Venezuela


#41

In Venezuela, gas was nationalized in 1971, and oil was nationalized in 2001. A lot has happened since then, including a recent drop in the price of oil. With a such a large time frame, a number of factors might better explain the current crisis in Venezuela. If we were in a recession right now and someone tried to blame it on 9/11, I think you would be more than little skeptical.

Do you not understand that Chavez nationalized a TON OF OTHER SHIT? And that’s largely why none of those other industries exist any more?

Below are the main nationalizations under Chavez:

OIL

  • In 2007, Chavez’s government took a majority stake in four oil projects in the vast Orinoco heavy crude belt worth an estimated $30 billion in total.

Exxon Mobil Corp and ConocoPhillips quit the country as a result and filed arbitration claims. Late last year, an arbitration panel ordered Venezuela to pay Exxon $908 million, though a larger case is still ongoing.

France’s Total SA and Norway’s StatoilHydro ASA received about $1 billion in compensation after reducing their holdings. Britain’s BP Plc and America’s Chevron Corp remained as minority partners.

  • In 2008, Chavez’s administration implemented a windfall tax of 50 percent for prices over $70 per barrel, and 60 percent on oil over $100. Oil reached $147 that year, but soon slumped.
  • In 2009, Chavez seized a major gas injection project belonging to Williams Cos Inc and a range of assets from local service companies. This year, the energy minister said the government would pay $420 million to Williams and one of its U.S. partners, Exterran Holdings, for the takeover.
  • In June 2010, the government seized 11 oil rigs from Oklahoma-based Helmerich & Payne Inc.

AGRICULTURE

  • In 2009, Chavez nationalized a rice mill operated by a local unit of U.S. food giant Cargill Inc.
  • In October 2010, Venezuela nationalized Fertinitro, one of the world’s biggest producers of nitrogen fertilizer, as well as Agroislena, a major local agricultural supply company. It also said it would take control of nearly 200,000 hectares (494,000 acres) of land owned by British meat company Vestey Foods.
  • Vestey had already filed for arbitration over the earlier takeover of a ranch. Chavez said the latest deal with Vestey was a “friendly agreement.”
  • In 2005, Chavez began implementing a 2001 law letting the state expropriate unproductive farms or seize land without proper titles. He has redistributed millions of acres deemed idle to boost food production and ease rural poverty.
  • Chavez’s government has repeatedly threatened to seize Empresas Polar, Venezuela’s biggest employer and largest brewer and food processor.

FINANCE

  • In June 2010, Venezuela took over the mid-sized bank Banco Federal, citing liquidity problems and risk of fraud. The bank was closely linked to anti-government TV station Globovision.
  • In 2009, Chavez paid $1 billion for Banco de Venezuela, a division of Spanish bank Grupo Santander.
  • The government has closed a dozen small banks since November 2009 for what it said were operational irregularities. Some were reopened as state-run firms. Brokerages have also been closed and some employees jailed. Chavez has vowed to nationalize any bank that fails to meet government lending guidelines or is in financial trouble.

INDUSTRY

  • In October 2010, Chavez ordered the takeover of the local operations of Owens Illinois Inc, which describes itself as the world’s largest glass container maker.
  • Chavez in April 2008 announced the government takeover of the cement sector, targeting Switzerland’s Holcim Ltd, France’s Lafarge SA, and Mexico’s Cemex SAB de CV.

GOLD

  • Chavez has considered bringing mining more firmly into state hands, and in 2009 the mining ministry seized Gold Reserve Inc’s Brisas project, which sits on one of Latin America’s largest gold veins. Gold Reserve immediately filed for arbitration with ICSID.
  • In August 2011, Chavez said he was nationalizing the gold industry. Toronto-listed Rusoro Mining Ltd, owned by Russia’s Agapov family, was the only large gold miner operating in Venezuela, and this year it filed for arbitration.

STEEL

  • The government paid $2 billion in 2009 for Argentine-led Ternium SA’s stake in Venezuela’s largest steel mill.

TELECOMMUNICATIONS

  • In 2007, the nation’s largest telecommunications company CANTV was nationalized after the government bought out the U.S.-based Verizon Communications Inc’s 28.5 percent stake for $572 million. Analysts said Verizon received fair compensations for its assets.

POWER

  • In 2007, Venezuela expropriated the assets of U.S.-based AES Corp in Electricidad de Caracas, the nation’s largest private power producer. The government paid AES $740 million for its 82 percent stake in the company. Analysts described the deal as fair for AES.

TRANSPORT

  • In September 2011, the government nationalized a local ferry company, Conferry, which operates from the mainland to the resort island of Margarita. Conferry is owned by a wealthy family and began operating in 1959.

TOURISM

  • In October 2011, Chavez said his government would seize private homes on the Los Roques archipelago in the Caribbean and use them for state-run tourism. The islands are among the nation’s favorite and most expensive tourist spots, with pristine white beaches and coral reefs that teem with sea life.

And that isn’t all of it. That’s just the highlight reel from an article written in 2012.

Now, I realize the right has been predicting doom and gloom for a long time. That doesn’t mean they are right when a catastrophe finally happens.

It does in fact mean that they are right when exactly what they predicted would happen, does in fact happen, pretty much exactly as they predicted.
And that’s what happened.

On some level here, if you refuse to acknowledge reality and realize the repercussions of actions after you actually witness them, then you are being totally irrational. This is no longer an academic discussion of potentialities. This is simply historical fact at this point. And if you refuse to acknowledge it, then you are just being an ideologue who is doomed to repeat those mistakes again.

The extreme left likewise predicts the fall of capitalism, that doesn’t mean their theories are right when the housing market fails.

That’s because capitalism didn’t fall. That’s the difference here.

When comparing the effects of nationalization to the effects of oil prices, it’s helpful to look at other measures. Are there are other heavily oil-dependent economies that that find themselves in a similar economic crisis? Certainly so, from Saudi Arabia to Russia to Alaska. Even Norway is now facing a possible recession.

No man, you are wrong. None of those other places have had their currency devalued to the point of being worthless. Here’s a graph of the exchange rate:

And even so, you’re using other examples of nations with hugely nationalized industry as examples of other places things are bad. So lulz to that?

How about other effects of nationalization in Venezuela? Are memories of 2001 still scaring off business and preventing foreign direct investment? No, in fact foreign direct investment in Venezuela was at an all time high in 2013.

WTF are you talking about? You realize that Chavez died in 2013, right? And at that point, Venezuela was ranked top of the Global Misery Index for the second year in a row? It was ranked 180 out of 185 in terms of countries to do business in. They had widespread shortages of everything, including basic medical supplies, so tons of folks died of things which could have been prevented. Venezuela’s economy was DESTROYED by 2013. They were consistently pretty much terrible for foreign investments under Chavez.


#42

Not that I think they did much good, but there are several ways to look at the same picture:

Inflation during most of Chavez regime was lower than the previous two decades average. Not necessarily his making, but probably due to global economic trends, though.


#43

That’s the thing, with Chavez’s economic policies, he created a bunch of short term benefits which seemed really sweet at the time. But it was at the cost of long term sustainability. Critics pointed out that he was basically just mortgaging the future, but folks who wanted to believe in the great socialist dream simply ignored those criticisms. But then they all came to pass and the economy totally tanked to hell.

The other thing to note is that the numbers reported by Chavez’s government are widely regarded to be fabricated, and that they were underreporting their poverty rate by a full 20%, which would put the 2013 poverty number up at the same point it was 2003.


#44

Can you source this (to an UN report if possible, or at least something apolitical enough)? This is the first time I’ve heard it, and given the political climate around here, I would guess if this was certain it would be talked about much more often. Consensus around here seems to be literacy shot up and poverty was reduced, which is good, but violence also shot up and the economy did not sustain itself (which is bad), plus many other dark sides to those years.


#45

Who predicted that Venezuela’s GDP per cap would grow faster under Chavez than in neighboring countries? Because that’s what happened.

This is no longer an academic discussion of potentialities.

No, this is an attempt to cherry pick data that will support your bias against nationalization.

Chavez took power in 1999. As you point out, nationalization was widespread and ongoing since 2001. If it were such a disaster, one should predict that hard economic indicators demonstrate a widespread and ongoing decline since 2001. I have not seen anything like that.

No man, you are wrong. None of those other places have had their currency devalued to the point of being worthless. Here’s a graph of the exchange rate:

Case in point. Your graph starts in 2010, where the line is flat. Devaluation starts in earnest after 2014. Are you seriously arguing that decades of ongoing nationalization of a TON OF SHIT had no effect until January 2014?

That said, inflation in Venezuela is a serious problem and has been so for a long time. But on average, inflation has been [lower under Chavez](http://cdn.tradingeconomics.com/embed/?s=vnvpiyoy&v=201602111610m&d1=19850211&d2=20160211&h=300&w=600’ height=‘300’ width=‘600’ ) than before he took power.

(Looks like Juan beat me to this one!)

And even so, you’re using other examples of nations with hugely nationalized industry as examples of other places things are bad.

I listed four oil economies for comparison.

Saudia Arabian oil is nationalized.

Russia’s largest oil exporter, Rosneft, is publicly traded (though the government holds a majority stake).

You don’t really think Alaska and Norway nationalized their oil industries, do you?

Global Misery Index

You mean the CATO Global Misery Index? Quelle surprise.

Regardless of what CATO and other opinion surveys may recommend, the fact are the facts: Foreign direct investment in 2011, before Chavez died, amounted to 1.2% of GDP. For comparison, that was the same as Jamaica, higher than Ecuador (0.8%), and slightly less than France (1.5%).

If lack of foreign investment in Venezuela is the cause of its problems, why aren’t those countries suffering like Venezuela?

They had widespread shortages of everything, including basic medical supplies, so tons of folks died of things which could have been prevented.

Once again, data are more useful than anecdotes.

Who predicted Venezuela under Chavez would continue to have lower mortality rates than its neighbors? Because that’s what happened.

But it was at the cost of long term sustainability.

You get no points for pointing out that something is economically unsustainable. In economics, nothing is sustainable given a long enough time frame.

Microsoft’s profits were unsustainable. Apple’s profits are unsustainable. Google will go out of business or be bought out, one day. The dollar will crash, one day. America will slip into recession, one day.

That doesn’t mean our policies today are bad.


#46

From the World Bank data sheet, cite on the wiki page where those graphs you posted came from.

No, this is an attempt to cherry pick data that will support your bias against nationalization.

Chavez took power in 1999. As you point out, nationalization was widespread and ongoing since 2001. If it were such a disaster, one should predict that hard economic indicators demonstrate a widespread and ongoing decline since 2001. I have not seen anything like that.

There is no need to cherry pick data, because their economy has entirely tanked across the board. The fact that you are attempting to pretend that it didn’t, or that it merely coincidentally occurred with Chavez’s terrible polices, just makes you look ridiculous.

Case in point. Your graph starts in 2010, where the line is flat. Devaluation starts in earnest after 2014. Are you seriously arguing that decades of ongoing nationalization of a TON OF SHIT had no effect until January 2014?

That said, inflation in Venezuela is a serious problem and has been so for a long time. But on average, inflation has been lower under Chavez than before he took power.

(Looks like Juan beat me to this one!)

“Oh yeah, that last point that basically goes off the chart? That’s probably not that important!”

Seriously, you are saying ridiculous things here… "Oh, well those terrible economic policies would have had to have had some linear impact on inflation… because… reasons!

You want to know why they had limited inflation? [U]Because they enacted strict currency controls in 2003[/U]. They effectively just FORCED their inflation rate to be low, instead of having it normally respond to market forces. And what happens when you do this? Oh, eventually the top blows off and you get hyper inflation. Oh shit, and that’s exactly what happened. Amazing.

You don’t really think Alaska and Norway nationalized their oil industries, do you?

Alaska isn’t a country, and you have failed to make anything approaching a meaningful comparison between the two. Even ignoring the fact that your comparison is absurd on its face, Alaska’s economy is not at all suffering to the degree of Venezuela’s. Likewise, Norway is in nothing approaching the economic devastation that gripped Venezuela.

You mean the CATO Global Misery Index? Quelle surprise.

I mean the Global Misery Index.
It’s inflation added to unemployment.

Once again, data are more useful than anecdotes.

You mean like the hundred different citations on the wiki page about their economy, where they had shortages of basically everything? I mean, I could just copy all the individual citations here, but that seems kind of nonsensical. Hell, do a search on “shortage” on that page, and then read the cited links if you want.

EDIT:
removed a needless insult.


#47

You are all over the place! First you argued that nationalization was the root of Venezuela’s problems. But you didn’t provide any evidence for that - the economy was stable after nationalization, and if anything it slightly improved. Foreigners are investing Venezuela’s economy at normal rates. And despite what you seem to think, [I]most of the economy remains in private hands[/I]. The vast majority (82%) of Venezuelans work in the private sector, compared to 86% for the USA and 78% for France. Public spending accounts for 40% of GDP, which is [I]less than the USA (42%)[/I],

Now you’re focused on inflation, which I’ll grant you is a real problem. It was bad before Chavez, and now it has come back. The current shortages are certainly a symptom. But inflation was not caused by nationalization - [I]it existed before nationalization[/I]. Selling off state-owned industry would not solve it. Inflation is not caused by public ownership of capital. It is caused by mismanagement of the money supply and/or public debt. In Venezuela’s case, probably the former since their debt:GDP ratio is 49% (ours is about 100%).

In short, if you think Venezuela’s “experiment” in nationalization is related to its current crisis, you’re just falling for a causal fallacy.


#48

Where the fuck is this coming from? FDI has been negative since 2009, and it wasn’t strong before that either.

EDIT: Let me clarify that this is net, so probably not exactly what we want.


#49

Here is the 2011 value as %GDP, with comparison to other countries. The same source does show negative in 2009, but that’s the outlier.

Can’t find my 2013 source right now, but anyway apparently it’s irrelevant because Chavez was dead!


#50

Honestly, at this point I’m no longer interested in this discussion. You are no longer offering what I consider to be a reasonable argument, and are failing to acknowledge simple facts about the economic devastation that’s already occurred. You’re citing data and using it incorrectly because you aren’t aware of the context in which it occurred.

You are free to believe that somehow Venezuela’s policies had nothing to do with the economic implosion that occurred. It really doesn’t matter, because it’s essentially established fact in the economic community at this point. Arguing against it is like shouting at clouds.


#51

This link quotes poverty (at national poverty lines) while the graph I showed is extreme poverty (that is defined much differently). There’s nothing in that wikipedia page about Venezuela under-reporting poverty statistics. There’s no contradiction between the graph I linked to and the data you show. Nor between official statistics and UN calculated ones.

My request for sourcing was for the claim that…

According to wikipedia the United Nations estimate of Poverty rate in 2013 was 32%, which is exactly the same number the Venezuelan government gave. Were did you get sources for your reports of under-reporting?

I’m not saying you are wrong. I am genuinely curious, since it’s the first time I hear about this.


#52

According to wikipedia the United Nations estimate of Poverty rate in 2013 was 32%, which is exactly the same number the Venezuelan government gave. Were did you get sources for your reports of under-reporting?

I’m not saying you are wrong. I am genuinely curious, since it’s the first time I hear about this.

My mistake, I misread the chart you cited there, not noticing that it was the extreme poverty level.


#53

On an unrelated note, apparently Venezuela is now in danger of defaulting.
It’s fine though, I’m sure.


#54

I do want to point out the big international organization data is always secondhand, generally sourced from official figures which may or not be trustworthy.

Which is why I hate using them since they also lag official releases, have retarded transcription errors, missing historical data, and really shit data lookup processes. But since I’m no longer in the field, that’s whats available now. Somwhat better than 5 years ago though.

Any, back to the topic of FDI. Venezuelan FDI flow, while still positive as of 2014, has decreased considerably from their high in the 2011 post-recession boom, and that high was notably smaller as a % of GDP compared to other mid-sized SA countries (1.8% in 2011, 0.2% in 2014 despite their GDP decreasing; next lowest is Argentina at 1.9% in 2011, which not surprisingly, is another country that has a habit of nationalizing shit).
Source: UNCTAD. Can’t link shit from their tables though (see why I hate these things?)

Interestingly enough, despite the small FDI inflow, FDI stocks have fallen by 25% since 2011 (40B to 30B). Not surprisingly a bad investment apparently.


#55

Venezuela’s problems are multi-fold. Yes, truth be known, Venezuela has been engaged in unsustainable economic policies. Magnet is being ludicrous when he says this is irrelevant because all economics is unsustainable. Sure but some systems are more sustainable for longer time periods and have the opportunity to adapt over time, and Venezuela isn’t one of them. Venezuela is headed for a huge crash in the new future. Tell all the citizens suffering now because of shortages and who will suffer in the future that it really doesn’t matter and see how they feel about that. Chavez policies did help the poor in Venezuela, but that won’t matter in probably less than a year or so when the economy crashes. He mortgaged the future for a few years in the present.

One problem is the collapse of oil prices, which is effecting many countries. However, many countries set aside reserves, sovereign wealth funds, etc to sustain them if oil prices dropped. Venezuela didn’t. Oil was sold on the govt books at $40/barrel, even when it was really sold for $100. The rest went into an off the books account, controlled by Chavez and his cronies, unaccountable to the Venezuelan Congress (not that they would have cared as they pretty much rubber stamped anything Chavez wanted). Some of this was used to buy off the poor, a some of it was probably stolen or used for political patronage, but no one really knows. In any case, the money is gone, there’s only about $3MM in Venezuela’s “rainy day” fund.

The other problem is price controls. Individuals/businesses can’t make money at the prices set by the govt, so they don’t make/grow/sell things any more. Venezuela used to export coffee, meat and rice, among other things, now it imports all three. Oil accounts for 96% of the country’s export earnings now and the total amount has dropped dramatically due to the fall in oil prices. Since so much has to be imported there are massive shortages of even basics necessities because there isn’t enough money to buy everything needed. Venezuela’s health care system, which used to be pretty good, is suffering from shortages of all sorts of medicines and babies/children are dying because of the lack of medicines.

According to some experts, there’s an 85% chance that the country will default this year. Without access to borrowing, and with oil prices looking to stay flat or even decrease further, the economy will collapse and what is already bad will become a humanitarian nightmare. What do you do with a country that can no longer feed itself, pay for medicines, pay for other necessary imports? Maduro’s recent response was tell everyone to everyone to start raising chickens in their back yard and to continue to blame outside imperialist forces for his country’s woes. I’m certain that will solve their problems.


#56

What Venezuela needs is a right-wing dictator, then after a period of CIA assisted purges it would get right back on it’s feet as American business interests would get the preferential treatment they deserve. Of course the poor will still stay poor, but atleast they would be jobs in the tourism industry and at the yankee owned factories.

This actually applies to pretty much anywhere in South America.


#57

I actually agree that Venezuela’s problems are in part due to corruption and monetary shenanigans. I was mainly addressing the oversimplified “nationalization = bad” argument.

Venezuela is an example of how not to fight inflation. But inflation affects capitalist and socialist countries alike.


#58

Timex you make a lot of valid points and I agree that mismanagement, corruption and bizarre socialist-marketed economic policies have crippled the country. But I disagree that it’s proof that socialism itself is fundamentally flawed. There are plenty of socialist governments today, depending on your definition of it (many countries in Europe would qualify under most American definitions), that seem to be operating just fine, if not better than the US in a lot of ways. And socialism doesn’t necessarily mean nationalizing industry either.

And there are large parts of the US and elsewhere in the world where unrestricted capitalism has arguably been a failure (though usually the government is to blame, see Oregon Wildlife Standoff thread). Not to mention examples on how minimally-restricted capitalism can lead to some seriously negative industrial trends, such as current meat processing practices. Minimum wage workers responsible for killing 10,000 cows a day, B-minus grade ground beef for 49 cents a pound, that’s a healthy society!

These are just examples and the world and economies and policies are complex – fortunately in the ‘west’ we get to participate in the direction. I for one struggle with South America and what they should do. Argentina has done ok, in some ways not really, but other countries just can’t seem to get out of the hole. If things were not-that-different (price of oil, less corruption), Venezuela would be a positive example instead of a negative, you’d have to find another example to use against socialism (maybe Japan?). Anyway don’t be surprised when you lay the blame on socialism and get some pushback, despite some valid points.


#59

But I disagree that it’s proof that socialism itself is fundamentally flawed.

I never actually made the claim that socialism, certainly as practiced by many states, is fundamentally flawed.

I just said that many of the choices made by Venezuela, stemming from a socialist viewpoint, resulted in basically destroying their economy completely.

Like many things, taking something too far can often have bad effects, even if leveraging some of those ideas to a more moderate degree can be beneficial.

Venezuela is an effective condemnation of extreme socialism, and if the ideologues who refused to see where those policies were going… Or hell, even now refuse to acknowledge their impact even in retrospect.

Being so ideologically rigid as to ignore reality is always bad. It happens just as often with any other ideological group. For instance, I’m generally pretty libertarian in my beliefs, and support capitalism as a preferred means of running things. But I won’t embrace it to the degree that requires me to deny problems when they happen. And generally, a consistent ideological foundation can work reality into it. Even as a capitalist libertarian, government social programs can have utility and can make things run more smoothly. Admitting that does not require that I abandon everything I believe.

I think that all too often, people get so wrapped up in their ideology that they are afraid to admit anything outside of it could possibly be right or have value. And such refusals inevitably lead to people taking up totally irrational positions, or if some misguided fear that to give even one inch of ground somehow constitutes weakness that will be exploited. But all it does is result in weaker ideological foundations based upon circular logic instead of reality.


#60

Pretty much what Timex said. I think people are used to politicians using every example to paint something. “This is socialism done wrong” becomes “socialism is wrong and here is the proof!” That isn’t what he’s saying, he’s saying, more or less: “this is why taking socialism too far is a bad idea.”