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Venezuela: Cowing the private sector

From The Economist

Sep 1st 2005 | CARACAS | From The Economist print edition | The ever-extending tentacles of Hugo Chávez's “21st-century socialism”. THE crowded beach of Camurí Chico, squeezed between Venezuela's coastal mountain range and the Caribbean sea, is not the first place one might look for experiments in “21st-century socialism”. But if Venezuela's president, Hugo Chávez, has his way (and few are betting against him these days), the country's economy will soon start to look a lot less capitalist and a lot more like this beachfront.

Nearly six years ago, devastating mudslides obliterated much of Vargas state, just north of Caracas, killing thousands of people. In effect, Camurí Chico ceased to exist. Recovery has been agonisingly slow. Somewhat reluctantly, the vendors who used to operate out of ramshackle wooden huts agreed to form a co-operative, demolish their huts and trust the government to replace them with purpose-built modules.

The government kept its word, and the Brillo del Mar co-operative is now in business. “It isn't easy,” admits its chairman, Víctor Mendible. “You have to accept what the majority wants. But we're 100% better off now.” The 32 co-op members have a 15-year concession allowing them to run everything from the car park to the cafés.

Capitalism, says Mr Chávez, is the root of all evil. Poverty, corruption, the decline in moral values—all are the fault of “savage neo-liberalism” and globalisation. The only hope for the world is a society based on socialist solidarity. Many wonder whether private enterprise—theoretically guaranteed by the 1999 constitution that Mr Chávez himself fathered before he openly embraced socialism—has any place in this Utopian vision. There is even speculation that the president's “Bolivarian revolution”, ever more closely tied to Fidel Castro's Cuba, might take the road towards collectivisation.

Nonsense, the government retorts. There are to be new types of businesses, mixed public and private, dubbed “social production companies” (EPS). But normal capitalist firms will continue to co-exist with them. The EPS segment will be based around co-operatives, such as Brillo del Mar, whose number has already leapt from fewer than 1,000 when Mr Chávez came to power in 1998 to an estimated 67,000 today. But there will also be more companies run under workers' co-management schemes. The “community” is to be involved in decision-making, and part of the production and/or profits will be devoted to projects that benefit it.

Mr Chávez's version of co-management has been greeted coolly by private-business leaders, who say it would prevent them from applying normal market criteria. But many fear that they may have no choice. Firms seeking government assistance of any kind—even those bidding for public contracts—are increasingly being told that only co-operatives or co-managed businesses will be considered. Legislation already in draft envisages a wide range of circumstances under which firms could be obliged to adopt co-management—if they are considered to be “of public utility or social interest”, have ever received government aid, or go bankrupt, for example.

According to Conindustria, Venezuela's industrialists' organisation, around 40% of the country's 11,000 industrial concerns have gone bust since Mr Chávez came to power. He recently threatened to expropriate some 700 idle firms, along with more than 1,000 working below capacity, unless their owners resumed full production. One large company, the paper firm Venepal (now Invepal), was confiscated earlier this year and put back into operation with government money under a co-management scheme. Many state-owned enterprises are now attempting to implement different forms of workers' control, with mixed results. Nowhere, though, has the state relinquished its majority stake.

The government now has a virtual stranglehold on the economy, thanks to state ownership of the oil industry, representing more than a quarter of GDP, and to a variety of recent government measures including exchange controls, price limits and credit regulations. It recently launched four agro-industrial businesses supplying staple products such as milk and maize flour, and its retail-food chain, Mercal, aims to cover 60% of the market.

Private farmers feel pressured from all sides—threatened with expropriation, heavily dependent on credit and subject to regulations that, they complain, force them to sell below cost. “I need a loan for a tractor,” one farmer explains: “But even if I go to a private bank, they demand a ‘productive farm' certificate, which I can only get if the [government] land-reform agency puts me on the agrarian register.” The agency twice “lost” the title documents he submitted to support his application—a common experience, he claims, among those who signed a referendum petition against Mr Chávez.

Venezuela's once pugnacious private sector, which has backed several failed attempts to remove the president, now looks cowed. The recently elected head of its main federation, José Luis Betancourt, a prominent rancher, won fame when he publicly tore up the 2001 land-reform law. Now he talks meekly of “co-existence” with the government so long as it respects the law. But with the 51-year-old Mr Chávez on course to win total control of parliament by early next year, and planning to remain in power for another quarter of a century, “the law” is likely to become whatever he wants it to be.

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