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The perils of Chavismo

The message from Chavez's legacy: dirigisme really doesn't work

Business Standard  |  New Delhi 

There is something almost appropriate in Venezuela's plans to embalm the body of Hugo Chavez, the flamboyant leftist and the idyllic South American nation's elected President for four terms. That will put him in the same company as Vladimir Lenin, Josef Stalin, Ho Chi Minh, Mao Zedong and Kim il-Sung. All of the above are men who fostered revolution and created state-led movements centred on the redistribution of wealth. As with Chavez in Venezuela, their revolutions initially yielded some gains but, ultimately, the countries they created were failed states, caught in the illogic of a discredited economic ideology. The national leadership of China discovered this folly the earliest, in the seventies; Russia more than a decade later and Vietnam in the nineties. Only North Korea continues to languish in communist isolation. Like his soon-to-be comrades in embalming fluid, Chavez leaves in a state of near-crisis brought on by a combination of high-profile redistributive policies yoked to state-controlled

There is no doubt that Chavez, whose personal integrity was rock-solid, did much to reduce poverty and inequality, the twin endemics from which had suffered through the seventies and eighties. The country moved up seven spots in the United Nations Human Development Index between 2006 and 2011 thanks to his policy of funelling Venezuela's oil revenues into health, education and welfare programmes for the poor. But it now appears that was no outlier: most of South America saw a reduction in poverty owing to high commodity prices and China's emergence as a global buyer. In Venezuela's case, the problem was that poverty reduction did not stem from institutional or economic reform; it came at the cost of the Golden Goose, the oil economy that accounted for almost three quarters of GDP.

The main oil producer, state-owned Petroleos de Venezuela Sociedad Anonima (PDVSA) was yoked to the services of Chavez's political ideology, turning one of the world's best-managed oil companies into an overstaffed behemoth in which production has fallen over 13 per cent in the past decade. This raises doubts about the sustainability of Venezuela's welfare programmes. Despite consistently high global oil prices, Venezuela's fiscal deficit stands at 8.5 per cent of its gross domestic product and debt at $90 billion - the fact that the country devalued its currency by 32 per cent last month underlines the economic crisis. Meanwhile, with private enterprise stifled, lower oil production, bizarrely, accounts for more than 90 per cent of GDP from roughly 75 per cent a decade ago. More Venezuelans may be out of poverty but it is worth questioning the quality of life they enjoy: violence and kidnappings have burgeoned, homicide rates have doubled under him and inflation has skyrocketed.

It is no surprise that the Pink Revolution that "Chavismo" fostered is waning in the client states of Ecuador, Bolivia and Argentina. Indeed, it is the balanced policies of Brazil's Ignacio Lula and his protégé Dilma Rousseff, which reduced poverty faster and fostered a more sustainable inclusive growth model, that are gaining credence. Chavez' instincts were certainly right and his carefully nurtured image as a popular hero, the Socialist David to the Capitalist Goliath that is the US, may have made for good electoral optics. But in his legacy, there's an old lesson for India: expensive employment and food distribution schemes may all work at the hustings. But they must be yoked to economic growth, and predicated on solid institutional and political reform.

First Published: Sat, March 09 2013. 20:32 IST