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John McDonnell’s claim of a ‘wrong turn’ in Venezuela is nonsense If only John McDonnell had been right about the Venezuelan government 'betraying' socialism

Political Insider

Venezuela is “experiencing problems”, because the country has taken a “wrong turn”, Shadow Chancellor John McDonnell remarked over the weekend. That is a bit of an understatement, but I suppose we can agree on his basic point.

McDonnell’s diagnosis of what that “wrong turn” was, however, was a creative one:

“I don’t think it was a socialist country…it took a wrong turn when Chávez went and I think unfortunately since then, I don’t think they have been following the socialist policies that Chávez developed. And as a result of that they’re experiencing problems.”

Unfortunately, the interviewer did not press McDonnell to be a bit more specific about this claim. Which of “the socialist policies that Chávez developed” have been abandoned, discontinued or reversed by Nicolas Maduro’s government? Did Maduro re-privatise previously nationalised companies? Did he lift some of the price controls that Chávez had imposed? Did he go soft on the private sector? What was the drastic policy change that made the Shadow Chancellor reverse his judgement on Venezuela, a model which he praised as “socialism in action” just four years ago?

There was, of course, no policy change to speak of. Maduro was never a political figure in his own right. He was always, first and foremost, a Chávez-loyalist, and he is now following the “socialist policies that Chávez developed” to a tee. (As Chávez knew he would, which is why he appointed him as his successor in the first place.)

But when did Venezuela take a wrong turn? How could what was once South America’s richest country end up as such a basket case? While the blame does lie with Chávez, it is important to acknowledge that Chavismo did not suddenly pop up out of nowhere. The seeds were sown earlier.

Take the following description:

“Venezuela’s new leaders concentrated on the oil industry as the main source of financing for their reformist economic and social policies. Using oil revenues, the government intervened significantly in the economy. […] [T]he government addressed general social reform by spending large sums of money on education, health, electricity, potable water, and other basic projects.

“Increased public outlays manifested themselves most prominently in the expansion of the bureaucracy…The government established hundreds of new state-owned enterprises and decentralised agencies as the public sector assumed the role of primary engine of economic growth. In addition to establishing new enterprises in such areas as mining, petrochemicals, and hydroelectricity, the government purchased previously private ones.”

This could easily pass as an account of the Chávez years. But it is actually a summary of what happened in the 1960s and 1970s. It was during those years, when the country was awash with oil money, that the Venezuelan economy became a patronage economy, and the Venezuelan state became a client state. Imagine a 1980s Greece, but high-powered with petrodollars. It was a model that was built on high and rising oil prices.

When oil prices peaked in the early 1980s, and then entered a prolonged period of steady decline, the party came to an end. Venezuela was still a rich country, but its economic performance became volatile and erratic. The government tried to maintain the high public spending levels that the population had grown accustomed to by borrowing and printing money. Between the early 1980s and the mid-1990s, government debt increased from less than 30 per cent of GDP to around 70 per cent, and inflation increased from about 10 per cent to over 60 per cent.

Successive governments tried to come to grips with these macroeconomic imbalances, but found it politically impossible. Adjustment packages were initiated, but never seen through. It is in these conditions that a peculiar form of left-wing populism, of which Chavismo would become the most extreme variant, was born. Both of Hugo Chávez’s predecessors had railed against “neoliberalism” (i.e. economics), and promised a return to the old, free-spending ways of the 1970s. Once in office, both of them quickly had to U-turn.

Had oil prices remained flat after Chávez’s election in 1998, his presidency might well have followed the same pattern: some initial populist grandstanding, then a U-turn with unpopular spending cuts and adjustment measures. Soon after, the next populist would have emerged, and denounced Chávez as a neoliberal sell-out. But Chávez was lucky. His inauguration coincided with the start of an unprecedented oil price boom, which would last for about fifteen years.

Once again, Venezuela found itself awash with oil money. Oil revenue more than quintupled in real terms, and government spending shot up from under 30 per cent of GDP to over 40 per cent. The good times were back.

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