Spreading the Wealth

Venezuela’s Hugo Chávez is betting that oil revenues can fuel profound social change.

By Jonah Gindin

In 2004, Venezuela invested $3.7-billion of its oil profits in social missions. Last year it invested $5-billion. The missions provide medical services to over 17 million Venezuelans, teach one million people to read, and grant significant discounts on basic foods to 46 per cent of the population. Energy Minister Rafael Ramírez recently announced the industry’s plan for a social investment of nearly $10-billion per year until 2012. According to the Venezuelan National Statistics Institute, the country’s poverty rate has declined 12 per cent since 1998, when Hugo Chávez was elected president. Crucial to his success has been “mobilization” of the population—organizing Venezuela’s majority and involving them in progressive policy-making.

Canada and Venezuela are the most important sources of oil outside the Middle East, and they may surpass even that black-gold mine. But their policies could not be more different. If Alberta demanded a bigger piece of the oil-revenue pie, would the money end up invested in the public good? Would this inspire the kind of popular mobilization that is transforming Venezuela?


Two Models

From the birth of the Canadian and Venezuelan oil industries in the early 20th century to the late 1990s, policies in both countries followed similar trajectories. Until the 1973 OPEC oil shock, both oil industries were dominated by foreign corporations, most of them American. As happened in many other OPEC countries during that crisis, then-President Carlos Andrés Pérez nationalized Venezuela’s oil industry, creating the state-run company Petroleos de Venezuela S.A. (PDVSA). Venezuela pursued nationalist policies during the late seventies and early eighties, investing oil revenues in development projects. The boom, argues Fernando Coronil in his classic study The Magical State: Nature, Money and Modernity in Venezuela, had “created within the government the sense that money conferred boundless political power.” Arrogance and poor planning left the country’s oil-fuelled dreams of development unfulfilled.

Venezuela experienced a country-wide depression in the 1980s, as oil wealth was replaced by foreign debt. By 1989, at the behest of the International Monetary Fund (IMF) and the US Treasury Department, the government implemented the Apertura Petrolera—the “oil opening.” While PDVSA technically remained state-run, the industry was opened up to external investment under generous conditions, and soon was dominated (once again) by foreign multinationals. PDVSA itself came under the control of a technocratic elite eventually known as a “state within a state.” It resisted government oversight through “internationalization”—investing oil rents in overseas ventures to avoid transferring the money to the government.

Though not an OPEC member, Canada too founded a state-run oil company, Petro-Canada, in 1975. Five years later the federal government implemented the National Energy Program (NEP), despite fervent opposition from western Canada. The NEP expanded the role of Petro-Canada, gave preferential treatment to Canadian oil producers, and fixed domestic prices to protect Canada’s industrial East from the terrifying jumps in the international price of oil. In 1984, however, Brian Mulroney won the federal election campaigning against the NEP, heralding the rise of an emboldened regionalism and the end of nationalist oil politics in Canada. The signing of the North American Free Trade Agreement (NAFTA) effectively enshrined Canada as an energy satellite of the US—making it difficult for Albertan or Canadian governments to serve the province’s or the country’s energy needs until the US had been served first. In 1990 the Mulroney government declared its intention to privatize Petro-Canada, a process completed under Jean Chrétien in 2004.


Sowing the Oil

A former colonel who led a failed coup against a corrupt and repressive government in 1992, Hugo Chávez was democratically elected in 1998 with a mandate to overhaul Venezuelan society. Realizing his most important campaign promise, he called a constituent assembly to rewrite the national constitution. The government then instigated a series of profound changes to address the country’s most glaring contradiction: oil wealth has made Venezuela one of the region’s wealthiest countries, but much of the population remains impoverished. To close that gap, the government has begun to “sow the oil.”

Coined in a 1936 editorial by Arturo Uslar Pietri, “sow the oil” is an expression with a long history in Venezuela. As the country made the transition from an agricultural to an oil- producing state, Pietri’s phrase captured people’s hope that oil wealth would be shared and would bring rapid development. But, for the 40 years that the social-democratic Acción Democrática and the Christian-democratic Copei alternated power (1958–98), oil wealth was controlled almost exclusively by a small elite. With the arrival of the Bolivarian revolution, the idea of sowing the oil was finally put into practice.

Regaining control of PDVSA was the government’s first step in bridging oil wealth and poverty. In response, Venezuela’s traditional economic and political elites—business associations, traditional parties, corporatist union leadership, the private media—organized a military coup on April 11, 2002. It was reversed a mere 48 hours later by loyal elements of the military, supported by massive popular mobilization demanding Chávez’s return. In December 2002, Venezuela’s main trade- union confederation (CTV) formed an alliance with the country’s chamber of commerce (Fedecamaras) to call for an industry-wide oil strike to demand Chávez’s resignation. Many blue-collar workers heeded their unions’ call and failed to show up for work, or actively picketed PDVSA installations. Many others did show up, but were prevented access to their job sites by other workers or by managers locking up the installations and going on extended vacation. The conflict dragged on for two months. Finally the country went back to work. Chávez remained in power.

Many companies supporting the work stoppage had gone bankrupt, and many workers felt so betrayed by their own leadership that they left the CTV and formed a rival confederation. PDVSA estimates it lost $14-billion US as a direct result of the strike/sabotage. In retribution, PDVSA fired an estimated 18,000 workers—a move widely criticized by domestic and international labour groups.

One result is a largely untapped reserve of skilled labourers in Venezuela. Many have recently begun emigrating to Canada as private oil companies in the tar sands look to non-union foreign and domestic labour to undercut Canadian unions. Canadian Natural Resources’ Horizon Project, for example, was empowered by the provincial government to bypass the Alberta Federation of Labour in favour of more “friendly” unions. As a result the company can employ foreign and non- union workers for the construction of the project.

At so-called “public” hospitals, underfunding was so acute that patients were forced to purchase their own rubber gloves.

Since the failed shutdown and strike, the Venezuelan government has consolidated the “renationalization” of PDVSA. Royalty rates for conventional oil extraction were increased by a new hydrocarbons law in 2001. Of greater long-term importance, however, was the increase in royalties on unconventional reserves from 1 per cent to 33.3 per cent.

A petroleum export tax, phased out in the early 1990s, has been reinstated, and the corporate tax rate for projects in the Orinoco tar belt has been raised from 34 per cent to 50 per cent. More importantly, the government has actually begun collecting these taxes, and demanding payments—for the Orinoco tar belt alone, back taxes currently owed are estimated at $2-billion US.

Venezuela’s share of oil extraction has also increased through joint ventures. All operating agreements negotiated since 2001 limit private companies to a maximum total share of 49 per cent, and operating agreements negotiated before that time have been converted to joint ventures. As a result of these changes, PDVSA projects savings of $3-billion for the fiscal year 2006.

With a larger share of the profits from its oil industry, the Venezuelan government can spend more on domestic social programs—mainly health care, education and subsidized markets. In theory Venezuela had public health care and education before Chávez; in practice the majority of the population received inadequate services and often none at all. At so-called “public” hospitals, for example, underfunding was so acute that patients were forced to purchase everything from rubber gloves to prescribed medicines. Similarly, access to supposedly free public universities was often restricted to middle- and upper-class Venezuelans.

In response, the government created the health mission Barrio Adentro (“Inside the Neighbourhood”), educational missions and a subsidized-food mission called Misión Mercal. Barrio Adentro has placed primary-care clinics in poor communities, giving many Venezuelans access to medical treatment for the first time in their lives. The educational missions too serve poor barrios, providing free adult education. Misión Mercal provides food at discount prices to co-operatively run community markets. An “endogenous” development strategy encourages public, private and co- operative agricultural production and manufacturing. Community co-operatives are being trained and subsidized. It’s a gradual process, and the social component is as important as the economic.

These initiatives are not just boosting education and health while the oil money lasts; they are mobilizing the populace. Education and health programs, subsidized foods, job training, land reform committees, participatory budgeting, co-operatives: these are possible because of high oil prices, but their legacy will outlast Venezuela’s oil reserves. This investment is building a society that’s inclusive of the 44 per cent of Venezuelans who live in poverty and the much larger number who live within its shadow—Venezuelans who in the past would never have learned to read, earned university degrees or joined community organizations. These citizens are now educated and invested in their future. Oil wealth is democratizing Venezuelan society—a hard legacy to reverse, no matter what turns are taken by future oil policy or future governments.

In the same way, Venezuela’s foreign policy, dubbed “oil diplomacy,” is building international capacities. Simón Bolívar, the 19th-century independence leader, had a vision of a “Gran Colombia”—a united Latin America. Accordingly, Venezuela has created a “Bolivarian Alternative” to the Free Trade Area of the Americas. Regional oil initiatives give preferential pricing to nearby countries. Argentina, Brazil and Uruguay trade food and goods for Venezuelan oil, and a successful oil-for-doctors agreement has been set up with Cuba. In late 2005, despite strong opposition from some US Republican legislators, PDVSA subsidiary Citgo began to provide heating oil at a 40 per cent discount to poor communities in the US. Households in New York, Massachusetts, Maine (where recipients include four indigenous communities) and several other states have benefited.

Venezuela’s opposition to free trade—and the economic hardship borne by the country’s poor that might result—led to a proactive alternative. According to Energy Minister Ramírez, “The Venezuelan proposal is based on economic complementarity, on co-operation and on solidarity, more than on competition.”

The second critique is that Venezuela’s social spending will doom the industry by ignoring crucial reinvestment. In late 2004, the IMF called on oil-producing countries to save profits from high oil prices rather than spend them. Oil industry analysts in the US make the same argument: writing in the Houston Chronicle, Jenalia Moreno warns, “Flush with cash today, petroleum-rich nations in Latin America have stopped thinking about tomorrow. Windfalls from higher oil prices are enabling nations such as Ecuador, Mexico and Venezuela to mask the mounting urgency for reforms and investments needed in the region’s energy sector.” She quotes Ricardo Amorim, head of Latin America research for WestLB in New York City: “One of the effects [of] high oil prices is you can temporarily solve structural problems. Those countries are not investing as much as they should in the future and that could create bottlenecks.” Funding social programs with high oil rents is all well and good, say these analysts, but if industry infrastructure (wells, pumps, roads) isn’t maintained, these programs will be unsustainable.

According to the Venezuelan government, the future is precisely what Venezuela is investing in. When PDVSA put $3.7-billion US into social programs in 2004, it reinvested almost twice that amount back into the company.

Canada has been riven for decades by conflict over Alberta’s oil wealth. But this tension is less divisive than it first appears.

The conflict at root of the “renationalization” process occurring under the Chávez government is between the “old PDVSA”—a profitable multinational that gave highly generous terms to private subcontractors and oil companies but transferred little profit back to the Venezuelan government— and the “new PDVSA,” a government-run company managed efficiently and professionally in the interests of Venezuelan citizens.

Bolívar North?

A better deal for Alberta depends on the involvementof the rest of the country. Canada has been riven for decades by conflict over Alberta’s oil wealth. During the days of the National Energy Program, Alberta fumed as the rest of Canada ate up their profits during boom time. Since the death of the NEP, and despite surpluses in a few other provinces (with Newfoundland and Labrador’s surplus of $1.9-billion a distant second to Alberta’s) the rest of Canada has come to resent what it perceives as Alberta’s greed in hoarding a national patrimony as a provincial right.

This tension is perhaps less potentially divisive than it first appears. When we consider how much the provincial and federal governments hand out in incentives to private companies, it becomes clear that there is enough money to go around—it’s just kept to a very small circle. A higher proportion of windfall profits would permit Alberta to reinvigorate and expand the Alberta Heritage Fund (a rainy day fund to protect Albertans in case of future price drops, the fund has been stagnant since the 1980s), bring social-program funding at least up to pre-1993 levels, mitigate ecological damage resulting from oil extraction, and share a significant amount of money with its poorer brethren in the rest of Canada.

The claim is preposterous that big oil would no longer find the tar sands profitable with royalties at such a rate. As we have seen with Venezuela, big oil remains. With global demand so high, oil-producing countries have the upper hand.

Alberta is not just missing out on the profits enjoyed by private companies. We are also squandering our reimbursement for the exhaustion of a non-renewable resource. The extraction of tar sands and extra-heavy crude is more than three times as damaging ecologically as conventional oil extraction, already one of the most environmentally unfriendly industries.

The impact is arguably even greater in Venezuela, where environmental regulations have historically been less stringent. Indigenous communities may be the worst losers: Canada and Venezuela are both negotiating pipelines through indigenous territories that threaten to displace whole communities, with little compensation on offer. By taking the lead in environmental protection and equitable partnership with indigenous communities, Canada could become a model for constructive, socially just development.

The Alberta model assumes that private profits will be reinvested in the industry, with resulting job creation. But oil companies are having difficulty finding projects in which to invest; their record profits are being passed on to shareholders. In Venezuela, by contrast, profit is invested directly into social programs. It seems relatively straightforward: take more of the profits and give some to the poor—where’s the controversy? The differences between the Albertan and Venezuelan models raise questions of power and, ultimately, ideology.

Prior to Chávez, Venezuela was pursuing an oil policy very similar to that of the Klein government. The transition was made possible only by organizing and involving the populace while implementing progressive policies from above. Similar changes in the Albertan context would depend on a corresponding mobilization of citizens here. This isn’t on the agenda in Canada; it was not even an election issue in 2005. Making it one will require an ideological challenge to neo-liberalism—including a serious rethinking of our relationships with corporations at both the provincial and national levels.

It will also demand that we revisit the relationship between Alberta’s natural resources and the broader Canadian context. The popular mobilization needed in this province to develop a progressive oil strategy cannot occur in isolation from the rest of Canadian society. We must overcome the chauvinism that so often drowns out progressive voices in Alberta.

Jonah Gindin is a Canadian journalist who lives in both Toronto and Caracas, Venezuela.


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