshop. The pace of work was not hectic when I visited, and perhaps
because of that, the output was a modest six hundred pairs of
shoes a day. The measured rate of production did not translate into
high quality, unfortunately. The workers were new to shoemaking and
most of their output went to Cuba, which cannot afford to be picky, or
was distributed at discount prices to poor families in the barrio.
Oswaldo Quintero, one of the associates, as workers called themselves,
explained that the 140 members of the cooperative voted on their pay
(about $190 a month) and hours (two six-hour shifts a day). Quintero,
who was forty years old, a former taxi driver and the father of five children,
had an Everyman look, with a slight potbelly, a two-day stubble
and short legs. His blue overalls were smeared in shoe polish. He
savored his new life because he didn’t need to drive around the city for
twelve or fourteen hours a day, six days a week, risking robbery or carjacking
every minute.
“PDVSA now belongs to all Venezuelans,” he said. “Before it was
just a small group who profited from it.”
He meant that PDVSA, though state-owned, had not served the
state well. In 1976, when a nationalization law went into effect,
PDVSA gained control of the country’s oil reserves. By the 1990s, most
of the firm’s gross revenues were plowed back into its operations; the
rest went to the government. Because oil revenues were the government’s
largest source of income, the company ended up with a larger
budget than the government, and this had the perverse effect of creating
a prosperous first-world company in an impoverished third-world
nation. The firm had a talented and well-paid cadre of engineers, its
facilities had up-to-date equipment and it smoothly pumped out large
amounts of oil—reaching a peak of nearly 3.5 million barrels a day. But
like the foreign companies with which it operated joint ventures,
PDVSA spent only a token amount of its considerable revenues on
social or economic programs.
When Chávez was elected, PDVSA was quasi-independent of the
government that owned it. This would not last. In 2002, after a series
of political conflicts that included an anti-Chávez coup, PDVSA workers
went on a two-month strike that ended with Chávez firing eighteen
thousand managers and engineers—most of the firm’s white-collar
workers. Chávez proceeded to turn the firm’s priorities upside down.
Instead of about 40 percent of its revenues going to the state, twothirds
did. But there was a twist: instead of the oil money being transferred
to the government and then to ministries that oversaw health,
education and welfare programs, PDVSA was put in charge of the blitz
of new programs. Chávez calculated that PDVSA’s revamped staff
would be more loyal and more capable than the civil servants whose
uninspired presence lent government ministries the aura of early
retirement homes for bureaucrats.
“Sowing the oil”—in Venezuela, this phrase is often used to
describe the spending of oil revenues on human development—had a
quick impact on the lives of people like Quintero. Thanks to his reasonable
work hours at the nucleus, he had enough time to attend an
adult-literacy course for which he received a “scholarship” of nearly
$100 a month; he was being paid to take the course, which was held at
a nearby school. PDVSA subsidized these courses—not only the
scholarships but teachers, textbooks, televisions and videocassettes.
PDVSA funded these adult schools across the country, as well as a network
of new universities and secondary schools named after Chávez’s
nineteenth-century hero, Simón Bolívar, who fought for Latin American
independence.
Because oil prices rose from almost the moment he was elected,
Chávez was able to pour tens of billions of dollars into these programs.
He had the same fortunate timing as another statesman who came to
power as oil prices took off—Vladimir Putin. Chávez called his reform
movement a Bolivarian revolution, and poor Venezuelans were its beneficiaries.
For the first time in his life, Quintero even had access to
decent medical care, thanks to the nucleus clinic, which had six pediatricians,
two gynecologists, a radiologist and three GPs, as well as
X-ray and ultrasound machines. Everything—the clinic building, the
medical equipment, the tongue depressors, the television and airconditioner
in the bright waiting room—was paid for by PDVSA. Oil revenues even fed Quintero,
who shopped at a subsidized grocery store, part of a chain called Mercal, adjacent
to the nucleus. This store sold sugar, rice, milk, cheese and other items for discounts
as high as 50 percent; the walls of the Gramoven Mercal were covered in murals that
showed a slave breaking his chains. The country had thousands of
these stores and, it seemed, a larger number of revolutionary murals.
It was stirring if you did not let your mind linger too long on economics
or history.
In the early 1980s, I’d visited Yugoslavia and toured a factory cooperative.
The Yugoslav economy revolved around workers’ cooperatives,
a proud achievement of the country’s longtime leader, Josip Broz
Tito, who claimed to have found a third way to prosperity that avoided
the brutishness of capitalist managers and the dimness of party apparatchiks.
At the cooperative I visited, the workers were the owners, or
so the pitch went, and all decisions were made democratically by the
workers or a council they elected. Shifts, pay and even disciplinary
measures were decided by them. Everything was done fairly, and everyone
was happy.
It was splendid and unreal, because Yugoslavia’s economy was a
sort of Ponzi scheme. The cooperatives did not produce goods that
people wanted, and behind the scenes, dim-witted apparatchiks were
making the big decisions. The country’s showcase industrial product, a
compact car called the Yugo, was a punch line for late-night comics.
The economy held together because Western nations loaned about
$20 billion to the Yugoslav government so that it would not fall under
the sway of the Soviet Union. The loans were dispersed by Belgrade to
cooperatives like the one I visited, and they stayed afloat until the
decline of the Soviet Union meant the West no longer needed to subsidize
Yugoslavia. The subsequent contraction of the Yugoslav economy
helped trigger civil war in the 1990s.
Venezuela’s endogenous nuclei, adult-literacy programs and subsidized
Mercals were not being kept afloat by loans. They floated on oil.
Under Chávez, output was more than 2 million barrels a day, which
meant that when prices were $100 a barrel, Venezuela was producing
more than $200 million worth of oil every twenty-four hours. Even
after deducting the cost of getting the oil out of the ground and shipping
it to markets, it was a lot of money for a nation of 26 million
souls—not Kuwait levels of drowning-in-oil riches, but higher on a per
capita basis than Nigeria or Russia. You didn’t need to be a utopian or
Marxist to believe it might be possible to reach the goals enunciated by
Rafael Ramírez, who served as oil minister and PDVSA president: “To
rescue and redistribute petroleum rent to the benefit of the
people . . . to transform the terrible imbalances and social inequalities
which, paradoxically, are present in one of the countries with the
largest oil endowments on the planet.” Few governments had made this
happen, and by pouring oil money into programs that reminded me of
Yugoslavia, I suspected, Venezuela was galloping toward a mirage.

***

PDVSA’s fastest-growing subsidiary was Palmaven, which ran the
firm’s social programs and was located in an office tower adjacent to the
luxury Radisson hotel. It was unusual enough that an oil company had
an entire division devoted to good works, but even stranger that the
man in charge of the marquee program—the endogenous nuclei—was
a navy officer. Captain Rommel Rangel, whose handshake was military
strong and whose civilian clothes were pressed to perfection, was not a
typical naval or corporate man. He was a Chávez supporter who, like
the president, had been born into poverty and become disenchanted
with neoliberal policies that hollowed out his homeland in the 1980s.
Rangel didn’t mind that I arrived at his immaculate office on a Friday
afternoon, when the city was emptying out for the weekend; he happily
talked as it became dark outside, and his fervor was an evangelical’s.
When I mentioned the oddity of a navy officer running a social program
in a petroleum firm, he smiled and responded by turning globalization
on its head, Chávez-style. “Economic development is not as
important as social change,” he said, with the enthusiasm of a man who
has just solved a Rubik’s Cube. His optimism was admirable. His plans,
less so.
Chávez’s policies were born of the notion that because neoliberal
economics had failed, its opposite would succeed. His embrace of a
radical alternative brought to mind Ryszard Kapuscinski’s description
of oil as “the temptation of ease, wealth, strength, fortune, power.”
Kapuscinski meant that oil seduces rulers into believing it is possible to
build a new Rome with little difficulty, because money can do anything.
The shah of Iran, Kapuscinski noted, promised to create a second
America in a generation, but succeeded only in paving the way to an
oppressive religious regime that, among its many failures, cannot produce
enough gasoline for its drivers. Libya’s reserves spurred Muammar
Qaddafi to a particular brand of change-the-worldism, hinted at
by one of his titles, Brotherly Leader and Guide of the Revolution.
After taking power in a 1969 coup, Qaddafi aspired to lead the nonaligned
world, then scaled back his ambitions to the Arab world, then
to Africa only. He planned to develop nuclear weapons and attack
American targets. After three decades of failure, and with his country
an economic wreck and politically isolated, Qaddafi finally let go of his
radical visions.
Chávez’s visions of petrograndeur were geographically vast, too. In
addition to subsidizing the barrios of Caracas, he was distributing discounted
heating oil to poor families in New York, Philadelphia and
Boston. Because these donations were intended to embarrass President
George W. Bush, who treated Chávez as a grave menace, PDVSA paid
for a full-page advertisement in the New York Times that boasted,
“Venezuela is warming up the holidays in New York.” And not just
there—Venezuelan oil was distributed at deep discounts throughout
Latin America, with a generous portion going to Cuba. Chávez’s
regime provided financing for a Latin American TV network, Telesur;
bought Argentinean bonds when the government in Buenos Aires was
reeling; and sent engineers to Bolivia to run gas facilities that were
being nationalized. Venezuela’s hemispheric outlays were estimated at
nearly $9 billion in 2007, which were several times more than the nonmilitary
aid doled out by the United States south of its border. Chávez
made no secret of his desire to be this century’s Bolívar.
The problem was not, as the Bush administration fretted in those
days, that Chávez would turn South America into Cuba writ large.
That fear overlooked a geopolitical fact, which is that you can rent
political friends in this world but you cannot buy them. Chávez’s billions
in direct aid were no match for the cultural, corporate and political
influence Washington retained in the region; American dominion
would not be ended with a few years of subsidies from Caracas. The
problem was that Venezuela, believing its mirage, could not afford its
friends any more than the Soviet Union could afford its satellites in
Eastern Europe. The Gramoven nucleus was replicated throughout
Venezuela, but these cooperatives, created at great cost to PDVSA,
provided a fraction of what the country needed in the way of jobs.
Caracas was drowning in the usual mix of oil and unemployment. A
core feature of the resource curse, as we’ve seen, is that although the oil
industry dominates an economy, it creates few jobs. High-tech refineries
can cost billions of dollars to construct, but once they’re up and
running, perhaps a few hundred workers are needed to monitor them.
If you have as much oil per capita as Kuwait, you don’t need to worry
about real jobs—you can subsidize a life of indolence for everyone in
your kingdom. But Venezuela did not have enough oil for that, and the
upshot was that its unemployment rate was well into the double digits
even during the (relatively) good times. Caracas had a booming business
in luxury cars and the highest rate of gun violence in the world for
cities not at war. The capital’s infrastructure, ignored during decades of
economic doldrums, continued to be ignored during the boom. A
highway to the airport had to be rerouted for months due to a bridge
that was in danger of collapsing; what had been an hour-long commute
to the airport required three to four hours over a zigzag of back roads.
Chávez was not deterred. He was a true believer in a new economic
order that captivated, for a while at least, most Venezuelans. To understand
why, I turned on my television.
***

The day I watched Aló Presidente, Chávez was, as usual, a mix of Bill
Clinton and Oprah Winfrey. He sat at a desk under a large outdoor
tent, dressed in a short-sleeved shirt, talking and joking with an audience
of several hundred people who fanned themselves to stay cool in
the muggy shade. With a microphone in hand, he walked among the
crowd and asked people about their lives, hugging and kissing whoever
praised his government, as all did. When he encountered a Cuban doctor—
thousands of them provide free medical care in Venezuela in
exchange for free oil to Cuba—he waved at the camera and shouted,
“Hello, Fidel!”
The show went on for hours, with Chávez extolling his Bolivarian
revolution. Bolívar is something of a fetish object for Chávez, who has
said he often talks to the great liberator, who has been dead for more
than a century. Occasionally, Chávez leaves an empty seat at a table, so
that the liberator’s spirit has a place to sit. Chávez has changed the
country’s name to the Bolivarian Republic of Venezuela, and this
episode of Aló Presidente was broadcast from a PDVSA facility that had
been turned into a Bolivarian university, at which admission was open
to all who applied. Chávez has also set up Bolivarian circles, local
groups with millions of adherents working on behalf of his policies
and, crucially, his election campaigns.
“We are not going to rest our bodies or souls until we get rid of the
chains around our homeland,” he said during the show. “We offer an
alternative to those who want a better road, the Bolivarian path. We
don’t need money from Washington or the IMF. We are not subordinate
to their will. We can do it with oil money.”
A band played a tune with the refrain “Long live the revolution,”
and after singing along Chávez embraced the musicians like old friends.
His joviality was genuine; Chávez clearly was enjoying himself and
drew energy from these people, who were not wealthy and seemed to
love their down-to-earth president-host. Chávez eventually returned
to his desk, began to sip a fresh cup of espresso and noticed that the
time had flown by. “Okay,” he said. “It’s now three o’clock, which
means I’ve been talking for four hours already. I feel good!”
The program continued for three more hours, during which
Chávez warned of the evils of Halloween, took a call from the
Venezuelan manager of the Chicago White Sox and announced a raise
in doctors’ salaries. In certain ways, the show worked. A leader who
hopes to fundamentally alter a dysfunctional economy will certainly
benefit from personal charm and political popularity; a mild-mannered
technocrat would have a hard time imposing the radical changes that
would be the preconditions for prosperity in Venezuela or any blighted
country that had failed to benefit from its oil.
Yet Chávez’s performance had the feel of what Fernando Coronil, a
Venezuelan scholar, described as a state limited to “magic performances,
not miracles.” I understood this more fully when I went to see
Chávez in the flesh at Miraflores Palace, his office and residence.

***

The Miraflores ceremony was part of the great game of our times—
the superpower search for steady supplies of energy. China, which
didn’t import much petroleum until 2000 yet is now the third-largest
importer after the United States and Japan, was doing whatever it
could to win the friends and resources it needed. In the realm of
oil supplies, long-term relationships and contracts are vital. Modest
amounts of oil can be bought on the “spot market,” which is where
countries and companies buy and sell crude for short-term delivery.
For example, the cargo of a supertanker can change hands while on the
open seas. (In fact, it can change hands several times.) But the amounts
of oil that can be purchased in this way are relatively minor. Most of the
world’s oil is spoken for in long-term contracts that guarantee deliveries
from a supplier for several years at least; values are linked to “spot
prices,” which are market rates that prevail at the time of shipment.
Through its state-owned companies, Beijing hoped to negotiate
long-term contracts for Venezuela’s crude (as well as Sudan’s, Saudi
Arabia’s and Equatorial Guinea’s, among others’). This was a potential
threat to America, which was Venezuela’s largest oil customer
even under Chávez; despite the Bolivarian rhetoric, two-thirds of
Venezuela’s exports went to America. Altering this balance was a delicate
game. Chávez could shout and threaten as much as he wanted—he
could even deride America’s president as the devil—but actually stopping
oil shipments to his large neighbor up north could lead to serious
consequences; addicts do not react calmly when separated from their
fixes. China knew this and did not want to provoke America, yet everyone
understood that some supplies could be acquired without causing
World War III. To woo Caracas, China had even agreed to launch a
communications satellite on favorable terms. At Miraflores, Chávez
was getting ready to break this news to the world.
In a basement conference room the size of a high school theater,
the front rows were reserved for Chinese officers and businessmen. On
stage, several executives from the China GreatWall Industry Corporation
waited for Chávez, who arrived a half hour late, clad in a blue suit,
white shirt and red tie. He is built stoutly and has thick facial features
that give him the look of a retired yet still-energetic boxer who would
be glad to return to the ring. His skin is dark brown, reflecting his mestizo
lineage. He fills a room like warm water poured into a cup. Dressed
in a suit or uniform, smiling or scowling, he makes an impression.
After the Chinese and Venezuelan anthems were sung, Chávez,
standing in front of a portrait of Bolívar, in whose honor the satellite
was named, launched into a speech of the sort that was his trademark—
presidential streams of consciousness. He congratulated the Chinese
for being clever at math and saluted their women for being so beautiful.
He thanked the Chinese government for training Venezuelans in
satellite technology, saying they were teaching Venezuela “how to fly.”
As a visual aid, he flapped his arms like wings. He added that the Chinese
had learned to fly under “the great Mao Tse-tung,” and because
Chávez drew inspiration from Mao’s one-party, one-truth pedigree, he
smiled broadly and exhorted, “Long live the Chinese revolution!”
The Chinese businessmen, as rigorously mercantilist these days as
John Rockefeller was in his time, gazed at Chávez. They didn’t seem to
know whether the desired response was sardonic smiles or clenched
fists, but their expressions veered toward the safe harbor of nodding
approval. One of them adjusted the volume on his headset—the speech
was being translated into Chinese—as Chávez said, “We don’t want to
earn money out of this. We’re not capitalists. This is about the survival
of our country and the destruction of capitalism. Capitalists are generating
death!”
Yet capitalists were still buying oil from Venezuela, and lots of it.
The substance, like water from the glaciers, tends to flow according to
a variety of gravitational forces. There is geography (American ports
are far closer than China’s), technology (American refineries were
equipped to process Venezuela’s heavier crudes) and, of course, political
realities (a cutoff might put Washington into a regime-changing
frame of mind). A presidente can flap his arms in Caracas and hold his
nose at the United Nations and promise to remake his nation, but
these are performances. The political or economic miracles that
Chávez or any leader in his situation might wish for are, most likely,
beyond reach, and have always been so.

***

A pop quiz:
What is the name of the Venezuelan president who described the
backers of globalization at the World Bank as “genocide workers in the
pay of economic totalitarianism”?
Which Venezuelan leader, nationalizing the operations of Exxon
and other foreign companies, described their corporate activities as
“economic oppression”?
Which populist presidente poured billions of dollars into social pro-
grams, vowing that the wave of oil money washing into the country
would be used to create a “Great Venezuela”?
If you answered “Hugo Chávez,” you are wrong. The correct
answer is Carlos Andrés Pérez, who was president from 1974 to 1979
and dominated Venezuela so thoroughly that he was known by just his
initials, CAP. Pérez came to power as Venezuela began gorging on
petrodollars in the wake of the 1973 OPEC embargo. For a hallucinatory
period, Venezuela had the per capita income of West Germany,
the supersonic Concorde flew to Caracas three times a week and in
Miami’s luxury stores Venezuelans were known as dame dos, for “give
me two” in Spanish. Pérez was not as virulently anti-American as
Chávez but was every bit the populist. He boasted of walking across the
entire country during his presidential campaign, visiting every village
on foot. Because he assumed the postembargo windfall would be permanent
and ever-growing, he authorized billions of dollars in foreign
loans to plow ever more money into his Gran Venezuela programs.
This was the economic equivalent of a binge destined to end with
the money running out or the bloated corpus of Venezuela being
ruined by the windfall. As things turned out, both happened. One of
the few people who foresaw this was Juan Pablo Pérez Alfonzo, the former
oil minister credited with coming up with the idea of a cartel of
producing nations in the 1960s. (Pérez Alfonzo is known as the father
of OPEC.) In semiretirement, Pérez Alfonzo told a visiting academic
researcher, when Venezuela was afloat on its first oil bonanza, “Don’t
study OPEC. Study what oil is doing to Venezuela. Ten years from
now, twenty years from now, you will see, oil will bring us ruin. . . . It’s
the devil’s excrement.”
To understand where Chávez was taking Venezuela, I looked not to
the future but to the past. When oil prices collapsed in the 1980s,
Venezuela came undone as public debt and national poverty soared.
There was no economic safety net, because the influx of oil money had
decimated the agricultural and industrial sectors by inflating their
costs. They had lost the competitive edge they’d had before the oil
boom. As in Saudi Arabia and other oil-exporting countries, more peo-
ple looked to the government for their sustenance rather than to their
own brawn or brains. Yet the government, at times of low oil prices,
had little to offer. The country went into a free fall.
Because oil can instigate any absurdity, CAP was brought out of
retirement and reelected president in 1988, with a desperate nation
hoping he could resummon the prosperity that had existed in his previous
reign. Yet he had no more magic tricks or even performances. He
bowed to global economic winds and imposed an austerity program
that had the short-term effect of making the poor even poorer. Widespread
rioting broke out, and as many as three thousand people were
killed in the Caracazo, as the 1989 disturbances were called. Among
the country’s impoverished—and this was now most of the country—
the perceived cause of their misery was not oil or debt but the capitalist
order. Army officers staged two coups against CAP, and though these
uprisings were quashed, the leader of the first one, a charismatic lieutenant
colonel, became a national hero for defending the interests of
the poor. After more than two years in jail, Lieutenant Colonel Hugo
Chávez was set free.
There is a saying that Venezuela does not have good or bad presidents,
just presidents who serve at times of high or low oil prices.
Chávez, running for president in 1998 as the main political parties all
but collapsed from decrepitude, had the great luck of being elected
when oil sold for just $12 a barrel. As his presidency got under way,
prices began climbing, and six years later, a barrel fetched more than
$65, on its way to more than $140. Under his caffeinated direction,
Venezuela began a radical spending spree that was similar to the Gran
Venezuela effort of a generation earlier, and for economists like José
Toro-Hardy, it was akin to watching a car speed toward a wall that it
had smacked into not so long ago.
***

If you don’t mind surveillance cameras and ten-foot walls topped with
shards of glass, or barking German shepherds and private security
guards who glare at all newcomers, the neighborhood of El Country
Club is delightful. It is one of the capital’s enclaves of wealth and is
noted for its namesake, a two-hundred-acre club built in the early
twentieth century for the benefit of American oilmen and their good
friends, the local oligarchy. El Country Club has horse stables, tennis
courts and an eighteen-hole golf course, and is such an untouchable
institution that when the mayor of Caracas proposed confiscating its
land to build low-income housing, Chávez’s federal government
advised that this would be an excessive act of Bolivarism.
For the fortunate Venezuelans who reside along the area’s spotless
and quiet streets—a universe apart from the chaos in the rest of Caracas—
these were wealth-enhancing times. Although Chávez was despised
by the upper class, some of whom had already decamped to
luxury condos in Miami, the flood of oil money did not bypass them.
When I visited in 2005, the monthly rent on a three or four bedroom
apartment near El Country Club was running at about $7,000. The
providers of luxury goods and services, from late-model BMWs to plastic
surgery, were doing a booming business in precincts around the club.
This was where José Toro-Hardy lived, and after I was buzzed
through a locked gate along his street, a maid opened the front door
and walked me through an open-air atrium. The quiet and the greenery
and the chirping of birds imparted an eco-resort vibe, but Toro-
Hardy, unlike his home, was not at peace. A former director of PDVSA
who was ousted after Chávez came to power, Toro-Hardy had become
a fierce critic of the president’s economic policies. His critique rose
above the entitled whinings heard on the shady verandas around El
Country, because Toro-Hardy was the author of scholarly books on oil
economics and considered himself a nationalist whose nation was yet
again being ruined by oil.
His demeanor was nervous, with his eyes darting and his voice
wavering, as if he were a fugitive from the illusion of reality Venezuela
was embracing. His warnings were issued in the manner of a man
imparting what he believed to be a vital yet ignored truth; his pulse and
blood pressure made him a candidate for immediate bed rest.
Venezuela, with the world’s highest proportion of beauty queens, was a
nation of obsessives, and Toro-Hardy was obsessed about oil. He led
me into his office and asked me to peruse economic charts as he
searched the Internet for up-to-the-second oil data. One chart told a
notable story. From 1920 to 1980, Venezuela had the strongest growth
of any country in South America. For much of that time, oil was not a
curse, largely because it was not a dominant force—with oil prices
quite low, Venezuela also maintained vigorous farming and industrial
sectors. Another chart showed how the petrodollar flood that began in
1973 had upset the country’s balance. This is a paradox of windfalls like
the one inundating Chávez-era Venezuela; they can distort rather than
strengthen national institutions. We’ve seen this before: as the oil sector
grows, farming and manufacturing may contract, unemployment
may expand, inflation may rise due to the influx of revenues from oil
sales, and the gap between rich and poor may widen. This began in the
1970s, and the latest boom was only papering over the structural problems—
it was the euphoria of the bubble.
“This is not something that can be sustained,” Toro-Hardy said.
“The whole economy depends on government expenditure, but that
depends on one factor: oil prices. The laws of economy cannot be violated
any more than the laws of gravity. Sooner or later we will have a
serious economic crisis.”
It was hard to imagine prices returning to the $12-a-barrel lows
that had prevailed when Chávez came to power, but even high prices
were not a guarantee of high revenues. Like almost every oil exporter,
Venezuela struggled to maintain its output. After the mass firing in
2002, PDVSA’s output plunged by nearly 50 percent, and not all of the
lost ground had been regained. Geology was not helping matters,
because Venezuela was running short of the light crude that is easiest to
refine. The country has vast deposits of tar sands near the Orinoco
River, but converting them into conventional oil is a complex process
that involves costly technologies, large volumes of water and natural
gas—and it causes severe environmental damage. To get the job done,
PDVSA needed the help of foreign firms that were now reluctant to
get involved because they had been forced to cede control of oil projects
they’d operated before Chávez came to power. Orinoco’s heavy oil
seemed unlikely to fund the Bolivarian revolution.
Toro-Hardy saw a landscape of problems that centered on dogmatic
economic programs implemented not by a government ministry
but by an oil company that was having a hard time just pumping oil. He
was ready to acknowledge that PDVSA, when Chávez came to power,
had needed to be reformed because it had indeed grown aloof from the
country. But Chávez’s method, firing half the workforce, was akin to
destroying a village in order to save it. Extracting oil requires immense
amounts of expertise, in the form of engineers who understand the
geological profiles of the reservoirs they are drilling into. These
experts cannot be replaced like waiters in a restaurant. When large
numbers of oil experts left Iran after the 1979 Islamic revolution, production
plummeted; Iran’s production has inched back, after three
decades of war and instability, to just 4 million barrels a day, which is a
third less than its prerevolution rate. A similar decline was taking place
in Venezuela, where the output was no more than 2.5 million barrels a
day when I visited—or a third less than its peak. PDVSA, shorn of its
best and brightest, could not do its job as well as it used to, and now it
had an additional task to perform.
Chávez did not just order PDVSA to boost its community spending
by a few percentage points; he turned the firm into the engine of revolutionary
change. PDVSA allotted more to its social projects in 2006—
nearly $10 billion—than to its operations ($5.9 billion). In a sense, it
became a development agency with oil wells. No other oil company,
whether publicly traded or state-owned, spent nearly as much on noncore
programs. In Saudi Arabia, Russia and other oil countries, stateowned
firms tend to have modest social programs. Their surpluses are
transferred to the Treasury and distributed to ministries that chase the
holy grail of sustainable development. Usually they fail. You can build
colleges, as Saudi Arabia did, but that doesn’t mean the degrees will
count for much or that jobs will await the graduates.
Chávez was betting, almost literally, that an oil company would
succeed where government ministries might not. PDVSA went from
one extreme—disassociated from the government it was supposed to
serve—to the opposite extreme of taking over the government’s duties.
I knew that villagers in the Niger Delta would be delighted if Shell or
its government-owned partner would provide the education, electricity,
medical care and jobs that the negligent and corrupt government
did not offer. But it was hard to imagine how oilmen might do better
development work than a government’s development experts. Oil companies
should certainly provide funding and support to official efforts,
as well as fight corruption and waste. But replacing a government
seemed a doomed concept. As Toro-Hardy said in his exasperated way,
“Oil companies should do more, but they should not change their mission.
Now, instead of investing in its own projects, PDVSA is investing
in housing and social programs. This is very nice, but it’s not for an oil
company.”
In Venezuela, it was as though a well-meaning doctor was using the
wrong instruments and wrong procedures to operate on a sick patient.
Even during the boom years, signs of failure were ample—price controls
on foodstuffs were leading to shortages, and the government was
spending so much on subsidies that it was running into deficit problems,
which is a striking achievement when large amounts of revenues
are being received from oil sales. Chávez’s policies, intended to break
the resource curse, seemed likely to prolong it. “I am not defending the
previous governments,” Toro-Hardy said as he walked me out of his
private sanctuary. “They did an awful job. But giving away money is
not going to solve people’s problems. We have a saying here: ‘Bread for
today and hunger for tomorrow.’”
When oil prices slid back to the double digits, Chávez’s popularity
began to slide, too. He didn’t have as much money to throw at the
country’s problems. An opposition candidate even won election as
mayor of Caracas in 2008. Magic shows can obscure reality but cannot
make it disappear.

Copyright Peter Maass