Friday, 24 October 2008

Catastrophic economic policies of the Venezuelan 'Opposition'

Ken Livingstone has given strong support to the process taking place in Venezuela under Hugo Chavez, and strongly attacked the policies of the Venezuelan opposition opposed to Chavez. The following article sets out the economic background to this.
The process taking place in Venezuela is usually looked at from a political angle - the 21st Century Socialism project of Hugo Chavez. There is, however, another interrelated dimension - the question of what economic processes underpinned Hugo Chavez coming to office and of the economic policies now being pursued?
A necessary starting point is the economic situation, to be more precise the catastrophic economic situation, which led to Hugo Chavez's election.
The present so called 'Opposition' to Chavez are in fact the previous ruling groups in Venezuela. The reason they lost power is that they produced an economic disaster in Venezuela without comparison in any major country in Latin America - indeed with few parallels in any major country in the world.
The fundamental features of this disaster may be seen in Figure 1, which shows the total growth in GDP per capita of the major Latin American countries between 1950 and 1998 - the year Chavez was elected. In this entire 48 year period GDP per capita in Venezuela rose by only 20 per cent - compared to 65 per cent in Peru, 78 per cent in Uruguay, 83 per cent in Argentina, 149 per cent in Colombia, 178 per cent in Chile, 185 per cent in Mexico, and 224 per cent in Brazil. [1]

Figure 1

In terms of annual growth rates, the average annual increase in GDP per capita for these eight major Latin American countries during this 48 year period was 1.8 per cent - for Venezuela it was less than a quarter of this at 0.4 per cent a year.
In terms of country comparisons, Venezuela's GDP per capita grew at 0.4 per cent a year throughout this period compared to 1.0 per cent a year in Peru, 1.2 per cent in Uruguay, 1.3 per cent in Argentina, 1.9 per cent in Colombia, 2.1 per cent in Chile, 2.2 per cent in Mexico, and 2.5 per cent in Brazil. These figures alone show that the 'Opposition' in Venezuela represented the greatest group of economic incompetents in Latin America.
Examination of more detailed figures, however, shows that the trends produced by the Venezuelan 'Opposition' were in fact even worse than those shown by the averages for the period.
Figure 2 shows Venezuelan GDP per capita for each year up to 1998, the year Chavez won the election, compared to the 1950 level. It shows not only the extraordinary stagnation of Venezuelan economic development for almost half a century after 1950 but that for the 24 years up to 2003, when Chavez broke the 'Opposition' control of the state oil company
This extraordinary, almost quarter of a century, of declining Venezuela GDP per capita provides the background to the tumultuous political events of this period - the 1989 riots against neo-liberal policies (the Caracazo), the February 1992 attempted military coup led by Chavez, the attempted military coup led by Admiral Gruber in November that year, and the eventual presidential electoral victory of Hugo Chavez in December 1998.

Figure 2

Venezuela's relative decline in this period was even sharper than its absolute one.
Venezuela had entered the second half of the 20th century as by a huge margin the richest country in Latin America - its GDP per capita was almost three times the average for the eight major Latin American countries considered above. However while the rest of Latin America grew Venezuela stagnated. By 2003 Venezuela's GDP per capita was only 11 per cent above the average for the major Latin American states.
This quarter century of economic decline under the control of the Venezuelan 'Opposition' is shown in Figure 3. This graph shows clearly that what was involved in Venezuela's decline under the leadership of the 'Opposition's' policies was not some individual crisis but a prolonged and total inability to develop the country.

Figure 3

The development after Chavez broke the control of the 'Opposition' over the PDVSA in 2003 is shown in Figure 4. There was a sharp immediate sharp recovery in GDP per capita which has continued to the present.

Figure 4

To summarise, the conclusion of these trends is clear. What is involved with the policies of the Venezuelan 'Opposition' is not some particular mistake. It has displayed an inability over more than half a century to develop Venezuela - despite the fact that, in oil, it had greater resources than any other Latin American country. Instead of developing Venezuela the 'Opposition' led it to the greatest economic catastrophe of any major Latin American state - this failure was not episodic or cyclical but extended over many decades. The 'Opposition' is a therefore a grouping whose whole record shows they have not the slightest right to be taken seriously regarding economic policy.
Chavez has already set about meeting many immediate needs of the Venezuelan population through improving health, education, food supply and many other services. What also has to be tackled is the long term economic development of the country.

[1] Calculated from Angus Maddison World Population, GDP and Per Capita GDP, 1-2003 AD. Angus Maddison is the world's leading authority on long term economic statistics - former head of the Organisation for European Economic Cooperation (OEEC) economics division. He is first professor, and then emeritus professor at Groningen University and remained there until his retirement. Angus Maddison received a royal decoration as Commander in the Netherlands Order of Orange Nassau. All figures in this article are calculated from this source unless otherwise specifically stated.

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