The Unraveling of Representative Democracy in Venezuela

10 The Syndrome of Economic Decline and the Quest for Change

c h a p t e r t e n The Syndrome of Economic Decline and the Quest for Change Janet Kelly and Pedro A. Palma The Venezuelan economy spun out of control sometime in the 1970s after many years of stability and high growth. Successive governments applied different approaches to solving the deep problems that spread from the economic system into the very heart of the society. Their failures contributed to a malaise that undermined confidence and generated competing theories of what had gone wrong. For a quarter of a century, the country had enjoyed a stream of income from oil which should have made it possible to put Venezuela on a path to development, but by the turn of the millennium, most citizens thought that all their riches had been turned to naught. How did this come about? Would the Chávez ‘‘revolution’’ find a way out of the maze? The answers to these questions require an understanding of the interplay between the economic events that marked the democratic period since 1958 and the ideas about the economy which guided policymakers. This chapter shows that, despite trends taking root in many developed and developing nations, Venezuela resisted more than most countries the idea that market processes would produce prosperity and equality. Experiments with the market , especially the short-lived e√ort to liberalize the economy between 1989 and Economic Decline and the Quest for Change 203 1993, generated deep and even violent conflict, thus reinforcing the traditional bias toward seeking growth and income redistribution through government action. Although most of the market reforms of that period remained intact and some were even furthered, successive governments continued to fail to achieve the stability that sustained growth would require. The ‘‘antineoliberal’’ campaign and eventual political triumph of Hugo Chávez Frías in 1998 seemed once again to reveal the deep preference of most Venezuelans for letting the state take the lead and their distrust of leaving development to the forces of the unguided market. The peculiar mix of policies of the Chávez government, some profoundly interventionist and others surprisingly liberal, defied the simple conclusion that Venezuela would slide back to a reliance on government controls. The country was looking for a new formula that would permit a better balance between policies that would reduce income disparities and at the same time stimulate investment and growth. The Chávez mix promised growth with equity and, based on the record, seemed to seek growth through a continuation of the macroeconomic policies of his predecessors while ensuring equity through changes in microeconomic policies and transformation of the political system. There was no guarantee that the country had found its way. Wishing for an innovative route to prosperity is not the same as finding it, especially in an environment of radical political and social changes that inevitably provoke resistance and uncertainty. Even in the absence of such turbulence, underlying realities of dependence on oil, volatility in basic economic variables, public impatience with unemployment and poverty, and the persistence of government ine≈ciency and corruption would continue to dog e√orts to put the system on an even keel. In particular, popular expectations for a quick turnaround pressured the government to look for ‘‘easy’’ solutions and promises that would be hard to keep without endangering the solvency of the state. Venezuela’s quest for change after years of decline confronted the dilemma of reformers everywhere. Stagnation and crisis reflect deep-seated institutional problems that demand radical transformation; at the same time, radical change is inherently destabilizing and generates resistance and uncertainty in such a way as to undermine the very objectives the government seeks to achieve. The challenge for the future will be to break the syndrome of failure and to restore citizens’ confidence in the ability of their governments to provide prosperity while reducing poverty and widening the possibilities of the whole population. 204 Janet Kelly and Pedro A. Palma Long-Term Features of Economic Policy in Venezuela Economic policy reflects the institutional and social context in which countries make decisions. Venezuelans themselves were conscious of the factors that conspired against solid and consistent economic policy: the capture of the state by powerful interests, party hegemony that blocked change, popular pressures for short-term economic results, and presidential government insensitive to the weakening of its own legitimacy. The very stability of the Venezuelan political...