"The Venezuelan economy in the Chavez years", a study released in July by the Centre for Economic and Policy Research, reveals massive social gains for the poor and working people in Venezuela as a result of the pro-people policies promoted by the government of socialist President Hugo Chavez. The study, by Mark Weisbrot and Luis Sandoval, also provides a detailed look at the state of the Venezuelan economy, which has experienced significant economic growth. The authors argue that, contrary to suggestions widely made in the corporate media (which the authors refer to as "conventional wisdom"), this growth is unlikely to end any time soon.
Venezuela: Revolution brings massive social gains
29 September 2007
A key component of the Bolivarian revolution — as the process of change led by the Chavez government is known — is the redistribution of wealth to tackle the problems of the poor via the implementation of "social missions", government-funded social programs in a growing range of areas, including health care, education, food provision, employment, land reform, culture and the environment.
The Chavez government inherited a country devastated by neoliberalism, with a significant increase in poverty during the two decades prior to Chavez's election. The report shows that social spending by the government from 1998 (when Chavez was first elected) to 2006 has increased by 170% per person in real (inflation adjusted) terms. However, this figure excludes social spending directly carried out by the state-owned oil company, PDVSA, some US$13.3 billion in 2006. When this spending is factored in, the increase is 314% per person since 1998. In 1998, social spending was 34.7% of total public expenditure; by 2006 it was 44%.
The report points out that "the most pronounced difference has been in the area of health care", with an increase of primary care physicians from 1628 in 1998 to 19,571 today. Since 2004, as part of Mission Miracle — a joint program with Cuba that provides free eye operations — just under 400,000 people have had their vision restored. In 1999, there were 335 HIV patients with antiretroviral treatment provided by the government, compared to 18,538 in 2006.
The authors report that the government "has also provided widespread access to subsidized food". By 2006, there were 15,726 stores offering mainly food items at up to 40% below market prices. Combined with a large number of kitchens providing free food to the very poor, in 2005 67% of the population benefited. This doesn't include those that benefited from a free school meals program (1.8 million in 2006, up from 252,000 in 1998).
Access to education has also dramatically increased, including more than 1 million people participating in free adult literacy classes, leading to Venezuela eradicating illiteracy by UN standards.
The report also shows significant drops in official levels of poverty, and points out that these figures do not include the benefits associated with provision of free health care and education or subsidised food. Since 2003, when the economy faced a crisis as a result of sabotage by the rich elite as part of their attempt to overthrow Chavez, the percentage of households in poverty has dropped from 55% to 30.6%, and those in extreme poverty from 25% to 9.1%.
These social gains are combined with ongoing attempts to involve the poor and working people in directly participating in the affairs of government and exercising power over decisions that directly affect them through new institutions of popular power, such as the communal councils. This attempt to create a "participatory democracy" is closely linked to the social gains, because the missions, such as Mission Robinson (literacy) and Mission Barrio Adentro (health care), are organised outside the existing state institutions (which are often corrupt and bureaucratic) and involve direct community participation.
The corporate media, unable to ignore the extent of the social gains, usually imply they are purely the result of economic growth, fuelled by abnormally high oil prices, that will collapse either due to "oil prices eventually declining, or as a result of the government's mismanagement of economic policy".
However, the authors take issue with such claims, and provide the economic data to back up their argument. The report gives an indication of the extent of economic growth — a "remarkable" 76% since 2003. It points out that this cannot be compared to economic growth fuelled by high oil prices in Venezuela during the 1970s, which was followed by an economic crisis when prices dropped.
Despite a higher rise in oil prices between 1973-77, Venezuela's only economy grew by 31%. The authors conclude that it "seems likely that the government's expansionary fiscal and monetary policies, and perhaps other policies (eg: exchange controls ... which have kept more capital within the country)" are likely to be key factors in the current expansion.
The Venezuelan government bases its budget on much lower oil prices than exist in the market (budgeting for $26 per barrel in 2006, when the market price was actually $60.20 per barrel). The result is that government revenue ends up much higher than budgeted for. So despite public spending dramatically increasing, the government has maintained a balanced budget. Other factors that could help the government survive a sudden drop in oil prices without cutting social expenditure, or other measures that might cause a recession, include a low level of foreign debt, a current account surplus and massive foreign currency reserves (in excess of $40 billion in total).
Perhaps the economic issue to get the most attention from the corporate media is inflation, which is used to suggest "irresponsible" spending by the Chavez government risks creating a crisis. Here, too, the authors puncture the myth. While inflation has grown over the last year, and is relatively high at just under 20%, this is much lower than in the period immediately before Chavez's election. In fact, just over a year prior to Chavez's election it reached a high of nearly 120%. The authors argue that while it would be a problem if inflation continued to rise (it appears to have stabilised) it would only cause major problems for the majority of the population if economic growth were to stall.
The final claim made to suggest that the economy could face a crisis and imperil Venezuela's dramatic social gains is that the government's nationalisations and other policies that adversely affect corporate interests will scare off private investment. However, the report shows that since 2004, investment has grown significantly. Fixed gross capital formation grew by 49.7% in real terms in 2004, 37.9% in 2005 and 33.5% in 2006. While figures that break this down between private and public investment are only available for 2004, in that year private investment outstripped public investment. The report points out that a drop in private investment does not need to prove a problem providing public investment increases to take its place — something the Chavez government is well-placed to do.
This goes a long way to destroying one of the key justifications for neoliberal economic policies that seek to give as much control as possible to corporations through deregulation and privatisation — the claim that unless you give the corporations what they want, they will refuse to invest and will take their capital to a country with less restrictions on their ability to make a profit.
However, in Venezuela the government has done the opposite of what neoliberal economists recommend and implemented measures hated by the corporate rich — such as strict currency controls, price controls, nationalisation of strategic sectors of the economy, repeated increases in the minimum wage, polices that strengthen workers' rights and ability for unions to organise, increasing taxes on the rich, and massively cracking down on corporate tax evasion.
Far from fleeing, private investment has increased. With the economy growing, corporations are still looking to invest. The reason is that there is a finite amount of resources and markets globally, for which there is already intense competition among different corporate interests for control over. Venezuela has shown that corporations will often be forced to accept restrictions on their operations (making some profit is better than none), and that the argument that corporations will refuse to invest is often an excuse used to justify policies that shift more wealth from the poor to the rich.
The report points to some of the potential problems facing the Venezuelan economy, such as an overvalued currency, and also points out that "in the long run, diversifying the economy away from its dependence on oil is also a major challenge" — something the Chavez government is attempting to achieve. However, the authors conclude that "it does not appear that the current economic expansion is about to end anytime in the near future. The gains in poverty reduction, employment, education and health care that have occurred in the last few years are likely to continue ..."
None of these gains are the product simply of the goodwill of the Chavez government, but of revolutionary struggle by millions of Venezuela's working people. The Chavez government would not still be in power if it was not for the direct action of the working people to defeat a US-backed coup in April 2002 that briefly overthrew Chavez, and a lockout by bosses in December that year.
It is Venezuela's urban and rural working people who are working to implement the missions and other pro-people policies, and are increasingly, through grassroots bodies like the communal councils, taking direct control over society. Chavez and revolutionary activists repeatedly emphasised that the revolution has only just begun. The explicit aim of the revolution to construct a socialist society with a democratically planned economy that serves the needs of the working majority and the environment. This means the revolution faces further battles against powerful interests.
Chavez has explained that while the social missions don't amount to socialism, they are potentially "building blocks" for a socialist society. They break with the logic of capitalism, and by solving the most pressing needs of the poor and involving working people in their organisation, they lay the groundwork for a much deeper transformation in which working people, not the corporate rich, run society — a "socialism of the 21st century".