The Unraveling of Representative Democracy in Venezuela

4 Entrepreneurs: Profits without Power?

c h a p t e r f o u r Entrepreneurs Profits without Power? Nelson Ortiz Venezuela’s private sector, in contrast to most of its regional counterparts, was diverse and powerful in 1958 when the Pacto de Punto Fijo was signed.∞ At the beginning of the twentieth century, when agriculture and commerce predominated and petroleum played no significant role, names such as Vollmer, Boulton , Phelps, Delfino, Mendoza, Zuloaga, Machado, Branger, Velutini, Sosa, and Perez-Dupuy dominated the economy. These same family groups controlled Venezuela’s private sector throughout most of the twentieth century, although beginning with the 1973 oil boom they were forced to share economic power with other private groups that benefited from the infusion of new resources. The complex alliances and rivalries of traditional and emerging elites determined private sector policy through the remainder of the Punto Fijo era and into the Fifth Republic.≤ Venezuela’s prosperous private sector derived from a strong and successful economy, one that was envied not only in Latin America but also throughout the world. The country’s gross domestic product (GDP) grew rapidly after the mid-1930s, increasing by an annual average of more than 8 percent throughout the 1950s and 1960s. At the same time, the rate of inflation was among the 72 Nelson Ortiz lowest in the world, averaging less than 1.5 percent per year (Baptista, 1991). Not only was the economy growing at a fast rate, but per capita GDP was substantially higher than in the rest of Latin American and even surpassed that in countries such as France, Spain, Italy, and Japan. Although oil accounted for much of this impressive development after 1935, this was not the full story. Such spectacular results were not matched by other oil-producing nations at the time, and Venezuela itself failed to replicate this success during subsequent oil booms. Thus, the key lay with those who managed these oil revenues, that is to say, policy makers and institutions. In addition , a significant portion of oil revenue was redistributed to a private sector that invested at very high rates, kept its savings in the country, had vast interests in most sectors of the economy, and participated in administering the state. Forty years later the situation had changed dramatically. Per capita GDP had fallen to a fraction of that in those nations Venezuela had outperformed in earlier decades.≥ Paradoxically, this decline coincided with periods in which the state received unprecedented income from oil sales and at times when Latin America experienced sustained economic progress. The private sector collapse was far greater than Venezuela’s economic decline . Few of the dominant economic groups of the early 1990s were major players a decade later. The extent of this destruction can be gleaned by looking at the precipitous fall in market capitalization of the Caracas Stock Exchange, which includes most of the country’s largest companies. Whereas it exceeded $13 billion in 1991, twelve years later it had dropped to a paltry $3 billion or less. This decline is only the tip of the iceberg. These figures do not reflect the control and management of a large number of the major agricultural, commercial , industrial, and financial companies that passed to foreign ownership. In fact, the value of companies actually controlled by Venezuelan investors at the end of June 2003 was less than $1 billion. These figures are starker still given that stock market capitalization rose significantly in the rest of the region, as shown in figure 4.1. Of the five hundred largest Latin American companies, ranked by sales, at the end of 2002, only one was owned and controlled by Venezuelans: Empresas Polar, which ranked seventy-sixth (Ranking de las Mayores Empresas, 2003). Many heirs and descendants of Venezuela’s ruling classes, as well as a substantial portion of the middle class, reacted to the shrinkage of the private sector by emigrating. Joining this exodus were descendants of immigrants who came to Venezuela after World War II, mainly from Italy, Spain, and Portugal. The Entrepreneurs: Profits without Power? 73 350,000 325,000 300,000 1990 2003 275,000 250,000 225,000 Millions of dollars 200,000 175,000 150,000 125,000 100,000 75,000 50,000 25,000 A r g e n t i n a B r a z i l C o l o m...