Monday, October 8, 2012

Towards state socialism

Even in the face of raw Socialism, the people still voted Chavez into office.   The majority of Venezuelans have determined that Socialism is the correct model for government.
Over the years the official rationale for nationalisation has changed. The earliest takeovers were justified on the grounds that the company (or farm) was unproductive. The government then decided that “strategic” areas of the economy should pass into state hands. So in 2007-08 it took over private-sector oil and electricity businesses, as well as telecommunications, the cement industry and Sidor, an iron and steel firm privatised in the 1990s.

The government also now controls a quarter of the banking system. Mr Chávez said recently that any bank which declined to “co-operate with national development” by assigning credit according to government priorities would also be taken over. Nowadays officials openly state that their aim is to implant a socialist economy.

Paradoxically, despite the takeovers, the state's share of GDP seems still to be around 30%, the same as it was in 1998. That is partly because the private sector expanded rapidly during the 2004-08 oil boom. But it is also because many nationalised companies now produce less than when they were in private hands. Much of the food industry has been confiscated in order to “ensure food sovereignty”. But the result has been a sharp increase in imports. Earlier this year, more than 130,000 tonnes of decomposing food imported by PDVAL, an arm of the state oil company, was found in ports and on wasteland.

There are one or two exceptions. Officials say that output at Enlandes, a nationalised milk firm, has risen by 50% in two years. The science minister said recently that CANTV, the main telecoms firm, had 65% more customers since its nationalisation, though he provided no details. But more typically, once companies are in state hands their staffing levels rise, prices fall and they become dependent on government subsidies, according to Richard Obuchi of IESA, a business school in Caracas. In addition, they tend to make a smaller range of products.

The construction industry has been badly hurt by nationalisation. Cement and steel rods have become scarcer (there is a thriving black market in both). Sidor produced 4.3m tonnes of steel in its last year in private ownership; this year it hopes to make 2m tonnes. Another reason that housing schemes have slowed or halted is that the government has banned developers from adjusting prices in line with inflation, which is running at over 30%. Earlier this month Mr Chávez expropriated six new estates under construction, to the horror of most buyers. Developers, the president says, are “bandits” who will not be compensated for the seizure.

The story is repeated in almost every area the government has moved into. Electricity nationalisation contributed to power shortages that saw severe rationing earlier this year and continuing unscheduled blackouts across the country. The oil industry, the bulk of which was already state-owned, has seen production of both crude and refined products fall (by how much is a matter of dispute).

Polls suggest that most Venezuelans disapprove of the nationalisations and firmly support private property. But Mr Chávez seems to be following the advice of Alan Woods, a Welsh Trotskyist who has become an informal adviser. Mr Woods, who is better known in Caracas than Cardiff, publicly urged the president to respond to his electoral setback by “accelerating the revolutionary process”, expropriating land, banks and the main industries. Venezuelans had better brace themselves for more nationalisation, scarcity and economic decline.

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