Venezuela - The Curse of the Petro State

In The Curse of the Petro State Ibsen Martinez discusses the fundamental problems:

Two “behaviours” can be discerned with amazing regularity in petro-states going through an oil-boom. Their governments first seem to be seized by a sort of schizoid “manic” spell and urgently demand from their citizens special powers to direct the capital accumulation from oil revenues into other productive activities and thus try to catch up to the developed world. “We have plenty of resources so now is the time; everything can be done so everything must be done!” become watchwords for these governments. It’s no wonder that for Venezuelan politicians of all colors, including Lt. Col. Hugo Chávez, “sowing our petroleum” has been their only “program” for almost 80 years.

The net effect in Venezuela as in many other oil economies such as Russia, Nigeria and Mexico is ruin. It’s the never ending cycle of larger government, but poorer quality of life for the citizens:

The irony of it all is that, according to a well-respected research group at the Universidad Católica “Andrés Bello” led by Luis Pedro España, an expert on the study of poverty, after seven years of the longest oil-boom in Venezuelan history, with OPEC crude prices reaching unprecedented peaks, there are 2 million more Venezuelans living below the poverty line than in 1998 and, with 117 billion more dollars having passed through the hands of the Venezuelan state, there are almost twice as many government ministries than there were seven years ago.

Despite its radical rhetoric and its denunciations of “neo-liberalism” and “Yankee imperialism” as the enemies of Lt. Col. Chávez’s “revolution,” the Venezuelan petro-state seems unharmed and relatively sound whilst it continues to enjoy the longest oil-boom it has experienced in more than 80 years. But if Karl’s comparative analysis of “the paradox of plenty” is correct, the Venezuelan petro-state’s extravagant squandering of resources, its massive subsidies which only reward inefficiency, the crude inequalities of income and opportunity, and the rampant corruption will mean that “the curse of the petro-state” will prove to be the real enemy of Chávez’s “revolution.”

In many ways this is similar to Panama. Panama is not a petro state of course, but it does have a large cashflow producing asset in the Panama Canal. While the canal itself is pretty well run, the government has started looking into using the cashflow for social programs. The raw size of the bureaucracy is supposedly unmatched in Latin America in proportion to it’s population.

To a smaller extent this is also true in Denmark and UK, who are also doing very well by the high oil prices at the moment. The well over due wellfare reform process in both countries are more or less on the backburner as there isn’t a real fiscal incentive to do anything about it at the moment. At least the Danish goverment is taking a relatively (for Denmark) fiscally conservative approach by repaying debts and not increasing taxes. But they really should be more radical in their cuts.

One of the things the article isn’t mentioning is that Chavez is using the high oil prices as a barganing block to buy support from Latin American and Caribbean governments, through cheap oil. It is common that petro states offer low cost gasoline to bribe their citizens, but this looks more like he is trying to bribe his way to a virtual Gran Colombia like his historical idol Simón Bolívar.