This is a joint post with Stephanie Majerowicz. Venezuelan President Hugo Chavez hasn’t appeared in public since his cancer surgery last December and, given his sharply deteriorating health, it seems a safe bet that the country will be having another national election sooner rather than later. When that happens, the opposition will have a rare opportunity outflank the populist Chavistas and offer voters a share in the country’s oil wealth through direct payments of part of the revenue (see the recent WSJ article). Such a program has the twin advantages of being potentially hugely popular and of reducing corruption, strengthening accountability and curbing waste. Here at CGD we call this idea “oil-to-cash.” To understand why this might work, it’s worth looking at Venezuela’s presidential election last October, the most tightly contested since Chavez rose to power in 1999. The Venezuelan opposition united under the helm of the charismatic Henrique Capriles Radonski. On October 7th, over 80% of the Venezuelan electorate turned out to cast a ballot. Despite the united opposition, and the woeful state of the Venezuelan economy, Chavez was easily re-elected for a fourth term beating Capriles by a 10-pt margin.
The opposition missed a huge opportunity. While the cards were clearly stacked in favor of Chavez—given his tight control over the media, the judiciary, and electoral commission, and his almost unconstrained access to the country’s abundant oil wealth—the opposition had a chance to beat Chavez in his own populist game. A pro-business, center-right candidate, Capriles realized that he could not win the election without appealing to the Chavez base so he announced a commitment to maintain Chavez’ popular Misiones programs. Considered to be the decisive element in President Chavez’ support among the poor, the Misiones distribute the country’s oil wealth, but are inefficient, ineffective, and more importantly, highly politicized—allegedly more a system of clientelism than a social safety net. For instance, “Mision Mi Casa Bien Equipada”, featured the highly publicized subsidized distribution of over a million Chinese-made refrigerators, washers and other appliances to Chavez supporters—almost like government welfare meets Oprah. Prior to the election, Chavez created several more “Grandes Misiones” and announced the creation of the “mision 7 de octubre” intended to mobilize existing and potential beneficiaries of the misiones to support his reelection campaign. Chavez at least deserves credit for being bold enough not to even try to hide the true purpose of his government’s social spending. But the opposition’s decision to adopt Chavez’ own social platform was not enough to win over his supporters. The opposition should have been bolder and offered direct universal distribution instead.
In a paper commissioned by CGD as part of our Oil-to-Cash Initiative, “Direct Distribution of Oil Revenues in Venezuela: A Viable Alternative?,” Pedro Rodriguez, Jose Morales and Francisco Monaldi argue that Venezuela could benefit from distributing oil rents transparently and universally to all citizens. Compared to the current discretionary use of oil rents by the Chavez government through the Misiones, direct distribution would depoliticize oil revenue spending, broaden the tax-base and alter the relationship between the government and its citizens. Instead of receiving charitable handouts from the government in exchange for political support, Venezuelans would be recognized as citizen-owners and receive a dividend from their resource wealth. They would pay taxes, and hold the government accountable for providing public services in return. Venezuela may be the perfect place to try direct distribution of oil revenues. It has the world’s largest proven oil reserves per head, a notoriously unaccountable and opaque budget, high levels of perceived corruption, an awful business environment, and costly fuel subsidies. Rodriguez, Morales and Monaldi estimate that only a third of total oil revenues actually go through the budget—the rest is pre-assigned to an off-budget fund, FONDEN or directly funneled through the national oil company PDVSA into social programs, avoiding even a modest level of parliamentary budget scrutiny. Recent research indicates that countries with larger oil windfalls and poor business environments could benefit more from transferring some portion of rents to citizens, since poor business environments and weak administrative capacity undermine the returns to public investment. Instead of embracing Chavez flagship programs, the opposition should have been bold enough to propose moving towards recognizing citizens as owners and committing to a system of direct and universal transfers. Besides being an economically better alternative to distortionary and inefficient subsidies and politicized Misiones transfers, it would have likely been politically popular. Convincing Venezuelans that they would soon start receiving a share of the country’s wealth directly may have won over even ardent Chavez supporters. The opposition could have beat Chavez at his own populist game—while promoting, rather than undermining, good governance. The opposition may get an unusual chance to try again. Chavez’ battle with cancer seems to have taken a turn for the worse. Very little is known about the state of his health other than it is delicate enough to force a postponement of the inauguration originally scheduled for January 10 and to prevent his participation in the CELAC-EU Summit held in Santiago, Chile in late January, 2013. With the Chavistas reportedly divided between Vice President Nicolas Maduro and National Assembly President Diosdado Cabello, new elections could, given the right electoral offer, represent an opportunity for the opposition. Rarely does a sound policy platform have the electoral appeal necessary to unseat a populist government with easy access to oil rents. In the case of Venezuela universal direct distribution of oil revenues might just be one of the few exceptions. Let’s hope this time around the opposition has the audacity necessary to offer Venezuelans a truly revolutionary alternative.
Disclaimer
CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.
