VENEZUELA ANATOMY OF A COLLAPSE

Edited by
Ricardo Hausma! Har"ard Ui"ersity
Fracisco Rodr#$ue%! &es'eya Ui"ersity
Tab'e o( Cotets
Part I: The Global View
1. Introduction, by Ricardo Hausmann and Francisco Rodrguez..
2. Why Did Venezuelan Growth Collapse? by Ricardo Hausmann and
Francisco Rodrguez.
3. Venezuela ater a Century o !il "#ploitation, by Osmel Manzano
4. $ublic In%est&ent and $roducti%ity Growth in the Venezuelan
'anuacturin( Industry, by Jos Pineda and Francisco Rodrguez.
Part II: Microeconomic Policies: Labor Markets, Education, and
Redistribution.
5. )he Incidence o *abor 'ar+et ,eor&s on "&ploy&ent in the
Venezuelan 'anuacturin( -ector 1../02111, by Omar Bello and Adriana
Bermdez.
2. 'uch 3i(her -choolin(, 'uch *ower Wa(es4 3u&an Capital and
"cono&ic Collapse in Venezuela, by !aniel Or"ega and #an" Pri"c$e"".
%. Inco&e Distribution and ,edistribution in Venezuela, by &amuel Frei'e.
Part III: Macroeconomic Interactions: Unemlo!ment, "inance,
and "iscal Polic!
(. Co&petin( or 5obs or Creatin( 5obs? )he I&pact o I&&i(ration on
6ati%e07orn 8ne&ploy&ent in Venezuela, 1.9102113 by !an #e)y and
!ean *ang.
+. )he real eects o a inancial collapse, by Ma"ias Braun.
,-. -leepin( in the 7ed !ne 'a+es4 )he Venezuelan :iscal $olicy ,esponse to
the !il 7oo&, by Maria A. Moreno and .ameron &$el"on.
Part IV: Institutions, Politics, and #elie$s
,,. Institutional Collapse4 )he ,ise and Decline o De&ocratic Go%ernance in
Venezuela, by Francisco Monaldi and Mic$ael Pen/old.
,0. )he $olitical "cono&y o Industrial $olicy in Venezuela, by Jona"$an !i
Jo$n.
,1. "#plainin( Cha%is&o4 )he 8ne#pected ;lliance o ,adical *etists and the
'ilitary in Venezuela since the late 1..1s, by Ja)ier .orrales.
,4. !il, 'acro Volatility and Cri&e in the Deter&ination o 7elies in
Venezuela, by Ra/ael !i 2ella3 Ja)ier !onna3 and Rober" Mac.ulloc$.
CHAPTER )* +troductio
,icardo 3aus&ann and :rancisco ,odr<(uez
=on the western tip there is a ountain o an oily li>uor
ne#t to the sea?so&e o those who ha%e seen it say
that it is called s"ercus demonis @de%ilAs e#cre&entB by
the naturals.C
Gonzalo :ernDndez de !%iedo y
ValdEs F1/3/G1
)he twentieth century saw the transor&ation o Venezuela ro& one o
the poorest to one o the richest econo&ies in *atin ;&erica. 7etween 1.11 and
1.21, per capita GD$ had (rown at a rate o barely 1.9 percentH between 1.21 and
1.I9, it (rew at 2.9 percent per annu&. 7y 1./9, per capita GD$ was I.9 ti&es
what it would ha%e been had Venezuela had the a%era(e (rowth rate o ;r(entina,
7razil, Chile and $eru.2 7y 1.J1, Venezuela had beco&e the richest country in
*atin ;&erica and one o the twenty richest countries in the world, with a per
capita GD$ hi(her than -pain, Greece, and Israel and only 13K lower than that o
the 8nited Lin(do&.3
In the 1.J1s, the Venezuelan econo&y did an about ace. $er capita nonoil
GD$ declined by a cu&ulati%e 19.2IK between 1.J9 and 2111. 7ecause this
period was associated with (rowth in labor orce participation, the decline in per
wor+er GD$ was e%en hi(her4 3/.2K in the twenty0three year period. )he oil
1 Cited by Martnez (1997).
2 All calculations are based on Maddison (2001).
3 Heston, u!!ers and Aten(2002).
sectorAs decline was e%en &ore pronounced4 2I..K in per capita ter&s, I..2K in
per wor+er ter&s ro& its 1.J1 pea+.
VenezuelaAs de%elop&ent ailure has &ade it a co&&on illustration o the
=resource curseC M the hypothesis that natural resources can be har&ul or a
countryAs de%elop&ent prospects. Indeed, Venezuela is one o the e#a&ples
-achs and Warner F1..., p. 2G use to e#plain the idea that resource0abundant
econo&ies ha%e lower (rowth. 7ut VenezuelaAs (rowth e#perience has not only
been used to illustrate the deleterious eect o resource rents. "asterly F2111, p.
22IG, or e#a&ple, cites the Venezuelan decline in GD$ in support o the idea that
ine>uality is har&ul or (rowth. 7ec+er F1..2G, in contrast, has ar(ued that the
sa&e (rowth peror&ance actually shows that econo&ic reedo& is essential or
(rowth.
3ow &uch do we really +now about what caused the Venezuelan (rowth
collapse? In our %iew, a &ini&al re>uire&ent o any e#planation or VenezuelaAs
dis&al (rowth peror&ance &ust pass two basic tests. !n the one hand, it &ust
e#plain why Venezuela has had such a disappointin( (rowth peror&ance in
co&parison to the rest o *atin ;&erica. !n the other hand, it &ust e#plain why
Venezuela did so poorly ater the 1.J1s when it had been able to do so well in the
pre%ious ity years.
'any e#istin( e#planations do not pass these tests. :or e#a&ple,
VenezuelaAs ailure to (row is oten attributed to its lac+ o pro(ress in carryin(
out ree0&ar+et reor&s durin( the ei(hties and nineties. While Venezuela is
indisputably ar ro& a stellar reor&er, e#istin( data do not support the
hypothesis that it is substantially dierent ro& &any other countries in the
re(ion in this respect Fat least until 1...G. ;ccordin( to "duardo *oraAs F2111G
inde# o econo&ic reor&, the Venezuelan econo&y by 1... was &ore ree
&ar+et0oriented than the econo&ies o 'e#ico and 8ru(uay, and its speed o
reor& Fin ter&s o proportional i&pro%e&ent in the inde#G was actually the
&edian or the re(ion between 1.9/ and 1.... *ac+ o reor&s thus does not
appear to be a pro&isin( e#planation or VenezuelaAs lac+ o (rowth.
;lternati%ely, consider the hypothesis that VenezuelaAs (rowth proble&s
are due to the e#acerbated rent0see+in( that was (enerated by the concentration
o hi(h resource rents in the hands o the state. I this e#planation is correct,
then how do we account or the act that Venezuela was the re(ionAs astest(rowin(
econo&y between 1.21 and 1.J1, a period durin( which the role o oil
was do&inant and iscal oil re%enues were si(niicantly hi(her than durin( the
nineties? Why were corruption, patrona(e politics, and rent0see+in( not a
hindrance to de%elop&ent durin( VenezuelaAs (olden a(e o (rowth?
)he purpose o this %olu&e is to present a critical analysis o the
Venezuelan (rowth e#perience and to atte&pt to oer new e#planations o the
eni(&a o the countryAs econo&ic collapse. It is a collecti%e underta+in( by
econo&ists and political scientists to atte&pt to (ain insi(ht into the causes o
VenezuelaAs (rowth peror&ance by syste&atically analyzin( the contribution o
each potential actor in the countryAs (rowth peror&ance. "ach chapter consists
o an in0depth analysis o one di&ension o the (rowth collapse, ran(in( ro&
labor &ar+ets to inrastructure pro%ision to the political syste&. While each
chapter relects the %ision and analysis o the authors, they are shaped by the
interaction and discussion between proNect participants that too+ place in two
conerences held in Caracas in 211I and in Ca&brid(e in 2112 sponsored by the
Center or International De%elop&ent and the Da%id ,oc+eeller Center or *atin
;&erican -tudies at 3ar%ard 8ni%ersity, the ;ndean De%elop&ent Corporation,
and the Instituto de "studios -uperiores de ;d&instraciOn.
To,ard &it-i.Coutry /ro,t- Em0irics
)his proNect also represents an atte&pt to &o%e towards syste&atic countryle%el
studies o de%elop&ent e#periences that are ri(orous and inor&ed by
econo&ic theory but that pay due attention to national speciicities and
idiosyncrasies. -ince the publication o 7arroAs F1..1G se&inal contribution to
the e&pirical (rowth literature, econo&etric studies in the ield o econo&ic
(rowth ha%e been concentrated on the use o cross0national data to e%aluate
dierent hypotheses o the causes o lon(0run (rowth. Despite the si(niicant
contribution o this literature to our understandin( o the process o econo&ic
de%elop&ent, there has been a (rowin( awareness o the li&itations o crosscountry
econo&ic data to help us understand why so&e countries are rich and
others are poor F,odri+, 211/G. Internationally co&parable country0le%el data
are necessarily li&ited in their scope and depth. 'any o the potential
e#planatory actors that could account or dierential (rowth peror&ances are
diicult to >uantiy or a lar(e nu&ber o countries. Issues o endo(eneity and
speciication tend to pla(ue cross0country re(ression wor+.
While &any o these proble&s are not uni>ue to analysis o cross0national
data sets, there is a set o distinct &ethodolo(ical proble&s which do appear to be
&ore characteristic o the study o econo&ic de%elop&ent with the aid o
e&pirical (rowth data. :ore&ost a&on( the& is the proble& o dealin( with real
world co&ple#ity. )he wor+horse linear (rowth re(ression e&bodies a particular
%ision o the world accordin( to which there is an underlyin( si&ilarity between
all o the countries that are included in the sa&ple, and in which all possible
interactions between policies, institutions, and econo&ic structure are assu&ed
away.
In contrast, desi(nin( a (rowth strate(y is so&ewhat li+e (ettin( to the pea+
o a &ountain that is co%ered by clouds. Pou canAt see where the pea+ is. Pou
&ay not e%en +now what direction it is in. ;ll you +now is that i you (o up, there
is so&e probability that you are ascendin( the pea+. )he proNect o cross0country
(rowth e&pirics can be seen as the proNect o constructin( a &ap that will allow
us to (et to the pea+ o that &ountain. )he proble&s encountered in that
literature indicate that we &ay not ha%e a reliable &ap or so&e ti&e to co&e. -o
the rele%ant policy >uestion beco&es4 what do you do i you donAt ha%e a &ap? !r
i you ha%e one but you realize itAs not a %ery (ood &ap?
!ne answer, recently (i%en by 3aus&ann, ,odri+, and Velasco F211IG, relies
on e#ploitin( local instead o (lobal inor&ation. In the conte#t o our &etaphor,
i you want to (et to the pea+ you should try to iner where you are ro& careul
obser%ation o the %e(etation, the terrain, the low o ri%ers, and Nust about any
other obser%able characteristic allows you to &a+e an inerence. )hese authors
de%elop this idea in the conte#t o the desi(n o (rowth strate(ies under radical
uncertainty. )hey call their &ethod =(rowth dia(nosticsC in part because it is
%ery si&ilar to the approach ta+en by &edical specialists in identiyin( the causes
o health ail&ents M a conte#t in which assu&in( that e%eryone has the sa&e
proble& is unli+ely to be %ery helpul. )he idea is to loo+ or clues in your
i&&ediate en%iron&ent as to what &ay be the bindin( constraints on (rowth.
)he (rowth dia(nostics e#ercise consists in as+in( a set o basic >uestions to
rule out possible e#planations o the proble&. )he answer to these >uestions is
inherently country0 and ti&e0speciic, as one cannot assu&e that dierent units
o obser%ation M be they countries or persons M are always aected by the sa&e
ills. )he essential idea is to identiy the +ey proble& that you are interested in
attac+in( as well as the si(nals that the econo&y would pro%ide i a particular
constraint were the cause o that proble&. I the econo&y suers ro& si(ns o
low in%est&ent and entrepreneurship, you want to start out by as+in( whether
this is due to the act that returns are not attracti%e, or that credit is %ery costly. I
the latter were the cause, you would e#pect to see si(ns o hi(h costs o inance. I,
in contrast, you ind that returns are not attracti%e, you &ay want to del%e deeper
into the issue4 are the actual rates o return low, or is the proble& that in%estors
donAt thin+ they will be able to +eep the returns ro& their acti%ity with certainty?
Is this due to political ris+ o e#propriation, lac+ o enorce&ent o laws, or to
&ar+et ailures? )he process (oes on until one identiies the constraints that
are li+ely to (i%e you the hi(hest local increase in (rowth.
;n alternati%e attac+ on the issue o co&ple#ity has been underta+en by
,odr<(uez F211JaG, who as+s whether there is an eecti%e way o usin( the crossnational
data to understand the potential eects o dierent co&ponents o
reor& strate(ies on econo&ic (rowth without assu&in( that the world is
unrealistically si&ple M as the linear (rowth re(ression ra&ewor+ in%ariably
does. 3e uses non0para&etric econo&etrics to capture the +ey %ery (eneral
eatures o the co&ple# reality e&bodied in (rowth relationships. )he essence o
those &ethods is that instead o as+in( whether a policy such as trade is (ood or
(rowth M a >uestion that si&ply lac+s a well0deined answer in a co&ple# world M
it as+s &ore (eneral >uestions such as4 does the eect depend on other %ariables?
Is it at least not har&ul or (rowth? Does the =a%era(eC country beneit or lose
out ro& trade protection?
,odr<(uezAs e&pirical analysis co&es up with so&e interestin( results. !ne is
that (rowth re(ressions oten tend to e#a((erate the eects o chan(es in
independent %ariables in relation to &ore le#ible &ethods that do not i&pose
unrealistic restrictions. 7ut this e#a((eration is not unior& across dierent
types o e#planatory %ariables. In act, the relati%e i&portance o dierent
%ariables chan(es dra&atically when we (o ro& the restricti%e linear approach to
the &ore le#ible nonpara&etric approach. $olicy %ariables beco&e &uch less
si(niicant, while structural and institutional %ariables beco&e &uch &ore
si(niicant in accountin( or chan(es in (rowth.
; third approach to dealin( with issues o real world co&ple#ity in the
e&pirical analysis o econo&ic (rowth is to reduce the nu&ber o e#periences
that one tries to it into a co&&on ra&ewor+. I the wea+ness o cross0country
(rowth e&pirics is essentially that it atte&pts to bundle countries whose
de%elop&ent processes are unda&entally dierent, then one natural approach is
to unbundle countries and to loo+ at either (roups o countries with si&ilar
characteristics or at sin(le countries at a ti&e. 3aus&ann, ,odri+ and $ritchett
F211IG and 3aus&ann, ,odr<(uez, and Wa(ner F211JG ha%e concentrated
alternati%ely on cases o (rowth accelerations and collapses in searchin( or
co&&on e#planatory actors that can help e#plain why these pheno&ena occur
and what deter&ines %ariations in their e%olution.
)his boo+ is an e#a&ple o the unbundlin( strate(y ta+en to its ulti&ate
conse>uences4 the e#clusi%e concentration on understandin( the pheno&enon o
(rowth in one country durin( a particular historical ti&e period. We &a+e no
clai& to redisco%erin( the wheel4 there is a lon( tradition o case study literature
in econo&ic (rowth Fe.(., *e F1.J2G, Gelb F1.9/G, Wade F1..1GG. We belie%e,
howe%er, that the contribution o our approach lies in the act that it is inor&ed
by (rowth theory and does not eschew the syste&atic analysis o e&pirical
e%idence and the use o analytical &odels. "ach o the papers in this study puts
orwards a set i well0deined hypotheses about the relationship between its issue
o interest and the countryAs (rowth e#perience. It uses the e&pirical e%idence to
e%aluate the& and to contribute a piece to the e#planation o the uller puzzle.
)his paper is also part o a broader proNect, in which we ha%e underta+en
si&ilar eorts to understand the cases o (rowth collapses suered since the
1.J1s in two other ;ndean econo&ies4 7oli%ia and $erQ.I )he basic idea was to
loo+ at countries that were &ar+ed by si&ilarities in so&e o their initial
conditions M such as hi(h le%els o resource dependence and si&ilar (eo(raphical
location M and that also e#perienced si&ilar econo&ic outco&es. 3owe%er, we
did not straitNac+et the analyses into a co&&on analytical ra&ewor+, but rather
decided to let researchers co&e up with independent e#planations M an
" ee Haus!ann, Mor#n and $odr%uez (2007) and &ray, Haus!ann, and $odr%uez (2007).
e#peri&ent that e&er(ed with so&e stri+in( si&ilarities as well as surprisin(
dierences./
In this sense, we belie%e that it is possible to de%elop an analytical tool+it that
allows (rowth econo&ists to syste&atically analyze and e%aluate co&petin(
hypotheses about (rowth at the country le%el. !ur wor+ is thus ully in the spirit
o ,odri+As F2112G call or the elaboration or desi(n o analytical country
narrati%es o de%elop&ent e#periences. We %iew this line o research as ta+in(
the irst steps in the de%elop&ent o a within0country (rowth e&pirics that ser%es
as a ri(orous alternati%e to the proble&s o the e#istin( e&pirical literature in
econo&ic (rowth.
1uestios ad As,ers
)he +ey or(anizin( principle o this wor+ starts out ro& one basic >uestion
that we as+ed each o the proNect participants4 to what e#tent is what occurred in
your area o study a cause o the countryAs econo&ic collapse, and to what e#tent
is it a conse>uence? ;uthors approached this >uestion with dierin(
&ethodolo(ies and produced dierent answers. -o&e ar(ued or a %ital causal
role o their sector. !thers ar(ued that their sector was not a rele%ant
contributin( actor to the countryAs (rowth peror&ance. ;nd others yet ar(ued
or a &utually reinorcin( set o eedbac+ loops between (rowth and their area o
study.
' ()ese are e*+lored in !ore detail in $odr%uez (2007b)
What e&er(es is a co&ple#, nuanced %ision o Venezuelan econo&ic
(rowth that (oes considerably beyond the con%entional wisdo&. It is ar ro&
unicausal M indeed it e&phasizes se%eral contributin( actors. ;t the sa&e ti&e,
howe%er, it is ar ro& an =anythin( (oesC e#planation4 our set o contributin(
actors is &uch s&aller than the set o %ariables that we initially considered. !ur
collecti%e underta+in( has thus ser%ed as a &echanis& that allows us to reach a
solution that e&ulates "insteinAs reco&&endation that theories should =&a+e
the irreducible basic ele&ents as si&ple and as ew as possible without ha%in( to
surrender the ade>uate representation o a sin(le datu& o e#perience.C F1.33, p.
11011G.
)he lo(ical startin( point or an e#planation o the Venezuelan collapse is
an e%aluation o the countryAs a((re(ate (rowth peror&ance. )his is the tas+
carried out by 3aus&ann and ,odr<(uez in =Why Did Venezuelan Growth
Collapse?C )hat paper starts out by >uantiyin( the e#tent o the collapse and the
ways in which one would atte&pt to account or it in the conte#t o an a((re(ate
(rowth &odel. )he authors reach a si&ple conclusion4 VenezuelaAs (rowth
peror&ance can be accounted or as the conse>uence o three orces. !ne is
declinin( oil production. )he second is declinin( non0oil producti%ity. )he third
is the incapacity o the econo&y to &o%e resources into alternati%e industries as a
response to the decline in oil rents that has occurred since the se%enties. )he
authors then concentrate on this second actor, as+in( why Venezuela ound it so
diicult to de%elop an alternati%e e#port industry, in contrast to other countries
that suered declines in their traditional e#ports. )heir answer is that
VenezuelaAs concentration in oil puts it in a particularly diicult position because
o an idiosyncratic characteristic o the oil industry4 the specialized inputs,
+nowled(e, and institutions necessary to eiciently produce oil are not %ery
%aluable or the production o other (oods. 8sin( results ro& recent research on
the structure o the product space, the authors show that oil0 abundant
econo&ies lie in a relati%ely sparse re(ion o this space, where it is diicult to ind
new products that you can reallocate resources to i you suer declines in your
traditional e#port sector.
What about the other two actors, the decline in oil production and the
decline in non0oil producti%ity? 'ost o the re&ainin( chapters in the boo+ are
concerned with pro%idin( e#planations to these pheno&ena. !s&el 'anzanoAs
piece =Venezuela ater a Century o !il "#ploitationC tac+les the issue o
accountin( or the oil sectorAs peror&ance. )he +ey >uestion here is why a
country that boasts &assi%e a&ounts o oil reser%es decides not to ta+e ad%anta(e
o the& and instead to &aintain li&its on production. 'anzano ar(ues that this
policy was ra&ed in an era in which oil was belie%ed to be near e#haustion, so
that policy&a+ers put priority on conser%in( oil and di%ersiyin( the econo&y
away ro& oil e#ports. )hese principles &ay ha%e &ade sense in the si#ties, but
they were no lon(er reasonable ater new e#ploration re%ealed that the country
had indeed >uite &assi%e a&ounts o reser%es, while chan(es in consu&ption
patterns and (reater eiciency o e#traction techni>ues led to the oil (lut o the
ei(hties and nineties.
)he issue o producti%ity is a &ore co&ple# one. ,obert -olow aptly
reerred to a((re(ate &easures o producti%ity as =&easures o our i(norance.C ;t
a broad le%el, total actor producti%ity relects a %ariety o actors which can aect
how capital and labor (et transor&ed into output in a country at a particular
&o&ent in ti&e. )hese actors can ran(e ro& society0wide chan(es in policies,
institutions, and econo&ic structure to &icroecono&ic distortions that lead to
ineiciencies in resource allocation. ; collapse in inancial inter&ediation,
chronic underin%est&ent in public inrastructure, or the (rowth in social conlict
could all lead to a decline in total actor producti%ity. )he rest o the chapters in
the boo+ e#plore in &ore detail the potential e#planations or the producti%ity
decline, as+in( whether these were caused by the (rowth collapse or were a
conse>uence o it.
=$ublic In%est&ent and $roducti%ity Growth in the Venezuelan
'anuacturin( IndustryC by 5osE $ineda and :rancisco ,odr<(uez loo+s at this
>uestion by directly esti&atin( the eect o public in%est&ent in a panel o
Venezuelan &anuacturin( ir&s. )he relationship between in%est&ent and
producti%ity is a co&ple# one whose esti&ation is clouded by the possibility o
re%erse causation4 does public in%est&ent (enerate hi(her producti%ity or does
the public sector tend to in%est &ore in localities where producti%ity is (rowin(?
$ineda and ,odr<(uez use a uni>ue natural e#peri&ent (i%en by the ear&ar+in(
o national re%enues throu(h the Inter(uberna&ental Decentralization :und to
(enerate e#o(enous %ariation in the de(ree o public in%est&ent. )hey ind that
the contribution o public in%est&ent to producti%ity (rowth in the Venezuelan
&anuacturin( sector is substantial4 accordin( to their esti&ates, non0oil per
capita GD$ would be 3JK hi(her than its present %alue had the (o%ern&ent not
allowed the stoc+ o public capital to decline ater 1.93. )his e#planation su((ests
that the &isallocation o public e#penditures is a substantial contributor to the
Venezuelan econo&ic collapse.
Distortions in the allocation o actors o production can also (enerate
declines in a((re(ate producti%ity. -uch is the case with labor &ar+et
re(ulations. While &ini&u& wa(es, irin( restrictions, and &andated non0wa(e
beneits oten ha%e a reasonable Nustiication in ter&s o the pro%ision o social
insurance, they can also (enerate substantial distortions to the reallocation o
labor across ir&s. In countries with a lar(e unre(ulated econo&y, these can
(enerate considerable incenti%es to shit to the inor&al sector. Indeed, between
1..1 and 2111 Venezuela was the country with the hi(hest (rowth rate in
inor&al sector e&ploy&ent in *atin ;&erica F7er&Qdez, 211IG. !&ar 7ello
and ;driana 7er&QdezAs chapter =)he Incidence o *abor 'ar+et ,eor&s on
"&ploy&ent in the Venezuelan 'anuacturin( -ector 1../02111C atte&pts to
esti&ate the cost o these increased re(ulations usin( the sa&e panel o
&anuacturin( ir&s. -ince Venezuelan labor &ar+et re(ulations had dierin(
eects based on ir& size, and since the chan(es in these re(ulations are
e#o(enous to the ir& decision, they can obtain an esti&ate o the e&ploy&ent
eect o labor &ar+et re(ulations that is not conta&inated by endo(eneity. )he
authors ind a substantial eect o increases in labor &ar+et re(ulations on ir&
e&ploy&ent, su((estin( that the &ar+ed increase in labor &ar+et restrictions
durin( the nineties &ay ha%e beco&e an i&pedi&ent to the reallocation o
resources towards &anuacturin(.
In =)he ,eal "ects o a :inancial CollapseC, 'at<as 7raun loo+s at
another possible suspect o the collapse in a((re(ate producti%ity. 7etween 1.9.
and 1..2, Venezuela suered a series o deep credit crunches ro& which it ne%er
ully reco%ered. )hereore, e%en thou(h the size o VenezuelaAs ban+in( sector
was consistent with what one would e#pect or the countryAs le%el o inco&e up to
the 1.91s, by the &id 2111s the sector was between I to 2 ti&es s&aller than
one would e#pect. 7raun ar(ues that this collapse had a si(niicant eect not only
on the capacity to allocate credit to the econo&y but also on the eiciency o the
resources that were allocated.
6ot all o the chapters in the %olu&e conclude that their potential
e#planatory %ariable is indeed a cause o the (rowth collapse. Were that the case,
the sense o our e#ercise would be %ery &uch open to >uestion. ;ttributin( the
collapse to e%erythin( is the sa&e as attributin( it to nothin(. )hus, one o the
&ost satisyin( results o our proNect was to ind that se%eral authors ar(ued that
their sector or area o interest was not a rele%ant contributor to the collapse.
)he clearest e#a&ple o such a response is Daniel !rte(a and *ant
$ritchettAs ='uch 3i(her -choolin(, 'uch *ower Wa(es4 3u&an Capital and
"cono&ic Collapse in Venezuela.C )his paper loo+s at the hypothesis that lac+ o
schoolin( &ay be a contributor to the collapse. )he authorsA answer is a
resoundin( =no.C VenezuelaAs (rowth in schoolin( capital was substantially
hi(her than the &edian country and e%en aster than the &edian "ast ;sian
countryR "%en ater allowin( or chan(es in >uality and restrictions to the
reallocation o labor across sectors, the authors ind little solid e%idence o a
contribution o lac+ o hu&an capital to the decline in output. Indeed, i
anythin(, VenezuelaAs hu(e increase in hu&an capital &a+es the puzzle e%en
lar(er, as it i&plies that the &assi%e collapse in output per wor+er is e#ceeded by
the collapse in output per education0adNusted units o labor.
; second =noC co&es ro& -a&uel :reiNeAs study =Inco&e Distribution and
,edistribution in Venezuela. )he increasin( rele%ance o distributi%e conlict in
Venezuela has ueled speculation that the (rowth in po%erty and ine>uality is at
the roots o the i&plosion o VenezuelaAs political syste&. :reiNe inds that while
Venezuelan ine>uality has increased, its increase is consistent with what one
would e#pect (i%en the collapse in capital accu&ulation and the (rowth in
inor&alization. :urther&ore, Venezuela in the 1.J1s was a relati%ely e>ual
econo&y by *atin ;&erican standards, so that it is diicult to tell a story in
which ine>uality is a causal deter&inant o the collapse. !b%iously, howe%er, the
subse>uent increase in ine>uality could ha%e ueled (rowin( social conlict and
help e#plain part o the subse>uent i&plosion o the political syste&.
; third M albeit &ore >ualiied 0 =noC co&es ro& Ca&eron -helton and 'ar<a
;ntonia 'orenoAs study o the e%olution o iscal policy durin( VenezuelaAs
econo&ic collapse. In contrast to &uch con%entional wisdo&, 'oreno and
-helton contest that Venezuela actually carried out si(niicant iscal adNust&ents
ater the onset o the debt crisis. While they do pin part o the bla&e on the
e#cessi%e iscal e#pansion o the se%enties and early ei(hties, which &ade the
downward adNust&ent all the &ore diicult, they ar(ue that the post01.93
response was actually >uite reasonable. :allin( oil re%enues were &et with
eorts to raise new sources o re%enue and to cut e#penditures. ;lthou(h these
cuts were not suicient to close the (rowin( (ap, this is &ore than anythin( due
to the &a(nitude o the decline in oil re%enues and not to laws in the iscal
response M which in any case is co&&only ar ro& opti&al Nust about
e%erywhere.
)he possibility o eedbac+ loops illustrates the co&ple#ity o thin+in( about
causation in the (rowth conte#t. $oor iscal policy &ay be a conse>uence instead
o a cause o the collapse, but the collapse &ay ha%e (enerated a %icious circle
whereby deteriorations in iscal policy &ade it e%en &ore diicult or the
econo&y to reta+e a path o econo&ic (rowth. ; si&ilar &echanis& is illustrated
in Dan *e%y and Dean Pan(As =Co&petin( or 5obs or Creatin( 5obs? )he I&pact
o I&&i(ration on 6ati%e07orn 8ne&ploy&ent in Venezuela, 1.9102113C, which
loo+s at how chan(es in i&&i(ration patterns ha%e aected patterns o Nob
creation in Venezuela. 8sin( e#o(enous shoc+s in inco&e in &i(rant ho&e areas
to identiy the eect o &i(ration on do&estic une&ploy&ent, *e%y and Pan(
ind a contrast between Colo&bian i&&i(ration, which tends to raise Venezuelan
une&ploy&ent, and "uropean i&&i(ration, which does not. )his is consistent
with the idea that "uropean i&&i(rants (enerate considerable positi%e
e#ternalities that oset their direct eects on labor supply and wa(es. It also
su((ests that the re%ersal in "uropean &i(ration that occurred as a result o the
(rowth collapse could ha%e (enerated a eedbac+ loop in which the initial collapse
caused the loss o a %ibrant i&&i(rant co&&unity and its spillo%er eects on the
do&estic population.
)he Venezuelan collapse was not only econo&ic. 8p until the 1..1s,
Venezuela boasted a stable de&ocratic political syste& that was co&&only
%iewed as an e#a&ple to ollow by other de%elopin( &iddle inco&e countries.
Durin( the ensuin( decade, this syste& collapsed, leadin( to the near
disappearance o traditional parties and their replace&ent by a hi(hly polarized
politics. In =Institutional Collapse4 )he ,ise and Decline o De&ocratic
Go%ernance in VenezuelaC, :rancisco 'onaldi and 'ichael $enold study the
causes o this collapse. )heir clai& is that it can be attributed to a &i#ture o the
(o%ernance proble&s created by oil, the dra&atic /all in 4er5ca4i"a oil /iscal
re)enues in the late ei(hties and nineties, and the 4oli"ical re/orms introduced in
the late ei(hties and early nineties, which wea+ened and ra(&ented the party
syste& and under&ined political cooperation.
5onathan Di5ohnAs =)he $olitical "cono&y o Industrial $olicy in VenezuelaC
e#plores the econo&ic conse>uences o the political collapse. )he central
>uestion o this paper is why the Venezuelan political syste& pro%ed incapable o
i&ple&entin( a reasonably rational industrial policy that too+ ad%anta(e o oil
re%enues to channel the& into the (rowth o the non0oil sector. Di5ohn contends
that this was the result o a (rowin( incom4a"ibili"y between the countryAs Sbi(
pushA hea%y industrialization de%elop&ent strate(y, on the one hand, and the
increasin( populis&, clientelis& and actionalization o the political syste&.
$olicies were beco&in( &ore actionalized and acco&&odatin( precisely at a
ti&e when the de%elop&ent strate(y re>uired a &ore uniied and e#clusionary
pattern or the allocation o rents and subsidies.
)he last two studies in the boo+ loo+ at another di&ension o the political
collapse, which is the ascendance to power o a radical letist &o%e&ent headed
by 3u(o ChD%ez in the late nineties. In =!il, 'acro Volatility and Cri&e in the
Deter&ination o 7elies in Venezuela,C ,aael Di )ella, 5a%ier Donna and ,obert
'acCulloch try to e#plain why the Venezuelan public is so responsi%e to letwin(,
populist, and anti0&ar+et rhetoric. )hey ar(ue that the e&er(ence o these
preerences can be e#plained by the countryAs history o &acro %olatility, its
dependence on oil, and the (eneralized belie that corruption and cri&e are hi(h.
3owe%er, the authors caution that these belies are oten di%orced ro& reality,
and show e%idence consistent with this act. In Venezuela, the social construction
o belies appears to play a si(niicant role in the creation o new ideolo(ies.
In contrast to the ocus o Di )ella, Dona, and 'acCulloch on the political
de&and or a shit to the let, 5a%ier CorralesAs ="#plainin( Cha%is&oC atte&pts
to understand the characteristics o the Venezuelan political syste& that &ade
possible the e&er(ence o a radical letist &o%e&ent. CorralesAs +ey ar(u&ent is
that the de(ree o openness o &any political institutions in Venezuela, which did
not subNect the radical let to institutional e#clusion or se%ere repression, allowed
or the sur%i%al o cadres o e#tre&e letist politicians, intellectuals and
bureaucrats that were in a position to oer the supply o a radical proNect once
the de&and arose.
'ost o the studies in this boo+ ha%e not tried to e#plain the econo&ic
conse>uences o the countryAs shit to a radical letist paradi(&.2 We belie%e that
the conse6uences Fas opposed to the causesG o c$a)ismo &erit a separate study
on their own. )he act that the 7oli%arian re%olution is a recent and on(oin(
process poses a set o &ethodolo(ical challen(es which are distinct ro& those
dealt with in this boo+. ,e%olutions, as -i&On 7ol<%ar hi&sel pointed out, &ust
be obser%ed up close but are best Nud(ed ro& aar. !ur ocus has been instead to
, $ecent atte!+ts at understandin% t)e +olitical and econo!ic conse-uences o. t)e /oli0arian re0olution
)a0e been !ade by Mi%uel et al. (200,) and 1rte%a and $odr%uez (200,).
understand the causes o the econo&ic and political collapse that started durin(
the oil boo& o the se%enties and that is at the root o &any o VenezuelaAs
current predica&ents. )he act that Venezuela is currently under(oin( an oil
boo& co&parable in &a(nitude to the one it e#perienced thirty years a(o
su((ests that the lessons to be learned ro& studyin( the past &ay ha%e their
(reatest rele%ance in understandin( the present.
Re(ereces
7arro, ,obert F1..1G ="cono&ic Growth in a Cross0-ection o Countries,C
7uar"erly Journal o/ 8conomics, 112F2G4 I1J0II3.
7ec+er, Gary F1..2G =)he 6u&bers )ell the -tory4 "cono&ic :reedo& -purs
Growth,C Business9ee:, 'ay 2.
7er&Qdez, ;. F211IG. =*a le(islaciOn laboral en Venezuela y sus i&pactos
sobre el &ercado laboral.C in !icina de ;sesor<a "conO&ica y :inanciera de la
;sa&blea 6acional, 8l desem4leo en ;enezuela< .ausas3 e/ec"os e im4licaciones
de 4ol"ica. Caracas4 !icina de ;sesor<a "conO&ica y :inanciera de la ;sa&blea
6acional.
"asterly, Willia& F2111G 2$e 8lusi)e 7ues" /or =ro9"$< 8conomis"s>
Ad)en"ures and Misad)en"ures in "$e 2ro4ics. Ca&brid(e4 'I) $ress.
"instein, ;lbert F1.33G On "$e Me"$od o/ 2$eore"ical P$ysics. 6ew Por+4
!#ord 8ni%ersity $ress.
Gelb, ;. F1.99G. !il Windalls4 7lessin( or Curse? 6ew Por+, *ondon, )oronto
and )o+yo, !#ord 8ni%ersity $ress or the World 7an+.
Gray, Geor(e, "duardo 'orOn, and :rancisco ,odr<(uez F211JG Boli)ian
8conomic =ro9"$< ,+%-50--5. ,eproduced4 ;ndean De%elop&ent :und.
3aus&ann, ,icardo, "duardo 'orOn, and :rancisco ,odr<(uez F211JG
Peru)ian 8conomic =ro9"$< ,+%-50--5. ,eproduced4 ;ndean De%elop&ent
:und.
3aus&ann, ,icardo, Dani ,odri+ and ;ndrEs Velasco F211IG CGrowth
Dia(nostics.C ,eproduced, 3ar%ard 8ni%ersity.
3aus&ann, ,., *. $ritchett, et al. F211IG. Growth ;ccelerations. Journal o/
8conomic =ro9"$ 11FIG4313032..
3aus&ann, ,. and ,. ,i(obOn F2113G. =;n ;lternati%e Interpretation o the
T,esource CurseT4 )heory and $olicy I&plications.C ?n Fiscal Policy Formula"ion
and ?m4lemen"a"ion in Oil5Producing .oun"ries. "dited by 5.' Da%is, ,.
!ssows+i and ;. :edelino. Washin(ton, D.C. I': press, 2113.
3aus&ann, ,icardo, :rancisco ,odr<(uez and ,odri(o Wa(ner Forthco&in(G
=Growth Collapses,C in Car&en ,einhart, ;ndrEs Velasco and Carlos Ve(h, eds.
Money3 .rises3 and 2ransi"ion< 8ssays in Honor o/ =uillermo .al)o. Ca&brid(e4
'I) $ress.
3eston, ;lan, ,obert -u&&ers and 7ettina ;ten F2112G, $enn World )able
Version 2.1, Center or International Co&parisons at the 8ni%ersity o $ennsyl%ania
FCIC8$G.
*e, 6athaniel F1.J2G ="cono&ic ,etardation in 6ineteenth0Century 7razil,C
8conomic His"ory Re)ie9 2/F3G ;u(ust4 I9.0/1J.
*ora, "duardo F2111G =-tructural ,eor&s in *atin ;&erica4 What 3as 7een
,eor&ed and 3ow to 'easure It,C I;D7 ,esearch Depart&ent Wor+in( $aper
6o. I22 FWashin(ton4 Inter0;&erican De%elop&ent 7an+G.
'addison, ;n(us F2111G 2$e @orld 8conomy< A Millennial Pers4ec"i)e.
$aris4 !"CD
'art<nez, ;n<bal ,. F1..JG =$etrOleo crudoC in :undaciOn $olar F1..JG
!iccionario de His"oria de ;enezuela, Volu&e 3. Caracas4 :undaciOn $olar, pp.
21I0231.
'i(uel, "dward, Chan(0)ai 3sieh, Daniel !rte(a, and :rancisco
,odr<(uez F211JG =)he Cost o $olitical !pposition4 "%idence ro& VenezuelaAs
Maisan"a Database.C ,eproduced4 8ni%ersity o Caliornia at 7er+eley,
!rte(a, Daniel and ,odr<(uez, :rancisco F211JG =:reed ro& Illiteracy? ;
Closer *oo+ at VenezuelaAs ,obinson *iteracy Ca&pai(n.C ,eproduced4 Wesleyan
8ni%ersity.
,odr<(uez, :rancisco F211JaG =Cleanin( 8p the Litchen -in+4 Growth
"&pirics When the World Is 6ot -i&ple.C Depart&ent o "cono&ics, Wesleyan
8ni%ersity.
,odr<(uez, :rancisco F211JbG =Is *atin ;&erica in a $o%erty )rap?C
,eproduced4 Wesleyan 8ni%ersity.
,odri+, Dani F2112G ?n &earc$ o/ Pros4eri"y. $rinceton, 654 $rinceton
8ni%ersity $ress.
,odri+, Dani F211/G =Why We *earn 6othin( ro& ,e(ressin( "cono&ic
Growth on $olicies.C ,eproduced, 3ar%ard 8ni%ersity.
-achs, 5erey D and ;ndrew '. Warner F1...G =6atural ,esource Intensity
and "cono&ic GrowthC in !e)elo4men" 4olicies in na"ural resource economies,
Cheltenha&, 8.L. and 6ortha&pton, 'ass.4 "l(ar in association with 86C);D.
Wade, ,obert F1..1G =o)erning "$e Mar:e"< 8conomic 2$eory and "$e Role
o/ =o)ernmen" in 8as" Asian ?ndus"rializa"ion. $rinceton, $rinceton 8ni%ersity
$ress.
1
CHAPTER 2*
&-y 3id Vee%ue'a /ro,t- Co''a0se4)
,icardo 3aus&ann
3ar%ard 8ni%ersity
:rancisco ,odr<(uez
Wesleyan 8ni%ersity
;pril 2J, 2112
1 ()is +a+er is a c)a+ter o. t)e boo2 Venezuela: Anatomy of a collapse, edited by $icardo Haus!ann and
3rancisco $odr%uez. ()e +ro4ect 5as su++orted by t)e Center .or 6nternational 7e0elo+!ent and t)e
7a0id $oc2e.eller Center .or 8atin A!erican tudies at Har0ard 9ni0ersity, t)e 6nstituto de :studios
u+eriores de Ad!inistraci#n (6:A) and t)e Andean 7e0elo+!ent Cor+oration (CA3). ;e t)an2
3ederico turzenne%er as 5ell as con.erence +artici+ants at 6:A and Har0ard .or t)eir co!!ents and
su%%estions. 3rancisco $odr%uez t)an2s t)e <ello%% 6nstitute o. 6nternational tudies o. t)e 9ni0ersity o.
=otre 7a!e and t)e 6nstituto de :studios u+eriores de Ad!inistraci#n .or t)eir .inancial su++ort. $eyes
$odr%uez +ro0ided e*cellent researc) assistance.
2
)5 +troductio
)oward the end o the 1.J1s, Venezuelan econo&ic (rowth e#perienced a
stunnin( re%ersal. -ince the be(innin( o the century, the country had under(one
a sustained econo&ic e#pansion that too+ i ro& bein( one o the poorest
countries in the re(ion to bein( the second0richest one e%en beore the irst oil
boo&.2 In 1.J. that trend &ade an about0ace. 3 Venezuelan non0oil per capita
GD$ declined at an annual rate o 1..K o%er the ensuin( 23 years, or a total
cu&ulati%e decline o 19.2K What is &ore stri+in( is that this occurred despite a
si(niicant incorporation o new wor+ers into the labor orce which should ha%e
ce"eris 4aribus raised per capita inco&e. )hereore, per wor+er GD$ ell at an
annual rate o 1..K in the non0oil sectorH its cu&ulati%e decline was 3/.2K.
)he causes o this collapse are not well understood. It is true that Venezuela
was prey to &any o the actors that characterize resource0dependent econo&ies
such as e#posure to ter&s o trade %olatility, an appreciated e#chan(e rate that is
una%orable to the production o tradables, and a hi(hly ineicient public sector.
7ut all o these actors see&ed to be able to coe#ist with econo&ic (rowth durin(
the &ore than hal a century o sustained e#pansion that preceded the collapse.
Indeed, Venezuela was widely %iewed twenty0i%e years a(o as an e#a&ple o how
to tac+le the de%elop&ent process. :or e#a&ple, in !ctober 1.91 ;&erican
$olitical -cientist $eter 'er+l wrote4 =It appears that the only trail to a
de&ocratic uture or de%elopin( societies &ay be the one ollowed by
Venezuela?Venezuela is a te#tboo+ case o step0by0step pro(ress.C
8nderstandin( the Venezuelan econo&ic collapse has interestin(
i&plications or thin+in( about the de%elop&ent process &ore broadly. It is now
reco(nized that de%elop&ent e#periences %ary widely in ter&s o the ti&in( and
intensity o (rowth episodes Fsee $ritchett, 1..9, 3aus&ann, $ritchett and
,odri+, 211IG. !ne o the &ost interestin( yet understudied sub0classes o
(rowth e#periences is that o countries whose ailure to achie%e hi(her li%in(
standards co&es not ro& an incapacity o attainin( hi(h (rowth rates but ro&
the incapacity to sustain the&. ;r(entina, the -o%iet 8nion and Indonesia are
three cases o countries that were %iewed as de%elop&ent e#a&ples beore the
collapse o their econo&ies. Indeed, out o 1/I countries in the $enn World
)ables, I1 suered decreases o &ore than 21K in their ter&s0o0trade adNusted
per capita GD$s o%er periods o %ariable len(th, and 1/ suered decreases o o%er
/1K. I we were to understand why so&e econo&ies suer collapses in their
(rowth rates, we would (o a lon( way towards e#plainin( the di%er(ence that
appears to characterize the unconditional distribution o world inco&es o%er the
past ity years.
2 7ata are .ro! (ables 9." and A.2.1, /ul!er>()o!as (199").
3 As 5e 5ill discuss in .urt)er detail belo5, esti!ates o. t)e ti!in% and !a%nitude o. t)e decline in
?enezuelan &7@ 0ary 5idely due +ri!arily to di..erences in t)e 0aluation o. t)e oil sector. ()e .i%ures
cited corres+ond to t)e (orn-0ist c)ained inde* built by $odr%uez (200") and discussed in %reater detail in
section 2.
3
)he Venezuelan (rowth e#perience is a co&&on e#a&ple in the by now
established literature re(ardin( the lin+ between poor (rowth peror&ance and
resource abundanceI. Generally, this literature inds that resource abundance
tends to be associated with lower (rowth rates. 'ost recently, -ala0i0'artin,
Doppelhoer and 'iller F211IG show that the raction o GD$ in &inin( is one o
19 %ariables Fout o 2J that are consideredG that can be shown to ha%e robust
eects on (rowth in 7ayesian a%era(es o classical esti&ates deri%ed ro& crosscountry
(rowth re(ressions./
; handul o papers ha%e been concerned speciically with the Venezuelan
(rowth e#perience, a&on( which we count ,odr<(uez and -achs F1...G,
3aus&ann F2111G and 7ello and ,estuccia F2113G. )hese papers dier with
respect to the pri&ary causal actor that is e&phasized. ,odr<(uez and -achs
stress the decline in oil rents, 3aus&ann centers on the increase in credit ris+
and 7ello and ,estuccia hi(hli(ht the increase in (o%ern&ent inter%ention. ;ll
papers share the co&&on characteristic o bein( calibration0oriented approaches
that atte&pt to see whether a stylized &odel can predict the &a(nitude o the
decline. ;s pointed out by ,odr<(uez F211IbG, these results are hi(hly sensiti%e
to chan(es in the data set used or their calibration e#ercise. )his is a result o
the act that there e#ist broad disparities in e#istin( &easures o Venezuelan
GD$, with dierent series showin( discrepancies o up to 3 percenta(e points in
annual (rowth rates or periods (reater than a decade. )hereore, (ettin( the
data ri(ht is a %ital co&ponent o an ade>uate (rowth dia(nosis o the Venezuela
econo&y.
In this paper we show how alternati%e e#planations o the Venezuelan
collapse can be inte(rated in a si&ple theoretical ra&ewor+ which can be used to
understand the relati%e i&portance o each actor in accountin( or the countryAs
econo&ic decline. We illustrate within a three0sector ra&ewor+ how the
econo&y will display dierent reactions to chan(es in oil rents and producti%ity
dependin( on whether it alls in the re(ion o para&eters that lead to co&plete or
inco&plete specialization. We also show that this holds re(ardless o whether
there is capital &obility or not. !ur theoretical ra&ewor+ is used to trace the
decline o Venezuelan (rowth to three pri&ary causes4 FiG the decline in per capita
oil rents FiiG the all in total actor producti%ity and FiiiG the lac+ o specialization
in alternati%e e#ports. We show that the decline in oil rents can be understood as
the product o policy decisions and the e%olution o the international oil &ar+et.
We then (o on to tac+le the harder >uestion o how we can account or the lac+ o
de%elop&ent o an alternati%e e#port industry.
In essence, we ar(ue that VenezuelaAs inability to de%elop an alternati%e
e#port industry has to do with its startin( pattern o specialization. Countries are
able to enter new e#port &ar+ets only i the new (oods are si&ilar to those that it
currently produces. It is only in that way that it can ta+e ad%anta(e o its
specialized inputs, technical +nowled(e, and institutional coni(uration in
" ee in +articular ac)s and ;arner (1999), &elb (19AA), 8ane and (ornell (1999) &yl.ason (2001),
Me)lu!, Moene y (or0i2 (2002), /usby, 6s)a!, @ritc)ett and ;oolcoc2 (2002) and Haus!ann and
$i%obon (2003). 8eder!an and Maloney (200,) %i0e a contrastin% 0ie5.
' 6nterestin%ly, )o5e0er, t)e s)are o. +ri!ary e*+orts in &7@ (ac)s and ;arnerBs ori%inal 0ariable) does
not !a2e it into t)eir list, nor does a du!!y .or oil>e*+ortin% countries.
"
producin( a (ood that it has not produced beore. )he e#istin( patterns o
specialization o countries will ha%e an eect on the e&er(ence o new e#port
(oods. -o&e countries will ha%e the luc+ o producin( (oods that are si&ilar to
&any other hi(h0%alue (oods. )hey will thus ha%e little trouble shitin(
production to those new (oods. !ther countries, in contrast, will occupy sparser
re(ions o the product space, in which ew (oods are suiciently si&ilar to those
that they currently produce. Venezuela M li+e &ost oil e#portin( countries M
occupies such a re(ion, a act that si(niicantly hinders its capacity o shitin( to
new e#port industries.
)he rest o the paper proceeds as ollows. -ection 2 deals with data proble&s
and presents our best esti&ate o the &a(nitude and ti&in( o the collapse.
-ection 3 introduces a si&ple three sector &odel o the econo&y and shows how
to trace the (rowth collapse to the three underlyin( causes &entioned abo%e4 the
decline in oil rents, the all in ):$ and the ailure o an alternati%e e#port sector
to e&er(e. -ection I ar(ues that in order to understand the decline in capital
accu&ulation one &ust understand why an alternati%e set o e#port industries
ailed to e&er(e in response to the decline in oil re%enues. -ections / and 2 then
(o on to e#a&ine theoretically and e&pirically the possible causes behind the lac+
o dyna&is& o the Venezuelan non0oil e#port sector. -ection J concludes.
25 Ho, 'ar$e is t-e co''a0se4
)he &ain i&pedi&ent to the pri&ary tas+ o this paper 0 to elucidate the
e#planatory power o dierent theories in accountin( or the Venezuelan
econo&ic collapse 0 co&es ro& the substantial %ariation that e#ists between
dierent co&&only used data sets with respect to the &a(nitude and ti&in( o
the re%ersal in (rowth. Dierent indicators o GD$ can (i%e broadly dierent
esti&ates o econo&ic peror&ance or Venezuela. ;s shown in )able 1, the
dierences between the a%era(e annual (rowth rates that co&e out o these
indicators can be as lar(e as 3.I percenta(e points o%er decade0lon( periods.
-ortin( out the reasons or these dierences and establishin( the appropriate
data to be used are prere>uisites o any &eanin(ul calibration or (rowth
accountin( e#ercise.
,odr<(uez F211IaG discusses in detail the reasons or the dierences
a&on( these series. 3e concludes that, by and lar(e, the &ain source o
dierences between series co&es ro& the dierent %aluation that is (i%en to the
oil sector in dierent series. )his is not a tri%ial &atter, as per capita oil
production ell by 2IK between 1.J1 and 2111, so wei(hin( it by a hi(her price
will i&ply a lower (rowth rate or the a((re(ate econo&y. ;lternati%e
assu&ptions on base year prices interact with the choice o techni>ue or lin+in(
series ori(inally produced or dierent sub0periods to produce widely disparate
results. )wo other sources o dierences include the use o unoicial esti&ates o
sectoral production by so&e authors and the treat&ent o the discrete Nu&p in
&easured GD$ that occurred with the 1.9I base year chan(e.2
, ()e use o. uno..icial esti!ates a..ects t)e /a+tista and Maddison data. ;it) res+ect to t)e 19A" 4u!+ in
no!inal &7@, t)e 2ey issue is 5)et)er to treat it as %enuine %ro5t) in t)e su++ly o. %oods and ser0ices or
'
)he solution one adopts to the proble& raised by an o%erabundance o
disparate esti&ates o GD$ (rowth depends on the issue one is interested in
tac+lin(. !ne &ay be interested in econo&ic (rowth because o a pri&ary
interest in li%in( standards, or because o a preoccupation with econo&ic
peror&ance. In &ore or&al ter&s, one &ay want to &easure shits o%er ti&e in
the consu&ption possibilities rontier or in the production possibilities rontier.
I prices stay constant, then these two &easures will coincide. 7ut when relati%e
prices e#perience si(niicant chan(es o%er ti&e, they &ay start showin( wide
dierences.J
I one is interested in econo&ic (rowth because one wants to understand
the e%olution o a societyAs capacity to sustain (reater li%in( standards Fshits in
the consu&ption possibilities rontierG, then &ost o the esti&ates in )able 1 are
unli+ely to be useul. )he reason is that these esti&ates all co&e ro& &easures
o GD$ at constant prices, which by deinition do not ta+e into account chan(es
in the purchasin( power o e#ports. 7ut (reat part o the chan(es that occurred
in VenezuelaAs capacity to sustain li%in( standards durin( the second part o the
twentieth century had to do precisely with chan(es in the relati%e price o oil.
:urther&ore, those chan(es can be directly lin+ed to policy decisions, in
particular VenezuelaAs adoption o the !$"C strate(y o curtailin( production in
order to e#ploit international &ar+et power. 6ote that this type o strate(y, i
successul, would tend to cause a decrease in per capita constant price GD$ e%en
while i&pro%in( the countryAs rele%ant consu&ption possibilities. )his see&s
counterintuiti%e or a &easure o li%in( standards.
; &ore appropriate &easure o li%in( standards should include an adNust&ent
or the eect on consu&ption possibilities o chan(es in the ter&s o trade. -uch
a &easure is reported, thou(h oten i(nored, in the $enn World )ables F;ten,
-u&&ers and 3eston, 2111G as the )er&s0o0)rade ;dNusted ,eal GD$ per
Capita. Instead o %aluin( net e#ports at constant prices Fas their co&&only used
real chained GD$ series doesG, this series adds net e#ports in current prices
relati%e to the price inde# o do&estic absorption. )hese nu&bers conir& the
story o VenezuelaAs (rowth collapse, albeit in a &ore nuanced way than so&e o
the &ore co&&only used data. :or the last hal o the twentieth century ta+en as
a whole, Venezuela loo+s, in ter&s o consu&ption possibilities, li+e an a%era(e
*atin ;&erican econo&y4 indeed, its (rowth rate a%era(e is e#actly that o the
re(ion F1.32KG, which is sli(htly lower than the world a%era(e o 2.11K.
3owe%er, this &i#es two %ery distinct periods4 in the irst one, VenezuelaAs GD$
(rowth e#ceeded world and *atin ;&erican (rowth by a substantial &ar(in,
occupyin( the 32th percentile o world (rowth rates and the 2/th percentile o
*atin ;&erican (rowth rates. In the second period, co&prisin( the last twenty
years o the twentieth century, the country ell way bac+ behind the rest o the
world, allin( into the last >uintile o both world and *atin ;&erican (rowth.
-uppose instead that we are interested in per capita GD$ as a &easure o
econo&ic peror&ance Fwe want to esti&ate shits o%er ti&e in the production
to assu!e t)at it corres+onds to +re0iously un!easured %oods. $eaders interested in a .uller discussion o.
t)ese issues are re.erred to $odr%uez (200"a).
7 ee 3is)er and )ell (199A) .or a .ull treat!ent o. t)ese issues.
,
possibilities rontierG. )hen there is no co&pellin( reason to use a ter&s o trade
adNusted series. Indeed, as one would be pri&arily interested in deco&posin(
these shits in chan(es in technolo(y and chan(es in inputs, a ter&s o trade
adNust&ent would add unnecessary noise. 7ut then it see&s that we are stuc+
with the broad %ariation in dierent indicators that arises as a result o usin(
alternati%e base years.
; &ore producti%e route to ta+e i atte&ptin( to understand shits in
production possibilities would be to loo+ separately at production in the oil and
non0oil sectors, thus circu&%entin( the issue o choice o a relati%e price to %alue
these two sectors. ;s shown in :i(ures 1 and 2, choice o base year is relati%ely
irrele%ant when one loo+s at (rowth in these sectors separately, in contrast to
what happens when one loo+s at a((re(ate (rowth. In essence, the proble& is
that a constant price indicator o GD$ literally &i#es apples and oran(es or, &ore
appropriately, barrels and arepas. -eparatin( these series allows us to see that
we are loo+in( at two distinct issues4 a collapse in per capita oil production,
which ell by &ore than two0thirds between 1./J and 2111, and a less
pronounced yet si(niicant decline in non0oil per capita GD$, which ell by
appro#i&ately one0ith between 1.J9 and 2111. )able 3 shows these nu&bers,
as well as the per0wor+er i(ures, which are less pronounced or the oil sector
FI/0I.KG, but &ore pronounced or the non0oil sector F320I1KG. )hese nu&bers
(i%e us the &a(nitude o the decline that we will atte&pt to account or.
In su&, our ar(u&ent is that the decline in oil and non0oil GD$ are two
separate pheno&ena with distinct causes, and that there is &uch to be (ained by
analyzin( the& separately. Durin( the period correspondin( to the decline the
Venezuelan oil industry was al&ost co&pletely publicly owned, with production
and input use the results o e#plicit policy decisions. )he opposite is true o the
non0oil sector, which was predo&inantly owned and operated by the pri%ate
sector. )his is not to say that there was no relationship between the peror&ance
o both sectors M indeed, we will ar(ue >uite the contrary M but that analytically it
will be useul to separate their discussion, tryin( to understand what the &ain
deter&inants o the countryAs petroleu& policy were and usin( these production
decisions as an input or the study o the non0oil sectorAs peror&ance. 'anzano
F211JG discusses this issueH in the rest o this paper we concentrate on
understandin( the causes o the decline in non0oil GD$, touchin( when necessary
on the role that the decline in oil iscal re%enue has played in it.
65 Sources o( $ro,t-5
)able / presents a standard (rowth accountin( deco&position or the
Venezuelan non0oil sector co%erin( the 1./J011 period as well as the two precollapse
and collapse sub0periods. !ur deco&position separates chan(es in
output into the contribution o three types o capital Fresidential, non0residential
and &achinery and e>uip&entG, our types o labor Funschooled and classiied by
pri&ary, secondary and hi(her schoolin( attain&entG and )otal :actor
$roducti%ity F):$G. )he annual percenta(e (rowth rate in the non0oil sector
durin( the period o study is 01..1K. )his decline occurs despite a substantial
(rowth in the s+ill0adNusted rate o labor orce participation, which by itsel would
7
ha%e (enerated an increase o 1.J/ percenta(e points in the (rowth rate. In other
words, the &a(nitude o the decline to be accounted or corresponds to an annual
all in the per0Fs+ill0adNustedG wor+er GD$ ratio o 1.2/ percenta(e points. )his
deco&poses al&ost e%enly, accordin( to our (rowth accountin( e#ercise, in a
contribution o ):$ (rowth o 01.9I percenta(e points and a contribution o the
a((re(ate capital stoc+ o 01.91 percenta(e points.
6ote that this e#ercise understates the eect on (rowth o the decline in
producti%ity or at least two reasons. !n the one hand, the stoc+ o capital reacts
endo(enously to chan(es in the rate o ):$ (rowth, so that part o the decline in
the capital stoc+ should be e#plainable as a response to the decline in
producti%ity F3ulten, 1.92G. :urther&ore, the bench&ar+ a(ainst which a
certain rate o ):$ (rowth should be &easured is the (rowth o production
techni>ues a%ailable to the econo&y at a (i%en point in ti&e. $rescott F2111G has
su((ested that an appropriate bench&ar+ is 2K, which is not too dierent ro&
the rate o ):$ (rowth attained by Venezuela durin( the pre0collapse period
F1./J0J9G o 1.J9K. )hereore, it appears that producti%ity (rowth played an
i&portant role in the Venezuelan econo&ic collapse. 9
3owe%er, the data also su((est that there is an i&portant autono&ous role
or capital accu&ulation. In a standard one0(ood ,a&sey econo&y, the capitallabor
ratio will respond to chan(es in producti%ity with an elasticity o 1UF10VG,
with V denotin( the capital share. 7ut as we can see in )able /, the Venezuelan
Capital0*abor ratio declines at an annual rate o 2.IIK, si(niicantly hi(her than
what would be e#pected as a result o the decline in producti%ity with a capital
share o 1U3 FWF3U2GXF01.9IGY01.22G.. In other words, the esti&ates o )able /
i&ply that &ore than hal o the capitalAs stoc+As decline cannot be e#plained as a
si&ple response to the all in producti%ity.
-ection I is concerned with atte&ptin( to understand the collapse in the
capital stoc+, (i%en the econo&yAs producti%ity peror&ance. We return to the
issue o producti%ity (rowth in section /.
75 T-e dec'ie i ca0ita' accumu'atio
It see&s lo(ical that any atte&pt to understand an apparently une#plained
collapse in capital accu&ulation should ta+e as its departure point the &ost
salient act about the e%olution o the Venezuelan econo&y durin( the past
twenty i%e years, which is the steep decline in oil rents ro& the le%els they
A 6t could be ar%ued t)at, by not ta2in% into account c)an%es o0er ti!e in t)e -uality o. t)e ca+ital stoc2, 5e
)a0e underesti!ated t)e contribution o. e!bodied tec)nolo%ical c)an%e to t)e %ro5t) rate. :sti!atin%
e!bodied tec)nolo%ical c)an%e re-uires +rice indices o. -uality>ad4usted in0est!ent %oods as calculated by
&ordon (19A3) or &reen5ood Herco5itz and <rusell (1997), 5)ic) are una0ailable .or t)e ?enezuelan
econo!y. Ho5e0er, it is unli2ely t)at t)is could be a !a4or contributin% .actor, as ?enezuelan %ross
in0est!ent rates durin% t)e +eriod o. study 5ere barely enou%) to co0er de+reciation durin% t)e 197A>01
+eriod. :0en in t)e case o. t)e 9, 5)ere t)e %ro5t) rate o. e-ui+!ent ca+ital 5as ".37C .or t)e 19"9>A3
+eriod, t)e resultin% underesti!ation o. t)e contribution o. t)e ca+ital stoc2 to %ro5t) due to e!bodied
tec)nolo%ical c)an%e )as been calculated at 0.3 annual +ercenta%e +oints (Hulten, 1992).
9 6. one uses t)e )istorical ca+ital s)are, t)e +redicted decline in t)e ca+ital stoc2 increases to 1.92C, still
s)ort o. t)e )istorical decline. 1n 5)y national accounts data !ay o0eresti!ate ca+ital s)ares in
de0elo+in% countries, see &ollin (2002)
A
reached durin( the 1.J1s. ;s shown in :i(ure 3, per capita iscal oil re%enues
rose steadily until the 1.J1s, when they started declinin(H by the 1..1s they had
reached less than one third o their 1.J1s %alue but were also substantially lower
than any le%el the country had e#perienced since the 1.I1s. Intuiti%ely, it &a+es
sense to e#pect a contraction o this &a(nitude in the countryAs &ain source o
e#port and iscal re%enue to produce a si(niicant decline in capital accu&ulation.
3owe%er, the idea that an ad%erse shoc+ to resource e#ports should ha%e any
eect on the non0oil producin( sector is actually >uite hard to Nustiy in an
e>uilibriu& &odel. )he reason is that, in an open econo&y that is also
inco&pletely specialized, actor prices will be deter&ined by international prices.
-ince non0oil GD$ &ust e>ual non0oil actor inco&e, the act that the do&estic
econo&y cannot aect actor prices i&plies that whate%er happens in the oil
sector will ha%e no eect on the le%el o non0oil GD$.
)o i# ideas, consider the ollowin( si&ple three sector &odel proposed by
3aus&ann and ,i(obon F2113G. In that &odel, there are two sectors Ftradables
and non0tradablesG that use two actors o production Fcapital and laborG plus a
third sector that is si&ply &odeled as an e#o(enous source o e#port re%enues
Fthe oil sectorG. )he &odel also has an open capital account with an international
interest rate that is (i%en by r . *et us assu&e or si&plicity that both sectors
ha%e the sa&e Cobb0Dou(las technolo(y, so that dierences in production will be
dri%en co&pletely by dierences in relati%e prices. )he production unctions are
thus t t t Y = AK L1 and = 1
nt nt nt Y AK L . )he labor orce is i#ed at L and per
capita oil re%enues are g , which we ta+e to be e#o(enous and spent totally on
non0tradables by the (o%ern&ent. Consu&ers ha%e Cobb0Dou(las preerences
( , ) = 1 t nt t nt U C C C C . Consu&ers own all labor as well as an e#o(enous per
capita stoc+ o capital
h k which is unrelated to the do&estic capital stoc+. )he
solution to this syste&, pro%ided inco&plete specialization, is (i%en by the
solution to the ollowin( syste& o si# e>uations in si# un+nowns4
= t t w (1 )AK L F1G
= nt nt nt w P (1 )AK L F2G
= 1 1
t t r AK L F3G
= 1 1
nt nt t r P AK L FIG
L L L t nt + = F/G P AK L ( w rk g)L h
nt nt nt = + + 1 ( ) F2G
It is easy to note that wa(es and relati%e prices are constant in the solution to
this syste&. *ettin( i {t nt}
L
K
k
i
i
i = , = , , e>uations F1G0FIG i&ply that
1
1

= =

A
k k r t nt , which &eans that the a((re(ate capital stoc+ will be (i%en by4
9
L
A
K K K r t nt
1
1

= + =

, FJG
which is in%ariant to the le%el o oil re%enues. ,e%enue shoc+s are
acco&&odated by chan(es in the allocation o labor, so that prices, capital stoc+s
and GD$ re&ain stable. )he e>uilibriu& e&ploy&ent in non0tradables will be
(i%en by4
( )

+
= +
1
1

A
A r
L L g rk
h
nt . F9G
)he &odel with inco&plete specialization has i&plications that are in star+
contrast with the Venezuelan e#perience. In this &odel, neither the capital stoc+,
relati%e prices nor a((re(ate non0oil GD$ %ary with g . )he oil sector is si&ply
ta((ed on to the rest o the econo&y, which unctions independently o the
resource sector. Chan(es in oil GD$ do ha%e an eect on consu&ption M throu(h
lower i&ports M but do not aect the capacity o the rest o the econo&y to
(enerate re%enue.
)his result does not depend on the assu&ption o perect capital &obility. ;s
we show in the ;ppendi#, a &odel characterized by a closed capital account
deli%ers the sa&e results. )he reason is that when the capital account is closed
the lon( run rate o return is deter&ined by the steady state e>uilibriu&
conditions. It will depend on sa%in(s and depreciation rates as well as the
para&eters o the production unction, but not on oil re%enues. )hereore, since
the steady0state return to capital is (i%en, we can e#tend the abo%e reasonin( to
show that the capital stoc+, relati%e prices and a((re(ate non0oil GD$ will still be
in%ariant to resource earnin(s.
3owe%er, note what happens when oil re%enues rise beyond a certain le%el.
;ccordin( to e>uation FJG, when g reaches ( ) h
O rk
A
g A r

=
1
D 1 (1 ) ,
the whole o the labor orce is allocated to non0tradables production. 7eyond
that point, tradables production disappears and FJG and F9G no lon(er (i%e us the
solution. F1G and F3G now beco&e ine>ualities and the a((re(ate capital stoc+ is
(i%en by4 K K (g rk )L h
!

+

= =
1 (1 )
. F.G
;s e>uation F.G indicates, the capital stoc+ is now ully responsi%e to
chan(es in the le%el o oil re%enues. )he response is illustrated in :i(ure I, which
shows how the capital stoc+ responds to dierent le%els o oil re%enues. ;t low
le%els o oil re%enues, the capital stoc+ is co&pletely insensiti%e to increases in oil
10
re%enues. 7ut ater gA is surpassed, chan(es in oil re%enues are con%erted with a
unit elasticity into chan(es in the capital stoc+. )hese eects are si&ilar when
there is no capital &obility Fsee the ;ppendi# or detailsG..11
)his e#ercise leads us to the conclusion that co&plete specialization is a
necessary in(redient o an e#planation o the Venezuelan econo&ic collapse. )he
collapse in non0oil GD$ that coincides historically with the decline in oil re%enues
can be e#plained only i we assu&e that Venezuela was unable to reallocate
actors to the production o other tardeable (oods because alternati%e tradable
sectors were none#istent. 3ad there e#isted an alternati%e e#port sector in
Venezuela in 1.91, the (rowth o that sector would ha%e played a stabilizin( role
in the countryAs reaction to allin( oil re%enues. In its absence, the do&estic
econo&y had to react to ad%erse oil shoc+s by contractions in do&estic
production. )heory predicts that this process will continue until FiG the all in oil
re%enues is halted FiiG the real e#chan(e rate alls suiciently to &a+e the
production o non0oil tradables co&petiti%e.
)he &odel also has %ery interestin( policy i&plications. *et the le%els o
producti%ity o the tradables and non0tradables industry dier, and let the
production unction or the non0tradables industry now be = 1
nt nt nt Y "K L . *et
us assu&e that there is a set o (o%ern&ent policies that can ha%e an eect on the
le%el o tradables producti%ity A. :or si&plicity, assu&e that these policies are
costless. It is easy to chec+ that the abo%e deri%ed solutions or the capital stoc+s
are not aected4 under inco&plete specialization
"
P A nt = and thus B is still (i%en
by F.G. -ince the capital stoc+ le%els under co&plete specialization do not depend
on producti%ity, they are also unaected by this chan(e.
In :i(ure I we ha%e also plotted the eect o an increase in tradables
producti%ity o 21K. )his increase &a+es production o tradables +ic+ in at a
&uch hi(her le%el o oil re%enues and thus halts the decline in the capital stoc+
(enerated by urther decreases in oil rents. Without the policy, a decline in oil
re%enues ro& I111 to 1111 1.9I 8-Z leads to a decline o /1K in the per
wor+er capital stoc+, but with the increase in producti%ity, it (enerates a decline
o only 22K in the capital stoc+.
What is surprisin( about this result is that it shows that a policy oriented
towards increasin( producti%ity in a %ery s&all Fperhaps e%en none#istentG sector
can ha%e a dra&atic eect on the path o the capital stoc+ and GD$. )he eects
(o beyond the tradables sector because in e>uilibriu& the wa(e rate is raised in
both industries. 6ote that, in contrast, increases in producti%ity o the apparently
&ore si(niicant non0tradables industry ha%e no e>ui%alent eects on the path o
10 ; possible approach or distin(uishin( between the two &odels would be to use F.G and
F;.IG to calibrate the beha%ior o the econo&yAs capital stoc+ and to co&parati%ely e%aluate the
peror&ance o the &odels. !ur atte&pts to do so ha%e not produced satisactory results, &ainly
due to the act that there is an i&portant ran(e o %ariation or oil re%enues or which the &odels
will ha%e %ery si&ilar predictions. ;t least ro& the point o %iew o understandin( the relati%e
&a(nitudes o the decline in capital accu&ulation, these &odels appear to be suiciently close to
obser%ational e>ui%alence so as to raise the >uestion o the utility o urther atte&pts to
distin(uish between the&.
11
capital accu&ulation. ;ny actor that increases the producti%ity o the tradables
industry is li+ely to ha%e ar reachin( eects on welare and econo&ic (rowth.
85 &-y did9t Vee%ue'a de"e'o0 a a'terati"e e:0ort idustry4
)he discussion presented abo%e has established the +ey role played by the
non0oil e#port sector in attenuatin( the decline in capital accu&ulation (enerated
by allin( oil re%enues. It su((ests that understandin( the nature o the
Venezuelan e#port sector is %ital or an analysis o VenezuelaAs (rowth prospects.
)he ollowin( discussion is intended to hi(hli(ht certain aspects o this sector
that can help us understand its peror&ance durin( the decline o oil rents.
85) No.oi' e:0ort 0er(ormace sice t-e );<=s5
; irst loo+ at e#port peror&ance since the 1.91ssee&s to su((est that there
has been so&e (rowth o non0oil e#ports durin( the period o collapse, as would
be e#pected by the &odels discussed in the pre%ious section. 3owe%er, the
(rowth has been une#ceptional by Nust about any standard. $er capita real nonoil
e#ports F&easured in 2111 8-ZG ha%e (rown by I2K since 1.92. )heir share
o total e#ports (rew ro& J.1 to 1..JK o total e#ports, due &ainly to a decline in
oil e#ports. )he annual real (rowth rate o per capita e#ports, at 2.11K, is the
third lowest in the (roup o 11 oil e#porters that suered i&portant collapses in
oil e#ports durin( the last 21 years F)able 2G. "%en three0iths o that (rowth has
been in sectors such as iron ore, petro0che&icals and alu&inu& that hea%ily rely
on the econo&yAs co&parati%e ad%anta(e in petroleu&, natural resources and
ener(y. ;lthou(h non0ener(y intensi%e non0oil e#ports ha%e (rown at a
satisactory rate o /.2K a year, this is partly due to the act that it was an
incredibly s&all sector, pro%idin( only Z3. per capita in e#port re%enue in 1.92.
)his (rowth is also surprisin(ly wea+ i one %iews it in the li(ht o the
considerable real e#chan(e rate depreciation that occurred between the early
ei(hties and the late nineties4 as shown in :i(ure J, the Venezuelan real e#chan(e
rate depreciated by &ore than /1K between the early ei(hties and the &idnineties,
beore appreciatin( a(ain in the late nineties under the Caldera0ChD%ez
e#chan(e rate bands policy. In act, between 1.93 and 1.9., the country had a
&ultiple e#chan(e rate re(i&e with dierentials between the botto& and the top
rate well in e#cess o 111 percent. "#ports were not Nust sti&ulated by the le%el o
the real e#chan(e rate, but also by the possibility o arbitra(in( across e#chan(e
rates. In ;pril 1.9. the e#chan(e rate re(i&e was uniied in the conte#t o a lar(e
real depreciation. 6on0oil e#ports sta(nated ater that su((estin( that arbitra(e
was an i&portant co&ponent o the e#port peror&ance in the 1.91s.
;&on( the ten oil0e#portin( countries that suered si(niicant e#port
collapses since 1.91 listed in )able 2, only two F'e#ico and IndonesiaG were able
to e#peri&ent a suiciently stron( (rowth in their non0oil e#port sector to
co&pensate or the decline o oil e#ports and (enerate an o%erall positi%e e#port
(rowth. F"cuador is a third case, in which the e#pansion o non0oil e#ports
appears to ha%e e#actly co&pensated the decline in oil e#ports. VenezuelaAs
(rowth rate o non0oil e#ports is one0si#th that o 'e#ico and one0ourth that o
12
Indonesia. :i(ures /;0/c show a &ore lon(0run co&parison o Venezuela,
Indonesia and 'e#ico. )hese i(ures show stri+in( dierences in the beha%ior o
the three countries4 while in 'e#ico and Indonesia the collapse in oil e#ports was
acco&panied by a substantial e#pansion in the secondary e#ports sectors, this did
not happen in Venezuela.
It is i&portant to bear in &ind that the period that we reer to coincided with
an unprecedented e#pansion o world trade. :i(ure 9 controls or this act by
calculatin( the e%olution o VenezuelaAs &edian &ar+et share in non0ener(y
intensi%e sectors. ;lthou(h this series does display an upward trend, it also
shows that VenezuelaAs &ar+et participation in non0ener(y intensi%e sectors has
not increased since the early 1..1s.
:i(ure . shows a deco&position o VenezuelaAs e#port (rowth by re(ion o
trade partner. 7y and lar(e, the &ain contribution to the (rowth o Venezuelan
non0oil e#ports co&es ro& its (rowth in trade with &e&bers o the ;ndean $act
and the G03. )he ;ndean $act is a Custo&s 8nion established in 1../ that arose
out o a :ree )rade ;rea or&ed two years earlier and includes 7oli%ia, Colo&bia,
"cuador, $eru and VenezuelaH the G03 is a :ree )rade ;(ree&ent that co%ers
'e#ico, Venezuela and Colo&bia. 7y and lar(e, this (rowth has been
concentrated in the Colo&bian &ar+et, i&posin( considerable li&itations on
&ar+et size. :i(ure . also shows that the i&pressi%e (rowth o Venezuelan nonoil
e#ports in the &id0nineties was re%ersed with the trade and e#chan(e
restrictions that Venezuela i&posed ater 1.... )wo +ey decisions are worth
&entionin(4 the i&position o restrictions on cross0border transportation o
&erchandises by Venezuela on 'ay 12, 1..., which re>uires reloadin(
&erchandise at the border so that it is at all ti&es transported by do&estic
operators and the subse>uent i&position o e#chan(e controls in 2113, with the
ensuin( te&porary paralization o &ore than 91K o Colo&bian0Venezuelan
trade and the cessation o pri%ate debt pay&ents between the two countries. 11
)he cross0border controls as well as restrictions by Venezuela on the i&ports o
(arlic and onions ro& $eru and coee ro& Colo&bia ha%e led the ;ndean
Co&&unity to authorize these countries to i&pose retaliatory taris on
Venezuela.12 )he eect o these decisions (oes beyond their direct i&pact on the
incenti%es to e#port in particular industries, but aect the de(ree o uncertainty
re(ardin( policy stability with respect to conditions or open international trade.
In su&, Venezuela has e#perienced positi%e but une#ceptional non0oil e#port
(rowth since the ei(hties. )he data also su((est that FiG it is concentrated in
ener(y0intensi%e products which are Nust another way o e#ploitin( VenezuelaAs
co&parati%e ad%anta(e in oilH FiiG &easured in relation to world trade, it has
sta(nated since the early nineties, and FiiiG it is concentrated in trade with the
;ndean Co&&unity and the G03, and thus it is li&ited by the s&all local &ar+et
size in the li&ited set o products that Venezuela e#ports and is hi(hly sensiti%e to
chan(es in trade policy such as those that ha%e occurred since 1.... With the
reco%ery in oil re%enues since 211I, VenezuelaAs non0oil e#port peror&ance has
11 ee &utiErrez (2002) on cross>border trans+ort and :69 (2003) on t)e e..ect o. e*c)an%e controls on
Colo!bo>?enezuelan trade.
12 ee &utiErrez (2002), +. 1'.
13
(one in re%erse. In this conte#t, it is not ob%ious that a non0oil e#port sector
e#ists that can buer non0oil output ro& the econo&y0wide eects o an
e%entual decline in oil re%enues.
852 &-ere do e, e:0orts come (rom4
We can su&&arize our ar(u&ent to this point as ollows. )here are two
sources o poor Venezuelan (rowth in the non0oil sector4 the decline in
producti%ity and the decline in the capital stoc+ o%er and abo%e what one would
e#pect solely ro& the all in producti%ity. )he latter cannot be e#plained as a
response to a all in oil re%enues unless we are willin( to assu&e that Venezuela is
ade>uately characterized as a co&pletely specialized econo&y. Co&plete
specialization occurs when the econo&y lac+s an alternati%e set o e#port (oods
to which it can &o%e resources. )he inability to de%elop these new (oods is thus
at the roots o a consistent account o VenezuelaAs (rowth proble&s.
While this e#planation is internally consistent, it still lea%es unanswered the
underlyin( >uestion o why Venezuela was unable to de%elop a set o alternati%e
e#port (oods to which it could shit production when it was hit by the e#port
collapse. 'any countries ha%e seen &assi%e chan(es in its pattern o
specialization o%er ti&e, whereby resources are shited to pre%iously ine#istent
industries. Indeed, this type o structural transor&ation has been at the roots o
the chan(e e#perienced by "ast ;sian countries durin( the postwar period ro&
a(ricultural producers to e#porters o uns+illed0labor intensi%e &anuactures
and, in so&e cases, to e#porters o hi(h0technolo(y products. Why was
Venezuela incapable o e#periencin( a si&ilar producti%e transor&ation?
;nswerin( this >uestion re>uires a theory o the e%olution o co&parati%e
ad%anta(e. ,e(rettably, con%entional &odels o trade and technolo(ical chan(e
ha%e little to say about the or& that this e%olution can be e#pected to ta+e. )he
3ec+scher0!hlin &odel e#plains the pattern o specialization as a conse>uence o
chan(es in actor endow&ents but ta+es producti%ity in (oods as a (i%en. 'ost
do&inant approaches to &odelin( producti%ity (rowth Fe.(., ;(hion and 3owitt,
1..2, Gross&an and 3elp&an, 1..1G assu&e ho&o(eneity across products and
are thus inappropriate or studyin( the e&er(ence o particular industries. What
we re>uire is a theory that will help us understand why so&e countries will
beco&e &ore producti%e in producin( particular sets o (oods, and how that
depends on their e#istin( pattern o specialization.
-uch a theory has been proposed recently by 3aus&ann and Llin(er F2112,
211JG. )hese authors ha%e shown that the density o the product space, in a
sense which can be precisely deined, is a +ey deter&inant o the uture e%olution
o co&parati%e ad%anta(e. Countries are &ore li+ely to de%elop a co&parati%e
ad%anta(e in (oods that are =closerC to the (oods that they currently produce.
)heoretically, we would say that two (oods are close to each other i the
specialized inputs necessary to produce one can also be used to produce the
other. )he proble& is that these specialized inputs &ay be %ery hard to &easure,
as they include not only specialized labor and capital but access to particular
&ar+ets, public inrastructure pro%ision, or the pro%ision o speciic or&s o
property ri(hts protection. )hereore, 3aus&ann and Llin(er su((est usin( a
1"
purely e&pirical &easure o e#port si&ilarity (i%en by the relati%e re>uency with
which these (oods are e#ported to(ether. 'ore or&ally, product si&ilarity is
(i%en by the &ini&u& o the conditional probabilities o e#portin( one (ood
(i%en that you are e#portin( the other one4 !in{ ( F ), ( F )} i#t it #t #t it = p $ $ p $ $ F1G
where ( F ) it #t p $ $ is the probability that you ha%e re%ealed co&parati%e
ad%anta(e in (ood i at ti&e " (i%en that you ha%e re%ealed co&parati%e ad%anta(e
in (ood ' at ti&e ".
)his &easure o pro#i&ity can be used to build an indicator o the %alue o
une#ploited opportunities or e#port that can be particularly useul in our
conte#t. 3aus&ann and Llin(er su((est precisely such a &easure, which they
call a countryAs =open orest.C )he idea o this &easure is to capture the
sophistication o the (oods that an econo&y could produce with its producti%e
assets. )he &easure is built as a wei(hted a%era(e o the sophistication o all
potential e#port (oods, where the wei(hts are (i%en by the distance between these
(oods and the econo&yAs present e#port bas+et. )he &easure o distance in the
product space is calculated based on the re>uency with which particular (oodpairs
are e#ported by the sa&e country, while the &easure o sophistication is
(i%en by the a%era(e inco&e o the countries that e#port that (ood, which we call
PRO!*'", as ori(inally proposed by 3aus&ann, 3wan( and ,odri+ F211/G.
'ore or&ally, let Cc'" be an indicator %ariable that ta+es the %alue 1 i country c
has a re%ealed co&parati%e ad%anta(e (reater than 1 in (ood ' at ti&e " and 1
otherwise. )hen we can deine a &easure o the =option %alueC o a countryAs
une#ploited e#port opportunities as4
=
i #
c#t cit #t
i
i#t
i#t
ct open G forest (1 $ )$ P%O&Y

F2G
o4enD/ores" thus captures the le#ibility o an econo&yAs e#port bas+et, in
that it &easures the %alue o the (oods that it could be producin( with the inputs
that it currently de%otes to its e#port production. o4enD/ores" is particularly
appropriate or thin+in( about an econo&yAs capacity to react to ad%erse e#port
shoc+s. )o i# ideas, suppose that an econo&yAs e#ports o (ood i were to
disappear o%erni(ht. )his could happen, or e#a&ple, as a result o the
e#haustion o a natural resource, o the e&er(ence o a new lower0cost supplier in
international &ar+ets or as a result o the in%ention o a cheap substitute or that
(ood. We +now that this econo&y &ust shit resources into a new e#port sector.
i#t can be interpreted as our best (uess o the probability that that country will
shit resources into (ood ', and (1 ) i#t c#t $ can be seen as our best (uess o the
probability that it will e#port a (ood ' that it is not already e#portin(.
i#t c#t #t (1 $ )P%O&Y is the e#pected %alue F&easured in ter&s o the sophistication
o e#portsG ro& e#portin( that (ood, &a+in( o4enD/ores" the wei(hted a%era(e
o that e#pected %alue o%er all (oods that the econo&y currently e#ports. In other
1'
words, o4enD/ores" relects the e#pected %alue o an econo&yAs ne#t best e#port
bas+et i it &o%ed out o its current bas+et o e#ports.
;s shown in :i(ure 11, VenezuelaAs o4enD/ores" is re&ar+ably low e%en by
the standards o its nei(hbourin( countries. In 1.91, at the start o VenezuelaAs
(rowth collapse, the countryAs o4enD/ores" stood at Nust 13.9K o the world
a%era(e and 1/.JK o the -outh ;&erican a%era(e. It also had a substantially
lower %alue o o4enD/ores" than its three nei(hbors, Colo&bia, 7razil and Guyana
Fthou(h it surpassed Guyana in the &id0ei(htiesG. Interestin(ly, it is also
si(niicantly lower than 'e#icoAs, which &ay account or 'e#icoAs &uch hi(her
capacity to react to its decline in oil re%enues in the ei(hties.
VenezuelaAs low o4enD/ores" appears to be a co&&on characteristic o oil
e#portin( countries. :i(ure 11 presents the scatter plot o o4enD/ores" a(ainst
per capita GD$ in 1.J/. :uel0e#portin( countries 0 countries which had a share
o uel e#ports in total e#ports (reater than 91K in 1.J/ 0 are denoted with an =#C
in the scatter plot. )hese countries ha%e si(niicantly lower le%els o open orests
than would be predicted by their le%el o inco&e. Indeed, the a%era(e open orest
or a uel e#porter is 2.1J lo( points lower than or a non0uel e#porter, e%en ater
controllin( or dierences in inco&e le%els. In other words, it appears that the set
o specialized inputs necessary or the production o oil are not %ery useul when
it co&es to producin( other hi(h0%alue (oods.
:i(ure 12 deco&poses VenezuelaAs o4enD/ores" into the contribution to the
inde# o e%ery product that is not currently bein( produced Feach product is one
-I)C I0di(it cate(ory, so that these (raphs represent up to 1112 productsG. )he
(raph plots in%erse density Fa &easure o how ar each (ood is ro& the current
production bas+etG a(ainst a &easure o sophistication, (i%en by the dierence
between the (oodAs $,!DP &easure and the a%era(e $,!DP o the econo&yAs
e#ports. )he deco&position is presented or three years4 1.91, 1..1, and 2111.
;s this i(ure shows, the products that Venezuela could produce but was not
producin( and were nearest to their current production bas+et Fin ter&s o
in%erse densityG were cereals and capital intensi%e (oods, the bul+ o which had a
lower le%el o sophistication F$,!DPG than current Venezuelan e#ports. )he two
nearest clusters o hi(her %alue (oods were che&icals and &achinery. 3owe%er,
both o these (roups were a si(niicant distance apart, at a%era(e in%erse
densities o 3.2/ and 3.J/ respecti%ely. 7y co&parison, &any upscale Chinese
alternati%e e#ports are within an in%erse density o 1 in this sa&e scale
F3aus&ann and Llin(er, 2112G. ;s the scale is lo(arith&ic, this can be
interpreted as showin( that upscale Venezuelan &anuacturin( e#ports in 1.91
were al&ost our ti&es less si&ilar to current products than upscale Chinese
alternati%e e#ports. :i(ure 11 also shows that by 2111, the distance between
VenezuelaAs e#ports and alternati%e upscale e#ports has declined M to 2.I/ and
2.21 respecti%ely or che&icals and &achinery, but were still >uite ar by the
standards o &ore dyna&ic econo&ies li+e ChinaAs.
;lthou(h VenezuelaAs low o4enD/ores" %alue is su((esti%e o its low e#port
le#ibility, how &uch do we +now about the eect o e#port le#ibility on the
&a(nitude o (rowth collapses? 3aus&ann, ,odr<(uez and Wa(ner ha%e recently
analyzed this issue in an e&pirical study o /3/ episodes in which (rowth
decelerates to ne(ati%e rates. )heir study analyzes both the causes or these
1,
(rowth decelaerations as well as the deter&inants o the speed o reco%ery.
Interestin(ly, they ind that o4enD/ores" is a >uantitati%ely stron( and robust
predictor o the probability o reco%ery ro& a recession. )heir e&pirical e#ercise
uses the statistical &ethodolo(y o sur%i%al analysis to study the deter&inants o
the duration o econo&ic crises. )he &ethod o duration re(ressions allows the&
to address a proble& that pla(ues the e#istin( literature, which is the lac+ o a
syste&atic &ethod or dealin( with the proble& o censorin( M crises that ha%e
not ended by the &ost recent year o data. I we ha%e n countries with ",E"n
crises duration, the duration re(ression ra&ewor+ concentrates on indin( the
esti&ate o the probability density unction /F"G with associated sur%i%al ti&e &F"G
that &a#i&izes the li+elihood unction4
=
i
i i
L f (t ) i '(t )1 i F3G
where [i is an indicator %ariable that ta+es the %alue 1 i the pea+ per wor+er
GD$ has not been reached by the last obser%ation in the sa&ple. )he authors
study the deter&inants o crisis duration both under alternati%e para&etric
unctional or&s or /F"G and by non0para&etric esti&ation o /F"G, and address
country le%el hetero(eneity by railty adNust&ents and %ariance0corrected
esti&ators. In )able J we re%isit their results. In contrast to their speciication,
howe%er, we include a du&&y %ariable or oil e#portin( countries. ;s can be
seen in colu&n F1G, the probability o reco%ery ro& a crisis is substantially lower
or oil than or non0oil e#portin( countries. )he &a(nitude is substantial4 the
probability o reco%ery ro& a crisis Fthe hazard rateG in any particular year is
/..IK lo9er F10e#pF0..12GG on a%era(e or oil0e#portin( countries. Colu&ns F2G
and F3G show that this eect is robust >uantitati%ely and statistically to
controllin( or initial per wor+in( a(e person GD$ and continent and decade
du&&ies. 3owe%er, as soon as we control or o4enD/ores" Fcolu&n FIGG the
correlation between the oil e#portin( du&&y and crisis duration beco&es
insi(niicant and0indeed, chan(es si(n. In colu&ns F/G and F2G we introduce a set
o alternati%e controls or de&ocracy, ine>uality, social conlict, sudden stopa,
and inlation, none o which are si(niicant. !ur +ey result is not aected4
o4enD/ores" is a robust predictor o crisis duration, and tru&ps the eect o oil
e#portin(.
)able 9 e#plores the e#tent to which the peror&ance o the o4enD/ores"
%ariable is deter&ined by the &easure o product sophistication $,!DP, by
presentin( results or si&ilar re(ressions in which the o4enD/ores" indicator is
unwei(hted by any sophistication &easure. )his is a closer &easure to the density
o the space o une#ploited proit opportunities. In colu&n F1G we include both
o4enD/ores" and the density %ariable, and show that the &easures are so collinear
that the re(ression cannot identiy separate eects. In colu&n F2G we drop
o4enD/ores" and +eep the density indicator and ind that its eect is indeed
robust and tru&ps the oil e#portin( du&&y. Colu&ns F3G and FIG introduce the
sa&e set o controls as the last two colu&ns o )able J and ind that the
robustness o the density indicator re&ains. Indeed, the oil e#portin( du&&y is
now close to statistical si(niicance FpY.111G, with a 4osi"i)e si(n, indicatin( that
i an oil e#porter were to &ana(e to ha%e a si&ilar density indicator than a
17
co&parable non0oil e#porter, we &ay e%en e#pect it to ha%e a aster reco%ery.
)his does not happen in (eneral because oil e#porters ha%e lower densities.
)he results o )able J i&ply a considerable eect o o4enD/ores" on the
probability o reco%ery ro& crises. In order to understand the &a(nitude o this
eect, note that a coeicient o ./J/ Fthe esti&ate ro& colu&n FIG o )able JG
i&plies that a one0standard de%iation increase in o4enD/ores" (enerates an
increase o .1./K in the probability o lea%in( the crisis
Fe#pF.//JGXsdFo4enD/ores"GG. !ne way to understand the eect o these results is
by studyin( how the probability o VenezuelaAs reco%erin( ro& its (rowth
collapse would chan(e i it had dierent %alues o o4enD/ores" in 1.J/, holdin(
i#ed the le%el o all other e#planatory %ariables at their historical %alues. We
uderta+e this e#ercise in )able .. ,ow 1 starts by considerin( the &odel esti&ate
or Venezuela at its historical o4enD/ores" %alue. )he e#ercise is based on the
para&eter esti&ates o the &odel in e>uation F/G o )able J. )he probability o
reco%erin( ro& the crisis in any (i%en year is esti&ated at .122, and the e#pected
duration ti&e o the crisis predicted by the &odel to be 1J.2. years. In other
words, the &odel predicts that Venezuela would be e#pected to ta+e &ore than 1J
years in reco%erin( its pea+ per wor+er GD$. ,ow 2 considers the case in which
we use as a reerence the a%era(e o4enD/ores" %alue or all -outh ;&erican
countries. In this case the e#pected duration o crisis alls to 2.22 years. I
Venezuela had instead had the o4enD/ores" o its three nei(hborin( countries
FColo&bia, 7razil, and GuyanaG, we see that its e#pected crisis duration ti&e alls
to Nust /.J1 years. )he ne#t e#ercise shows the eect o ha%in( the o4enD/ores" o
the set o ast0(rowin( "ast ;sian countries. In this case, the e#pected crisis
duration declines to 3.3. years. In the last row, we consider the counteractual o
=Venezuela without oilC M that is, Venezuela with the historical %alues o all
%ariables but with the o4enD/ores" o a typical non0oil e#portin( country at its
le%el o inco&e. We see that crisis duration would ha%e been only I.12 years in
e#pectation.
)he +ey conclusion that we draw ro& this e#ercise is that oil e#portin(
countries do not ha%e an easy ti&e de%elopin( new e#port products. )heir
diiculties co&e ro& the act that there are ew hi(h0%alue (oods which can be
produced with the set o specialized inputs, technolo(ical +now0how, and
institutional de%elop&ent that are appropriate or oil production. )his &a+es the
product space relati%ely sparse or these countries. )his &ay not be a proble& i
oil production is (rowin( M in that case there is no need to de%elop alternati%e
e#port sectors. 7ut it can beco&e a substantial hindrance to reco%erin( ro&
crises i din( so re>uires &o%in( into the production o new (oods.
>5 Coc'udi$ Commets
)his paper has pro%ided a new e#planation or VenezuelaAs (rowth collapse.
We ha%e ar(ued that VenezuelaAs ailure to reco%er ro& the recession that it ell
into durin( the late se%enties is due in part to its inability to de%elop new e#port
sectors. )his inability can be traced to a characteristic that current Venezuelan
specialization patterns share with those o &ost other oil e#portin( countries4 the
specialized inputs, s+ills, and institutions that are appropriate or use in oil
1A
production are not easily transerable to other (oods. Venezuela, in other
words, inhabits a sparse area o the product space, a act that hinders its capacity
to respond to e#port collapses by de%elopin( alternati%e e#port industries.
We ha%e su((ested that any coherent e#planation or the Venezuelan (rowth
collapse &ust pass two si&ple tests. :irst, it &ust e#plain why Venezuelan
econo&ic peror&ance diers so &uch ro& that o the rest o the re(ion.
"#planations that bla&e policy ailures or social conlict or VenezuelaAs
lac+luster (rowth do not pass this test, as Venezuela is not &ar+edly dierent
ro& the rest o the re(ion in these di&ensions. -econd, it &ust e#plain why
Venezuelan econo&ic peror&ance chan(ed so dra&atically in the se%enties.
"#planations that bla&e rent0see+in( or institutional >uality or VenezuelaAs
(rowth peror&ance are incapable o e#plainin( why the sa&e institutions and
the sa&e le%els o rent0see+in( were co&patible with the hi(hest (rowth in the
re(ion or the hal0decade startin( in 1.21.
!ur e#planation, in turn, easily passes these two tests. ;s we ha%e shown
abo%e, VenezuelaAs e#port le#ibility is considerably lower than that o &ost other
*atin ;&erican nations. )his is due to the si&ple act that, unli+e the rest o the
re(ion, Venezuela is an oil e#porter that inhabits a sparse re(ion o the product
space. :urther&ore, lac+ o e#port le#ibility need not be a hindrance to a
country when its traditional e#ports are (rowin(, as was the case or Venezuela
beore the se%enties. I you are e#periencin( hi(h e#port (rowth in traditional
sectors, you ha%e no need to &o%e to alternati%e e#ports and e#port le#ibility has
no %alue. It is when traditional e#ports start doin( poorly that you need to
reallocate resources to new sectors. VenezuelaAs low e#port le#ibility can thus
e#plain why the country did not reco%er ro& the crisis it has e#perienced since
the late se%enties while at the sa&e ti&e bein( co&patible with its hi(h (rowth
durin( the precedin( period.
It is i&portant to point out that our e#planation is only a partial e#planantion
o Venezuelan econo&ic (rowth. While the lac+ o de%elop&ent o alternati%e
e#port sectors can help e#plain the decline in capital accu&ulation that occurred
durin( the (rowth collapse, it does not e#plain the collapse in total actor
producti%ity which, as we ha%e shown, occurred at an annual rate o 01.9IK
between 1.J9 and 2111. !ther papers in this proNect deal directly with the causes
or this decline, dealin( with causes ran(in( ro& the decline in public
inrastructure in%est&ent, (rowin( strin(ency o labor &ar+et re(ulations, and
the collapse in inancial inter&ediation.
!ur e#planation can shed &ore (eneral li(ht on the %ast literature concernin(
the =Dutch Disease.C ;s we discussed in the introduction, the obser%ation that
resource abundant econo&ies tend to (row &ore slowly, irst &ade in the crosscountry
(rowth conte#t by -achs and Warner F1..JG, has spurred a hu(e
literature. !ur paper su((ests that what &ay &a+e resource abundant countries
stand out is not necessarily their a((re(ate (rowth peror&ance but rather their
incapacity to reco%er ro& ad%erse shoc+s. It thus points to the need to closely
e#a&ine asy&&etries in the response o (rowth to e#ternal shoc+s and to
seriously study the possibility that countries &ay all into =specialization trapsC
whereby they end up occupyin( a sparse re(ion o the product space that is
19
diicult to e#it. ; uller e#ploration o these ideas in the cross0national conte#t
oers an interestin( a%enue or uture research.
?5 A00edi:* T-e c'osed ecoomy mode'5
-uppose that capital accu&ulation occurs throu(h do&estic sa%in(s, with
indi%iduals assu&ed to sa%e a constant raction o their inco&e s. ;s capital
accu&ulation is inanced by do&estic sa%in(s, the capital stoc+ is owned by
do&estic residents, who own no other capital. ">uations F1G0F/G are as abo%e,
with e>uation F2G replaced by4 P AK L ( s w rk g)L nt nt nt = + + 1 (1 )( ) F;.1G
)he capital stoc+ will (row o%er ti&e accordin( to4
K t = s(wL + rK) K
.
F;.2G
We ha%e o&itted ti&e subscripts as we will concentrate on the steady state,
which is (i%en ro& e>uation F;.2G by4
swL = ( rs)K . F;.3G
6ote that as e>uations F1G0F/G are the sa&e, it is still the case that B is (i%en
by FJG, with r now an endo(enous %ariable. :ro& the steady state condition, the
steady state rate o return
s
r ss
= , so that in the steady state,
L
As
K K Kt nt
1
1

= + =
, F;.IG
which establishes that the capital stoc+ is in%ariant to increases in oil
re%enues under inco&plete specialization, Nust as in the &odel with capital
&obility. "&ploy&ent in non0tradables is (i%en by4

= +
1
(1 )

As
A
L L s g nt F;./G
;s beore, there is a threshold ( ) 1 D 1 (1 )

As
g s A C beyond which
ull specialization de%elops. It is easy to chec+ that ater this point the capital
stoc+ beco&es4
s gL
s
K
1
(1 (1 ))

F;.2G
so that the capital stoc+ a(ain beco&es ully responsi%e to shits in oil
re%enues.
6ote that e>uations F9G and F1IG are si&ilar. )he dierences co&e ro& three
acts4 FiG ">uation F1IG uses the steady0sate le%el o the interest rate instead o r ,
FiiG ;s the closed econo&y &odel has no do&estic ownership o orei(n capital,
20
the ter&
rk h disappears ro& all e#pressions, FiiiG s plays the sa&e role in the
closed econo&y &odel than in the open econo&y one. )his last result relects
the act that in the open econo&y &odel relects the share o additional oil
re%enue M which are con%erted one by one into increases in de&and or nontradables
M that international capital owners can e#pect to recei%e and that thus
call orward (reater capital inlows, whereas in the closed econo&y &odel s
relects the raction o these re%enues that will ulti&ately be channeled towards
capital accu&ulation.
Re(ereces
;bel, ;ndrew F1.93G = !pti&al In%est&ent under 8ncertainty,C American
8conomic Re)ie9 J3F1G4 229033.
;nderson, ).W., and Chen( 3siao, 1.92, \:or&ulation and "sti&ation o
Dyna&ic 'odels 8sin( $anel Data,\ Journal o/ 8conome"rics, 19, IJ092.
;rellano, 'anuel and -. 7ond F1..1G \-o&e )ests o -peciication or $anel
Data4 'onte Carlo "%idence and an ;pplication to "&ploy&ent ">uations\,
Re)ie9 o/ 8conomic &"udies3 /9, 1..1, 2JJ02.J.
7ello, !. D. and D. ,estuccia F2112G. VenezuelaTs Growth "#perience. Caracas4
29.
7er&Qdez, ;. F211IG. *a le(islaciOn laboral en Venezuela y sus i&pactos sobre el
&ercado laboral. "l dese&pleo en Venezuela4 Causas, eectos e i&plicaciones de
pol<tica. '. ". 7oza, ;. 7er&Qdez, ;. Dazaet al. Caracas, !icina de ;sesor<a
"conO&ica de la ;sa&blea 6acional.
7ernard, ;ndrew and 5.7. 5ensen, \Why -o&e :ir&s "#port,\ 2$e Re)ie9 o/
8conomics and &"a"is"ics3 92F2G.
7lades, D. F2111G. \'aintainin( consistent ti&eTseries o national accounts.\
7ul&er0)ho&as, V. F1..IG. )he econo&ic history o *atin ;&erica since
independence. Ca&brid(eH 6ew Por+, Ca&brid(e 8ni%ersity $ress.
CalderOn, C. and *. -er%En F2113G. 'acroecono&ic Di&ensions o Inrastructure
in *atin ;&erica. Washin(ton, DC.
Cannin(, D. F1...G. )he Contribution o Inrastructure to ;((re(ate !utput. )he
World 7an+ $olicy ,esearch Wor+in( $aper. Washin(ton, DC.
Das, -., '. 5. ,oberts, et al. F2111G. "ntry Costs, $roducer 3etero(eneity and
"#port Dyna&ics. 67", Wor+in( $apers. Ca&brid(e, ';.
21
"asterly, W. and *. -er%En F2113G. )he *i&its o -tabilization4 Inrastructure,
$ublic Deicits and Growth in *atin ;&erica. Washin(ton, DC, )he World 7an+.
:isher, :. '. and L. -hell F1..9G. "cono&ic ;nalysis o $roduction $rice Inde#es.
Ca&brid(e, 6ew Por+ and 'elbourne, Ca&brid(e 8ni%ersity $ress.
Gelb, ;. F1.99G. !il Windalls4 7lessin( or Curse? 6ew Por+, *ondon, )oronto
and)o+yo, !#ord 8ni%ersity $ress or the World 7an+.
Gordon, ,. 5. F1..1G. )he 'easure&ent o Durable Goods $rices. Chica(o,
8ni%ersity o Chiac(o $ress.
Greenwood, 5., ]. 3ercowitz, et al. F1..JG. \*on(0,un I&plications o
In%est&ent0-peciic )echnolo(ical Chan(e.\ ;&erican "cono&ic ,e%iew 9JF3G4
3I2022.
GutiErrez, ;. F2112G. *as trabas no arancelarias en el co&ercio bilateral
a(roali&entario entre Venezuela y Colo&bia. Docu&entos de )rabaNo.
Washin(ton, DC4 3/.
Gylason, ). F2111G. \6atural ,esources, "ducation and "cono&ic De%elop&ent.\
"uropean "cono&ic ,e%iew I/FI02G4 9IJ0/..
3aus&ann, ,. F2113G. VenezuelaTs Growth I&plosion4 ; 6eo0Classical -tory? In
-earch o $rosperity4 ;nalytic 6arrati%es on "cono&ic Growth. D. ,odri+.
$rinceton and !#ord, !#ord 8ni%ersity $ress.
3aus&ann, ,. and Llin(er, 7. F2112G. -tructural )ransor&ation and $atterns o
Co&parati%e ;d%anta(e in the $roduct -pace. CID Wor+in( $aper 6o. 129,
;u(ust.
3aus&ann, ,icardo and 7. Llin(er F211JG =)he -tructure o the $roduct -pace
and the "%olution o Co&parati%e ;d%anta(e.C CID Wor+in( $aper 6o. 1I2,
;pril.
3aus&ann, ,., *. $ritchett, et al. F211IG. Growth ;ccelerations. 67", Wor+in(
$aper. Ca&brid(e, ';.
3aus&ann, ,. and ,. ,i(obOn F2113G. =;n ;lternati%e Interpretation o the
T,esource CurseT4 )heory and $olicy I&plications.C ?n Fiscal Policy Formula"ion
and ?m4lemen"a"ion in Oil5Producing .oun"ries. "dited by 5.' Da%is, ,.
!ssows+i and ;. :edelino. Washin(ton, D.C. I': press, 2113.
3aus&ann, ,icardo, :rancisco ,odr<(uez and ,odri(o Wa(ner Forthco&in(G
=Growth Collapses,C in Car&en ,einhart, ;ndrEs Velasco and Carlos Ve(h, eds.
22
Money3 .rises3 and 2ransi"ion< 8ssays in Honor o/ =uillermo .al)o. Ca&brid(e4
'I) $ress.
3aus&ann, ,., D. ,odri+, et al. F211IG. Growth Dia(nostics. Ca&brid(e, ';4 II.
3aus&ann, ,icardo and Dani ,odri+ F2113G ="cono&ic De%elop&ent as -el0
Disco%ery,C Journal o/ !e)elo4men" 8conomics, Dece&ber.
3aus&ann, ,icardo, 5ason 3wan( and Dani ,odri+ F2112G =What Pou "#port
'atters,C reproduced4 3ar%ard 8ni%ersity.
3ec+&an, 5. and C. $a(Es F2111G. )he Costs o 5ob -ecurity ,e(ulation4
"%idence ro& *atin ;&erican *abor 'ar+ets. 67", Wor+in( $apers.
Ca&brid(e, ';.
3ec+&an, 5. and C. $a(Es F2113G. *aw and "&ploy&ent4 *essons ro& *atin
;&erica and the Caribbean. 67", Wor+in( $aper. Ca&brid(e, ';.
3eston, ;., ,. -u&&ers, et al. F2112G. $enn World )ables 2.1, Center or
International Co&parisons at the 8ni%ersity o $ennsyl%ania FCIC8$G.
3ulten, C. F1..2G. \Growth ;ccountin( When )echnical Chan(e Is "&bodied in
Capital.\ ;&erican "cono&ic ,e%iew 92FIG4 .2I091.
3ulten, C. F2111G. )otal :actor $roducti%ity4 ; -hort 7io(raphy. 67", Wor+in(
$apers. Ca&brid(e, ';.
3ulten, C. and :. C. Wy+o F1.91G. \)he "sti&ation o "cono&ic Depreciation
8sin( Vinta(e ;sset $rices4 ;n ;pplication o the 7o#0Co# $ower
)ransor&ation.\ 5ournal o "cono&etrics 1/F3G4 32J0.2.
Inter0;&erican De%elop&ent 7an+ F1...G. :acin( 8p to Ine>uality in *atin
;&erica. Washin(ton, DC, Inter0;&erican De%elop&ent 7an+.
Isha&, 5., '. Woolcoc+, et al. F2113G. )he Varieties o ,esource "#perience4 3ow
6atural ,esource "#port -tructures ;ect the $olitical "cono&y o "cono&ic
Growth. 'iddlebury Colle(e Wor+in( $aper -eries. 'iddlebury.
*eder&an, Daniel and Willia& 'aloney F211JG Ha"ural Resources< Hei"$er
.urse nor !es"iny. Washin(ton4 )he World 7an+.
'aloney, W. and 5. 6u^ez F2112G. 'easurin( the i&pacts o &ini&u& wa(es4
e%idence ro& *atin ;&erica. World 7an+ Wor+in( $aper. Washin(ton, DC.
'anzano,!s&el F211JG =Venezuela ater a century o oil e#ploitation.C
,eproduced4 CorporaciOn ;ndina de :o&ento.
23
'artin, $. and C. ;. ,o(ers F1../G. \Industrial *ocation and $ublic
Inrastructure.\ 5ournal o International "cono&ics 3.4 33/03/1.
'ehlu&, 3., L.0!. 'oene, et al. F2112G. Institutions and the ,esource Curse.
!slo.
$ritchett, *. F1..9G. $atterns o "cono&ic Growth4 3ills, $lateaus, 'ountains,
and $lains. Washin(ton, DC., )he World 7an+.
,odr<(uez, :. F211IG. )he ;narchy o 6u&bers4 8nderstandin( the "%idence on
Venezuelan "cono&ic Growth. Caracas4 3..
,odr<(uez, :. F211IG. \8n nue%o <ndice encadenado del producto interno bruto
de Venezuela, 1./J02111.\ ,e%ista 7CV _VIIIF2G4 ..0119.
,odr<(uez, :. and 5. -achs F1...G. \Why Do ,esource0;bundant "cono&ies
Grow 'ore -lowly?\ 5ournal o "cono&ic Growth IF3G4 2JJ0313.
-ala0i0'artin, _., G. Doppelhoer, et al. F211IG. \Deter&inants o *on(0)er&
Growth4 ; 7ayesian ;%era(in( o Classical "sti&ates F7;C"G ;pproach.\
;&erican "cono&ic ,e%iew .IFIG4 91303/.
-Dnchez0,obles, 7. F1..9G. \Inrastructure In%est&ent and Growth4 -o&e
"&pirical "%idence.\ Conte&porary "cono&ic $olicy 124 .90119.
)ornell, ;. and $. *ane F1...G. \)he Voracity "ect.\ ;&erican "cono&ic ,e%iew
9.F1G4 220I2.
"cono&ist Intelli(ence 8nit F2113G. Colo&bia econo&y4 Crossborder business
with Venezuela suers. 6ew Por+, )he "cono&ist.
World 7an+. F2112G. *abor ,e(ulations and "ntry ,e(ulations4 Co&parati%e
Data. Washin(ton, DC, )he World 7an+. 2112.
2"
2'
)able 14 Growth rates accordin( to alternati%e data sets
$ea+ Pear 1./1021 1.210J1 1.J1091 1.910.1 1..1011
Cetra'
@aA
1.JJ 3./.K 2.33K 1.22K 01..IK 01.1/K
Rodr#$ue%
1.JJ . 2.19K 1.31K 01..3K 1.2IK
Maddiso 1.JJ 2./JK 1.11K 01./1K 01...K 1..IKFXG
Pe
&or'd
Tab'es
1.J1 2.93K 2../K 02.J.K 01.32K 01.91K
&or'd
@aA
1.JJ . 1.I2K 01.J2K 01.J/K 01.1/K
@a0tista 1.JJ 2.12K 2.22K 1.33K 02.29K 0
1.3.KFXXG
Miimum 2.12K 1.11K 02.J.K 02.29K 01.91K
Ma:imum 3./.K 2../K 1.22K 01.32K 1..IK
Ra$e 1.I2K 1..IK 3.I1K 1.32K 1.JIK
FXG 0 ,eers to 1..101..9
FXXG 0 ,eers to 1..101...
2,
)able 24 )er&s o trade0adNusted real GD$ per capita, $enn World )ables
1./1011 1./1091 1.910
11
Venezuelan "cono&ic
Growth
1.32K 2..1K 01..2K
World ;%era(e 2.11K 2./IK 1.11K
$ercent ,an+ 2.K 32K 9IK
*atin ;&erican ;%era(e 1.32K 2.3JK 1.9JK
$ercent ,an+ I3K 2/K .2K
27
)able 34 'a(nitude and ti&in( o decline in oil and non0oil production, alternati%e
indicators.
1.29
prices
1.9I
prices
)orn>%ist
chained
Oi' sector
Per Ca0ita
$ea+ Pear 1./J 1./J 1./J
Decline ro& $ea+ 02J.11K 022.2/K 029.I3K
Per &orAer
$ea+ Pear 1.J1 1.J1 1.J1
Decline ro& $ea+ 0II..JK 0II.9/K 0I..12K
No.oi' sector
Per Ca0ita
$ea+ Pear 1.J9 1.J9 1.J9
Decline ro& $ea+ 01.../K 023.J.K 019.2IK
Per &orAer
$ea+ Pear 1.J9 1.J9 1.J9
Decline ro& $ea+ 032.21K 03..2/K 03/./JK
2A
)able I4 Co&ponents o per capita real iscal re%enues, 1.I102111
Crude
$roduction
F&bdG
$opulation $roduction
per capita
;%era(e e#port price
F2111 8-ZG
$articipation o
iscal inco&e in
(ross e#port
re%enue
1.I10I. 9/2,I9 I.39J.19/ 1,1.I 12,/2 29,22K
1./10/. 21I3,21 /...1.111 1,3/9 1/,29 31,1/K
1.2102. 331.,1/ 9././.111 1,392 11,9/ I9,92K
1.J10J. 2921,./ 12.2JI.111 1,231 22,13 2J,99K
1.9109. 19J9,.9 12../3.111 1,111 3J,22 23,I3K
1..102111 2J11,2J 22.19...32 1,123 19,I1 /I,I2K
-ource4 *Opez !bre(On and ,odr<(uez, 2111
)able /4 )otal :actor $roducti%ity Growth Deco&positions in the 6on0!il -ector,
3etero(eneous Capital and
*abor
6on ,esidential
Capital
,esidential Capital 'achinery and
">uip&ent
)otal Capital
Pears ):$
Growth
6on0!il
GD$
Growth Growth Contribution Growth Contribution Growth Contribution Growth
Contribution
1./J011 1.32K 1.3/K 1..1K 1.11K 1.22K 1.1IK 1.J9K 1.31K 1..IK 1.I/K
1./J0J9 1.J9K 3.91K 3.32K 1.32K I.22K 1.12K 3.32K 1.12K 3.//K 1.21K
1.J9011 01.9IK 01..1K 01.33K 01.12K 01.I.K 01.12K 01./IK 01./.K 01.IIK 01.91K
6o -choolin(
;ttained
$ri&ary -choolin(
;ttained
-econdary -choolin(
;ttained
3i(her -choolin(
;ttained
*abor :orce Growth
Growth Contribu
tion
Growth Contribution Growth Growth Growth Contribution Growth Contribution
1./J011 02.21K 01.29K I.I9K 1.//K 01.23K 01.1IK 2./1K 1.31K 1.JIK 1./IK
1./J0J9 01./JK 01.29K 2.22K 1.9JK 01..IK 01.3JK J.1JK 1.21K 1.IIK 1.I3K
1.J9011 02.JJK 01.2/K 2.I.K 1.I.K 1.33K 1.1IK /..2K 1.39K 1.11K 1.J/K
29
Non-oil Exports Total Exports
1981 2002 1981 2002 1981 2002
Mexico 329 146 -3.86% 127 1,494 11.73% 456 1,640 6.09% 0.28
Oman 5,156 3,582 -1.73% 322 1,054 5.65% 5,478 4,636 -0.79% 0.06
Bahrain 15,512 5,990 -4.53% 1,165 2,645 3.91% 16,677 8,636 -3.13% 0.07
ndonesia 159 68 -4.07% 40 209 7.86% 199 277 1.57% 0.20
Saudi Arabia 16,262 3,101 -7.89% 120 370 5.39% 16,382 3,472 -7.39% 0.01
Trinidad and Tobago 4,144 1,809 -3.95% 482 1,202 4.35% 4,626 3,010 -2.05% 0.10
Venezuela, RB 1,699 813 -3.51% 131 200 2.01% 1,830 1,013 -2.82% 0.07
Ecuador 251 162 -2.08% 155 244 2.17% 406 406 0.00% 0.38
Algeria 992 596 -2.43% 20 24 0.78% 1,012 620 -2.34% 0.02
Nigeria 320 165 -3.49% 10 1 -14.59% 329 165 -3.63% 0.03
Oil Exports
Table 6: Non-oil export performance of oil-exporting countries
Ratio of 1981 Non-oil to
Total Exports
Growth
Rate
Growth
Rate
Growth
Rate
-ource4 World 7an+ F2112G
30
Table 7: Weibull Duration Regressions: Open Forest
(1) (2) (3) (4) (5) (6) (7)
Oil Exporter -0.902 -1.281 -0.98 0.042 0.399 0.727 1.19
(3.06)*** (2.87)*** (2.12)** (0.08) (0.63) (0.97) (1.58)
Log GDP per Working Age Person 0.258 -0.181 -0.275 -0.634 -0.789 -1.003
(2.73)*** (1.13) (1.29) (2.49)** (2.62)*** (2.85)***
Open Forest 0.575 0.697 0.997 1.153
(3.53)*** (3.39)*** (3.59)*** (3.80)***
Polity Democracy ndex 0.035 -0.087 -0.105
(1.53) (0.91) (0.95)
Gini*(1-Democracy) -0.063 -0.075
(1.49) (1.55)
Gini -0.024 -0.015
(0.77) (0.44)
Sudden Stop -0.151
(0.66)
Log of nflation -0.049
(0.08)
Constant -1.804 -1.619 -1.675 -0.876 -0.909
(4.90)*** (3.73)*** (3.45)*** (1.24) (1.23)
Latin America -1.975 -1.195 -1.068 -0.05 -0.045
(4.08)*** (1.77)* (1.48) (0.05) (0.04)
Africa -1.062 -0.887 -1.328 -1.105 -1.122
(1.87)* (1.30) (1.89)* (1.39) (1.31)
South and Central Asia -0.875 -0.19 -0.72 -0.426 -0.663
(2.17)** (0.40) (1.25) (0.55) (0.80)
East Asia and Pacific -2.411 -1.808 -1.641 -2.156 -1.773
(5.25)*** (2.48)** (2.12)** (2.58)** (1.89)*
Central and Eastern Europe -1.024 -0.453 0.061 0.218 0.138
(2.50)** (0.93) (0.10) (0.31) (0.19)
Middle East and North Africa 0.197 -0.72 0.362 0.07 0.147
(0.62) (1.16) (1.34) (0.08) (0.16)
Observations 535 331 331 230 199 173 154
Number of groups 180 149 149 101 87 76 64
Absolute value of z statistics in parentheses
* significant at 10%; ** significant at 5%; *** significant at 1%. Columns (3)-(7) also include a full set of decade
dummies.
31
Table 8: Weibull Duration Regressions, Density Indicator
(1) (2) (3) (4)
Oil Exporter 0.293 0.669 1.094 1.227
(0.53) (1.07) (1.46) (1.64)
Log GDP per Working Age Person -0.245 -0.638 -0.773 -0.961
(1.11) (2.55)** (2.65)*** (2.76)***
Density of Product Space 2.479 0.724 1.045 1.256
(1.29) (3.36)*** (3.63)*** (3.88)***
Open Forest -1.775
(0.97)
Polity Democracy ndex 0.04 -0.101 -0.105
(1.72)* (1.06) (0.94)
Gini*(1-Democracy) -0.071 -0.075
(1.70)* (1.54)
Gini -0.016 -0.016
(0.52) (0.45)
Sudden Stop -0.18
(0.78)
Log of nflation -0.112
(0.17)
Latin America -1.551 -1.592 -0.88 -0.812
(3.47)*** (3.29)*** (1.25) (1.09)
Africa -1.19 -1.063 -0.097 0.141
(1.71)* (1.47) (0.11) (0.14)
South and Central Asia -0.731 -1.285 -1.075 -0.957
(1.02) (1.85)* (1.37) (1.11)
East Asia and Pacific -0.118 -0.687 -0.454 -0.538
(0.24) (1.19) (0.59) (0.64)
Central and Eastern Europe -1.631 -1.577 -2.056 -1.699
(2.14)** (2.05)** (2.50)** (1.80)*
Middle East and North Africa -0.342 0.096 0.204 0.263
(0.66) (0.16) (0.29) (0.36)
Constant 14.889 2.939 4.034 4.828
(0.91) (1.16) (1.42) (1.38)
Observations 229 198 172 154
Number of groups 100 86 75 64
Absolute value of z statistics in parentheses
* significant at 10%; ** significant at 5%; *** significant at 1%. All columns also
include a full set of decade dummies.
32
Open Forest Level Yearly Probability of Recovery Expected Duration of Crisis
Venezuela Historical 0.062 17.291
South America 0.154 7.326
Neighboring Countries 0.200 5.711
East Asia 0.346 3.397
Venezuela - Oil 0.282 4.116
Table 9: Probability of Recoery and !"pected #risis Duration Ti$es for %lternatie Open
Simulations capture the expected probabilities of recovery (hazard rates) and mean crisis duration in
years for a country that has the same values than Bolivia of all variables except for open forest, which
is set to the historical values of the selected comaprison groups in 1980.Neighboring Countries are
Brazil, Colombia, and Guyana. East Asian Countries are Hong Kong, South Korea, Singapore, and
China. Venezuela - Oil refers to a value of open forest equal to the historical value minus the
avcerage effect of oil abundance in a regression of Open forest on the log of GDP plus a dummy
variable for oil exporting countries.
33
Figure &: Per #apita Oil 'DP, alternatie base years
0
20
40
60
80
100
120
1957
1959
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
(ear
)&9*7+&,,-
1968 prices
1984 prices
Tornqvist chained
3"
Figure .: Per #apita /on0Oil 'DP, %lternatie 1ase (ears
0
50
100
150
200
250
1957
1959
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
(ear
)&9*7+&,,-
1968 prices
1984 prices
Tornqvist chained
3'
Figure 2: Per #apita Fiscal Oil Reenues in constant 3456 &9720.,,&
0
500
1000
1500
2000
2500
1943 1948 1953 1958 1963 1968 1973 1978 1983 1988 1993 1998
(ear
Fiscal oil reenues )per capita &99* 34-
3,
Figure 7: #apital 4toc8 per Wor8er, #losed !cono$y 9odel
0
0.01
0.02
0.03
0.04
0.05
0.06
0.07
0.000 0.001 0.002 0.003 0.004 0.005 0.006 0.007
Oil Reenues
#apital 4toc8 per Wor8er
Baseline Productivity
20% ncrease in Tradables Productivity
ncomplete
Specialization
Complete
Specialization
g*
37
Figure *%: :ene;uela: Per #apita 'DP and !"ports
0
5000
10000
15000
20000
25000
30000
35000
1962 1967 1972 1977 1982 1987 1992 1997 2002
(ear
'DP, #onstant <#3 per capita
0
500
1000
1500
2000
2500
3000
!"ports, constant 345 per capita
GDP, constant LCU per capita
Primary Exports (Agriculture, Fuel, Ores and
Metals) per Capita, constant US $
Secondary Exports (Food and
Manufacturing) per capita, constant US$
3A
Figure *1:9e"ico: Per #apita 'DP and !"ports
0
1000
2000
3000
4000
5000
6000
7000
1965 1970 1975 1980 1985 1990 1995 2000
(ear
'DP, #onstant <#3 per capita
0
200
400
600
800
1000
1200
1400
!"ports, constant 345 per capita
GDP, constant LCU per capita
Primary Exports (Agriculture, Fuel, Ores and
Metals) per Capita, constant US $
Secondary Exports (Food and
Manufacturing) per capita, constant US$
39
Figure *#: Indonesia: Per #apita !"ports and 'DP, &9=*0.,,2
0
100
200
300
400
500
600
700
800
900
1962 1967 1972 1977 1982 1987 1992 1997 2002
(ear
Per #apita 'DP )#onstant <#3-
0
50
100
150
200
250
300
Per capita e"ports )constant 345-
GDP, constant
LCU per capita
Primary Exports
(Agriculture, Fuel,
Ores and Metals)
per Capita,
constant US $
Secondary Exports
(Food and
Manufacturing) per
capita, constant
US$
"0
Figure =: /on0oil e"ports, &98.0.,,2
0
100
200
300
400
500
600
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
(ear
&99* 34 5 per capita
Non-petroleum
Non-energy intensive
Linear (Non-petroleum)
Linear (Non-energy intensive)
"1
Real bilateral and $ultilateral e"c>ange rate for
:ene;uela, &97,0.,,.
0
50
100
150
200
1970
1974
1978
1982
1986
1990
1994
1998
2002
(ear
Inde" )&99*+&,,-
0
50
100
150
200
250
300
Inde")&99*+&,,-
Multilateral real exchange
rate (MF)
Bilateral Real Exchange
Rate (with US)
"2
Figure 8: 9edian :ene;uelan 9ar8et 4>are, non0Oil non0!nergy Intensie 4ectors
0.00000%
0.01000%
0.02000%
0.03000%
0.04000%
0.05000%
0.06000%
1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
2002 2003
(ear
Percent of World Total
"3
Figure 9: :ene;uelan /on0!nergy Intensie !"ports, by Region
0
10
20
30
40
50
60
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
(ear
#onstant 345 per capita
United States
Andean Community/G-3
Rest of the World
1993: Andean FTA
Formed
1999: Venezuela
suspends free
border passage
with Colombia
2003: Venezuela
imposes exchange controls
1994: G-3 signs FTA
""
0 .5 1 1.5 2 2.5
Open Forest relative to world average
1975 1980 1985 1990 1995 2000
Year
Venezuela Brasil
Chile Argentina
Guyana Colombia
Mexico South America
Source: Authors' calculations based on data from Hausmann and Klinger (2007)
Figure 10: Open Forest
Venezuela and Selected Latin American Countries
"'
ARG AUS
AUT
BD
BFA BEN
BGD BOL BLZ
BRA
BRB
CAF
CAN
CHL
CHN
CV
CMR
COL
CR
CYP
DNK
DOM
ECU
EGY
ESP
ETH
FN
FJ
GBR
GHA
GN
GMB
GRC
GTM
HKG
HHTN D
HUN
DN
ND RL
SL
SR
TA
JAM
JOR
JPN
KEN
KNA
KOR
LKA
MAC
MAR
MDG
MEX
ML
MLT
MNG
MOZ
MUS
MW
MYS
NER
NC
NLD
NOR
NPL
PAK NZL
PAN
PER
PHL
PNG
POL PRT
PRY
ROM
RWA
SDN
SEN
SGP
SLE
SLV
SWE
SYR
TGO
THA TUR
TZA
UGA
URY
USA
WSM
ZAF
ZMB
ZWE
BHR
BHS
DZA
NGA RN GAB
OMN
SAU
TTO
VEN
10 11 12 13 14 15
Log open Forest, 1975
6 7 8 9 10 11
Log Real Chained per Capita GDP in 1975, Penn World Tables 6.2
Non-fuel exporters Fuel exporters
Figure 11: Open Forest and per Capita GDP, 1975
",
-20 -15 -10 -5 0 5 10 15 20
delta
1 1.5 2 2.5 3 3.5 4
Density(inverse)
Petroleum Raw Materials
Forest Tropical Ag
Animal Prods Cereals
L ntensive K ntensive
Machinery Chemicals
1980
-20 -15 -10 -5 0 5 10 15 20
delta
1 1.5 2 2.5 3 3.5 4
Density(inverse)
Petroleum Raw Materials
Forest Tropical Ag
Animal Prods Cereals
L ntensive K ntensive
Machinery Chemicals
1990
-20 -15 -10 -5 0 5 10 15 20
delta
1 1.5 2 2.5 3 3.5 4
Density(inverse)
Petroleum Raw Materials
Forest Tropical Ag
Animal Prods Cereals
L ntensive K ntensive
Machinery Chemicals
2000
Figure 12: Decomposition of Open Forest, 1980-2000
C H A P T E R 3 :
V e n e z u e l a a f t e r a c e n t u r y o f o i l e x p l o i t a t i o n
Chapter for the book Venezuela: Anatomy of a CollapseTPF*FPT
1s!el ManzanoTPF+FPT
Draft for comment! Do not "uote or circulate!
3irst 7ra.tH 7ece!ber 200"
()is 0ersionH Ianuary 2007
Abtract
()e ?enezuelan oil sectorBs +er.or!ance is re0ie5ed and co!+ared 5it)
t)e +er.or!ance o. t)e oil sector o. si!ilar oil>+roducin% countries. ()e
c)an%es in oil .iscal re0enue +er ca+ita o0er t)e last ,0 years rese!ble
t)ose o. t)e &7@ +er ca+ita .or ?enezuela. A.ter t)ree decades o.
sustained %ro5t), t)e oil sector colla+sed in t)e 19A0s and it )as not
reco0ered since. 6t is ar%ued t)at to understand t)e be)a0ior o. t)e
sector, it is i!+ortant to di0ide t)e study into di..erent +eriods, ta2in%
into account c)an%es in bot) t)e 5ay in 5)ic) ?enezuelan oil +olicy is
.or!ulated and i!+le!ented, and in t)e nature o. international oil
!ar2ets. 6t is .urt)er ar%ued t)at t)e +eriods in 5)ic) oil +olicy 5as
relati0ely in line 5it) international !ar2ets .unda!entals 5ere +eriods
o. e*+ansion, 5)ile t)e +eriods in 5)ic) oil +olicy see!ed to di0er%e
.ro! t)ose .unda!entals 5ere +eriods 5)en .iscal re0enue colla+sed.
TP
D
PT ()is boo2 is edited by $icardo Haus!ann and 3rancisco $odr%uez.
TP
+
PT Cor+oracion Andina de 3o!ento and 9ni0ersidad Catolica Andres /ello. 6 5ould li2e to t)an2 t)e
.ollo5in% .or )el+.ul co!!ents and su%%estionsH A!y /. /arri%), &ra)a! 7a0is, $icardo Haus!ann, Ana
Maria Herrera, ;illia! Ho%an, 3rancisco Monaldi, Iose @ineda, 6an ue ;in%, Ale4andro @uente, 3rancisco
$odri%uez, 3ederico turzene%%er, $icardo ?illas!il, and se!inar +artici+ants at 6:A (?enezuela),
=ort)eastern 9ni0ersity, Io)n 3. <ennedy c)ool o. &o0ern!ent and at t)e 8AC:A con.erence. 6 also t)an2
3ederico 1rte%a and ?anessa Al0iarez .or bein% e*cellent researc) assistants. All errors t)at re!ain are !ine.
6 also ac2no5led%e t)e 6nternational Center .or :ner%y and t)e :n0iron!ent at 6:A (?enezuela), 5)ic)
+ro0ided .inancial su++ort. ()is c)a+ter 5as co!+leted 5)ile 6 5as in residence at t)e Io)n 3. <ennedy
c)ool J $es+ol K@3 3ello5s @ro%ra!. ()e ideas and 0ie5s e*+ressed on t)is +a+er are solely !y
res+onsibility and do not necessarily re.lect t)e ideas and 0ie5s o. t)e Cor+oracion Andina de 3o!ento.
Co!!ents are 5elco!e atH !anzano!Lalu!.!it.edu
2
;)en analyzin% ?enezuelaBs econo!ic +er.or!ance, it is i!+ossible not to consider t)e
oil sector. As s)o5n in 3i%ure 1, e0en no5, t)e sector re+resents A0C o. e*+orts, t)us
!a2in% it t)e lar%est source o. .orei%n currency. 6t re+resents !ore t)an "0C o.
%o0ern!ent re0enue and in t)e +ast, t)is .i%ure 5as as )i%) as 70C. 6t is t)us t)e bi%%est
contributor to t)e .iscal sector. 3inally, it co!+rises !ore t)an 2'C o. all econo!ic
acti0ity.
#i$ure %! &mportance of 'il in Venezuela
ourceH Aut)orBs calculations based on M:M (0arious years) and 6M3 (200")
&i0en t)e .ore%oin%, it is i!+ortant to understand t)e +er.or!ance o. t)e oil sector as it
relates to t)e +er.or!ance o. t)e rest o. t)e econo!y. As 5ill be s)o5n belo5, a case can
be !ade .or t)in2in% t)at oil .iscal re0enue )as )ad an enor!ous e..ect on c)an%es in t)e
&7@ +er ca+ita in ?enezuela. 1il )as been +roduced co!!ercially in ?enezuela since t)e
be%innin% o. t)e t5entiet) century. At t)at ti!e, ?enezuela 5as one o. t)e +oorest
countries in t)e re%ion. ()e a0ailable e0idence su%%ests t)at oil +layed an i!+ortant role in
!a2in% it one o. t)e ric)est countries in t)e re%ion durin% t)e 1970s.TPF
1
FPT Ho5e0er, t)e
e0idence also su%%ests t)at oil +layed a role in t)e colla+se o. t)e ?enezuelan econo!y,
because oil .iscal re0enue started to .all at around t)e sa!e ti!e t)at t)e &7@ +er ca+ita
.ell.
()ere )a0e been e*tensi0e debates about t)e role t)at natural resources s)ould +lay in a
countryBs econo!ic de0elo+!ent, 5it) di..erent 0ie5s su++ortin% di..erent
TP
1
PT ee $odri%uez and ac)s (1999) .or a .or!al !odelin% o. t)is relations)i+.
0 %
1 0 %
2 0 %
3 0 %
4 0 %
5 0 %
6 0 %
7 0 %
8 0 %
9 0 %
1 0 0 %
1 9 5 5 - 1 9 6 4 1 9 6 5 - 1 9 7 4 1 9 7 5 - 1 9 8 4 1 9 8 5 - 1 9 9 4 1 9 9 5 - 2 0 0 2
O il E x p o r ts /T o ta l E x p o r ts O il F is c a l R e v e n u e /T o ta l R e v e n u e O il G D P /T o ta l G D P
3
reco!!endations .or t)e .or!ulation and i!+le!entation o. +olicy. 1ne a++roac) +ro+oses
t)at oil>ric) countries s)ould .ocus on a di0erse ran%e o. econo!ic acti0ities di..erent and
not related to oil +roduction. ()ere are a nu!ber o. ar%u!ents .or t)is di0ersi.ication
strate%y. 1ne is t)at t)e oil sector, alon% 5it) sectors +ertainin% to ot)er natural resources,
)as decreasin% returns to scale, .e5 lin2s to t)e rest o. t)e econo!y, and Msta%nantN
!ar2ets.TPF
2
FPT 6n addition, it )as been s)o5n in t)eoretical studies t)at resource boo!s )a0e a
ne%ati0e e..ect on t)e industrial de0elo+!ent o. resource>ric) countries.TPF
3
FPT ()ese ar%u!ents
led to t)e conce+t o. t)e Mresource curseN, acordin% to 5)ic) resource>ric) countries 5ill
)a0e +oor econo!ic +er.or!ance.TPF
"
FPT
A di..erent a++roac) )olds t)at an oil>ric) country )as a co!+arati0e ad0anta%e in t)e
oil sector and 5ould bene.it .ro! its de0elo+!ent. $ecent researc) )as s)o5n t)at +oor
%ro5t) a++ears to result .ro! a concentration on e*+orts, rat)er t)an .ro! an abundance o.
resources.TPF
'
FPT Moreo0er, t)is line o. researc) )as .ound t)at resource>ric) countries t)at )a0e
e*+erienced stron% econo!ic %ro5t) )a0e bene.ited .ro! t)eir co!+arati0e ad0anta%e, by
de0elo+in% t)e sector and usin% t)e resultant bene.its to de0elo+ ot)er sectors.TPF
,
FPT 7oubts
about t)e Msta%nant !ar2etsN ar%u!ent )a0e also been raised in t)e literature on t)e +rice
and t)e !ar2et o. +ri!ary +roducts.TPF
7
FPT 6n addition, it )as been ar%ued in t)e literature t)at
resource +roducts are lin2ed to tec)nolo%y and inno0ation, and are t)ere.ore a source o.
%ro5t) in +roducti0ity.TPF
A
FPT
6t is not t)e ob4ecti0e o. t)is c)a+ter to test t)ese t5o 0ie5s to deter!ine 5)ic) one is
closer to t)e trut). $at)er, t)e +er.or!ance o. t)e ?enezuelan oil sector 5ill be co!+ared
5it) t)at o. t)e oil sectors o. si!ilar oil>+roducin% countries. ()ere 5ill be a certain
a!ount o. discussion o. )o5 t)e sectorBs +er.or!ance a..ects %ro5t). Ho5e0er, t)e .ocus
TP
2
PT ()e 5ord Msta%nantN is used to ar%ue t)at t)e s)are o. +ri!ary +roducts in 5orld !ar2ets is decreasin%
and t)at t)eir relati0e +rices are also decreasin%. @rebisc) (19,") is t)e !ost o.t>-uoted +ro+onent o. t)is
idea.
TP
3
PT ()is is 5)at is re.erred to as t)e M7utc) diseaseN. ee alter (19'9), <ru%!an (19A7).
TP
"
PT ()e e!+irical study t)at de!onstrated t)is relations)i+ 5as ac)s and ;arner (199').
TP
'
PT 8eder!an and Maloney (2003). Moreo0er, Manzano and $i%obon (2001), and Haus!ann and $i%obon
(2003) s)o5 +ossible c)annels t)at can e*+lain t)is lo5 %ro5t).
TP
,
PT /lo!stro! and <o22o (2003), and Maloney (2002).
TP
7
PT Cuddin%ton et al.(2002) .ound t)at relati0e +rices see! not to be declinin%. C)a!i (200") raised so!e
doubts t)at all co!!odities are losin% !ar2et s)are in t)e 9 !ar2et in co!+arison 5it) industrial %oods.
TP
A
PT ;ri%)t and Czelusta (2002).
"
5ill be on t)e sectorBs +er.or!ance per se, because t)e +osition ta2en 5ill a..ect +olicy
decisions re%ardin% t)e oil sector.
()e re!ainder o. t)is c)a+ter is or%anized as .ollo5s. ection 1 5ill analyze t)e c)an%es
in t)e oil .iscal re0enue and +ro0ide an o0er0ie5 o. oil +olicy. ections 2 t)rou%) ' 5ill
eac) analyze a +eriod in t)e )istory o. oil e*+loitation in ?enezuela. 6n eac) section, t)e
reasons .or 0ie5in% t)e +eriod in -uestion as an era distinct .ro! t)e ot)ers 5ill be
e*+lained. ection , concludes.
%! The e(olution of oil fical re(enue
()e c)a+ter by Hasu!ann and $odri%uez in t)is boo2 describes t)e role t)at oil .iscal
re0enue +lays in e*+lainin% t)e colla+se o. t)e ?enezuelan econo!y. 6n order to dee+en our
understandin%, it is i!+ortant to understand 5)at dri0es t)e colla+se o. t)ose re0enues. ()e
.ollo5in% e-uation s)o5s a 0ery si!+li.ied 5ay o. t)in2in% about .iscal re0enueH
(iscal )enue (p c) * e $e =
3iscal re0enue is deri0ed by a++lyin% ta*ation (5it) an e..ecti0e ta* rate
e) to t)e .lo5
o. ta*able inco!e. 6n t)is case, ta*able inco!e is t)e result o. t)e net inco!e (p+c)
!ulti+lied by t)e -uantity o. t)e %ood sold (*). :0idently, t)is .or!ulation does not ta2e
into account all t)e issues re%ardin% ta*ation in %eneral, and t)e ta*ation o. oil in
+articular. ()ese issues 5ill be discussed belo5. =e0ert)eless, t)e .or!ula o..ers a si!+le
5ay o. deter!inin% 5)et)er c)an%es in .iscal re0enue are dri0en by c)an%es in ta*
+ressure, or t)e net re0enue, or t)e -uantity.
6n (able 1, 6 +resent t)e deco!+osition o. oil .iscal re0enue in c)an%es in ta* rates, net
re0enue, or -uantity. /et5een 19,0 and 2001, oil .iscal re0enue +er ca+ita .ell 7C.
=e0ert)eless, 5e see t)at bot) t)e e..ecti0e ta* rate and t)e net inco!e %re5. ()e .all in
.iscal re0enue is due to t)e .act t)at +roduction +er ca+ita .ell by ,7C. 3ollo5in% t)e +ea2
o. 1973, t)e re0enue +er ca+ita .ro! 1973 to 2001 .ell by "7CO a%ain, t)is is due !ostly to
t)e .all in oil +roduction +er ca+ita.
Table %: Decompoition of )ro*th in'il #ical Re(enue per Capita
Total Change
Period Oil Fiscal Revenue e p-c q
1960-2001 -7% 38% 107% -67%
1973-2001 -47% 4% 18% -57%
1960-1973 75% 33% 75% -25%
1973-1988 -34% 60% 16% -64%
1988-2001 -20% -35% 2% 21%
ourceH Aut)orBs calculations based on M:M (0arious years) and 6M3(200")
'
As seen in 3i%ure 2, +roduction increased u+ until 1973. $i%)t a.ter t)at, +roduction
al!ost colla+sed and it 5as only a.ter 19A, t)at it be%an to increase a%ain. 6n 2002, oil
+roduction 5as around 3 !illion barrels a day, still belo5 t)e le0el o. 1973. 1. course, t)is
i!+lies an i!+ortant .all in oil +roduction +er ca+ita, 5)ic) is re+resented by t)e %ray line
in t)e %ra+). 1il +roduction +er ca+ita declined .ro! 19,2 to 19A'. ince t)en, +roduction
+er ca+ita )as increased, but is still belo5 t)e a0era%e o. t)e +eriod .ro! 1921 to 2001. 6n
2002, oil +roduction +er ca+ita 5as 31C lo5er t)an in 197, (and 71C lo5er t)an t)e
)istorical )i%) in 19'7). Moreo0er, t)e a0era%e oil +roduction +er ca+ita in t)e 1990s 5as
,7C lo5er t)an in t)e 19,0s.
#i$ure +a! 'il Pro,uction
0
2 0 0
4 0 0
6 0 0
8 0 0
1 0 0 0
1 2 0 0
1 4 0 0
1 6 0 0
1 9 1 7
1 9 2 3
1 9 2 9
1 9 3 5
1 9 4 1
1 9 4 7
1 9 5 3
1 9 5 9
1 9 6 5
1 9 7 1
1 9 7 7
1 9 8 3
1 9 8 9
1 9 9 5
2 0 0 1
9 illio n s o f 1 a r r e ls
0
2 0
4 0
6 0
8 0
1 0 0
1 2 0
1 4 0
1 6 0
1 a r r e ls ?>
P e r c a p ita
#i$ure +b! 'il Pro,uction an, )DP
0
2000
4000
6000
8000
10000
12000
14000
1917
1923
1929
1935
1941
1947
1953
1959
1965
1971
1977
1983
1989
1995
2001
.,,, PPP Dollars?>
0
20
40
60
80
100
120
140
160
1arrels?>
Production
GDP
ourceH M:M (0arious years). Haus!ann and $odri%uez (200').
T o t a l
,
6n e..ect, as s)o5n in 3i%ure 2b, oil +roduction +er ca+ita .ollo5s closely t)e c)an%es in
&7@ +er ca+ita. 6t increased steadily until t)e 1970s, t)en declined. ()e +articular +eriod in
5)ic) t)e t5o 0ariables !o0ed in o++osite directions 5as bet5een 19'7 and 197,.
Ho5e0er, durin% t)is +eriod in 5)ic) +roduction 5as .allin%, .iscal inco!e increased, due
not only to +rices, but also to t)e increased .iscal +ressure. ()ere.ore, in t)e lon% run, it
see!s t)at oil +roduction can )el+ to e*+lain a lot o. t)e !o0e!ent o. t)e &7@, or, in ot)er
5ords, t)at t)e ?enezuelan e*+ansion and later colla+se cannot be dissociated .ro!
c)an%es in oil +roduction.
Conse-uently, to understand t)e .all in .iscal re0enue +er ca+ita it is i!+ortant to study
5)at )as dri0en oil +roduction in ?enezuela.TPF
9 Consideration o. t)e resources used in oil
+roduction !a2es it e0ident t)at t)e !ost i!+ortant .actor is ca+ital (lea0in% aside oil
reser0es). As s)o5n in 3i%ure 3, increases in +roduction are lin2ed to i!+ortant increases
in in0est!ent in t)e oil sector in t)e i!!ediately +recedin% years.
()e only +eriod in 5)ic) t)ere see!s to )a0e been an i!+ortant increase in in0est!ent
t)at 5as not acco!+anied by an e*+ansion o. +roduction 5as t)e early 19A0s. Ho5e0er,
t5o .actors !ust be ta2en into account 5)en assessin% t)is +eriod. 3irst, +roduction 5as
.allin% at t)e ti!e and a considerable a!ount o. in0est!ent 5as re-uired !erely to stabilize
it. 10 6n addition, 1@:C i!+osed -uotas on !e!ber countries, t)e result o. 5)ic) 5as t)at
+roduction could not increase. Hence, i. 5e 5is) to consider t)e true e..ect o. in0est!ent
in t)is +eriod, 5e s)ould loo2 at +roduction ca+acity, rat)er t)an actual +roduction. ()e
das)ed line in t)e %ra+) s)o5s t)at +roduction ca+acity started to increase in 19A0, in
res+onse to in0est!ent.TPF
11
FPT
TP
9
PT ()us .ar, 5e )a0e a0oided discussin% t)e relations)i+ bet5een +rices and -uantities, 5)ic) .or so!e
aut)ors is rele0ant, +articularly because ?enezuela is an 1@:C !e!ber. ()e issue 5ill be discussed belo5.
10 6n 197', oil +roduction .ell 23C, as 5ill be docu!ented in detail belo5.
TP
11
PT ()is .i%ure is not a0ailable at M:M (0arious years). ()is in.or!ation 5as a0ailable in an annual re+ort
+roduced at @7?A, 5)ic) is no lon%er +roduced. ()e aut)or t)an2s .or!er !e!bers o. t)e 1..ice o. t)e
C)ie. :cono!ist o. @7?A .or !a2in% t)e in.or!ation a0ailable.
7
#i$ure 3! 'il Pro,uction an, &n(etment
0
200
400
600
800
1000
1200
1400
1600
1948
1951
1954
1957
1960
1963
1966
1969
1972
1975
1978
1981
1984
1987
1990
1993
1996
1999
2002
T>ousands of 1arrels
-1200
-600
0
600
1200
1800
2400
3000
3600
4200
4800
9illions of 345 .,,.
Production 'Potential' nvestment
ourceH M:M (0arious years)
&i0en t)at increases in +roduction are lin2ed to i!+ortant increases in in0est!ent in t)e
oil sector in t)e i!!ediately +recedin% years, in0est!ent !ust be studied i. t)e
+er.or!ance o. oil +roduction is to be e*+lained. ()e oil sector )as a nu!ber o.
c)aracteristics t)at !ust be considered. As 5as !entioned abo0e, it is e*tre!ely ca+ital
intensi0e. Moreo0er, !ost o. t)e in0est!ent )as to be !ade at t)e be%innin% o. t)e +ro4ect.
6t is also s+eci.ic to +articular uses and reco0erin% it re-uires a relati0ely lon% ti!e.TPF
12
FPT ()e
.act t)at i!+ortant a!ounts o. ca+ital !ust be co!!itted e* ante to +ro4ects 5it) lon%
!aturity +eriods i!+lies t)at in addition to t)e usual deter!inants o. in0est!ent (cost o.
ca+ital, +ro.itability, etc.), t)e sector is sensiti0e to t)e stability o. institutional rules t)at
surround itO in +articular, institutions re%ardin% +ro+erty ri%)ts and ta*ation..
()e latter is i!+ortant, because t)e sector in countries li2e ?enezuela is +rone to t)e
+resence o. econo!ic rents and t)ose rents are associated 5it) t)e resource.13 6n ?enezuela,
t)e %o0ern!ent is t)e o5ner o. t)e resource. 6n t)is conte*t, t)e .iscal syste! is used to
TP
12
PT 6n0est!ent s+eci.icity re.ers to +ossible alternati0e uses o. in0est!ents !ade. An in0est!ent is )i%)ly
s+eci.ic 5)en it can be used .or only one +ur+ose 5it)in t)e sco+e o. t)e +ro4ect in 5)ic) it )as been
in0ested. 3or e*a!+le in oil, all t)e e*+loration in0est!ent is s+eci.ic to t)e oil .ields disco0ered. 6n addition,
!ost o. t)e in.rastructure t)at is set u+ to +u!+ t)e oil out o. t)e %round is also s+eci.ic to eac) 5ell.
13 1il .ields in ?enezuela are !ore +roducti0e t)at t)e a0era%e .ield in t)e rest o. t)e ;orld, t)ou%) t)ere
are countries t)at are !ore +roducti0e t)an ?enezuela. ()ere.ore, oil +roduction could be re+resented in a
+roduction .unction 5)ere ca+ital, labor, and natural resources are t)e +roduction .actors and t)ese econo!ic
rents are t)e re!uneration o. t)e natural resource.
A
ac)ie0e t5o %oalsH t)e re%ular .unction o. collectin% .iscal re0enues and t)e collection o.
t)e rents .ro! t)e resource.1"
As s)o5n in 3i%ure ", t)is distribution o. re0enues bet5een t)e %o0ern!ent and t)e
+roducers see!s to )a0e +layed an i!+ortant role in s)a+in% in0est!ent. ()e .i%ure s)o5s
t)at in0est!ent s+i2es are associated 5it) reductions in t)e %o0ern!entBs clai! on +ro.its.
As 5ill be e*+lained later, t)e conditions created by t)e la5s +assed in 19"" a++eared to
clear t)e 5ay .or a si%ni.icant increase in in0est!ent in t)e sector. Ho5e0er, a.ter a
de!ocratic %o0ern!ent 5as establis)ed in 19'A, t)e %o0ern!ent be%an to increase its clai!
on +ro.its until t)e industry 5as nationalized in 197'. ()e .irst, and stri2in%, i!+ression
t)at one %ets .ro! t)e %ra+) in 3i%ure " is t)at t)e %o0ern!entBs actions bet5een 19'A and
197' caused a colla+se in in0est!ent. A.ter nationalization, t)e %o0ern!ent reduced t)e
.iscal +ressure on t)e sector, 5)ic) allo5ed t)e ne5 state enter+rise (@etroleos de
?enezuela, )erea.ter re.erred to as @7?A) to in0est. Ho5e0er, 5)en +rices colla+sed in
t)e 19A0s, t)e %o0ern!ent a%ain started to increase its clai! on +ro.its and in0est!ent .ell.
3inally, t)e %ra+) s)o5s an increase in in0est!ent in t)e 1990s, 5)en t)e %o0ern!ent
a%ain reduced its clai! on +ro.its in t)e sector.
#i$ure -! &n(etment an, )o(ernment Claim on Profit
1" 6n t)e .e5 +laces 5)ere t)e o5ner o. t)e resource is a +ri0ate a%ent, t)ere is ty+ically a contract
bet5een t)e landlord and t)e +roducin% .ir! t)at sti+ulates a .ro! t)e latter to t)e .or!er. e+arately, t)e
+roducer 5ill +ay ta*es.
9
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1947
1951
1955
1959
1963
1967
1971
1975
1979
1983
1987
1991
1995
1999
-1000
-500
0
500
1000
1500
2000
2500
3000
3500
4000
4500
345 .,,. 9illions
Government Claim on Profits nvestment
ourceH Aut)orBs calculations based on M:M (0arious years)
(able 1 and 3i%ures 1 to " )a0e s)o5n a broad +icture o. t)e +er.or!ance o. t)e oil
sector. =e0ert)eless, it is clear t)at, 5it)in t)is broad 0ie5, t)ere are di..erences across
di..erent +eriods. 3or e*a!+le, (able 1 s)o5s t)at t)ere are +eriods in 5)ic) oil re0enue
+er ca+ita increased. i!ilarly, t)ere are +eriods in 5)ic) +roduction +er ca+ita increased.
()e e..ecti0e ta* rate also di..ers across +eriods. ()ere.ore, to better understand t)e
relations)i+ bet5een t)e %o0ern!ent and t)e oil +roducers, it is i!+ortant to identi.y and
analyse t)e !ain %uidelines t)at underlay oil +olicy in ?enezuela in t)e di..erent +eriods.TPF
1'
FPT
(able 2 +ro0ides a brie. su!!ary o. t)e +eriods o. oil +roduction in ?enezuela.
:ssentially, t)e cate%orization is based on t5o !ain c)aracteristicsH %o0ern!ent
ad!inistrations and de0elo+!ents in t)e international oil !ar2et. 6n t)e sections t)at
.ollo5, t)e ta*ono!y 5ill be 4usti.ied and eac) +eriod 5ill be analyzed care.ully.
Table +: Era of oil pro,uction in Venezuela
Perio, )o(ernment A,minitration 'il .arket
I.?. &o!ez (190A>193')
:. 8o+ez C. (193,>19"1)
7isco0ery and boo! Aut)oritarianis!
6. Medina A. (19"1>19"')
6ncreasin% +artici+ation
o. oil as
an ener%y source.
TP
1'
PT A %ood re0ie5 o. t)e ?enezuelan +olitical syste! and its relations)i+ 5it) oil can be .ound in 9rbane4a
(1992).
10
7e!ocratic atte!+t
MIunta $e0olucionariaN
(19",>19"7)
$. &alle%os (19"A)
MIunta MilitarN (19"9>
19'2)
M. @erez I. (19'3>19'A)
$. /etancourt (19'9>19,3)
$. 8eoni (19,">19,A)
()e end o. t)e
co!+arati0e
ad0anta%e
$. Caldera (19,9>1973)
()e Middle :ast
establis)ed itsel. as
t)e !ain su++lier
o. oil (19,0>1973)
C. A. @erez (197">197A)
8. Herrera C. (1979>19A3)
()e c)an%e in t)e
international conte*t
I. 8usinc)i (19A">19AA)
ubstitution o. oil
and Mener%yN as a
+roduction in+ut
(197">19A,)
C. A. @erez (19A9>1993)
$. Caldera (199">199A)
9nc)an%ed +olicy
0ie5s in a c)an%in%
international
conte*tP
7e!ocracy
H. C)a0ez (199A>)
1@:CBs !ar2et
s)are +olicy
(19A,>)
+! Dico(ery an, boom /%0%-1%0234
$e.erences to t)e +resence o. oil in ?enezuela %o bac2 all t)e 5ay to colonial ti!es. 6n
1'39, a barrel o. oil 5as sent to +ain at t)e re-uest o. <in% Carlos ?. ()is e0ent is
docu!ented as t)e .irst s)i++in% o. oil .or e*+ort.TPF
1,
FPT Ho5e0er, it is in t)e late nineteent) and
early t5entiet) centuries, 5)en oil be%an to be used !ore 5idely as a source o. ener%y, t)at
co!!ercial acti0ity around t)e sector be%an to increase. ()e .irst Moil concessionN 5as
%ranted in 1A,' and t)e .irst oil co!+any, @etrolia del (ac)ira, 5as .ounded in 1A7A.
6nnu!erous concessions and licenses 5ere %ranted a.ter t)at. Ho5e0er, it 5as not until
191", 5it) t)e disco0ery o. Mene &rande oil .ield, t)e .irst %iant .ield, t)at ?enezuela
clearly entered t)e co!!ercial era o. oil e*+loitation.
()is +eriod 5as c)aracterized by t)e bi%%est e*+ansion in oil +roduction in ?enezuelaO
see 3i%ure ', 5)ere t)e e*+ansion is e*+ressed in lo%arit)!s to )i%)li%)t t)e +ro+ortional
increases in oil +roduction. ()e !ain reasons be)ind t)is e*+ansion 5ere, ob0iously, t)e
+resence o. i!+ortant resources and t)e closeness to t)e !ain !ar2et .or oil, t)e 9nited
TP
1,
PT 3or a detailed descri+tion o. all t)e e0ents surroundin% oil in ?enezuela, see Martinez ()
11
tates. Ho5e0er, it 5as also i!+ortant t)at bet5een 190A and 193' ?enezuela 5as ruled by
Iuan ?icente &o!ez. 6n t)e nineteent) century, ?enezuela 5as c)aracterized by a lon% ci0il
5ar and a se-uence o. %o0ern!ents t)at 5ere o.ten unable to co!+lete t)eir ter!s o. o..ice
because o. rebellions and %eneral +olitical unrest. &o!ez, t)ou%) a .ierce dictator,
!ana%ed to +aci.y and stabilize t)e country. ()at o..ered .orei%n in0estors a relati0ely
stable en0iron!ent in 5)ic) to in0est.TPF
17
FPT
#i$ure 2! 'il Pro,uction
1
10
100
1000
10000
100000
1000000
10000000
1917
1923
1929
1935
1941
1947
1953
1959
1965
1971
1977
1983
1989
1995
2001
9illions of 1arrels
ourceH M:M (0arious years)
3i%ure ' s)o5s t)at bet5een 1929 and 19"3, oil +roduction see!s to )a0e stalled. ()is
is due to t5o .actorsH t)e &reat 7e+ression and +olitical uncertainty in ?enezuela. ()e
!ore i!+ortant o. t)e t5o 5as t)e &reat 7e+ression, 5)ic) clearly a..ected t)e de!and
ne%ati0ely. Ho5e0er, once t)e 5orld started to reco0er, t)ere 5as an increase in +olitical
uncertainty in ?enezuela. A.ter &o!ez died, t)e !o0e!ent .or c)an%e to a de!ocratic
re%i!e %ained stren%t) and t)is 5as acco!+anied by de!ands .or a better deal .or t)e
country 5it) res+ect to t)e e*+loitation o. oil. 3ailure to )a0e t)ese de!ands !et %enerated
increasin% unrest in t)e +o+ulation, includin% a stri2e o. t)e oil 5or2ers in 193,. :0en
t)ou%), in t)eory, t)ere 5as )ydrocarbon le%islation +rior to 19"3, it 5as re0ised constantly
and in +ractice, t)e .iscal rules .or oil e*+loitation 5ere set on a contract>by>contract basis.
()ere.ore, t)ere 5as a +erce+tion o. an uncertain +olitical landsca+e 5it) no clear rules .or
t)e oil sector.
TP
17
PT Moreo0er, &o!ez -uic2ly realized t)e i!+ortance o. oil .iscal re0enue and used it to consolidate +o5er.
12
As ar%ued abo0e, t)is c)an%ed 5it) t)e +assin% o. t)e Hydrocarbons 8a5 and t)e
6nco!e (a* Code in 19"3. /ot) instru!ents re!o0ed t)e uncertainty about concessions
+eriods and .iscal rules .ro! oil co!+anies. ()is )el+ed to increase +roduction .urt)er in
t)is +eriod, as s)o5n in 3i%ure '. =e0ert)eless, it is i!+ortant to note t)at in t)e .i%ure, t)e
slo+e .or t)is second e*+ansion is not as stee+. ()is i!+lies a slo5er %ro5t) rate t)an in
t)e earlier +eriod. 6t is i!+ortant to bear t)is .act in !ind .or t)e ne*t section.
@arallel to t)is e*+ansion 5as t)e relations)i+ bet5een t)e oil sector and t)e rest o. t)e
econo!y. ince its a++earance at t)e be%innin% o. t)e t5entiet) century, oil )as been seen
as a Mte!+oraryN +roducti0e sector. Most ?enezuelan intellectuals o. t)e ti!e 5arned about
t)e +roble!s t)at t)is te!+orary boo! could cause .or ot)er +roducti0e sectors, sayin% t)at
it 5ould be i!+ossible to restore t)ese sectors to t)eir .or!er state once t)e su++ly o. oil
)ad been e*)austed. TPF
1A
FPT ()is +erce+tion t)at t)e +roducti0ity o. t)e oil sector 5as only
te!+orary led to one o. t)e %uidin% +rinci+les o. t)e ?enezuelan oil +olicyH t)e Mso5in% o.
oilN. Accordin% to t)is +rinci+le, %i0en t)at oil is an industry t)at can last only .or a certain
+eriod, t)e inco!e .ro! it s)ould be in0ested in ot)er sectors o. t)e econo!y in t)e ser0ice
o. di0ersi.ication.19
()is +rinci+le !ore or less %uided t)e ad!inistrations in t)e +eriod. As ar%ued in
9rbane4a (1992), .or t)ese non>de!ocratic %o0ern!ents, t)e so5in% o. oil i!+lied t)e
de0elo+!ent o. in.rastructure and urbanization. ()at t)is 5as so can be seen .ro! (able 3.
()e lo5 in.ant !ortality in 19,0 indicates t)at by t)en, basic ser0ices, suc) as 5ater
sanitation, 5ere already bein% +ro0ided. ()e nu!ber o. air+ort .li%)ts and a!ount o.
electricity consu!ed in 1970 s)o5s t)at by t)en, ?enezuela )ad a relati0ely 5ell>de0elo+ed
in.rastructure .or trans+ort and utilities.TPF
20
FPT
TP
1A
PT /asically, t)ey used t)e ar%u!ent o. 5)at is currently re.erred to in literature as t)e &utch ,isease.
Alberto Adriani (see .or e*a!+le, Adriani, 1931) 5as one o. t)e aut)ors t)at issued t)e !ost 5arnin%s about
t)e end o. t)e Ma%rarian eraN .or ?enezuela, because o. t)e +resence o. oil. Ho5e0er, ot)er 5or2s (.or
e*a!+le Mayobre, 19"", and @eltzer, 19"") discussed t)e +roble!s o. an a++reciated e*c)an%e rate on t)e
industrialization o. ?enezuela.
19 ()e na!e o. t)e +rinci+le ca!e .ro! an editorial +ublis)ed in 193, by Arturo 9slar @ietri, an in.luential
5riter and intellectual.
TP
20
PT :0en t)ou%) 1970 is 12 years a.ter t)e +eriod studied, t)e reader s)ould realize t)at ac-uirin%
in.or!ation on t)ese 0ariables .or an international co!+arison is di..icult. Ho5e0er, t)e statistics .or t)e
0ariables +resented )ere do not c)an%e dra!atically o0er s)ort +eriods and so can be ta2en as re+resentati0e
o. t)e +eriod studied.
13
Table 3: The reult of 5oil o*in$6
6nternational .li%)ts
de+arture +er 1000
)ab.
<;H +er ca+ita 6n.ant !ortality +er
1000 birt)s
1970 1970 19,0
Al%eria 1.0A 11' 1,"
Ar%entina 2.99 A13 ,0
C)ile 2.,2 732 11A
6ran 0.,0 2"3 1,"
6ra- 0.'7 27' 117
8ibya 3.12 1," 1'9
Me*ico 1.12 "9, 9"
audi Arabia ".39 321 170
1:C7 10.73 "19A 31
?enezuela ,.'" AA1 ',
ourceH ;orld /an2 (200')
Alt)ou%) so!e industrial +olicies 5ere i!+le!ented durin% t)is +eriod, t)is does not
necessarily re.lect a +articular orientation to5ards one sector. Moreo0er, t)ere 5as no
+erce+tion t)at oil could be a +roducti0e sector t)at could be inte%rated 5it) t)e ot)er
sectors o. t)e econo!yO t)ere.ore, t)ere 5as no +olicy to5ards suc) inte%ration.
=e0ert)eless, it is i!+ortant to note t)at t)ere 5as a +erce+tion t)at ?enezuela s)ould
ca+ture a %reater s)are o. t)e oil !ar2et. (o t)is end, ste+s 5ere ta2en to increase oil
+roduction. ()e Hydrocarbons 8a5 o. 19"3 encoura%ed t)e do!estic re.inin% o. oil and
5as central to t)e de0elo+!ent o. t)e current re.inin% net5or2 in ?enezuela. 6n 19'A, t)e
installed re.inin% ca+acity 5as AA3,000 barrels a day and t)e total o. crude oil re.ined in
t)at year 5as 10 ti!es )i%)er t)an in 19"3. 6n addition, in 19',, t)e %o0ern!ent establis)ed
t)e ?enezuelan 6nstitute o. @etroc)e!icals, 5it) t)e idea o. .osterin% t)e de0elo+!ent o. a
+etroc)e!ical sector. Ho5e0er, alt)ou%) t)e construction o. a +etroc)e!ical co!+le*
started, in 19'A, Marcos @erez Ii!enez, t)e dictator o. t)at, ti!e 5as ousted and t)e
de!ocratic era be%an.21 ()ou%) t)e co!+le* 5as .inalized by t)e de!ocratic %o0ern!ents,
as it 5ill be +ointed out later, +riorities 5ill c)an%e.TPFFPT
6n su!!ary, t)is .irst +eriod is c)aracterized by t)e de0elo+!ent o. t)e oil sector in
?enezuela, 5)ic) )ad i!+ortant resources and 5as %eo%ra+)ically +ro*i!ate to t)e !ain
TP
21
PT 3urt)er e0idence o. t)e relati0e lac2 o. a co!+re)ensi0e +olicy to5ards t)e inte%ration o. t)e oil sector
in t)e ?enezuelan econo!y is +ro0ided by t)e state o. tec)nical education related to oil. Most o. t)e tec)nical
e*+ertise in t)e sector )ad to be +ro0ided by .orei%ners. &eolo%y as a career 5as not introduced until 1937
and @etroleu! :n%ineerin% until 19'2. 6t is i!+ortant to notice t)at, by t)at ti!e, !ost o. t)e uni0ersities in
t)e country 5ere run by t)e %o0ern!ent.
1"
!ar2et. ()ese conditions, alon% 5it) a relati0ely stable .ra!e5or2 .or oil co!+anies, !ade
?enezuela t)e t)ird lar%est +roducer (be)ind t)e 9nited tates and t)e o0iet 9nion) and
t)e lar%est e*+orter o. oil in t)e 5orld.
3! The en, of the comparati(e a,(anta$e /%0231%0734
i!ultaneously 5it) t)e be%innin% o. t)e de!ocratic era, i!+ortant c)an%es 5ere
occurrin% in t)e oil !ar2ets. As s)o5n in (able ", ot)er .uture +roducers o. 5)at 5ould
beco!e t)e 1r%anization o. @etroleu! :*+orter Countries (1@:C) 5ere assertin%
t)e!sel0es in t)e !ar2et.TPF
22
FPT Moreo0er, as seen .ro! t)e table, ?enezuela 5as at a
disad0anta%e relati0e to t)ose countries. ?enezuelan costs 5ere )i%)erTPF
23
FP and reser0es 5ere
lo5er (%i0en t)e )i%) rate o. e*traction relati0e to t)e reser0e stoc2). 6n t)is conte*t, t)e
ne5 de!ocratic re%i!e +us)ed .or a second and i!+ortant +rinci+le t)at %uided oil +olicyH
M+reser0ationN.
Table -: 8tate of the oil market in %09%
19,1
Mar2et )are :*traction $ate 7e0elo+!ent
Q:*traction Costs
Al%eria 1.,C 2.,C 0.,9'
6ndonesia 2.1C 1.9C 1.002
6ran '.9C 1.7C 0.279
6ra- '.0C 1.'C 0.19"
<u5ait A.9C 1.0C 0.201
8ibya 0.1C 0.2C 1.339
=i%eria 0.2C 3.0C 2.,A'
Ratar 2.,C 2.AC 0.19'
audi Arabia 2.1C 1.0C 0.191
9nited Arab :!irates 0.0C 0.0C 0.',1
Venezuela %-!2: 9!3: +!+7+
(otal 1@:C "3.1C 1.7C
=on 1@:C ',.9C '.,C
Me*ico 1."C ".3C ,.9A"
9 3'.,C A.3C 2.1,3
ourceH Aut)orBs calculations based on :6A (200") and Adel!an (1993)
TP
22
PT 6n t)is +a+er, 5e de.ine as 1@:C +roducers t)ose countries t)at are no5 !e!bers o. 1@:C. :cuador
and &abon, 5)ic) 4oined t)e or%anization .or a +eriod and t)en le.t, are not considered to be !e!bers o.
1@:C.
TP
23
PT Costs in =i%eria see! lar%er t)an in ?enezuela. 3or t)e +eriod, t)ey !ore or less 5ere around t)e sa!e
0alue as t)e ?enezuelan costs. =e0ert)eless, t)e =i%erian :bony 8i%)t re.erence crude oil 5as o. )i%)er
-uality t)an t)e ?enezuelan (ia Iuana 8i%)t re.erence. ()ere.ore, its +rice 5as around '0 cents )i%)er.
1'
()e +reser0ation +rinci+le 5as based on t)e notion t)at oil is a scarce resource o. %reat
0alue and t)ere.ore ?enezuela !ust !ini!ize its e*traction in order to sa0e it .or t)e
.uture.TPF
2"
FPT :0en be.ore t)ey assu!ed %o0ern!ent, +ro>de!ocratic .orces accused t)e
aut)oritarian %o0ern!ents o. t)e .irst )al. o. t)e t5entiet) century o. M%i0in% a5ayN
?enezuelan oil. ()is beca!e a relati0ely success.ul +olitical +lat.or!. 1nce de!ocracy
5as instituted, t)e +reser0ation +rinci+le beca!e a !ain %uideline .or t)e di..erent
ad!inistrations.
()e +reser0ation +rinci+le !oti0ated t5o ty+es o. +olicy. 3irst, t)e %o0ern!ent
increased substantially its clai! on +ro.its .ro! t)e sector, as seen in 3i%ure ". ()e
ar%u!ent 5as t)at since oil is suc) a 0aluable co!!odity o. li!ited a0ailability, t)e
%o0ern!ent, as t)e o5ner o. t)e resource, s)ould !a*i!ize its s)are o. t)e rents %enerated
.ro! it. ()is %oal 5as ac)ie0ed t)rou%) royalties and t)e le0yin% o. inco!e ta*.
()e second +olicy 5as t)e Mno !ore concessionsN +olicy. ()e concessions %i0en a.ter
t)e la5 o. 19"" 5ere set to e*+ire in 19A3. ()e %o0ern!ent announced t)at t)ere 5ould be
no !ore concessions and t)at t)ose set to e*+ire in 19A3 5ould not be rene5ed.
(raditionally, t)e literature credits t)ese +olicies ()i%)er ta*es and t)e Mno !ore
concessionsN +olicyN) .or a contraction o. in0est!ent and bla!es t)e! .or t)e colla+se in
+roduction a.ter 1970.2' Ho5e0er, t)ere are t5o i!+ortant +oints to be !ade t)at could
5ea2en t)is )y+ot)esis. 3irst, in0est!ent 5as ta2in% +lace bet5een 19'A and 1970. As
ar%ued in t)e a++endi*, t)ere 5ere +ositi0e in0est!ent outlays. Moreo0er, t)e actual
+)ysical !easure o. t)e !ain +roduction asset (t)e nu!ber o. acti0e oil 5ells) increased
o0er ti!eO and as s)o5n in 3i%ure ,, +roduction continued to increase.
#i$ure 9
'il Pro,uction
TP
2"
PT Iuan @ablo @erez Al.onzo is reco%nized as t)e !ain ideolo%ist be)ind t)e +reser0ation +rinci+le. ee,
.or e*a!+le, @erez Al.onzo (19,2). @erez Al.onzo 5as one o. t)e .ounders o. 1@:C and ener%y !inister o.
t)e .irst ad!inistration o. t)e de!ocratic era.
2' ee .or e*a!+le (u%5ell (197'), :s+inasa, (199'), and Monaldi (2002) and (200,)
1,
1
10
100
1000
10000
100000
1000000
10000000
1917
1923
1929
1935
1941
1947
1953
1959
1965
1971
1977
1983
1989
1995
2001
9illions of 1arrels
ourceH M:M (0arious years)
econdly, it )as been already !entioned t)at ?enezuela )ad )i%)er costs, 5)ic)
su%%ests t)at t)e ?enezuelan oil sector lost its co!+etiti0e ed%e in t)is +eriod. 1t)er
!easures (stated in t)e A++endi*) also su%%est t)is. ()ere.ore, it s)ould )a0e been
e*+ected t)at oil co!+anies 5ould )a0e s)i.ted in0est!ent .ro! ?enezuela to ot)er !ore
+roducti0e oil countries. Ho5e0er, t)e traditional literature )as %i0en little or no attention
to t)is as+ect o. t)e international oil !ar2et. /ecause o. t)at t)e ans5er to t)e -uestion o.
5)at 5ould )a0e )a++ened i. t)e .iscal +ressure on t)e sector )ad been 2e+t constant or
increased !oderately, )as not necessarily been ans5ered.
()e .act t)at t)e c)an%e in t)e net assets o. oil .ir!s in ?enezuela 5as ne%ati0e !i%)t
su%%est t)at e0en t)ou%) oil .ir!s 5ere in0estin% in t)e country, t)ey 5ere also under%oin%
a +rocess o. assets relocation in t)eir 5orld +ort.olio. As s)o5n in 3i%ure 7, .ro! t)e
i!+ortersB +oint o. 0ie5, t)e 9 5as -uic2ly losin% !ar2et s)are. 1t)er i!+orters !ore or
less 2e+t t)eir s)are. Ho5e0er, %i0en t)e size o. t)e 9, t)is +attern i!+lies t)at a %reat
o++ortunity to su++ly i!+orters 5as o+enin% u+ in t)e !ar2et.
17
#i$ure 7
9ar8et 4>are
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973
OPEC w/o Venezuela
Venezuela
USSR
Other 1973 exporters
US
Other consumers
ourceH Aut)orBs calculations based on :6A (200")
=e0ert)eless, t)e i!+ortant .actor 5as action ta2en by ot)er e*+orters o. oil. As can be
seen .ro! 3i%ure 7, ?enezuela 5as also losin% !ar2et s)are ra+idly. Most o. t)e loss 5as
due to an increase in t)e s)are o. countries t)at 5ould beco!e 1@:C !e!bers, 5)ic) 5ere
!ore +roducti0e t)at ?enezuela. ()e o0iet 9nion !ar%inally increased its s)are, but it is
easy to ar%ue t)at t)ese 5ere oil areas outside t)e reac) o. oil .ir!s. 6n addition, t)ere 5ere
relati0ely !inor %ains in ter!s o. t)e total !ar2et s)are o. s!aller e*+orters.TPF
2,
FPT
=e0ert)eless, it is i!+ortant to note t)at accordin% to Adel!an (1993) !ost o. t)ese
s!aller e*+orters )ad lo5er costs t)an ?enezuela. Conse-uently, ?enezuela 5as losin%
!ar2et s)are to +roducers t)at )ad lo5er costs.
6. to t)e +re0ious ele!ents 5e add t)e already !entioned .act t)at, e0en a.ter t)e
Hydrocarbons 8a5 o. 19"3, t)e %ro5t) rate o. t)e ?enezuelan oil sector 5as slo5in%
TP
2,
PT ()is does not i!+ly t)at t)e %ains 5ere not i!+ortant %ains in ter!s o. t)e relati0e size o. t)e
+roduction o. t)ese countries. ()is %rou+ includes An%ola, Colo!bia, :cuador, :%y+t, &abon, Malaysia,
1!an, (unisia, and (rinidad and (oba%o.
1A
do5n,TPF
27
FPT it is di..icult to ar%ue t)at ?enezuela could )a0e 2e+t t)e !ar2et s)are it )ad in
19,0. ()ere.ore, so!e asset relocation s)ould )a0e been e*+ected .ro! t)e oil .ir!sB +oint
o. 0ie5. &i0en t)is conte*t, e$ post it see!s lo%ical t)at a 0iable strate%y 5ould )a0e been
to reduce t)e .iscal +ressure on oil .ir!s, in order t)at t)ey !i%)t co!+ete 5it) ot)er 1@:C
countries, )ence !ini!izin% t)e .all in !ar2et s)are.
Ho5e0er, ?enezuela .ollo5ed a di..erent strate%y. 6t a++roac)ed its !ain co!+etitors
and ne%otiated 5it) t)e! to .or! 1@:C and to coordinate ta* +olicy.2A As seen in (able ',
all o. t)e 1@:C +roducers increased t)eir .iscal +artici+ation as t)ey beca!e !e!bers and
be%an %ainin% control o. t)eir oil sector. 6n addition, e0en t)ou%) concessions 5ere not
%oin% to be rene5ed, .orei%n oil .ir!s 5ere si%nin% in0est!ent a%ree!ents in 4oint 0entures
5it) t)e state>o5ned oil co!+any (C?@)29
FPT ()e .acts described by Martinez (200') su%%est
t)at, e0en t)ou%) oil .ir!s 2ne5 t)at concessions 5ere not %oin% to be rene5ed, t)ey 5ere
ne%otiatin% t)e establis)!ent o. Mser0ice contractsN 5it) t)e C?@. ()is 5as a course o.
action t)at )ad already been .ollo5ed in ot)er 1@:C countries t)at )ad nationalized t)eir
industry.C
30
FPT ()ese ser0ice contracts 5ould )a0e entailed t)at t)e oil .ir!s 5ould )a0e stayed
in ?enezuela, +roducin% .or t)e C?@.
Table 2: Effecti(e tax rate for the oil ector on 'PEC member
%09; %07% %07+ %073 <ote
Al%eria 30C (19,9) 3'C "7C '0C
6nde+endence 19,2. Me!ber
since 19,9
6ndonesia n.a. '0C "0C 33C
C3i*ed a!ount ta*es. )are in 1977H
',CC
6ran "2C '2C '"C ,3C
6ra- "3C ,3C "'C 77C
<u5ait ""C 3'C 39C '0C
8ibya 10C (19,2) 19C 1AC 1,C Me!ber since 19,2.
=ationalization 1970. )are in
197' ,"C
=i%eria 30C (19,7) '"C '"C ,0C Me!ber since 1971
TP
27
PT ()is see!s to su%%est t)at t)e oil sector 5as !ore or less reac)in% a +ea2 in ter!s o. +otential %ro5t).
2A 6n 19'9, in t)e .irst Arab @etroleu! Con%ress, +rior to t)e .oundation o. 1@:C, oil +roducers (includin%
?enezuela) reac)ed an in.or!al a%ree!ent t)at e0entually led to t)e creation o. 1@:C. ()is 5as 2no5n as t)e
Cairo A%ree!ent. A!on% ot)er t)in%s, t)e +artici+atin% countries a%reed t)at t)e s)are o. re0enue .ro! t)e
oil sector to t)e %o0ern!ents s)ould increase to around ,0C o. t)e inco!e.
TP
29
PT ee Martinez (200') .or a detailed descri+tion o. t)e e0ents in eac) year.
TP
30
PT 3or e*a!+le, in 8ibya, 5)ic) nationalized its industry in 1970, and Al%eria, 5)ic) did so in 1971. 6n
addition, in audi Arabia, 6ran, and 6ra-, t)e =ational and 6nde+endent 1il Co!+anies started 4oint 0entures
o. so!e .or!.
19
Ratar "3C (19,1) 'AC ,0C ,"C
audi Arabia 3AC '0C '1C "AC
9A: 10C (19,") '1C '2C '0C Me!ber since 19,7
?enezuela "'C ,2C ,,C 73C
ourceH Aut)orBs calculations based in Adela! (1993) and 1@:C (0arious years)
6t is di..icult to a++raise t)e co!+lete oil +olicy .ra!e5or2 (non>rene5al o. concessions
and increased .iscal +ressure), e0en ta2in% into account t)e in.or!ation a0ailable to t)e
+olicy !a2ers at t)e ti!e as an ele!ent .or t)e analysis. 1n t)e one )and, it see!s t)at t)e
increase in t)e %o0ern!ent ta2e by itsel., and e0en +er)a+s t)e +olicy o. Mno !ore
concessionsN, did not necessarily deter in0est!ent. 1n t)e ot)er )and, 4ud%in% by t)e
intended result o. t)e !o0e to .or! 1@:C, it 5as success.ul. As s)o5n in 3i%ure ', e0en
t)ou%) oil e*+orts +er ca+ita 5ere .allin%, oil .iscal re0enue +er ca+ita re!ained constant.
()e 2ey assu!+tion be)ind t)is +olicy .ra!e5or2 5as t)e assu!+tion o. a .inite a!ount
o. reser0es. As 5ill be s)o5n belo5, t)e e*traction rate o. oil 5orld5ide 5as increasin%
(5)ic) i!+lies t)at reser0es 5ere di!inis)in%) and t)e ener%y intensity o. t)e 5orld (t)e
a!ount o. ener%y re-uired to %enerate a dollar o. econo!ic acti0ity) 5as also increasin%.
()ere.ore, it see!ed at t)e ti!e t)at oil !i%)t, indeed, beco!e a scarce co!!odity.
Moreo0er, as +resented in Cuddin%ton and Moss (2001), alt)ou%) t)ere 5as, in t)e late
19'0s, an increase in t)e di..usion o. tec)nolo%y in t)e oil sector, !ost o. t)e ne5
tec)nolo%y 5as deri0ed .ro! ad0ances in %eoc)e!istry, strati%ra+)y, and .luid syste!
sciences. ()ese ad0ances 5ere use.ul .or t)e lo%%in% and testin% o. 5ells and 5ere
i!+ortant .or reducin% e*+loration costs. ()ey did not .acilitate t)e de0elo+!ent o. ne5
sources o. oil reser0es. =e0ert)eless, as 5ill be ar%ued belo5, t)e 2ey tec)nolo%ical
ad0ances t)at )el+ed to c)an%e t)e +erce+tion o. oil reser0es ca!e in t)e late 19,0s and
early 1970s.
3urt)er!ore, e0en i. 2no5led%e 5as a0ailable in t)e late 19'0s about t)e +ossibility o.
ne5 reser0es around t)e 5orld, in +articular outside 1@:C, it see!ed t)at t)e +rice in 19,0
5as relati0ely lo5. As s)o5n in t)e A++endi*, i. 5e co!+are t)e return o. lea0in% an oil
barrel in t)e %round and e*tractin% it later (10, 20 or 30 years later) 5it) t)e strate%y o.
e*tractin% it, sellin% it, and in0estin% t)e +roceeds o. t)e sale in a 9 treasury bond, clearly
t)e better strate%y 5ould )a0e been to lea0e it in t)e %round. ()is is true .or eac) o. t)e
t)ree !aturity +eriods o. 10, 20, and 30 years and .or t)e +eriod bet5een 19,2 (t)e .irst
year .or 5)ic) in.or!ation is a0ailable .or all t)e returns) and 1973. ()ere.ore, it 5as
o+ti!al to reduce t)e e*traction o. oil.
()e .ore%oin% discussion is not intended to deny t)e role +layed by t)e +ro%ressi0e
s-ueeze o. +ro.its .ro! t)e oil .ir!s in t)e colla+se in oil +roduction t)at later too2 +lace.
20
$at)er, its ai! is to +ut t)at .actor in conte*t. Most +robably, ?enezuela 5ould )a0e lost
!ar2et s)are any5ay and t)e in.or!ation a0ailable to +olicy !a2ers at t)e ti!e 5as not t)e
sa!e as today. =e0ert)eless, it is clear t)at t)e +olicy t)at 5as .ollo5ed (t)at o. increasin%
ta*es and +ro!otin% +reser0ation o. t)e resource) did not )el+ to +lace t)e country in a
+osition to ta2e ad0anta%e o. a +ossible +eriod o. )i%)er +rices. =e0ert)eless, as s)o5n by
t)e .i%ures +resented in t)e A++endi*, t)e ne%ati0e conse-uences o. t)e +olicy o. )i%)er
ta*es and Mno !ore concessionsN 5ere be%innin% to s)o5 in t)e late +art o. t)e +eriod. 6n
+articular, 1971 is central to t)e understandin% o. t)e +eriod. ()at year, t)e nu!ber o.
acti0e 5ells decreased by 10C and t)e +roducti0ity +er 5ell also decreased substantiallyTPF
31
FPT.
()is su%%ests t)at oil .ir!s sto++ed in0estin% e0en in 2ee+in% +roduction .lo5in%. A.ter
1970, t)e relations)i+ bet5een oil co!+anies and t)e %o0ern!ent be%an to deteriorate,
because t)e %o0ern!ent alle%ed t)at oil co!+anies 5ere not c)ar%in% +rices t)at 5ere
e..ecti0e .or ta* +ur+oses, 5it) t)e co!+anies ar%uin% t)at t)ey 5ere.TPF
32
FPT
1n Ianuary 1P
st
P 1971, @resident $a.ael Caldera announced t)at t)e %o0ern!ent 5ould
nationalize t)e natural %as business. i* days later, a decree 5as issued t)at re%ulated t)e
+rice t)at oil .ir!s s)ould use .or ta* +ur+oses F
33
FPT 3inally, in Iuly a la5 5as +assed t)at
.orbade oil .ir!s .ro! ta2in% t)eir assets out o. ?enezuela in order to ensure t)e stability o.
oil +roduction a.ter 19A3, 5)en t)e concessions 5ere set to e*+ire. Clearly, 5)ile acce+tin%
t)at t)ese e0ents 5ere +art o. a 5ider con.lict bet5een oil co!+anies and oil>+roducin%
countries, 5e can see t)at t)ey also %a0e a si%nal t)at induced oil .ir!s to basically )alt
in0est!ent.3" Ho5e0er, t)e .acts described in t)e ne*t section allo5ed +olicy !a2ers to
i%nore t)ese conse-uences.
6n addition to .ollo5in% t)is +rinci+le o. Mconser0ationN, t)e de!ocratic era continued
5it) t)e idea o. Mso5in% oilN. =e0ert)eless, t)ere 5as an i!+ortant ideolo%ical c)an%e. ()e
+riority .or %o0ern!ent e*+enditure 5ould .ocus on social areasH )ealt), education, and
)ousin%. Accordin% to o..icial .i%uresTPF
3'
FPT, social e*+enditure rose .ro! 17C o. t)e bud%et in
19,2 to 33C in 1973, in t)e conte*t o. a %ro5in% bud%et. ()is +olicy o. in0estin% in +eo+le
TP
31
PT 6n .act, as is s)o5n in t)e a++endi*, t)is 5as t)e be%innin% o. a +eriod t)at sa5 +roducti0ity +er 5ell
.all all t)e 5ay u+ to 19A", 5ell +ast nationalization.
TP
32
PT :0idently, t)is is also +art o. t)e distributi0e con.lict bet5een t)e %o0ern!ent and oil .ir!s.
TP
33
PT ()is instru!ent, called Me*+ort 0alue .or .iscal re.erenceN lasted until 5ell a.ter nationalization.
3" 6t is i!+ortant to !ention t)at +ri0ate oil co!+anies 5ere si%nin% ser0ice contracts 5it) t)e %o0ern!ent
e0en a.ter 1971.
TP
3'
PT 1C:@$:()
21
)ad i!+ortant e..ects on educational co0era%e, i!+ro0ed )ealt) conditions, and better
)ousin% conditions, a!on% ot)er i!+ro0ed social indicators.
;)at did not c)an%e, t)ou%), 5as t)e lac2 o. a +olicy .or inte%ratin% t)e oil sector 5it)
t)e rest o. t)e econo!y. :0en t)ou%) t)e re.inin% ca+acity continued to %ro5 until 19,',
t)e %ro5t) 5as due !ostly to t)e co!+letion o. t)e re.ineries 5)ose construction started
a.ter t)e Hydrocarbons 8a5 o. 19"3. A second +etroc)e!ical co!+le* 5as started, but 5as
based !ostly on state>o5ned .ir!s or 4oint 0entures in 5)ic) t)e state )ad t)e !a4ority o.
t)e ca+ital. 7urin% t)is ti!e, i!+ort substitution +olicies 5ere in .ull s5in% in 8atin
A!erica.TPF
3,
FPT ()ere.ore, t)ese atte!+ts at industrialization around oil, rat)er t)an re.lectin% a
Mcluster 0isionN o. t)e sector, 5ere 4ust +art o. a 5ider set o. +olicies t)at )ad t)e %oal o.
+roducin% !ost o. t)e %oods i!+orted by t)e country.TPF
37
FPTC
6n su!!ary, ?enezuelan oil +olicy in t)is +eriod 5as %uided by t)e +erce+tion t)at
+roducin% oil 5as a te!+orary acti0ity. ()is +erce+tion 4usti.ied a strate%y t)at tried to
deri0e t)e !a*i!u! .iscal re0enue .ro! t)e sector and use t)at re0enue in ot)er sectors,
+articularly t)e social sector. &i0en t)at +roduction reac)ed its +ea2 durin% t)is +eriod and
started to decline, in %eneral t)is increased .iscal +ressure is associated 5it) t)e colla+se o.
t)e sector. =e0ert)eless, as )as been ar%ued in t)is section, t)is clai! !ust be ta2en in
conte*tH (1) it is di..icult to +ro0e 5ron% t)e %o0ern!ent assu!+tion t)at t)e a!ount o.
econo!ically 0iable oil reser0es 5as li!ited, %i0en t)e in.or!ation a0ailable at t)e ti!e,
and, !oreo0er, it 5as o+ti!al to 2ee+ oil in t)e %roundO (2) ?enezuela see!ed to be bound
to lose !ar2et s)are any5ayO (3) in ter!s o. t)e %oal t)at it 5anted to attain, t)e
%o0ern!ent stabilized a .allin% .iscal re0enueO and (") t)ere 5ere ot)er de0elo+!ents in t)e
relations)i+ bet5een t)e ?enezuelan %o0ern!ent and oil .ir!s t)at 5ere as i!+ortant as t)e
increase in t)e e..ecti0e ta* rate.
-! The chan$e in the international context /%0731%0334
()e +re0ious section described t)e con.lict bet5een oil .ir!s and oil>ric) countries t)at
too2 +lace in t)e 19,0s. As stated abo0e, t)e con.lict led t)e !a4or oil>+roducin% countries
.ro! t)e de0elo+in% countries to create 1@:C, increase t)eir clai! in oil inco!e, create
TP
3,
PT ee Maloney (2002)
TP
37
PT Accordin% to 1C:@$: () bet5een 19," and 1973, .ro! 9 to 13C o. t)e bud%et 5ent on su++ortin%
+roducti0e sectors net o. in.rastructure s+endin%, 5)ic) indicates an acti0e inter0ention o. %o0ern!ent in t)e
econo!y. Ho5e0er, !ore t)an ,0C 5ent to a%riculture, 5)ic) indicates t)at %o0ern!ent +riorities 5ere in
ot)er econo!ic sectors.
22
t)eir o5n national oil co!+anies (=1C), and, in so!e cases, e0en nationalize t)e oil sector.
6n t)is situation, in0est!ent 5as dri0en a5ay .ro! t)e oil sector, and t)ere.ore little e..ort
5as !ade to e*+lore additional oil reser0es and t)e !ar2et ti%)tened. As seen in 3i%ure A,
oil e*traction increased +ro%ressi0ely .ro! 19,0 and +ea2ed in t)e 1970s at around "C o.
2no5n reser0es +er year. 6t t)us see!ed as t)ou%) oil reser0es 5ere only su..icient to
sustain an additional 2' years o. +roduction. TPF
3A
FPT
#i$ure 3! 'il Extraction Rate
2.2%
2.4%
2.6%
2.8%
3.0%
3.2%
3.4%
3.6%
3.8%
1960
1963
1966
1969
1972
1975
1978
1981
1984
1987
1990
1993
1996
1999
(ear production?Reseres at t>e beginning of t>e
year )@-
ourceH Aut)orBs calculations based on :6A (200")
#i$ure 0! Ener$y =e >orl,*i,e
TP
3A
PT 6t )as already been stated t)at .ro! t)e +oint o. 0ie5 o. returns, less oil s)ould )a0e been e*tracted.
23
0 ,7
0 ,8
0 ,9
1 ,0
1 ,1
1 ,2
1 ,3
1 ,4
1 9 6 0
1 9 6 3
1 9 6 6
1 9 6 9
1 9 7 2
1 9 7 5
1 9 7 8
1 9 8 1
1 9 8 4
1 9 8 7
1 9 9 0
1 9 9 3
1 9 9 6
1 9 9 9
1 a r r e ls o f O il u s e d t o
g e n e r a t e 3 4 5 & , , , o f ' D P
ourceH Aut)orBs calculations based on :6A (200") and ;orld /an2 (200")
Moreo0er, in a conte*t o. relati0ely stron% econo!ic %ro5t)TPF
39
FPT, t)e de!and .or oil %re5
e0en .aster. 3i%ure 9 s)o5s t)e nu!ber o. barrels needed to %enerate a &7@ o. 1,000 9S.
As t)e .i%ure s)o5s, t)e 5orld 5as usin% !ore and !ore oil .or t)e +roduction o. %oods
and t)is trend increased all t)e 5ay until 197". ()ere.ore, it 5as not only t)at oil see!ed to
beco!e !ore scarce, but also t)at t)e 5orld 5as relyin% on it increasin%ly.
6n t)is conte*t, t5o successi0e crisis in t)e Middle :ast (t)e Ko! <i++ur ;ar and t)e
6ran>6ra- ;ar) created disru+tions in oil su++ly and +rices reac)ed an )istorical )i%).
&i0en t)ese circu!stances, oil>i!+ortin% countries too2 i!+ortant !easures to increase
ener%y e..iciency in order to reduce t)eir de+endence on oil. 3i%ure 1" s)o5s )o5, due to
t)e !easures ta2en by consu!in% countries, t)e nu!ber o. barrels needed to +roduce a
&7@ o. 1000 9S )as .allen 30C .ro! t)at year to t)e +resent. Most re!ar2ably, )al. o.
t)at decline occurred bet5een 19A0 and 19A,.
6n addition, oil co!+anies started to increase t)eir searc) .or oil outside o. 1@:C.
3i%ure 10 s)o5s t)at a.ter t)e .irst +rice increase in t)e se0enties, drillin% acti0ity reac)ed
t)e )i%)est le0els o. t)e last 30 years. ()e a0era%e .or acti0e ri%s in t)e +eriod .ro! 197'
to 19A' 5as 102C )i%)er t)an t)e rest o. t)e +eriod. As a result, by 19A,, an additional 17'
billion barrels 5ere added to 5orld oil reser0es co!+ared to 19A0. ()is .i%ure re+resents
27C o. t)e reser0es a0ailable in 19A0.
TP
39
PT Accordin% to ;orld /an2 (200") .i%ures, t)e 5orld &7@ %re5 at an a0era%e rate o. '.3C bet5een 19,0
and 1970.
2"
1. t)ose ne5 additions, ''C 5ere outside 1@:C, !ostly in t)e =ort) ea. As s)o5n in
3i%ure 13, t)e disco0ery o. ne5 oil reser0es increased t)e t)eoretical duration o. t)e
reser0es, assu!in% t)at t)e a!ount o. oil e*tracted +er year stayed t)e sa!e .TPF
"0
FPT ()is
e*+ansion o. reser0es 5as !ade +ossible by tec)nolo%ical ad0ances in t)e .ield o. oil
de0elo+!ent.
Accordin% to Cuddin%ton and Moss (2001), durin% t)e 1970s and 19A0s, i!+ortant
tec)nolo%ical ad0ances 5ere !ade in t)e area o. o..>s)ore e*+loration, drillin%, and
+roduction. ()is !ade it +ossible to de0elo+ t)e =ort) ea. ()ere.ore, t)is +eriod s)o5ed
t)at, +ro0ided t)at t)e e*+ense is not too %reat, tec)nolo%y 5ill !a2e a0ailable reser0es
t)at 5ere +re0iously unreac)able or not econo!ically 0iable.
A si!ilar case could be !ade .or t)e de!and. Hi%) +rices 5ould encoura%e t)e
de0elo+!ent o. tec)nolo%ies t)at )el+ to ac)ie0e a !ore e..icient use o. ener%y and
!oti0ate a searc) .or alternati0es to oil.P F
"1 As s)o5n in 3i%ure 9, a.ter 197, t)e nu!ber o.
barrels needed to %enerate a &7@ o. 1,000 9S declined s)ar+ly. ()is is t)e result o. t5o
actionsH an increase in ener%y e..iciency and also a substitution o. oil as an ener%y source
by ot)er alternati0es, suc) as )ydro>electrical and nuclear +o5er.
#i$ure %;! Drillin$ Acti(ity!
1 0 0 0
1 5 0 0
2 0 0 0
2 5 0 0
3 0 0 0
3 5 0 0
4 0 0 0
4 5 0 0
5 0 0 0
5 5 0 0
6 0 0 0
1 9 7 5
1 9 7 7
1 9 7 9
1 9 8 1
1 9 8 3
1 9 8 5
1 9 8 7
1 9 8 9
1 9 9 1
1 9 9 3
1 9 9 5
1 9 9 7
1 9 9 9
% c t i e d rills
TP
"0
PT Moreo0er, as s)o5n in t)e A++endi*, %i0en t)e +rice o. oil and t)e +re0ailin% interest rate, t)is 5as a
+eriod in 5)ic) t)e o+ti!al strate%y 5as to ta2e oil out o. t)e %round and in0est t)e re0enue t)at 5as deri0ed,
rat)er t)an lea0in% t)e oil in t)e %round. ()ere.ore, t)e lo5er e*traction rate really s)o5s a +icture di..erent
.ro! t)e +re0ailin% +erce+tion +rior to 197".
TP
"1
PT A re0ie5 o. t)e 5ay econo!ic t)ou%)t e0ol0ed durin% t)e second )al. o. t)e t5entiet) century can be
.ound in (Adel!an, 1993).
2'
ourceH /a2er Hu%)es (200")
As a conse-uence o. t)ese tec)nolo%ical c)an%es, t)e increase in oil e..iciency )el+ed to
curb t)e de!and .or oil, 5)ile t)e increased e..ort in e*+loration led to an increase in its
su++ly. ()ese t5o +)eno!ena 5ere t)e !ain .actors t)at +us)ed +rices do5n. /y 19A', t)e
+rice o. oil 5as 20C lo5er t)an in 19A1. 6n t)is conte*t, 5)at +olicy 5as .ollo5edP
6t is in t)e +eriod bet5een 1971 and 19AA t)at +roduction .ell, .or t5o reasons. 3irst, as
5as e*+lained abo0e, t)e +olicy o. t)e +re0ious +eriod, in +articular t)e actions ta2en at t)e
end o. t)at +eriod (nationalization o. t)e %as industry and a la5 t)at +re0ented oil
co!+anies .ro! ta2in% t)eir assets out o. t)e country) clearly induced a colla+se o.
in0est!ent. 6n 197', t)ese actions 5ere carried .urt)er, u+ to t)e +oint o. t)e .ull
nationalization o. t)e oil industry.
Alt)ou%) t)e .all in t)e nu!ber o. acti0e 5ells Jused as a +ro*y .or in0est!ent> in 1971
5as re0ersed so!e5)at and by 1973 its nu!ber )ad reac)ed 12,'', a.ter t)at brie.
reco0ery it continued .allin% to a le0el o. 10202 in 1977, e0en belo5 t)e nu!ber o. acti0e
5ells in 19,2. Moreo0er, as ar%ued abo0e, t)e +roducti0ity o. oil 5ells 5as declinin% and it
continued to decline .or a lon% ti!e. ()ere.ore, it is clear t)at t)e transition to5ards a =1C
a..ected t)e +roducti0e ca+acity o. t)e sectorH t)ere 5ere .e5er oil 5ells and t)ose 5ells
5ere +roducin% less oil.
=e0ert)eless, at .irst, t)e results be)ind t)at t)e +olicy decision e*+lained abo0e see!ed
to su++ort t)is +erce+tion. 1il .iscal re0enue continued to increase until 19A2. 3or
?enezuela, t)is increase +roduced t)e result t)at e0en t)ou%) oil +roduction +er ca+ita 5as
,2C lo5er in 19A0 t)an in 19'A, e*+orts +er ca+ita 5ere 109C )i%)er and .iscal re0enue
23"C )i%)er. ()ere.ore, t)e i!+ression 5as t)at t)e +olicy o. increasin% ta*es 5as
e..ecti0e and so continued to be +ut into e..ect. =e0ert)eless, a.ter 19A1, it beca!e e0ident
t)at +rices 5ere .allin%. 6n 19A2, oil .iscal re0enue +er ca+ita .ell by 2'C due to a si!ilar
decline in +rices.
6n t)is conte*t, +roduction continued to decline all t)e 5ay until 19A'. Ho5e0er, as
s)o5n in 3i%ure A, it see!s t)at +roduction ca+acity .ell u+ to 19A0 and increased a.ter
t)at. ()ere.ore, t)e e..ect on +roduction o. t)e +olicies .ollo5ed in t)e +re0ious +eriod
could only e*+lain +art o. t)e contraction in +roduction. ()e second .actor e*+lainin% t)is
contraction is t)e +olicy be)ind decisions ta2en at t)e 1@:C le0el.
/e)ind t)e +olicy decisions to continue to increase ta*es (on t)e +art o. t)e ?enezuelan
%o0ern!ent) and to reduce +roduction (on t)e +art o. 1@:C) 5as t)e +erce+tion o. 5)at
2,
5as occurrin% in t)e oil !ar2et. ()is +erce+tion 5as t)e idea, already !entioned abo0e,
t)at oil 5as .inite and t)at t)e 5orld 5as )i%)ly de+endent on oil. Conse-uently, t)e +olicy
decision 5as to M+reser0eN oil. =e0ert)eless, t)ese +erce+tions did not ta2e into account t)e
c)an%es in t)e !ar2et described abo0e. 1@:C assu!ed t)at t)ese circu!stances 5ere
te!+orary and decided to establis) -uotas and reduce +roduction in order to 2ee+ +rices
)i%)er. As a conse-uence, .ro! 19A2 to 19A,, oil .iscal re0enue +er ca+ita continued to
decline, due to t)e reduction in out+ut and +rices t)at !ore or less re!ained static.
()ere.ore, in t)is +eriod, it see!s .ro! t)e datat)at +olicies (on t)e +art o. bot) t)e
?enezuelan %o0ern!ent and 1@:C) 5ere not necessarily in line 5it) t)e e0ents un.oldin%
in t)e oil !ar2et. :0en so, t)is !is+erce+tion did not last lon%. 6n 19A,, audi Arabia, t)e
bi%%est +roducer in 1@:C, decided to sto+ bein% t)e Ms5in%N +roducer o. t)e
or%anization.TPF
"2
FPT ()at year, t)e +rice o. oil .ell around '0C in no!inal ter!s, and t)e
?enezuelan bas2et barely a0era%ed abo0e 9S 10.
&i0en t)is .all on e*+orts and .iscal re0enue, an i!+ortant issue arises. ;ould )a0e
?enezuela been better o.. outside 1@:C and not .ollo5in% t)e +olicies .ollo5ed by t)e
cartelP ()e ans5er to t)at -uestion 5ill de+end on 5)et)er or not 1@:C )as !ar2et +o5er.
6. 1@:C does not )a0e !ar2et +o5er, 5e !ay conclude t)at ?enezuela 5ould )a0e been
better o.. re!ainin% outside 1@:C. Ho5e0er, alt)ou%) t)e issue is still bein% debated,
recent e0idence su%%ests t)at t)e ans5er to t)e -uestion 5)et)er or not 1@:C )as !ar2et
+o5er !i%)t be Mnot al5aysN.TPF
"3
FPT 6. t)at is so, !atters beco!e co!+licated. 6. 1@:C does
)a0e !ar2et +o5er on occasions, t)e issue t)en beco!es 5)et)er or not ?enezuelaBs
!e!bers)i+ 5as necessary .or 1@:C to +ossess and e*ercise t)at +o5er on t)e occasions
t)at it does +ossess it. ()e !atter is co!+licated .urt)er by t)e issue o. 5)at t)e bene.its
5ould )a0e been .or ?enezuela )ad s)e not been a !e!ber o. 1@:C. $e!e!ber .ro!
ection 3 t)at ot)er s!aller +roducers )ad lo5er costs. Conse-uently, outside o. 1@:C
?enezuela 5as not t)e !ost +roducti0e oil country. &i0en t)e abo0e, t)ere 5ould see! to
TP
"2
PT ()e a%ree!ent bet5een 1@:C !e!bers 5as t)at all !e!bers but audi Arabia 5ould )a0e a constant
s)are o. +roduction and t)at audi Arabia 5ould c)an%e its +roduction in order to clear t)e !ar2et at a M.airN
+rice. 1@:C be)a0ior )as been 5idely studied. A re0ie5 o. t)is literature can be .ound in 7e antis (2000).
TP
"3
PT ()e A++endi* contains data about 1@:C be)a0ior. Ho5e0er, .or a !ore .or!al treat!ent, see !it)
(200') and Al!o%uera and Herrera (200'). Alt)ou%) at t)e t5o +a+ers )a0e di..erent ob4ecti0es, bot) !ore or
less a%ree t)at t)ere )a0e been di..erent +eriods in 5)ic) 1@:C 5as able to be)a0e !ore closely as a cartel
(!it)) and to )a0e so!e i!+act on t)e !ar2et (Herrera and Al!o%uera).
27
be no de.initi0e ans5er as to 5)et)er or not ?enezuela 5as ri%)t to +ro!ote 1@:C and
re!ain a !e!ber.
As in t)e ot)er +eriods, 5e are not only interested in oil +olicy, but also in t)e
di0ersi.ication strate%y t)at .ollo5ed in t)e conte*t o. t)e oil +olicy. 6n t)is +eriod,
alon%side t)e +olicy o. tryin% to 2ee+ +rices )i%)er t)rou%) 1@:C actions, t)e +olicy o.
Mso5in% o. oilN continued. Moreo0er, t)e 5ind.all %enerated by t)e +rice s)oc2s 5as s+ent
in ot)er sectors, 5it) t)e intent o. .urt)er di0ersi.yin% t)e econo!y a5ay .ro! oil. /i%
state>o5ned co!+anies 5ere establis)ed in a 0ariety o. sectors, ran%in% .ro! basic !etals
to touris!. ()ere.ore, in t)is +eriod, not only 5as t)e idea o. di0ersi.yin% t)e econo!y
+resent, but also t)e idea t)at t)e state s)ould carry out t)at tas2.
6n su!!ary, durin% t)is +eriod, t)e oil +olicy t)at de!ocratic %o0ern!ents .ollo5ed
s)o5ed si%ns o. not bein% ali%ned 5it) t)e de0elo+!ents in t)e oil !ar2et. As seen in
3i%ure 2, oil .iscal re0enue +er ca+ita +ea2ed in 197" and &7@ +er ca+ita +ea2ed t5o years
later. ()e res+onse to t)e .all in oil re0enues 5as to cut +roduction, in t)e )o+e t)at +rices
5ould increase. ()is did not )a++en and oil .iscal re0enue continued to .all. 9nder t)ese
circu!stances, di..erent oil>+roducin% countries too2 di..erent a++roac)es. ()e ne*t section
5ill analyze t)e ?enezuelan +er.or!ance a.ter 19AA.
2! =nchan$e, policy (ie* in a chan$in$ international
context? /%0301+;;34
6n 19A,, ?enezuela 5as .acin% .allin% oil re0enues and, as e*+lained abo0e, t)is 5as due
to t)e .all in oil +roduction. As seen in 3i%ure 12, in 19A,, +roduction be%an to increase
a%ain and continued until 199A. =e0ert)eless, as seen in 3i%ure 7, t)e .irst increase 5as
+artly t)an2s to t)e e..ort !ade earlier t)at )alted t)e decline in +roduction ca+acity in
19A0. ()e ad!inistration t)at 5as in +lace .ro! 19A" to 19AA too2 ad0anta%e o. t)is
increased ca+acity, but little in0est!ent 5as !ade. Most o. t)e in0est!ent 5as !ade in t)e
1990s.
#i$ure %+: 'il Pro,uction
2A
6n t)is section, 6 5ill ar%ue t)at t)e e*+ansion in +roduction 5as not necessarily %reater
t)an t)e e*+ansion in ot)er oil>+roducin% countries and t)at t)is is due to t)e institutional
settin%. 6t is relati0ely e0ident t)at an increase in oil +roduction 5ould )a0e increased oil
.iscal re0enue and ?enezuela did increase +roduction. =e0ert)eless, ?enezuela, in a sa!+le
o. 3A countries, ran2s 20t) in ter!s o. %ro5t) in oil +roduction in t)e +eriod 19A, to 2001.""
6n t)is re%ard, in +re0ious sections it 5as assu!ed i!+licitly t)at a 0ariety o. .actors can
a..ect %ro5t) in oil +roductionH .ield +roducti0ity, disco0ery ris2, and 5ell +ressure, a!on%
di..erent %eolo%ical .actors. 6. 5e loo2 at t)e +roducti0ity o. acti0e oil 5ells,"' ?enezuela
in t)e sa!e sa!+le ran2s 2"t) and is 0."7 standard de0iations belo5 t)e !ean. ()ere.ore,
.or a country suc) as ?enezuela, t)e crucial .actor is t)e actual decision to increase
+roduction.
(o ca+ture t)at decision, an inde* is calculated .or 5)at 5ould be called Me..ortN. ()e
inde* is t)e co!bination o. t)e t5o !ain acti0ities t)at dri0e oil +roductionH drillin% and
e*traction.TPF
",
FPT 6. 5e co!+are ?enezuela 5it) t)e sa!e sa!+le in t)is inde*, ?enezuela ran2s
30t) and is 1.02 de0iations belo5 t)e !ean.
"" 6n Manzano (2007), t)ere is a statistical analysis o. t)e ele!ents t)at 5ill be discussed )ere. Accordin%
to :ner%y 6n.or!ation Ad!inistration (200"), in 19A, t)ere 5ere oil reser0es in ,7 countries. 1. t)ose
countries, 3A )a0e a relati0ely co!+lete set o. statistics.
"' @roducti0ity is !easured as oil +roduction +er acti0e oil 5ell.
TP
",
PT ()e inde* is constructed .or t)e 5)ole sa!+le o. oil>+roducin% countries. 7etails o. t)e inde* are
+resented in Manzano (200,).
100
1000
10000
100000
1000000
10000000
19171923192919351941194719531959196
5
1971197719831989
9illions of 1arrels
100
1000
10000
100000
1000000
10000000
1917
1923
1929
1935
1941
1947
1953
1959
1965
1971
1977
1983
1989
1995
2001
9illions of 1arrels
29
(o +ut t)ese nu!bers in conte*t, consider t5o e*a!+les. 3irstly, =or5ay ran2s 2nd in oil
+roduction %ro5t). Ho5e0er, it ran2s 2't) in Me..ortN. ()e reason .or t)e %ro5t) in
=or5e%ian oil +roduction is t)at it ran2s 2nd in +roducti0ity. &i0en t)at its oil .ields are
e*tre!ely +roducti0e, it could increase +roduction .aster t)an !ost countries durin% t)at
+eriod 5it)out too !uc) e..ort. 3or t)e second e*a!+le, consider t)e case o. Ar%entina.
Ar%entina ran2s ,t) in oil +roduction %ro5t). ()is increase in oil +roduction 5as ac)ie0ed
in s+ite o. its ran2in% 31st in +roducti0ity. ()is %ro5t) is t)en e*+lained by t)e .act t)at
Ar%entina ran2s 10t) 5it) res+ect to e..ort.
6n t)is conte*t, it see!s t)at ?enezuela did not !ana%e to %ro5 .aster in ter! o. oil
+roduction because its Me..ortN 5as not in line 5it) +roducti0ity. 6n ot)er 5ords, countries
eit)er less +roducti0e or less abundant t)an ?enezuela, but t)at )ad a )i%)er Me..ortN, )ad
su+erior increases in +roduction. As !entioned abo0e, oil is a ca+ital>intensi0e sector, in
5)ic) an i!+ortant +art o. t)e in0est!ent is !ade u+>.ront. 6t ta2es a lon% ti!e be.ore suc)
in0est!ent is reco0ered. ()ere.ore, t)e institutional settin% o. t)e )ost country and t)e
.iscal rules .or t)e sector beco!e i!+ortant .actors .or +otential in0estors to consider.
6n t)is re%ard, a.ter 19A,, an e..ort 5as !ade to increase oil +roduction. Ho5e0er, .iscal
inco!e 5as declinin% and t)e oil industry 5as state>o5ned. ()is led to an on>%oin% con.lict
bet5een t)e %oal o. increased +roduction and .iscal needs, because any atte!+t to increase
+roduction 5ould, ulti!ately, )a0e to be .inanced by t)e state. A .irst a++roac) 5as to let
t)e @7?A issue debt to .inance its +roduction +lans. Ho5e0er, t)is debt 5as considered
+ublic debt, 5)ic) %enerated co!+etition bet5een t)e %o0ern!ent and @7?A in t)e
.inancial !ar2ets. Moreo0er, interest +ay!ents and a!ortizations started reducin% @7?A
.unds a0ailable to t)e %o0ern!ent and t)e tensions returned."7 ()ere.ore, t)ere 5ere li!ited
debt issues !ade by t)e @7?A.
A clear second o+tion 5ould )a0e been to let +ri0ate co!+anies bac2 into t)e country to
de0elo+ t)e sector. ?enezuela did t)at t)rou%) a set o. s!all re.or!s in t)e institutional
settin%. 6n 1991, 1+eratin% A%ree!ents (Mcon0enios o+erati0osN) 5ere introduced and
!ar%inal .ields t)at, under nor!al circu!stances, 5ere not %oin% to be e*+loited by t)e
@7?A 5ere instead %i0en to +ri0ate co!+aniesO co!+anies t)at 5ould +roduce t)e oil .or
a certain .ee +er barrel. =e*t, in 1993, associations .or t)e +roduction o. )ea0y and e*tra)ea0y
oil 5ere introduced (Masociaciones estrate%icasN). 1ne could describe t)ese crudes in
"7 ()e %o0ern!ent e0en )ad to eli!inate t)e M.iscal 0alue o. e*+ortsN. As e*+lained be.ore, t)is 5as an
instru!ent introduced in t)e 19,0s, 5)en t)e 0alue o. oil e*+orts 5as increased by 20C .or inco!e ta*
+ur+oses.
30
t5o 5aysH eit)er as lo5>co!!ercial>0alue crudes or as t)ose re-uirin% a s+ecial TT+rere.inin%TT
t)at 5ould !a2e t)e! suitable .or any re.inery and, conse-uently, c)aracterize
t)e! as )i%)>+roduction>cost crudes. 3inally, in 199,, ne5 areas 5ere %i0en o0er to +ri0ate
in0estors .or e*+loration and e*+loitation. ()is 5as ter!ed t)e Mo+enin%>u+N (Ma+erturaN).
Alt)ou%) t)ese areas 5ere su++osed to contain li%)t and !ediu! crudes, little or no
e*+loration 5as actually carried out.TPF
"A
FPT All ne5 contracts 5ere %i0en ta* brea2s to !a2e
t)e! +ro.itable .or t)e +ri0ate sector.
6n su!!ary, t)e state>o5ned oil .ir! 5as !a2in% a !odest e..ort to increase +roduction
and, t)ou%) t)e +ri0ate sector 5as as2ed to in0est in t)e country. =e0ert)eless, t)ese .iscal
a%ree!ents 5ere not necessarily t)e !ost co!+etiti0e. 3or t)e sa!+le +resented abo0e, 5e
constructed an inde* o. .iscal re%i!es in t)e oil sector. "9 6n t)is inde*, ?enezuela ran2s
32nd and is 1.0A standard de0iations belo5 t)e !ean. 3or co!+arison, Ar%entina ran2s 1At).
Conse-uently, t)e conditions o..ered 5ere not necessarily co!+etiti0e, %i0en t)e
+roducti0ity o. t)e oil sector.
3urt)er!ore, as noted abo0e, t)e areas %i0en to t)e +ri0ate sector 5ere not t)e !ost
+roducti0e ones (so!e 5ere e*+licitly !ar%inalO ot)ers )ad not been e*+lored and 5ere not
e*+lored). Manzano (2000) e0aluated t)ese re.or!s .ro! t)e +oint o. 0ie5 o. e..iciency
and concluded t)at alt)ou%) t)e re.or! resulted in %reater e..iciency, t)e .ields selected .or
t)e re.or! 5ere not t)e !ost ne%ati0ely a..ected by t)e ta* code. ()e areas in 5)ic) t)e
!ost %ains could be !ade 5ere t)ose t)at re!ained under @7?A control. Moreo0er, in
t)ese areas, a reduction in ta* rates 5ould )a0e increased ta* collection, 5)ic) i!+lies t)at
t)ey 5ere o0erta*ed.
6n su!!ary, durin% t)is +eriod oil +roduction increased. =e0ert)eless, it see!s t)at t)e
increase 5as in co!+arison 5it) increases in ot)er oil>+roducin% countries. As ar%ued
belo5, and in accordance 5it) 5)at 5as discussed abo0e, ?enezuela is less +roducti0e in
t)e oil sector t)an ot)er countries. &i0en t)is situation, a si%ni.icant a!ount o. in0est!ent
is re-uired to e*+and t)e sector. 6n t)is re%ard, t)e institutional settin%, in +articular t)e
restrictions on t)e state>o5ned oil co!+any and t)e lac2 o. attracti0eness o. t)e ta* re%i!e
.or +ri0ate in0estors, see!s to )a0e +layed a role.
TP
"A
PT /asically, t)ese are t)e areas t)at s)ould be Mne*t in lineN, .or e*+loratory +ur+oses, a.ter t)e areas t)at
t)e @7?A )as been e*+lorin%.
TP
"9
PT ()is inde* is based on ?an Meurs (1997) and it re.lects t)e attracti0eness o. .iscal institutions .or
in0estors in t)e oil sector. ee t)e A++endi* .or details.
31
()at bein% so, 5)y )as ?enezuela not c)an%ed its institutional settin% in order to to
!a2e a %reater e..ort in t)e oil sectorP 9sin% a .ra!e5or2 o. inter%enerational accountin%
.or .iscal burdens, 3ernandez et al. (200') .ound t)at .uture %enerations 5ill be 5orse o..,
in t)e res+ect t)at t)eir .iscal burden 5ill be )i%)er, 5it) t)e current rate o. e*traction t)an
5it) an o+ti!al rate o. e*traction.TPF
'0
FPT Conse-uently, it see!s t)at t)e lo5er e..ort does not
see! 4usti.ied by inter%enerational concerns.
Alternati0ely, it could be ar%ued t)at ?enezuela could not e*+and its +roduction
ca+acity due to )er !e!bers)i+ o. 1@:C. =e0ert)eless, as ar%ued in t)e A++endi*, it does
not a++ear t)at 1@:C countries 5ere coordinated in t)is +eriod.'1 Moreo0er, loo2in% at t)e
actual 11 !e!bers in 2001, only 6ran, <u5ait, 8ibya, and ?enezuela 5ere +roducin% less
t)an in 1973. ()ere.ore, !ost 1@:C countries returned to t)e +roduction le0els +rior e0en
to t)e +eriod 5)en t)e conditions o. t)e !ar2et c)an%ed, but ?enezuela 5as not one o.
t)e!.'2
3ollo5in% t)e ar%u!ent o. loo2in% not only oil +olicy but also t)e di0ersi.ication
strate%y, an additional course o. action a.ter t)e reality .aced by oil>+roducin% countries in
19A, 5ould )a0e been to add 0alue to oil e*+orts. ()is +a+er does not try to assess
industrial +olicies. $at)er, it .ocuses on industry t)at is related to t)e oil sector and t)e
+ossibility o. increasin% e*+orts 0alue +er ca+ita by de0elo+in% do5nstrea! by>+roducts or
u+strea! su++liers. ()e reason .or e*+lorin% t)is +ossible strate%y .or increasin% oil>related
e*+ort is t)at, in !ost o. t)e countries analyzed )ere, t)e oil sector is still do!inated by a
stated>o5ned oil co!+any. ()ere.ore, t)e +ossibility o. de0elo+in% connected sectors
de+ends on oil +olicy.
TP
'0
PT ()e o+ti!al rate is deri0ed .ro! an e*traction !odel esti!ated 5it) t)e ?enezuelan +ara!eters .or t)e
oil sector based on 7eacon (1993) and Medina (1997).
'1 A%ain, t)e reader is re.erred to !it) (200') and Al!o%uera and Herrera (200'), 5)ic) .or!ally test
1@:C be)a0ior.
'2 6. ?enezuelan oil +roduction )ad been t)e sa!e in 2001 as in 1973, assu!in% t)at else re!ained
constant, oil .iscal re0enue +er ca+ita 5ould )a0e been "C )i%)er t)an in 19,0, instead o. 7C lo5er as s)o5n
in (able 1.
32
#i$ure %3! Reource abun,ance an, export concentration
Oil and Gas Reserves Per Capita
2.05957 3695.54
.0086
.7174
Algeria
Argentin Australi
Austria
Bolivia
Brazil
Canada 1
Chile
Colombia
Congo (B
Denmark
Ecuador
Egypt
France
Germany
ndia
ndonesi
taly
Malaysia
Mexico
Norway
PakPisetraun
Syria
Thailand
Trinidad
Tunisia
TurkeUyniUtendit eSd K
ourceH Aut)orBs calculations based on :6A (200"), ;orld /an2 (2003) and 8eder!an and
Maloney (200")
As ar%ued by 8eder!an and Maloney (2003), a +olicy o. di0ersi.ication 5as i!+ortant
.or countries 5)ose e*+orts are concentrated in only a .e5 +roducts. ()eir result su++orts
t)e idea t)at concentratin% on e*+ort reduces %ro5t). Ho5e0er, t)is concentration is not
related to oil ric)ness. 6n 3i%ure 13, an inde* o. concentration is +lotted a%ainst a !easure
.or oil ric)nessH reser0es di0ided by &7@. ()e %ra+) s)o5s t)at t)ere is no clear
relations)i+ bet5een oil ric)ness and concentration on e*+ort. 3urt)er, t)e di0ersi.ication
o. e*+orts does not i!+ly di0ersi.ication Ma5ayN .ro! t)e sector. ()ere.ore, +olicies !i%)t
)a0e 0aried accordin% to t)e di..erin% c)aracteristics o. eac) country.
33
#i$ure %-: 8pecialization pattern
Oil and Gas Reserves/GDP
ndex of diversification pattern Linear prediction
Linear prediction
146.46 546.14
-.305282
.368012
Algeria
Ecuador
ndonesi
Malaysia
Mexico
Oman
Norway
Trinidad
Venezuel
Aut)orBs calculations based on 9=7 (200"), ;orld /an2 (2003) and :6A (200")
(o see t)e di..erent strate%ies .ollo5ed by di..erent countries, an inde* .or t)e
di0ersi.ication +attern is constructed .or t)e %rou+ o. countries 5it) t)e %reatest
abundance.TPF
'3
FPT 6n it, t)e c)an%e in net e*+orts +er ca+ita in 2A di..erent cate%ories o. %oods
.or eac) country is co!+ared to t)e relations)i+ o. t)ose sectors 5it) t)e oil sector in t)e
9. ()ese relations)i+s are based on t)e i!+lied !ulti+liers o. t)e 6n+ut>1ut+ut !atri* o.
t)e 9.TP F
'"
FPT ()en a correlation 5as calculated bet5een t)at !ulti+lier and t)e c)an%e in net
e*+orts e*+erienced by eac) country in t)ose 2A sectors .or t)e +eriod studied. A +ositi0e
di0ersi.ication inde* i!+lies t)at t)e +attern .ollo5ed 5as around sectors related to t)e oil
TP
'3
PT ()e criterion .or abundance is based on t)e .act t)at t)e country is in t)e to+ 2'P
t)
P +ercentile in t)e ratios
o. reser0es to &7@ and reser0es to +o+ulation.
TP
'"
PT ()e !ain reason .or usin% t)e 9 !atri* is t)at t)ere are no !atrices 5it) a uni.ied !et)odolo%y (li2e
t)ose o. &(A@) .or t)ese countries. ()e 9 is used instead because o. its !ature oil sector. 1il )as been
+roduced in t)e 9 .or !ore t)an a century. 6t 5as t)e lar%est +roducer until 1973 and is still t)e 3P
rd
P lar%est
oil +roducer in t)e 5orld.
()e relations)i+ bet5een non>oil sectors and t)e oil sectors is based on !ulti+liers .ro! an in+ut>out+ut
!atri*. ee t)e A++endi* .or details.
3"
industry. A ne%ati0e inde* i!+lies t)at t)e +attern .ollo5ed 5as around sectors not related
to t)at industry. 6n 3i%ure 1", 5e +lot t)at inde* a%ainst t)e relati0e oil ric)ness.
At .irst si%)t, t)ere is no clear relations)i+. Ho5e0er, t)e reader 5ill note t)at t5o lines
are dra5n. All t)e countries in t)e u+5ard slo+in% line increased t)eir non>oil net e*+orts
+er ca+ita. All t)e countries in t)e do5n5ard slo+in% line decreased t)eir non>oil net
e*+orts +er ca+ita. ()ese relations)i+s see! to indicate t)at, .or t)e nine countries in t)is
sa!+le, 5)ic) include ?enezuela, t)e countries t)at increased t)eir non>oil net e*+orts
.ollo5ed a +attern suited to t)eir endo5!ents. Countries 5it) less oil reser0es .ollo5ed a
+attern o. di0ersi.ication a5ay .ro! oil, 5)ile countries 5it) )i%)er reser0es .ollo5ed a
+attern around t)e oil sector. /y contrast, countries t)at .ollo5ed a +attern o.
di0ersi.ication t)at 5as not in accordance 5it) t)eir endo5!ents 5ere not able to increase
t)eir non>oil e*+orts +er ca+ita. A!on% t)ose countries is ?enezuela.
1. course, a .urt)er issue t)at s)ould be considered is 5)et)er or not an increase in net
e*+orts is desirable, but a resolution o. t)is issue lies beyond t)e sco+e o. t)is c)a+ter.TPF
''
FPT
()e rele0ant issue )ere is 5)y ?enezuela .ollo5ed a +attern t)at is not connected 5it) oil,
in contrast to, .or e*a!+le, (rinidad and (oba%o. 6n t)e 1990s, ?enezuela e!bar2ed u+on a
+ro%ra! o. structural re.or!, si!ilar to t)ose .ollo5ed by ot)er 8atin A!erican countries.
()ese +ro%ra!s +ro+osed t)e o+enin% o. t)e econo!y to t)e international !ar2ets, t)e
re!o0al o. distortions, and t)e establis)!ent o. institutions needed to ac)ie0e
!acroecono!ic stability (suc) as central ban2 inde+endence), a!on% ot)er !easures.
Ho5e0er, in ?enezuela, not all t)e re.or!s could be i!+le!ented.TPF
',
FPT 3urt)er, t)ese
+ro%ra!s lac2ed +olicies t)at no5adays are seen as necessary in t)e +rocess o. di0ersi.yin%
t)e econo!y.TPF
'7
FPT
6n a re0ie5 o. t)e e..ects o. t)e oil sector on t)e ?enezuelan econo!y, Cle!ente et al.
(200') esti!ated 5)et)er bein% lin2ed to t)e oil sector )as an e..ect on +roducti0ity. ()e
aut)ors .ound t)at co!+anies t)at use oil and oil deri0ati0es as an in+ut in t)eir +roduction
TP
''
PT 3or instance, all t)e countries but Al%eria in t)e u+5ard>slo+ed line )a0e a +ositi0e &7@ +er ca+ita
%ro5t), and t)e a0era%e %ro5t) 5as 2.10C. 1. t)e countries in t)e ne%ati0e>slo+ed line, t5o )a0e +ositi0e
rates (Me*ico and 1!an) and t5o )a0e ne%ati0e rates (:cuador and ?enezuela). ()eir a0era%e &7@ +er
ca+ita %ro5t) 5as 0.""C.
TP
',
PT 3or a co!+lete descri+tion o. re.or! +ro%ra!s in ?enezuela and t)eir success.ul or .ailed
i!+le!entation, see &onzalez et al. (200"a).
TP
'7
PT Haus!ann and $odric2 (2003). 6n (rinidad and (oba%o, t)ese +olicies 5ere ado+ted in one .or! or
anot)er. 3or a re0ie5 o. t)e econo!ic +er.or!ance o. (rinidad and (oba%o, as 5ell as t)e +olicy
i!+le!entedO see Artana et al. (200"), /arclay (2003), and /erezin et al. (2002).
3'
+rocess )a0e lo5er +roducti0ity. ()is is !ostly due to +olicy decisions. 7o!estic +rices o.
oil deri0ati0es are subsidized in ?enezuela, as a result o. +ast +olicies, and t)is is an area in
5)ic) +olicy u+dates )a0e been in)ibited. As a result, do!estic +rices are around 1U" o.
international +rices. ()is subsidy a..ects t)e +roducti0ity o. consu!ers o. oil deri0ates
ne%ati0ely.
6n addition, Cle!ente et al. e*+lored t)e e..ect on +roducti0ity o. bein% a su++lier to t)e
oil sector and .ound not only ne%ati0e e..ects in +roducti0ity but also ne%ati0e s+illo0ers to
ot)er .ir!s t)at use +roducts !ade by .ir!s t)at su++ly t)e oil sector.()is is because t)e
@7?ABs +urc)asin% +olicies 5ere not desi%ned 5it) a strate%y o. e*+ort di0ersi.ication in
!ind. 9sually, t)e +roducts o. local su++liers 5ere !ore e*+ensi0e and o. lo5er -uality,
but %o0ern!ent inter0ention .orced t)e @7?A to buy a certain a!ount o. local +roducts.
Hence, t)ere 5ere no incenti0es .or .ir!s to beco!e !ore +roducti0e or to sell to
international !ar2ets.
ubsidizin% t)e do!estic +rices o. oil +roducts and obli%in% t)e @7?A to buy a certain
a!ount o. local +roducts 5ere +olicies t)at de0iated .ro! t)e ori%inal %oal o. t)e Mso5in%
o. oilN +rinci+le F
'A
FPT Ho5e0er, t)e !ain +oint is t)at t)ese instru!ents 5ere not desi%ned to
increase t)e 0alue o. oil>related e*+orts. ()ere.ore, 5e !ay conclude t)at, in t)e case o.
?enezuela, t)ere 5as no intention o. +ursuin% t)at ai!.
u!!arizin% t)e +eriod, e0en t)ou%) +roduction %re5 in ?enezuela, it see!s t)at t)e
e*+ansion 5as !odest and t)ere 5as no atte!+t !ade to lin2 t)e oil sector 5it) t)e rest o.
t)e econo!y. ()e !ain reason be)ind t)ese +roble!s see!s to be institutional. ()e issue
t)us arises as to 5)y ?enezuela did not c)an%e its institutional settin% in order to ta2e
ad0anta%e o. t)e oil sector. C)an%es 5ere !ade, but t)ese c)an%es 5ere !odest. 6t see!s
t)at t)e reason .or !a2in% only !odest c)an%es is t)at t)e 5)ole syste! o. institutions 5as
still based on t)e +olicy orientation o. M+reser0ationN. /ecause o. t)e ationalization Law-
oil +roduction, and e0en re.inin%, 5as reser0ed .or t)e state. 3or t)e +ri0ate sector to
+artici+ate, eac) contract )ad to be a++ro0ed by Con%ress.
TP
'A
PT /ot) +olicies 5ere used to distribute t)e rents %enerated by t)e oil sector. 1. course, t)ey 5ere not
necessarily ends sou%)t by t)e ori%inal +ro+onents o. t)e +rinci+le. 9rbane4a (1992) and &onzalez et al.
(200"b), a!on% ot)ers, )a0e clai!ed t)at since t)e 1970s, +olicy outco!es )a0e deteriorated. 9rbane4a
(1992), in +articular, )as ar%ued t)at it 5as due to t)e +erce+tion on t)e +art o. +olicy !a2ers t)at !assi0e
rents 5ere bein% %enerated by t)e oil sector in t)e 1970s. ()ese rents %enerated t)e i!+ression t)at costbene.it
analysis .or +olicy !a2in% 5as less necessary.
3,
An e*a!ination o. 5)y t)ose +olicy %uidelines 5ere not c)an%ed lies beyond t)e sco+e
o. t)e +resent in0esti%ation and 5ould better conducted in t)e conte*t o. a debate on
?enezuelan +olitical econo!y.'9
FPT.
9! Conclu,in$ remark
C)an%es in t)e oil .iscal re0enue +er ca+ita rese!bled t)ose o. t)e ?enezuelan &7@ +er
ca+ita t)rou%)out t)e last century. A.ter t)ree decades o. sustained %ro5t), oil .iscal
re0enue colla+sed in t)e 19A0s and it )as not reco0ered since.
;e )a0e ar%ued t)at t)e colla+se 5as due to t)e .all in oil e*+orts +er ca+ita, 5)ic) 5as
dri0en !ainly by t)e .all in oil +roduction +er ca+ita. Alt)ou%) ot)er .actors !i%)t )a0e
+layed a role, suc) as oil +rices, oil -uality, and +roduction costs, it is clear t)at c)an%es in
oil +roduction +er ca+ita are correlated to t)ose in oil e*+orts. ()ere.ore, to understand t)e
reasons be)ind t)e colla+se in oil .iscal re0enue it is i!+ortant to study t)e .actors t)at
dri0e oil +roduction in ?enezuela.
;e )a0e ar%ued t)at, o0erall, loo2in% bac2 at oil +olicy, t)e +olicy .ollo5ed bet5een
191" and 19'A see!ed to be on t)e ri%)t trac2. Ho5e0er, it is di..icult to ar%ue a%ainst t)e
+olicy i!+le!ented bet5een 19'A and 1973. @robably, 5)at see!ed to be a reasonable
assess!ent o. t)e en0iron!ent, %i0en t)e in.or!ation a0ailable, led to a s)ort>run +olicy
consistent 5it) t)at assess!ent. Ho5e0er, it !i%)t )a0e )ad lon%>ter! ne%ati0e
conse-uences.
3ollo5in% t)ose t5o +eriods, oil +olicy +layed a .unda!ental role in e*+lainin% t)e
colla+se o. oil +roduction. 1il +olicy 5as t)en dri0en by t5o +rinci+lesH +reser0ation and
t)e so5in% o. oil. (a2en to%et)er, t)e t5o +rinci+les i!+lied (i) t)at oil e*traction s)ould
be relati0ely lo5, in order to 2ee+ oil stored .or t)e .utureO and (ii) t)at t)e rents %enerated
by t)e oil sector s)ould be in0ested in ot)er sectors to di0ersi.y t)e econo!y a5ay .ro!
oil.
TP
'9
PT 1ne )y+ot)esis is t)at .or t)ose c)an%es to ta2e +lace 5ould re-uire an i!+ortant consensus in
Con%ress, but t)at it 5as di..icult to ac)ie0e suc) a consensus Alt)ou%) it is not clear t)at a constitutional
re.or! 5as needed in order to +ursue a di..erent oil +olicy, it is acce+ted t)at at least c)an%es in Mor%anicN
la5s 5ere re-uired. 6n order .or t)e! to be +assed or c)an%ed, or%anic la5s re-uired t)e a++ro0al o. t5ot)irds
o. t)e !e!bers o. Con%ress.
o!e aut)ors )a0e +ro+osed t)at a.ter 19A9 is +recisely t)e ti!e 5)en +olitical .ra%!entation started in
?enezuela and it beca!e !ore di..icult to %enerate consensus. ee &onzalez et al. (200"b) and t)e c)a+ter in
t)is boo2 by Monaldi and @en.old
37
()ese +rinci+les, t)ou%) a++arently a++ro+riate in t)e conte*t t)at +re0ailed in t)e
international oil !ar2ets u+ to 19A0, beca!e less so a.ter c)an%es in +olicies by net oili!+ortin%
countries and oil co!+anies in res+onse to t)e +rice crises o. t)e se0enties. A.ter
t)e crises, ener%y use beca!e !ore e..icient and oil 5as sou%)t and .ound in nontraditional
+laces. 19A, is considered to be t)e year in 5)ic) t)is ne5 reality beca!e
a++arent, at t)e ti!e 5)en oil +rices colla+sed.
A.ter 19A,, di..erent oil>+roducin% countries too2 di..erent routes. 3ro! a sa!+le o. oil+roducin%
countries t)at 5as analyzed, it e!er%ed t)at countries t)at decided to e*+and
t)eir oil sector as 5ell as to increase t)eir oil e*+orts t)rou%) a broader 0ie5 o. t)e sector
(i.e. includin% su++liers and users and e*+andin% t)ose sectors) .ared better. 6n t)is re%ard,
?enezuela increased oil +roduction in absolute ter!s, but relati0ely less t)an t)e leadin%
countries. ()e e0idence see!s to indicate t)at %i0en t)e nature o. t)e oil sector in
?enezuela and t)e institutional .ra!e5or2 in +lace at t)e ti!e, a better .iscal arran%e!ent
5as needed in order to %enerate )i%)er %ro5t). ()e !ain reason .or t)is is t)at t)e
+rinci+les t)at 5ere described abo0e continued to %uide oil +olicies, because !ost o. t)e
la5s %o0ernin% t)e sector )ad been 5ritten by t)at ti!e. ()is does not entail t)at no
atte!+ts 5ere !ade to +ursue a di..erent +olicy. ;e )a0e described so!e e..orts to do so.
Ho5e0er, t)ere 5as resistance and it 5as not +ossible to attain t)e consensus re-uired to
c)an%e t)e rele0ant la5s.
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&onzalez, Marino, 3rancisco Monaldi, &er!an $ios and $icardo ?illas!il (200"a),
M9nderstandin% $e.or! Country tudyH ?enezuelaN, !i!eo, &lobal 7e0elo+!ent =et5or2.
&onzalez, $osa A!elia, 3rancisco Monaldi, $ic)ard 1buc)i and Mic)ael @en.old (200"b),
M@olitical 6nstitutions, @olicy Ma2in% @rocesses and @olicy 1utco!es in ?enezuelaN, !i!eo, 8atin
A!erican $esearc) =et5or2, 6A7/.
Haus!ann, $icardo y 7ani $odric2 (2003), M:cono!ic 7e0elo+!ent as el. 7isco0eryN =/:$
;or2in% @a+er A9'2, =ational /ureau o. :cono!ic $esearc). Ca!brid%e MA.
Haus!an, $icardo y $oberto $i%ob#n (2003), MAn Alternati0e 6nter+retation o. t)e Y$esource
CurseBH ()eory and +olicy i!+lications,N =/:$ ;or2in% @a+er 9"2", =ational /ureau o.
:cono!ic $esearc). Ca!brid%e MA.
6nternational Monetary 3und (200"), M6nternational 3inancial tatisticsN, ;as)in%ton, 7C.
<au.!ann, 7aniel, Aart <raay and Massi!o Mastruzzi (2003), M&o0ernance Matters 666H
&o0ernance 6ndicators .or 199,>2002N ;orld /an2 5or2in% +a+er.
<au.!ann, 7aniel, Aart <raay, and @ablo Zoido>8obaton. 1999. 7o)ernance ;atters.
;orld /an2 5or2in% +a+er.
<ru%!an, @aul (19A7) W()e =arro5 Mo0in% /and, t)e 7utc) 7isease and ()e Co!+etiti0e
Conse-uences o. Mrs. ()atc)er on (rade in t)e @resence o. 7yna!ic cale :cono!iesW in !he
:ournal of &e)elopment .conomics. 0ol. 27, +. "1>''.T
39
8ea!er, :d5ard, Hu%o Maul, er%io $odri%uez, @eter <. c)ott (T199AT), W7oes =atural $esource
Abundance 6ncrease 8atin A!erican 6nco!e 6ne-ualityPW mimeo, 9ni0estity o. Cali.ornia at
/er2eley.
8eder!an, 7aniel and ;illia! Maloney (2003), M(rade tructure and &ro5t),N @olicy $esearc)
;or2in% @a+er 302', /anco Mundial. ;as)in%ton, 7.C.
Maloney, ;illia! (2002), MMissed 1++ortunitiesH 6nno0ation and $esource>/ased &ro5t) in 8atin
A!erica,N en .conom/a, ?ol. 3 =o. 1, ++ 111>1'1.
Manzano, 1s!el, 2000, M(a* e..ects u+on 1il 3ield 7e0elo+!ent in ?enezuelaN. Center for
.nergy an, .n)ironmental Policy %esearch <orking Papers 'eries um8er 3444+44@. Center .or
:ner%y and :n0iron!ental @olicy $esearc) at M6(, Ca!brid%e.
Manzano, 1s!el and $oberto $i%ob#n (2001), M$esource Curse or 7ebt 10er)an%,N =/:$
;or2in% @a+er A390, =ational /ureau o. :cono!ic $esearc). Ca!brid%e MA.
Martinez, Anibal (19A,), MCronolo%a del @etr#leo ?enezolanoN, C:@:(, "t) :dition.
Mayobre, Iose Antonio (19""), M8a +aridad del /oli0arN, in ?alecillos, Hector and 1!ar /ello
(co!+iladores) (1990). La .conom/a Contempor0nea ,e Venezuela. :nsayos :sco%idos. (o!o 6.
Caracas, /anco Central de ?enezuela.
Medina, Hu!berto (1997), M:0aluaci#n de los e.ectos de di.erentes es-ue!as i!+ositi0os sobre la
senda e*+loraci#n y +roducci#n de una e!+resa +etrolera en el tie!+o (un an[lisis +ara el caso
?enezolano)N, mimeo, @7?A
Ministerio de :ner%a y Minas (M:M) (0arious years), M@etr#leo y 1tros 7atos :stadsticosN,
7irecci#n de :cono!a e Hidrocarburos, Caracas.
Monaldi, 3rancisco (2002) M&o0ern!ent Co!!it!ent usin% :*ternal Hosta%es-A paper presente,
at the annual meeting of the American Political 'cience Association.
Monaldi, 3rancisco (200,) M6n0ersiones 6n!o0ilizadas, 6nstituciones y Co!+ro!iso CrebleH
i!+licaciones sobre la e0oluci#n de la in0ersi#n en la industria +etrolera 0enezolanaN in @ineda, I
and 3. [ez. Crecimiento .conBmico en Venezuela: "a#o el 'igno ,el PetrBleo. /anco Central de
?enezuela.
1C:@$: (19AA). MCuarenta A\os de @resu+uesto 3iscalN.
1r%anization o. t)e @etroleu! :*+ortin% Countries 1r%anization (1@:C). Mtatistical Annual
/ulletinN (0arious years)
@eltzer, :rnesto (19""), M8a industrializaci#n de ?enezuela y el alto ti+o de ca!bio del /ol0arN, in
?alecillos, Hector and 1!ar /ello (co!+iladores) (1990). 8a :cono!a Conte!+or[nea de
?enezuela. :nsayos :sco%idos. (o!o 6. Caracas, /anco Central de ?enezuela.
@erez Al.onzo, Iuan (19,2), M@oltica @etroleraA, 6!+renta =acional, Caracas.
@rebisc), $a]l (19,"), MT=ue0a T@oltica TCo!ercial T+ara Tel T7esarrolloNT, ?ol. 66 de los Actos de la
Con.erencia de =aciones 9nidas T+ara TelT Co!ercio y T7esarrolloT (&inebra, 9=C(A7, T19,"T).
$odr%uez, 3rancisco and Ie..rey 7. Tac)sT (1999) M;)y 7o $esource Abundant :cono!ies &ro5
More lo5lyH A =e5 :*+lanation and an A++lication to ?enezuela,N .ort)co!in%, :ournal of
.conomic 7rowth.
ac)s, Ie..rey y Andre5 ;arner (199'), M=atural $esource Abundance and :cono!ic, &ro5t),N
=/:$ ;or2in% @a+er '39A, =ational /ureau o. :cono!ic $esearc). Ca!brid%e MA.
"0
alter, ;.:.&. (19'9) W6nternal and :*ternal /alanceH ()e role o. +rice and e*+enditure e..ectsW in
!he .conomic %ecor,. 0ol. 3', +. 22,>23A
!it), Ia!es (200'), M6nscrutable 1@:CP /e)a0ioral (ests o. t)e Cartel Hy+ot)esisN, .nergy
:ournal, 2,(1) 200', '1>A2.
(u%5ell, 3ran2lin (197') !he Politics of Oil in Venezuela= tan.ord, CAH tan.ord 9ni0ersity @ress
9nited =ations tatistics 7i0ision (200"), M9= Co!!odity (rade tatistics 7atabase (9=
Co!trade)N, 9nited =ations, =e5 Kor2, =K.
9rbane4a, 7ie%o (1992), M@ueblo y @etr#leo en la @oltica ?enezolana del si%lo VVN- :diciones
C:@:(, Caracas, ?enezuela.
?an Meurs ^ Associates 8td (1997), M;orld5ide 3iscal yste!s .or 1il J 1997N, /arro5s 6nc.
=e5 Kor2, =K.
;orld /an2 (2003), M&lobal 7e0elo+!ent 6ndicatorsN, ;as)in%ton, 7C.
;ri%)t, &a0in y Iesse Czelusta (2002), M$esource>based %ro5t) +ast and +resent,N mimeo, tan.ord
9ni0ersity.
Appen,ix &: 'il relate, tatitic %09;1%073
()is a++endi* +resent a series o. statistics related to t)e oil sector 5it) t)e ai! o.
su++ortin% t)e ar%u!ents o. ection 3.
&n(etment in the Venezuelan oil ector bet*een %09; an, %073
3i%ures A>1 +resent di..erent conce+ts o. in0est!ent in !onetary 0alue. As seen .ro!
t)e .i%ure, e0en t)ou%) bet5een 19,0 and 1973 t)ere are +eriods in 5)ic) t)e c)an%e in net
asset is ne%ati0e, t)e disburse!ents are +ositi0e. 3i%ure A>2 +resents +)ysical !easures o.
in0est!ent and assets in +roduction. As seen in t)e .i%ure, in t)at +eriod oil 5ells 5ere
co!+leted and t)e nu!ber o. +roducin% 5ells increased.
"1
#i$ure A 1%
#i$ure A 1+
Inest$ent #oncepts
0
200
400
600
800
1000
1200
1400
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
Total Wells #o$pleted
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
20000
Producing Wells
Difference in Inest$ent #oncepts
-1000
0
1000
2000
3000
4000
5000
6000
194719491951195319551957195919611963196519671969197119731975197719791981198319851987198919911993199519971999
34D .,,.
Change in Gross Assets
nvestment Disbursements
"2
Pro,ucti(ity of the oil ector in 'PEC member countrie /inclu,in$ price
,ifferential4
;e )ere +resent data on +roducti0ity in t)e oil sector. 3i%ure A>3 +resents t)e e0olution
o. +roducti0ity by oil 5ell in ?enezuela. ()e %ra+) s)o5s t)e decline in +roducti0ity
bet5een 19,0 and 1973, 5)ic) s)o5s t)at .ir!s 5ere in0estin% e0en t)ou%) 5ells 5ere less
+roducti0e.
#i$ure A 13
Productivity of the oil sector
0
50
100
150
200
250
300
350
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
barrels a day per well
0%
10%
20%
30%
40%
50%
60%
70%
% of total wells
Production per well
Production capacity per well
Flowing wells
(able A>1 +resents a co!+arison o. +roducti0ity a!on% 1@:C +roducers. Clearly, t)e
5ells less +roducti0e in ?enezuela t)an in ot)er countries.
Table A1%: Pro,ucti(ity per oil *ell at 'PEC
Al%eria 6ndonesia 6ran 6ra- <u5ait 8ibya =i%eria Ratar
audi
Arabia
9nited Arab
:!irates ?enezuela
,1>7" 1017 3"" 12,A, 113A1 "A92 2,AA 19'A "3,3 A117 ,019 299
7'>AA 11'0 379 1A1," 11'33 32,9 1'"1 2737 3'0' 11'A0 "0A' 190
A9>02
"3
3i%ure A>1 +resents t)e +re!iu! o. t)e ?enezuela 31/ 0alues o. li%)t crude co!+ared
to ot)er 1@:C countries. 6t could be ar%ued t)at ?enezuela )as an ad0anta%e in location.
Ho5e0er, t)e %ra+) s)o5s t)at trans+ort cost beca!e less i!+ortant.
#i$ure A 1-
Transport #osts beca$e less i$portant
-30%
-20%
-10%
0%
10%
20%
30%
40%
1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974
Pre$iu$ of :ene;uela FO1 alue of eAuialent lig>t crudes
ran
raq
Libya
Qatar
Saudi Arabia
Return on oil
3i%ure A>' +resent t)e e*cess return o. an in0est!ent strate%y on 2ee+in% a
barrel o. oil in t)e %round .or 10, 20, and 30 years as o++osed to e*tractin% it,
sellin% it, and t)e in0estin% in a .inancial instru!ent. 6n t)is case, 5e use 9
(reasury bonds and t)e +ri!e rate. As seen in t)e %ra+), bet5een 19,2 and 1972,
t)e best strate%y 5as to 2ee+ t)e oil in t)e %round.
""
Appen,ix &&: 'PEC beha(ior
()e ne*t table +resents t)e be)a0ior o. 1@:C country !e!bers o0er ti!e,
s+eci.ically .or t)e .ollo5in% +eriodsH 19,1>1973, 197">19AA and 19A9>2003. ()e
correlations are !ade on t)e .irst di..erence o. oil +roduction. 3irst di..erences are used
because .or all countries, t)e +roduction .i%ures are 6(1).6t can easily be seen t)at t)e
)i%)est correlation or 4oint !o0e!ent corres+onds to t)e +roduction o. t)e +eriod (197">
19A9), 5it) 21 +ositi0e and si%ni.icant coe..icient correlations. ()ere.ore, t)e
establis)!ent o. -uotas .ro! 1@:C could e*+lain t)e contraction o. ?enezuelan oil
+roduction at t)at ti!e.
6n contrast, .or t)e +eriod (1990>2003), t)e nu!ber o. +ositi0e and si%ni.icant
coe..icient correlations .alls to 1,. 6n addition, se0en coe..icients are ne%ati0e and
si%ni.icant, 5)ic) 5ere not +resent in t)e +re0ious +eriod. ()is s)o5s t)at 1@:C countries
)a0e less coordination t)an be.ore and t)at t)e lost o. !ar2et s)are o. so!e countries
!e!bers !eans an increase o. !ar2et s)are .or ot)er 1@:C countries. ()is situation is
si!ilar to t)e .irst +eriod, 5)en +roduction -uotas )ad yet to be establis)ed in 1@:C.
Brent Crude
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975
Excces return of a Barre1l0 of oil over equivalent bond
20
Prie !ate"30 years
"'
Table A1+: Correlation .atrix 1 'PEC Countrie Pro,uction
Algeria ndonesia ran raq Kuwait Libya Nigeria Qatar Arabia
Saudita EAU Vzla
Algeria 1
ndonesia 0.237 1
ran -0.3856 0.5404* 1
raq -0.421 0.2501 0.3051 1
Kuwait -0.1174 -0.6593* -0.5042* -0.5006* 1
Libya 0.1373 -0.2932 -0.4880* 0.1816 0.0928 1
Nigeria -0.3073 0.2871 0.5899* -0.03 0.0749 -0.4930* 1
Qatar 0.0236 -0.0417 -0.1332 0.0716 -0.3019 -0.0599 -0.5287* 1
Arabia Saudita -0.0874 0.6211* 0.7883* 0.326 -0.5485* -0.6950* 0.5010* -0.0677 1
EAU -0.5082* 0.4275 0.8370* 0.5927* -0.3828 -0.3861 0.5692* -0.1403 0.8001* 1
Venezuela -0.074 -0.1459 -0.2703 0.29 -0.0849 0.5361* -0.4044 -0.1638 -0.4397 -0.2845 1
PerBodo )&9=&0&972-
*10 % statistic significance
Algeria ndonesia ran raq Kuwait Libya Nigeria Qatar Arabia
Saudita EAU Vzla
Algeria 1
ndonesia 0.1748 1
ran 0.3006 -0.0252 1
raq 0.5194* -0.1031 -0.0117 1
Kuwait 0.5012* 0.1497 0.0678 0.6879* 1
Libya 0.6598* 0.1722 0.1073 0.6569* 0.5526* 1
Nigeria 0.3433 0.2764 -0.019 0.6610* 0.5167* 0.4898* 1
Qatar 0.383 0.4067 -0.1087 0.3977 0.5472* 0.4586* 0.4864* 1
Arabia Saudita -0.112 0.7679* -0.3666 0.0701 0.1738 0.0863 0.4384 0.4488* 1
EAU 0.3712 0.5443* 0.1977 0.4792* 0.3503 0.3757 0.5776* 0.277 0.5766* 1
Venezuela 0.2115 0.2442 -0.1472 0.2422 0.6349* 0.3781 0.4560* 0.5885* 0.4358 0.1141 1
PerBodo )&9770&988-
*10 % statistic significance
Algeria ndonesia ran raq Kuwait Libya Nigeria Qatar Arabia
Saudita EAU Vzla
Algeria 1
ndonesia -0.1409 1
ran 0.5109* 0.4195 1
raq -0.4659* -0.3576 -0.3024 1
Kuwait -0.1258 -0.5159* 0.0548 0.5706* 1
Libya 0.5903* 0.3445 0.4309 -0.6167* -0.5461* 1
Nigeria 0.4323 0.3002 0.8326* -0.0614 0.0085 0.2978 1
Qatar 0.2918 0.0063 0.2289 0.3714 0.1899 0.1864 0.2641 1
Arabia Saudita 0.5958* 0.4125 0.5336* -0.7383* -0.4590* 0.8569* 0.357 0.2401 1
EAU 0.6202* 0.5418* 0.7642* -0.4510* -0.3499 0.7624* 0.6025* 0.4228 0.7824* 1
Venezuela -0.0575 0.5282* 0.2936 -0.0944 -0.1497 0.5151* 0.3307 0.21 0.4079 0.4438* 1
*10 % statistic significance
PerBodo )&9890.,,&-
",
CHAPTER 7*
Pub'ic +"estmet ad Producti"ity /ro,t- i t-e Vee%ue'a
Mau(acturi$ +dustry
5osE $ineda
CorporaciOn ;ndina de :o&ento
and 8ni%ersidad Central de Venezuela
:rancisco ,odr<(uez
Depart&ent o "cono&ics and *atin ;&erican -tudies
Wesleyan 8ni%ersity
Abstract
)his paper uses e#penditures ro& the Venezuelan Inter(ubern&ental
Decentralization :und F:ID"-G to esti&ate the eect o public in%est&ent on
the producti%ity o Venezuelan &anuacturin( ir&s. 7ecause :ID"-
allocations ha%e been assi(ned to states since 1..3 throu(h a stable
&athe&atical rule, chan(es in :ID"- e#penditures co&e ro& the interaction
between the para&eters o the allocation rule and chan(es in national
re%enues. )his eect is e#o(enous at the state le%el and also (enerates
suicient %ariation o%er ti&e so as to allow us to esti&ate its eect on ir&le%el
producti%ity. !ur esti&ates indicate an elasticity o producti%ity with
respect to public capital in%est&ent o .320.I, econo&ically a %ery si(niicant
eect. !ur results su((est that the decline in the public capital stoc+ is an
i&portant part o the e#planation or the Venezuelan econo&ic collapse.
We are (rateul to $hillipe ;(hion, ,icardo 3aus&ann, and ,oberto ,i(obon or co&&ents on an
earlier %ersion o this paper, as well as to *enin 7alza, 'aria "sther Caballero, *eonardo !rte(a,
and ,eyes ,odr<(uez or e#cellent research assistance. )he usual disclai&er applies.
)5 +troductio
7etween 1.JJ and 2111, Venezuelan per wor+er GD$ declined by 32K.
Durin( the sa&e ti&e period, the Venezuelan public sector disin%ested
si(niicantly in its public assets, leadin( to a decline in non0oil public sector
capital stoc+ per wor+er o 2..1K.
Did this decline in public capital contribute to the collapse in econo&ic
(rowth? :i(ure 1 shows the ti&e series or non0oil GD$ and the non0oil public
capital stoc+, both &easured in relation to the nu&ber o wor+ers in the non0oil
sector. )he i(ure shows clearly that per wor+er GD$ pea+s in 1.JJ, and had
already declined precipitously by the ti&e that the public capital stoc+ starts
declinin( ater 1.93. )hus it would appear i&plausible to e#plain the initial
decline in GD$ (rowth as a result o the decline in the pro%ision o public capital.
I anythin(, it appears that the decline in public in%est&ent &ay be part o a
la((ed response to the econo&yAs deterioration. 3owe%er, the :i(ure also shows
that ater 1.93 both the public capital stoc+ and non0oil GD$ continued declinin(
steadily. I we belie%e that the public capital stoc+ enters positi%ely into the
production unction, it is plausible that the decline in public capital that occurs
ater 1.93 contributed to the decline in non0oil producti%ity and production ro&
the late 91s on. 1
" T#$% &'()$*' $% *+, - .'%/), +0 -%%', %-)'% ,+ ,#' 1.$2-,' %'(,+.3 4'*'5/')- 6-% +*' +0 ,#'
)'-%, -77.'%%$2'
1.$2-,$5'.% $* ,#' .'7$+*% &/.$*7 ,#' *$*',$'%3 8*)9 ,6+ )-.7' :8;% 6'.' %+)& ,+ ,#' 1.$2-,'
%'(,+.< ,#' %,-,'
,')'(+==/*$(-,$+*% >.=< 6#$(# 6-% %+)& 0+. ?@AA =$))$+* $* "@@"< -*& ,#' %,-,'B+6*'&
-$.)$*' 4CD:D<
-uch a story would rely on the e#istence o a stron( causal lin+ (oin( ro&
public in%est&ent to producti%ity. )he e#istence o such a lin+ is ar ro&
established in the e&pirical literature. ;lthou(h there are (ood theoretical
reasons to e#pect public capital to ha%e an eect on producti%ity F;rrow and Lurz
F1.J1G, !(ura and Pohe F1.JJGG, e&pirical results are at best &i#ed. "%idence
ro& the 8nited -tates presents stron( ti&e0series and cross0state correlations
between public inrastructure and producti%ity F;schauer F1.9.G, 'unnell
F1..1GG. 3owe%er, 3ulten and -chwab F1..1G, )ato& F1..1G and 3oltz0"a+in
F1..IG ha%e ar(ued that these results disappear when the ti&e0series data is
irst0dierenced or when i#ed eects are introduced in panel data re(ressions,
su((estin( that they were due to spurious correlations between non0stationary
%ariables Fin the ti&e seriesG and endo(eneity or &isspeciication Fin the crosssectionG.
:ernald F1...G, howe%er, ound that the construction o the interstate
hi(hway syste& led to a considerable increase in the producti%ity o transportintensi%e
industries, consistent with the hypothesis o the e#istence o a causal
lin+ ro& inrastructure to producti%ity.
)he cross0country e%idence is si&ilarly &i#ed. !n the one hand, authors such
as "asterly and ,ebelo ha%e ound that public transport and co&&unication
in%est&ent are positi%ely correlated with (rowth, but De%araNan, -waroop and
]ou F1..2G and Cannin( F1...G ha%e ar(ued that inrastructure is o%erpro%ided
in &any de%elopin( countries Fthou(h "sanhani and ,a&<rez F2113G ha%e
contested thisG. ,ecently, CalderOn and -er%En F2113bG ha%e ar(ued that a
6#$(# 6-% %+)& 0+. ?"EA =$))$+* $* ,#' %-=' 9'-.< -*& 6#$(# 6-% )-,'. &$%=-*,)'&3 D&F/%,$*7
0+. ,#'%' ,6+
%-)'% =-G'% *+ -11.'($-H)' &$I'.'*(' ,+ +/. 1/H)$( (-1$,-) %,+(G %'.$'%3
substantial part o the (rowth in the output (aps between "ast ;sia and *atin
;&erica can be traced bac+ to the cutbac+s in inrastructure spendin( that
occurred in *atin ;&erica as a result o the iscal adNust&ent pro(ra&s
precipitated by the debt crisis in the ei(hties.
;ll o these esti&ates are conronted by a dauntin( e&pirical proble&.
$recisely because o the political orces in action to deter&ine the allocation o
in%est&ent proNects, spendin( on inrastructure is li+ely to be an endo(enous
%ariable, &a+in( identiication o its eect on producti%ity (rowth diicult. I
(o%ern&ents are &ore li+ely to in%est in prosperous and econo&ically de%eloped
re(ions, then there will be a spurious positi%e correlation between in%est&ent in
inrastructure and producti%ity (rowthH i policy&a+ers try to use public
in%est&ent to co&pensate or the bac+wardness o e#istin( re(ions or to help out
re(ions in crisis, in contrast, there will be a downward bias in the least s>uares
esti&ate o the eect o inrastructure in%est&ent on producti%ity (rowth. It will
be e#tre&ely diicult to ind e#o(enous and e#cludable instru&ents or
in%est&ent in inrastructure. :or e#a&ple, CalderOn and -er%En F2113G ha%e
used urban population and population densities as well as la((ed %alues o
inrastructure stoc+s to esti&ate the eect o inrastructure on per wor+er GD$.
3owe%er, i in%est&ent in inrastructure is endo(enous la((ed inrastructure will
be correlated with any persistent producti%ity shoc+s while population and
population densities &ay ha%e a direct eect on production or be correlated with
o&itted %ariables.
)his paper addresses the >uestion o endo(eneity in the esti&ation o the
eect o public inrastructure spendin( on producti%ity by usin( state0le%el
%ariations in inrastructure in%est&ents carried out by the Venezuelan
Inter(o%ern&ental Decentralization :und F:ondo Inter(uberna&ental para la
DescentralizaciOnG established in 1..3 to inance local inrastructure proNects
carried out by state and &unicipal (o%ern&ents in Venezuela. )he :ID"- was
created si&ultaneously with the appro%al o a 1..3 law establishin( a national
%alue0added ta# on (oods and ser%ices. )he political ne(otiation leadin( to the
adoption o the law led the careta+er ad&inistration o ,a&On 5. VelDs>uez
F1..301..IG to accept the distribution o 1/K o collected V;) re%enues directly
to state and &unicipal (o%ern&ents throu(h :ID"-, with the condition that these
resources be de%oted to in%est&ent proNects that would be co0inanced with the
local (o%ern&entAs own resources. -ince its creation, the 1/K proportion o total
V;) re%enues to be distributed to re(ions has re&ained constant.
What is interestin( about :ID"- or our purposes is that it establishes that
each state and local (o%ern&ent recei%es a raction o total national V;)
re%enues that is a unction o its population FI/KG, its land area F11KG, and a
co&pensation inde# desi(ned to beneit less0well o states FI/KG. )his
co&pensation is in turn built as a co&posite o the in%erse o its share o
re%enues plus one &inus the state0le%el 3u&an De%elop&ent Inde#.2
J FCK;: .'%+/.('% -))+(-,'& ,+ %,-,' $ -, ,$=' t -.' 7$2'* H9 ,#' 'L/-,$+*M
N N N N
O
P
Q Q Q Q
R
S
= T T + T + T

it
i
i
i

i
it
it
it t C1
L
L
POP
(1& U3"A VA! U3EA POP U3"U U3EA (")
6#'.' VA!t .'1.'%'*,% *-,$+*-) 4DT (+))'(,$+* -, ,$=' ,< P8P$, $% %,-,' CV% 1+1/)-,$+* -, ,$=' ,<
W$ $%
%,-,' $V% )-*& -.'-< WD$, $,% .'('$1,% +0 ,.-*%0'.% 0.+= ,#' :1'($-) ;(+*+=$( D))+(-,$+*% F/*&<
:$, $,% .'('$1,
+0 ,.-*%0'.% 0.+= ,#' 'itua,o Constitucional< KC$, $,% /=-* K'2')+1='*, C*&'X (6#$(# $%
H',6''* U -*&
")< -*& F$, $,% .'('$1,% 0.+= ,#' 1-., +0 FCK;: ,#-, $% -))+(-,'& -((+.&$*7 ,+ 1+1/)-,$+* -*&
)-*& -.'-< -*&
In practice, %ariations in :ID"- allocations o%er ti&e co&e ro& %ariations in
national le%el oil and non0oil re%enues. )hese chan(es ha%e dierential eects on
public in%est&ent across states because the rule that is used to allocate :ID"-
allowances across states is nonlinear. Chan(es in national V;) re%enues, or
e#a&ple, aect not only the total o resources to be distributed a&on( states but
also the share that each state (ets o those resources. In other words, these
chan(es (enerate a source o %ariation in public in%est&ent that is both
e#o(enous at the state le%el and not collinear with a pure ti&e eect. )he source
o identiication is thus the interaction between a %ariable which is e#o(enous at
the state le%el Fnational %ariation in re%enuesG and a rule whose para&eters ha%e
been unchan(ed since its adoption.
)he rest o this paper proceeds as ollows. -ection 2 describes the :ID"-
law. -ection 3 discusses our e&pirical &ethodolo(y and so&e issues with our
esti&ation strate(y. -ection I presents our results. -ection / concludes.
" (" )
"
it

i
it it it
it it it
it C&1
LA ' (
LA ' (
C1 +
N N N N
O
P
Q Q Q Q
R
S
+ +
+ +
=
=
("V)
WD$, .'0'.% ,+ .'%+/.('% &$%H/.%'& -((+.&$*7 ,+ ,#' :1'($-) ;(+*+=$( D))+(-,$+*% W-6 +0 "@@Y<
6#$(#
&'1'*& +* .+9-),$'% -*& %,-,'B)'2') .'>*$*7 -*& +$) 1.+&/(,$+*3 :$, -.' &$%H/.%'='*,% (-..$'&
+/, -((+.&$*7
,+ ,#' 'itua,o Constitucional< - ./)' 0+. &$%,.$H/,$*7 -=+*7 )+(-) -*& %,-,' 7+2'.*='*,% +*'B>0,#
+0 ,+,-)
7+2'.*='*, .'2'*/'% ($*()/&$*7 4DT .'2'*/'%)M
( )

= T + +

i
it
it
it t it
POP
' VA! VA! U3Z POP
J[
U3J U3[ " 3 ([)
C#-*7'% $* 4DT, -I'(, FCK;:$, *+, +*)9 &$.'(,)9 H/, -)%+ ,#.+/7# ,#' $*&/('& 'I'(, +* ,#'
&'*+=$*-,+. +0 CC$,< 6#$(# '%,-H)$%#'% $,% *+*)$*'-.$,93 C#-*7'% $* \4DT, -% 6')) -% +$)
.+9-),$'% 6$)) -)%+
FCK;:$, *+*)$*'-.)9 ,#.+/7# ,#' 'I'(, +0 :$, -*& WD$, +* ,#' &'*+=$*-,+. +0 CC$,3 D)) +0 ,#'%'
'I'(,% 6$)) H'
'X+7'*+/% -, ,#' %,-,' )'2') -*& &$I'.'*, 0.+= - 1/.' ,$=' 'I'(, H'(-/%' +0 ,#' ./)'V%
*+*)$*'-.$,93
25 T-e +ter$ubermeta' 3ecetra'i%atio Fud ad t-e
S0ecia' Ecoomic Assi$mets La,5
)he Inter(o%ern&ental Decentralization :und, which we will reer to by its
-panish acrony& :ID"- F:ondo Inter(uberna&ental para la DescentralizaciOnG
was created in 6o%e&ber o 1..3 as a result o the political discussion re(ardin(
the institution o the %alue added ta# in Venezuela. )he V;) reor&, ori(inally
introduced by the Carlos ;ndrEs $Erez ad&inistration beore Con(ress in 1.9.,
had &et si(niicant political opposition and had been sidetrac+ed. When $Erez
was i&peached in 1..3, the careta+er ad&inistration o ,a&On VelDs>uez
ne(otiated with Con(ress the appro%al o this law, subNect to the pro%iso that 1/K
o V;) re%enues would be directly allocated to re(ional (o%ern&ents or the
carryin( out o public in%est&ents.
)he law conte&plates a broad deinition o areas in which the :ID"- &ay
ser%e to pay the cost o public in%est&ents. $articularly i&portant is the list o
areas in which these in%est&ents can be inanced by :ID"-, which includes
=$roNects o producti%e in%est&ent that pro&ote the sustainable de%elop&ent o
the co&&unity, states and &unicipalities,C and =wor+s o inrastructure and
acti%ities within the ra&ewor+ o national de%elop&ent plansC F:ID"-, 211/,
;rticle 22G ;lthou(h these pro%isions allow or a broad deinition o the type o
in%est&ent proNects, the law does speciically state that these resources &ust only
be used or =pro(ra&as y proyectosC Fpro(ra&s and proNectsG, a ter& that in
Venezuelan le(islation is e>ui%alent to capital e#penditures. $roNects typically
inanced include construction o schools, repairs to roads and ac>uisition o
%ehicles or use by the local police orce.
)he act that these resources are indeed de%oted to public in%est&ent
proNects &ay ha%e to do &ore with the or(anizational details o the und than
with the letter o the law. Indeed, the 1... Venezuelan constitution also re>uires
states to de%ote at least /1K o their state re%enues towards public in%est&ent,
but no state (o%ern&ent in Venezuela currently obeys this prescription. )he
:ID"- law, howe%er, re>uires the directory o the und to appro%e the list o
in%est&ent proNects and to only disburse the unds ater appro%al and subNect to
coparticipation o the state or local (o%ern&ent in undin( the proNect.
65 Em0irica' Strate$y
We will use a panel o &anuacturin( ir&s deri%ed ro& the 6ational
Institute o -tatisticsA 8ncues"a ?ndus"rial to esti&ate the eect o :ID"-
inanced public in%est&ent on ir&0le%el producti%ity between 1..2 and 2111.
We will esti&ate a ir&0le%el production unction4
it it it it it y = + k + l + a +] U " J [ F1G
Where yi" is the lo( o real %alue added, :i" is the lo( o the capital stoc+, li" is
e&ploy&ent, and ai" is the lo( o the ir&As a(e &easured in years. ]i" is the ir&
le%el producti%ity, which is deter&ined accordin( to4
it i it it ] =^ + _p +` F2G
so that ir&0le%el producti%ity is co&posed by a ir&0speciic eect, the
producti%ity eect o the stoc+ o public inrastructure, 4i" and a white noise
ter&.
We do not obser%e the stoc+ o public inrastructure. 3owe%er, we do +now
that it e%ol%es accordin( to4
it it t p = p + i " (" ) F3G
Where is the rate o depreciation and i" is public in%est&ent in
inrastructure. *et public in%est&ent in inrastructure be the su& o :ID"-
and non0:ID"- in%est&ent. )he a%ailability o (reater resources ro& :ID"-
will i&pact public in%est&ent in inrastructure in two ways. :irst o all,
accordin( to the :ID"- law, states &ust put down a &ini&u& share o their
own resources towards inancin( o these proNects. :urther&ore, the
a%ailability o :ID"- &ay allow state (o%ern&ents to carry out proNects that
they would not otherwise ha%e carried out with their own resources. !n the
other hand, states &ay si&ply use :ID"- to carry out proNects that they would
ha%e carried out anyway, so that the a%ailability o :ID"- resources &ay
reduce non0:ID"- in%est&ent. )he total eect o :ID"- resources on
in%est&ent &ay thus be (reater than or less than one.3 We su&&arize it in
the &ultiplier , so that in%est&ent in inrastructure is4
( ) it it it it i U it i U i = f + n = f + n + n n FIG
Where /i" is :ID"- For :ID"-0inducedG in%est&ent, ni" is inrastructure
in%est&ent that is unrelated to :ID"- and ni- is its unconditional &ean 8Fni"G.
6ote that since /i" includes the direct and indirect eect o :ID"-
e#penditures, ni" is by deinition uncorrelated with /i".
[ T#' $=1+.,-*(' +0 ,#'%' 'I'(,% $% ,#' =-$* .'-%+* ,#-, 6' &+ *+, 0+))+6 -* C4 %,.-,'79 $*
,#$% 1-1'.< -*&
1.'0'. ,+ '%,$=-,' ,#' .'&/('& 0+.= (+'a($'*, +0 1.+&/(,$2$,9 +* FCK;: $*2'%,='*,3
D,,'=1,% ,+
$*%,./='*, .'-)$5'& FCK;: 'X1'*&$,/.'% 6$,# H/&7','& 'X1'*&$,/.'% 9$')&'& %,.+*7 '2$&'*('
+0 *+*'X()/&-H$)$,9
+0 ,#' $*%,./='*,3
)a+in( irst0dierences o F2G and usin( F3G and FIG (i%es us4
" U " U " ( ) (" ) = + + + + it it i i it it it i it it ] ] _n _^ _] _f _ n n `
_ ` F/G
">uation F/G tells us that chan(es in producti%ity are a co&bination o i%e
ter&s4 a ir&0speciic i#ed eect i i _n _^ U , a =con%er(enceC eect " it _]
that depends on the initial le%el o producti%ity and is caused by the
depreciation o public inrastructure, the eect o :ID"- in%est&ent,
captured by it _f , and a linear co&bination o white0noise ter&s
U " ( ) (" ) + + it it it _ n n ` _ ` that can be treated as a sole disturbance. )his
(i%es rise to the speciication that we will present in the ollowin( section4
it it it i it = a + a + a f + + ) ] ] b U " " J F2G
where the e#pected %alue o a0 e>uals _ and is positi%e, and
U " ( ) (" ) = + + it it it it ) _ n n ` _ ` . 6ote that /i" is uncorrelated with the error
ter& )i"3 , so that a0 can be esti&ated consistently by panel &ethods as lon( as
the i#ed eect b
i is dierenced away. 6ote also ro& the deinition o )i" that
the disturbance in this re(ression will be autocorrelated.
">uation F2G represents a dyna&ic panel that can be esti&ated by the
techni>ues o ;rellano and 7ond F1..1G. ;n alternati%e and si&pler
speciication arises i we are willin( to assu&e that the depreciation rate o
public inrastructure is ne(li(ible. 3ere F/G beco&es4
it it it i it = 8 + 8 f + + ) ] ] b " U J FJG
which can be esti&ated throu(h con%entional panel esti&ators, pro%ided
that a correction or autocorrelation is &ade.
In practice, our esti&ation strate(y will be carried out in two steps. In the
irst step we will esti&ate ]i" by the !lley0$a+es F1..2G se&i0para&etric
&ethod that allows to obtain consistent esti&ates o 1,1,2 and 3 that ta+e
into account the endo(enous deter&ination o ir&0le%el capital and its li+ely
correlation with producti%ity shoc+s arisin( ro& two orces4 FiG the act that
ir&s that e#perience a positi%e producti%ity shoc+ are li+ely to in%est &ore,
and FiiG the act that ir&s that e#perience a positi%e producti%ity shoc+ are
less li+ely to e#it. )he !lley0$a+es &ethodolo(y consists o three steps. In the
irst step, we esti&ate the production unction se&i0para&etrically as a
unction o :i"3li"3ai" and pri%ate in%est&ent ci". )he basic ideas is that since
in%est&ent is an increasin( unction o producti%ity then controllin( or
pri%ate in%est&ent will allow us to reco%er a consistent esti&ate o the
coeicient on li". In the second step we esti&ate the probability o sur%i%al as
a non0para&etric unction o :i"3ai"3and ci". 8sin( this esti&ate o the
probability o sur%i%al, we can control or selection bias eects and esti&ate
the production unction coeicients on :i" and ai" by non0linear least s>uares.
When we ha%e all the para&eter esti&ates or F1G we can si&ply calculate ]i"
and (o on to esti&ate F2G and FJG thou(h an ;rellano07ond or i#ed0eects
esti&ator.
!ne i&portant obser%ation about our data is that our indicator o :ID"-
e#penditure reers to the unds allocated in yearly bud(ets, and not the
raction o those unds that was actually spent. We consider the bud(et
allocations to be the correct %ariable or our esti&ation strate(y because, in
contrast to realized e#penditures, bud(et allocations are strictly deter&ined
by the :ID"- rule and thus truly e#o(enous. It is also true that the :ID"-
law (enerated an entitle&ent or re(ions to use these resources, so that the
bud(eted allocations were, unli+e other ite&s, in eect a%ailable to be spent
by the re(ions pro%ided that their proNects satisied the technical
re>uire&ents i&posed by the :ID"- 7oard o Directors. )he act that /i"
&easures bud(et allocations i&plies that our esti&ate should be interpreted
as the total eect on a re(ionAs producti%ity o pro%idin( resources to that
re(ion to spend on inrastructure. )his total eect, which is captured by the
product o the para&eters ` and a &ultiplyin( /i" in F2G and FJG, is dierent
ro& the production unction coeicient a that other studies co&&only see+
to esti&ate. )hat said, `a &ay be the &ore rele%ant para&eter or policy
purposes, as it captures the e#pected eect o pro%idin( a re(ion with
resources that &ust be spent on public in%est&ent proNects. )his is the eect
that a &ultilateral ban+ that inances an inrastructure proNect, a national
(o%ern&ent decidin( whether to transer unds to re(ional (o%ern&ents or
public in%est&ent, or a %oter decidin( whether to support hi(her ta#es in
order to inance public in%est&ent would all be interested in.
75 Estimatio Resu'ts
)able 1 shows the results o our esti&ates o e>uation FJG usin(
autocorrelation0corrected i#ed eects panel esti&ation. 6ote that we do not
present rando& eects or cross0sectional esti&ates because our ar(u&ent or
e#o(eneity reers to the chan(es o%er ti&e in :ID"- allocations, which are
(enerated by the interaction o the allocation rule and chan(es in national
re%enue, and not to the cross0sectional dierences. )he latter would si&ply
be a relection o the political choices &ade at the ti&e at which the rule was
ori(inally set. ;ll o our esti&ates include a set o year du&&ies. )he
dependent %ariable is constructed as outlined in the pre%ious sectionH the
independent %ariable o interest is the lo( o bud(eted :ID"- e#penditures as
a raction o Gross -tate $roduct. )he latter is esti&ated usin( 86D$As
F%arious yearsG esti&ates o state0le%el inco&e.
)he esti&ates o )able 1 show a si(niicant eect o :ID"- in%est&ent
on producti%ity. In the esti&ation with no controls, the esti&ate i&plies an
elasticity o 1.I o output to public in%est&ent. )his is re&ar+ably si&ilar to
:ernaldAs F1...G esti&ate o the elasticity o &anuacturin( producti%ity to the
construction o the 8- interstate hi(hway syste& o .39. )he %alue o the
coeicient di&inishes so&ewhat with the introduction o controls or the
ir&As capital share, ownership by residents and ratio o e#ports to
production, as well as the state share o &anuacturin( in Gross -tate
$roduct4 when all I controls are introduced Fcolu&n /G the elasticity esti&ate
alls to .32 and its statistical si(niicance dips to 11K. )wo o the controls are
si(niicant4 the ownership share o residents and the share o e#ports in ir&
production. Interestin(ly, the si(niicance o these coeicients appears to be
pic+in( up an interaction with :ID"- in%est&ent4 when we introduce a ull
set o interaction ter&s these are stron(ly si(niicant Fat 1KG and si(niicance
o both :ID"- in%est&ent and the ownership and e#port %ariables disappears,
)his su((ests that the eect o :ID"- on producti%ity occurs throu(h its eect
on the producti%ity o nationally0owned ir&s and ir&s that produce or the
do&estic sector F as opposed to those that produce e#portablesG.I
-i&ilar results arise ro& the ;rellano07ond esti&ation o e>uation
F2G. )he coeicient esti&ate is so&ewhat lower F.32G. 3owe%er, note that
(i%en that the esti&ated speciication has a la((ed disturbance ter&, the
coeicient on :ID"- in%est&ent relects the short0run elasticity, whereas the
lon( run elasticity would be e>ual to .I. F1.323UF101.3I/GG. In the ;rellano0
7ond esti&ation the si(niicance o :ID"- in%est&ent is &uch hi(her and
re&ains robust to the introduction o controls. It loses statistical si(niicance,
as beore, only when a ull set o interaction ter&s is introduced. In this case
we also ind a ne(ati%e si(niicant interaction with the share o e#ports in
(ross production and the share o resident ownership. )he interaction with
the capital share is now also si(niicant Fat 11KG.
;s noted in the pre%ious section, i&ple&entation o the !lley0$a+es
al(orith& re>uires esti&ation o a sur%i%al probability unction. In order to
do this, it is necessary to ha%e data on entry and e#it o ir&s. 3owe%er, the
8ncues"a ?ndus"rial is a rando& sur%ey in which a ir& &ay e#it the sa&ple
because it is no lon(er operatin( or because it was no lon(er sur%eyed. When
esti&atin( sur%i%al probabilities, we ta+e ad%anta(e o the act that in the
8ncues"a ?ndus"rialAs sa&ple all plants o &ore than 111 e&ployees are
always co%ered. In other words, the 8ncues"a beco&es a census or plants
with &ore than 111 e&ployees. We thus esti&ate the sur%i%al probability
E T#$% 'I'(, (+/)& H' &/' ,+ ,#' 0-(, ,#-, FCK;: $*2'%,='*, $% -))+(-,'& ,+ =+.' )+(-) (%=-)))
,91' 1.+F'(,%
&'($&'& H9 ,#' %,-,' 7+2'.*='*,%3
unction or ir&s with &ore than 111 e&ployees and then use the coeicients
ro& that unction to correct or selection bias or all ir&s. 6ote that this
si&ply &a+es use o the i&plicit assu&ption &ade when one esti&ates the
production unction F1G or the whole sa&ple, which is that s&all and lar(e
ir&s ha%e the sa&e para&eters in their production unction. 3owe%er, the
doubt &ay naturally arise about how i&portant the appro#i&ation error is
that is induced by this &ethod. In )ables 3 and I we present the results o
carryin( out all three steps Finstead o Nust the second oneG o the !lley0$a+es
al(orithn& restricted to plants o &ore than 111 e&ployees. )he coeicient
on :ID"- is still positi%e and the point esti&ate o the re(ression with no
controls is si&ilar in &a(nitude but is now statistically insi(niicant. )he
interaction ter& between :ID"- in%est&ent and do&estic ownership does
re&ain si(niicant Fat /KG, but the interaction with e#ports is no lon(er so. In
the ;rellano07ond esti&ates F)able IG a si&ilar pattern e&er(es4 positi%e
albeit insi(niicant coeicient esti&ates on :ID"-, with two o the
interactions si(niicant4 that with the capital share Fat /KG and that with
e#ports Fat 11KG.
)here are two possible ways to interpret the wea+ness o the coeicient
when one passes to the restricted sa&ple. !ne is as a si(nal that the
application o the !lley0$a+es al(orith& to the broader sa&ple is
inappropriate. )he other one is as an indication that the eect o :ID"-
e#penditure is rele%ant only or s&all ir&s. Consistently with this
hypothesis, splittin( the broader sa&ple between lar(e and s&all ir&s Fusin(
the 111 e&ployees thresholdG deli%ers si(niicant coeicients only or the
sa&ple o s&all ir&s under both speciications.
!ne co&&on criticis& o the !lley0$a+es approach is that it relies on
in%est&ent to pro#y or unobser%able shoc+s to producti%ity. *e%insohn and
$etrin F2113G ha%e ar(ued that &aterials inputs &ay be a better pro#y or
unobser%able shoc+s as they respond to the entire producti%ity ter& M instead
o Nust to the =newsC that in%est&ent &ay be capturin(. In order to chec+ the
robustness o our approach to the &ethod used to esti&ate producti%ity, we
reesti&ate our re(ressions o )ables 1 and 2 usin( the *e%insohn0$etrin
&ethodolo(y, where we ha%e chosen ir& electricity consu&ption as our
pro#y or &aterials use. ,esults are displayed in )ables / and 2. )he
correlation between the *e%insohn0$etrin and the !lley0$a+es esti&ates o
producti%ity is ../29, so it is not surprisin( that our results are si&ilar.
Indeed, the elasticity esti&ate beco&es so&ewhat stron(er in the i#ed eects
speciication, increasin( to .II Fas opposed to .I1 usin( !lley0$a+esG in the
baseline esti&ation o colu&n 1, but sli(htly wea+er in the ;rellano107ond
speciication, where it alls to .II Fro& .I. in the !lley0$a+es speciicationG o
colu&n 1, )able 2. ;ll o the basic results are, howe%er, unchan(ed4 the si(n
on the :ID"- %ariable re&ains positi%e and si(niicant until the ull set o
interactions in introduced, when the si(niicance is pic+ed up by the
interactions between :ID"- in%est&ent and do&estic ownership on the one
hand and e#ports Fwith a ne(ati%e si(nG on the other.
!ne possible e#planation o our eect is that producti%ity0enhancin(
in%est&ents are &i(ratin( ro& areas with low inrastructure in%est&ent to
areas with hi(h inrastructure in%est&ent. While our esti&ate would still be
appropriate as a &easure o the eect on a stateAs producti%ity o underta+in(
hi(her le%els o public in%est&ent, we could not use it to iner the eect o
(reater public in%est&ent on na"ional producti%ity, as part o the increase in
producti%ity enNoyed by hi(h public in%est&ent states would be oset by
declines in producti%ity suered by low public in%est&ent states. In order to
control or this eect, we present esti&ates o our baseline speciication
addin( a control or a%era(e :ID"- in%est&ent in nei(hborin( states. )he
results o this e#ercise are shown in )ables J and 9. While the eect o
nei(hborsA :ID"- in%est&ent on a stateAs producti%ity is not si(niicantly
positi%e in any o the speciications, the coeicient on ho&e state :ID"-
in%est&ent re&ains statistically si(niicant, with a so&ewhat (reater elasticity
than in the baseline e#ercise.
85 Coc'udi$ Commets
)his paper has used e#penditures o the Venezuelan Inter(ubern&ental
Decentralization :und F:ID"-G to esti&ate the eect o public in%est&ent on
the producti%ity o Venezuelan &anuacturin( ir&s. 7ecause :ID"-
allocations are assi(ned to states throu(h a rule that di%ides national V;)
receipts accordin( to the statesA population, territorial e#pansion and initial
le%el o de%elop&ent, and as that rule has re&ained stable since the :und was
created by law in 1..3, chan(es in :ID"- e#penditures co&e ro& the
interaction between the para&eters o the allocation rule and chan(es in
national re%enues. )his eect is e#o(enous at the state le%el and also
(enerates suicient %ariation o%er ti&e so as to allow us to esti&ate its eect
on ir&0le%el producti%ity.
)he esti&ates in )ables 1 and 2 indicate an elasticity o producti%ity with
respect to public capital in%est&ent o .320.I. "cono&ically, this is a %ery
si(niicant eect. In 2111, the ratio o the stoc+ o public capital to GD$ was
1.21/, so that the esti&ated eects would i&ply a short0run rate o return to
inrastructure in%est&ent o ./20.2/ and a lon(0run rate o return Fi.e., the
partial deri%ati%e o steady0state inco&e to chan(es in inrastructure
spendin(G o .91. )his e%idence su((ests that cuttin( in%est&ent in
inrastructure does appear to be a %ery bad deal both ro& a iscal %iewpoint
as well as ro& the perspecti%e o society as a whole.
In :i(ure 2, we use the .32 elasticity esti&ate to si&ulate what the
econo&yAs path o non0oil GD$ would ha%e been, accordin( to e>uations F1G
and F2G, i the public capital stoc+ had stayed constant at its 1.93 %alue. )he
si&ulated capital stoc+ is hi(her than the historical capital stoc+ or two
reasons4 the direct eect o the increase in the public capital stoc+, e>ual to
_,pi , and an indirect eect throu(h its eect on capital accu&ulation, which
we ta+e to react with an elasticity o 1UF10VG, where V is the capital share. )he
eects are stri+in(. We ind that per capita GD$ would be 3JK hi(her than
its present %alue i the public capital stoc+ had not declined. It would still be
less than its 1.J9 pea+, but only by 12K instead o the actual 32K. !ur
e#ercise thus su((ests that the decline in the public capital stoc+ is an
i&portant part o the e#planation or the Venezuelan econo&ic collapse./
A T#'.' -.' ,6+ $=1+.,-*, (-2'-,% ,+ ,#$% (-)(/)-,$+*3 T+ ,#' 'X,'*, ,#-, ,#' ')-%,$($,9 +0
1.+&/(,$2$,9 ,+ ,#'
1/H)$( (-1$,-) %,+(G $% &$I'.'*, $* =-*/0-(,/.$*7 ,#-* $* ,#' .'%, +0 ,#' '(+*+=9< ,#$%
(-)(/)-,$+* =-9 7$2'
-* $*-((/.-,' '%,$=-,' +0 ,#' (+/*,'.0-(,/-) %('*-.$+ +0 - (+*%,-*, 1/H)$( (-1$,-) %,+(G3 T#'
%'(+*& +*' $%
,#-, ,#$% (-)(/)-,$+* ,-G'% +/. '%,$=-,'& 1-.-=','.% -% '%,$=-,'% +0 _< 6#$(# (+/)& $* .'-)$,9
H' %=-))'. $0
c"3
Re(ereces
;rellano, 'anuel and -. 7ond F1..1G \-o&e )ests o -peciication or $anel
Data4 'onte Carlo "%idence and an ;pplication to "&ploy&ent ">uations\,
Re)ie9 o/ 8conomic &"udies3 /9, 1..1, 2JJ02.J.
;rrow, L. and '. Lurz F1.J1G. $ublic In%est&ent, the ,ate o ,eturn and
!pti&al :iscal $olicy. 7alti&ore, 5ohns 3op+ins 8ni%ersity $ress.
;schauer, D. ;. F1.9.aG. \Does $ublic Capital Crowd !ut $ri%ate Capital?\
5ournal o 'onetary "cono&ics 2IF2G4 1J1099.
Cannin(, D. F1...G. InrastructureTs Contribution to ;((re(ate !utput,
3ar%ard 8ni%ersity.
CalderOn, C. and *. -er%En F2113aG. 'acroecono&ic Di&ensions o
Inrastructure in *atin ;&erica. Washin(ton, DC.
CalderOn, Cesar and *uis -er%En =)he !utput Cost o *atin ;&ericaAs
Inrastrcuture Gap.C in "asterly and -er%en, eds F2113bG.
De%araNan, -., V. -waroop, et al. F1..2G. \)he Co&position o $ubilc
"#penditure and "cono&ic Growth.\ 5ournal o 'onetary "cono&ics 3J4 3130II.
"asterly, Willia& F1..9G =When is :iscal ;dNust&ent an Illusion?C
,eproduced4 World 7an+.
"asterly, Willia& and *uis -er%En, eds. F2113G 2$e #imi"s o/ &"abiliza"ion<
?n/ras"ruc"ure3 Public !e/ici"s and =ro9"$ in #a"in America
Washin(ton, DC4 )he World 7an+.
"sahani, 3. -. and '. ). ,a&<rez F2113G. \Institutions, inrastructure and
econo&ic (rowth.\ 5ourna o De%elop&ent "cono&ics J14 II30IJJ.
:ernald, 5. G. F1...G. \,oads to $rosperity? ;ssessin( the *in+ 7etween $ubic
Capital and $roducti%ity.\ ;&erican "cono&ic ,e%iew 9.F3G4 21.0239.
:ID"- F211/G =*ey >ue Crea el :ondo Inter(uberna&ental para la
DescentralizaciOnC www.ides,(o%.%e, accessed 11U2IU1/.
3otz0"a+in, D. F1..IG. \$ublic sector capital and the producti%ity puzzle.\
,e%iew o "cono&ics and -tatistics J24 12021.
3ulten, C. and ,. ;. -chwab F1..1G. Is )here )oo *ittle $ublic Capital?
Inrastructure and "cono&ic Growth, ;&erican "nterprise Institute.
W'2$*%+#*< d3 -*& D3 P',.$*< (JUU[)3 e;%,$=-,$*7 P.+&/(,$+* F/*(,$+*% !%$*7
C*1/,%
,+ C+*,.+) 0+. !*+H%'.2-H)'%3f %e)iew of .conomic 'tu,ies ZU< ["ZBE"3
'unnell, ;. 3. F1..1G. \Why 3as $roducti%ity Growth Declined? $roducti%ity
and $ublic In%est&ent.\ 6ew "n(land "cono&ic ,e%iewF5anU:ebG4 3022.
!(ura, -. and G. Pohe F1.JJG. \)he Co&ple&entarity o $ublic and $ri%ate
Capital and the !pti&al ,ate o ,etirn.\ )he buarterly 5ournal o "cono&ics
.1FIG4 2/10222.
!lley, -te%e and ;riel $a+es F1..2G, =)he Dyna&ics o $roducti%ity in the
)eleco&&unications ">uip&ent Industry,C "cono&etrica, %ol. 2I, no. 2,
pp.12230.9.
)ato&, 5. ;. F1..1G. \-hould Go%ern&ent -pendin( on Capital Goods be
,aised?\ :ederal ,eser%e 7an+ o -t. *ouis ,e%iewF'archU;prilG4 301/.
World 7an+, 1.99, @orld !e)elo4men" Re4or". Washin(ton, DC4 )he World
7an+.
)able 14 :i#ed "ects with ;,F1G disturbances F;ll :ir&sG
3e0edet Variab'e
1 2 3 I / 2
1.3.J2 1.3.22 1.3/12 1.3I12 1.31/ 1.1/22
F2.29GXX F2.29GXX F1..JGXX F1..1GX F1.J2GX F1.23G
01.121I 01.11.. 01.122I 01.1211 01.22./
F1.19G F1.12G F1.1.G F1.1JG F1.91G
1.1111 1.1111 1.1111 1.111J
F1.1IG F1.1/G F1.1JG F1..IGX
1.111/ 1.111/ 01.1122
F2.13GXX F2.12GXX F1.I.G
01.1.. 1.1I92
F1.92GX F1.22G
1.1.2I
F1.91G
01.111I
F1./JG
1.1139
F2.21GXXX
01.21/1
F3.31GXXX
0I.9J99 02.J21/ 02./29I 0J.11.2 02..9.9
F1.9JG F1.1IG F1.1/G F1.12G F1.19G
6 5675 5669 5669 5668 5668 5668
,2 1.1JI/ 1.1J/1 1.1J// 1.1J2/ 1.1JJI 1.1929
Constant
Absolute value of t statistics in parentheses. All specifications include time dummies. *significant at 10%; **significant at 5%;
***significant at 1%
09.J21/
:ID"-X"#port
:ID"-X,esidents
:ID"-XDe%elop&ent
:ID"-XCapital -hare
"#port F"#portsU$roductionG
De%elop&ent F'anu V;U$I7G
,esidents F$ercent !wnership o
,esidentsG
C-a$e i Producti"ity
:ID"-
Capital -hare FrLUw*crLG
)able 24 ;rellano07ond F;ll :ir&sG
3e0edet Variab'e
1.3I/222. 1.3I.1991 1.3I21J/2 1.3II.J2 1.3II2.22 1.332J11.
F9.92GXXX F9.9.GXXX F9.93GXXX F9.92GXXX F9.92GXXX F9.J1GXXX
1.3233112 1.3221392 1.31I9/1/ 1.31/.33I 1.31I19.2 1.12.99.1
F3./.GXXX F3.21GXXX F3.I.GXXX F3./1GXXX F3.I.GXXX F1.33G
01.1J9/32I 01.1JIJ.1J 01.1J/I29I 01.1J1J12J 01.I3391I2
F1./2G F1./3G F1./IG F1./1G F2.3JGXX
1.11112J1 1.11112.. 1.1111319 1.11119
F1.31G F1.3IG F1.3JG F1..1G
1.111.2IJ 1.111./22 01.1112211
F1./1G F1.I.G F1.23G
01.1232219 1.132II23
F1.3IG F2.12GXX
1.2J19.32
F1../GX
01.1111212
F1.12G
1.111219
F1.J9GX
01.22/.291
F3.12GXXX
01.123I322 01.1121232 01.121.3J. 01.121I/3J 01.12121I9 01.112J93J
F9.I2GXXX F2..IGXXX F9.12GXXX F9.1/GXXX FJ..9GXXX FJ.23GXXX
-ar(an test o o%er0identiyin(
restrictions
1.11.9 1.112 1.1193 1.121/ 1.1233 1.122I
;rellano07ond test that a%era(e
autoco%ariance in residuals o order 1
is 1
1.1111 1.1111 1.1111 1.1111 1.1111 1.1111
;rellano07ond test that a%era(e
autoco%ariance in residuals o order 2
is 1
1.11.I 1.12.2 1.12.9 1.12/3 1.12J/ 1.1.J/
N /322 /3/. /3/. /3/9 /3/9 /3/9
Constant
Absolute value of t statistics in parentheses. All specifications include time dummies. *significant at 10%; **significant at 5%;
***significant at 1%. Last three rows list p-values for rejection of null hypothesis in each of the three tests.
:ID"-X"#port
:ID"-X,esidents
:ID"-XDe%elop&ent
:ID"-XCapital -hare
"#port F"#portsU$roductionG
De%elop&ent F'anu V;U$I7G
,esidents F$ercent !wnership o
,esidentsG
Producti"ity
*a((ed $roducti%ity
:ID"-
Capital -hare FrLUw*crLG
)able 34 :i#ed "ects with ;,F1G disturbances F*ar(e :ir&sG
3e0edet Variab'e
1.I/1/ 1.II/2 1.1I.2 1.1I1. 1.1/2 01.2912
F1./JG F1./IG F1./1G F1.I9G F1.1.G F1.J/G
01.132J 01.1/11 01.1I22 01.11I2 01.I.J2
F1.JJG F1.9JG F1.9/G F1.2JG F1.19G
1.111J 1.111J 1.1119 1.111J
F3.2IGXXX F3.2/GXXX F3...GXXX F2..9GXXX
1.1112 1.1111 01.11I1
F1.13G F1.1IG F1./2G
01.1222 01.2222
FI.JJGXXX F1.19G
1.3I99
F1..9G
01.111J
F1.2IG
1.11/
F2.12GXX
01.I22
F1.92G
01.I/JJ 01./3/ 01.9133 01..122 01..22/ 01.91/2
F1.23G F1.22G F1.JJG F1.91G F1.91G F1.J3G
6 2129 2129 2129 2129 2129 2129
,2 1.1919 1.1922 1.19.. 1.1.1/ 1.113. 1.11./
Constant
Absolute value of t statistics in parentheses. All specifications include time dummies. *significant at 10%; **significant at
5%; ***significant at 1%
:ID"-X"#port
:ID"-X,esidents
:ID"-XDe%elop&ent
:ID"-XCapital -hare
"#port F"#portsU$roductionG
De%elop&ent F'anu V;U$I7G
,esidents F$ercent !wnership o
,esidentsG
C-a$e i Producti"ity
:ID"-
Capital -hare FrLUw*crLG
Table 4: Arellano-Bond, Large Firms
3e0edet Variab'e
1.292J931 1.29299.1 1.29JJ32 1.29.1/J2 1.2.J122I 1.2.1/1/2
F/.J9GXXX F/.J9GXXX F/..2GXXX F/../GXXX F2.1IGXXX F2.1/GXXX
1.22..J9 1.23IJ31I 1.1J231.I 1.1J923I3 1.1J/I212 1.2212J92
F1.I9G F1./1G F1.13G F1.1IG F1.13G F1../G
01.1I.11IJ 01.12/11.2 01.121129/ 01.12.1J1. 01.//J3//2
F1../G F1.1/G F1.13G F1.9IG F2.1/GXX
1.111/I31 1.111/I91 1.11121I2 1.1119129
F3.32GXXX F3.32GXXX FI.12GXXX F2.3.GXX
1.111122 1.1119.// 1.1112311
F1.12G F1.13G F1.2.G
01.1222/2 01.2I21212
F3.I3GXXX F1.3/G
1.I19I92I
F1..9GXX
01.11113I
F1.2IG
01.1113II2
F1.21G
01.II2J91J
F1.2JGX
1.11/2913 1.11221/1 01.1/3I2J1 01.1.1J229 01.1J9J12I 01.1JJ.J2
F1.1.G F1.1JG F1.29G F3.92GXXX F3.33GXXX F3.22GXXX
-ar(an test o o%er0identiyin(
restrictions
1.1223 1.1/92 1.129. 1.12JJ 1.192/ 1.1J1.
;rellano07ond test that a%era(e
autoco%ariance in residuals o
order 1 is 1
1.1111 1.1111 1.1111 1.1111 1.1111 1.1111
;rellano07ond test that a%era(e
autoco%ariance in residuals o
order 2 is 1
1.219 1.21I. 1.2 1.1JJ9 1.1II9 1.1212
N 2193 2193 2193 2193 2193 2193
Constant
Absolute value of t statistics in parentheses. All specifications include time dummies. *significant at 10%; **significant at
5%; ***significant at 1%. Last three rows list p-values for rejection of null hypothesis in each of the three tests.
:ID"-X"#port
:ID"-X,esidents
:ID"-XDe%elop&ent
:ID"-XCapital -hare
"#port F"#portsU$roductionG
De%elop&ent F'anu V;U$I7G
,esidents F$ercent !wnership o
,esidentsG
Producti"ity
*a((ed $roducti%ity
:ID"-
Capital -hare FrLUw*crLG
Table *: <einso>n and Petrin productiity, Fi"ed !ffects 4pecification
3e0edet Variab'e
0.4347 0.4361 0.3947 0.3869 0.3626 0.1532
(2.52)** (2.54)** (2.24)** (2.19)** (2.05)** (0.68)
0.0238 0.0252 0.0232 0.0243 -0.1264
(0.20) (0.21) (0.19) (0.20) (0.45)
0.0001 0.0001 0.0001 0.0007
(1.05) (1.05) (1.07) (2.05)**
0.0012 0.0012 -0.0024
(1.63) (1.62) (1.40)
-0.0919 0.1537
(1.71)* (1.69)*
0.139
(0.59)
-0.0004
(1.72)*
0.0034
(2.33)**
-0.6009
(3.32)***
-5.5104 -8.0843 -7.7791 -8.2375 -8.1668 -10.2563
(1.08) (1.26) (1.27) (1.33) (1.28) (1.34)
6 5684 5678 5678 5677 5677 5677
,2 1.1J23 1.1JJ3 1.1JJ2 1.1J93 1.1J. 1.19I1
Constant
Absolute value of t statistics in parentheses. All specifications include time dummies.
*significant at 10%; **significant at 5%; ***significant at 1%
:ID"-X"#port
:ID"-X,esidents
:ID"-XDe%elop&ent
:ID"-XCapital -hare
"#port
F"#portsU$roductionG
De%elop&ent F'anu
V;U$I7G
,esidents F$ercent
!wnership o ,esidentsG
C-a$e i Producti"ity
:ID"-
Capital -hare FrLUw*crLG
Table =: <einso>n and Petrin productiity, %rellano01ond 4pecification
3e0edet Variab'e
0.3334 0.3386 0.3369 0.336 0.3353 0.3252
(8.48)*** (8.59)*** (8.55)*** (8.55)*** (8.54)*** (8.37)***
0.2937 0.2955 0.2876 0.2886 0.2872 0.1521
(3.37)*** (3.38)*** (3.30)*** (3.31)*** (3.30)*** (1.23)
-0.003025 -0.001877 -0.001814 0.0017444 -0.161235
(0.03) (0.02) (0.02) (0.01) (0.86)
0.000106 0.0001067 0.0001085 0.0001115
(1.09) (1.10) (1.12) (0.58)
0.0005535 0.0005418 -0.001064
(0.89) (0.87) (1.05)
-0.125673 0.1508573
(1.35) (2.39)**
0.1669408
(1.21)
1.066E-05
(0.09)
0.001596
(1.81)
-0.64819
(3.25)***
-0.094156 -0.078467 -0.074866 -0.090918 -0.089681 -0.085959
(6.79)*** (2.08)** (1.99)** (6.34)*** (6.26)*** (5.91)***
6 5374 5367 5367 5366 5366 5366
-ar(an test o o%eridentiyin(
restrictions
1.132 1.1I1 1.1II 1.1II 1.1I2 1.1/1
;rellano07ond test that
a%era(e autoco%ariance in
residuals o order 1 is 1
1.111 1.111 1.111 1.111 1.111 1.111
;rellano07ond test that
a%era(e autoco%ariance in
residuals o order 2 is 1
1.19I 1.11/ 1.113 1.119 1.112 1.1.2
Absolute value of t statistics in parentheses. All specifications include time dummies. *significant at
10%; **significant at 5%; ***significant at 1%. Last three rows list p-values for rejection of null
:ID"-X,esidents
:ID"-X"#port
Constant
,esidents F$ercent
!wnership o ,esidentsG
"#port F"#portsU$roductionG
:ID"-XCapital -hare
:ID"-XDe%elop&ent
Producti"ity
:ID"-
Capital -hare FrLUw*crLG
De%elop&ent F'anu
V;U$I7G
*a((ed $roducti%ity
Table 7: C:oting Dit> FeetC 4pecification, Fi"ed !ffects
3e0edet Variab'e
0.5298 0.5218 0.4762 0.4828 0.4544 0.1916
(2.75)*** (2.71)*** (2.42)** (2.46)** (2.31)** -0.78
-0.5111 -0.4807 -0.479 -0.489 -0.4833 -0.4396
-1.59 -1.5 -1.49 -1.52 -1.51 -1.37
-0.0159 -0.0144 -0.0132 -0.0122 -0.2311
-0.13 -0.12 -0.11 -0.1 -0.81
0.0001 0.0001 0.0001 0.0007
-1.14 -1.13 -1.15 (1.97)**
0.0015 0.0015 -0.0024
(2.03)** (2.02)** -1.42
-0.0994 0.1437
(1.83)* -1.57
0.2019
-0.84
-0.0004
-1.62
0.0037
(2.53)**
-0.5956
(3.25)***
-4.3538 -6.2092 -6.0041 -0.4257 -0.3988 -0.1632
-0.77 -0.95 -0.96 -0.98 -0.91 -0.36
6 5675 5669 5669 5668 5668 5668
,2 0.0751 0.0757 0.076 0.0769 0.0777 0.083
Absolute value of t statistics in parentheses. All specifications include time dummies.
*significant at 10%; **significant at 5%; ***significant at 1%
:ID"-X,esidents
:ID"-X"#port
Constant
,esidents F$ercent
!wnership o ,esidentsG
"#port
F"#portsU$roductionG
:ID"-XCapital -hare
:ID"-XDe%elop&ent
C-a$e i Producti"ity
:ID"-
Capital -hare FrLUw*crLG
De%elop&ent F'anu
V;U$I7G
:ID"- In%est&ent in
nei(hborin( states
Table 8: C:oting Dit> FeetC 4pecification, %rellano01ond
3e0edet Variab'e
0.3442 0.348 0.3453 0.344 0.3437 0.3363
(8.80)*** (8.87)*** (8.81)*** (8.80)*** (8.80)*** (8.70)***
0.3152 0.318 0.307839 0.3083 0.3063 0.168
(3.50)*** (3.52)*** (3.41)*** (3.42)*** (3.40)*** (1.32)
-0.164926 -0.168299 -0.150619 -0.163088 -0.169047 -0.091899
(0.86) (0.88) (0.79) (0.85) (0.88) (0.48)
-0.180127 -0.176336 -0.177154 -0.173434 -0.435452
(1.58) (1.54) (1.55) (1.52) (2.38)**
0.000123 0.000126 0.000127 0.000179
(1.27) (1.30) (1.32) (0.90)
0.000979 0.000967 -0.000623
(1.53) (1.52) (0.59)
-0.124212 0.134533
(1.35) (2.11)**
0.272587
(1.96)*
-2.1E-05
(0.17)
0.001587
(1.73)*
-0.621865
(3.14)***
-0.1017 -0.1039 -0.1012 -0.1001 -0.0981 -0.1048
(3.48)*** (3.55)*** (3.49)*** (3.45)*** (3.38)*** (3.65)***
6 5366 5359 5359 5358 5358 5358
-ar(an test o o%er0identiyin(
restrictions
1.111 1.112 1.119 1.121 1.123 1.121
;rellano07ond test that
a%era(e autoco%ariance in
residuals o order 1 is 1
1.111 1.111 1.111 1.111 1.111 1.111
;rellano07ond test that
a%era(e autoco%ariance in
residuals o order 2 is 1
1.111 1.131 1.132 1.12J 1.131 1.1..
:ID"- In%est&ent in
nei(hborin( states
Absolute value of t statistics in parentheses. All specifications include time dummies. *significant at
10%; **significant at 5%; ***significant at 1%. Last three rows list p-values for rejection of null
hypothesis in each of the three tests.
:ID"-XDe%elop&ent
:ID"-X,esidents
:ID"-X"#port
Constant
De%elop&ent F'anu V;U$I7G
,esidents F$ercent !wnership
o ,esidentsG
"#port F"#portsU$roductionG
:ID"-XCapital -hare
Producti"ity
*a((ed $roducti%ity
:ID"-
Capital -hare FrLUw*crLG
Figure &: Public #apital and /on0Oil 'DP, &9*,0,&
60000
70000
80000
90000
100000
110000
120000
130000
140000
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000
(ear
#apital 4toc8 in &987 1s6 per Wor8er
35000
40000
45000
50000
55000
60000
65000
70000
75000
80000
/on0Oil 'DP in &987 1s6 Per Dor8er
Public Non-Oil Capital Stock per Worker
Non-Oil per Worker GDP
Source: Own Estimates based on BCV (2000), BCV(Various Years), Baptista (2002) and Ministerio de Energa y Minas (Various Years)
Figure .: Eistorical and 4i$ulated per Wor8er 'DP, 4cenario of /o Decline in
Infrastructure
Inest$ent
0
10000
20000
30000
40000
50000
60000
70000
80000
90000
1957
1959
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
(ear
&987 1s6 per Dor8er
Historical
Simulated (No decline in Public Capital)
1
CHAPTER 2:
The &nci,ence of @abor .arket Reform on Employment in the Venezuelan .anufacturin$
8ector
%0021+;;%
'mar Aello /B4
A,riana AermC,ez /BB4
Abtract
&n thi paper *e pro(i,e e(i,ence on the inci,ence of labor re$ulation on employment in the Venezuelan
manufacturin$ ector! >e ue a panel ,ata et of manufacturin$ firm procee, by Pine,a an, Ro,rD$uez
/+;;94 for
the %0021+;;% perio,! Durin$ the econ, emeter of %007 important chan$e in labor re$ulation took place
*hich fully
impacte, in %003! >e tu,ie, the effect of uch chan$e on employment in that ector! #ollo*in$ )ruber
/%0074E *e
a(era$e, the (ariable in our ,ata et for t*o perio,: %0021%007E an, %0031+;;%! >e performe, that
proce,ure for
both a balance, panel an, an unbalance, panel of firm! =in$ thoe a(era$e *e etimate re$reion in
,ifference
for blue collar *orkerE for *hite collar *orkerE an, for all *orker! &n or,er to a(oi, en,o$eneity problemE
*e ue,
,ifferent labor re$ulation cot in,ice calculate, by AermC,ez /+;;94! 'ur reult in,icate, that the cot of
labor
re$ulation ha, a ne$ati(e effect on the $eneration of employment!
<ey 5ordsH 8abor de!andO ;a%es, Co!+ensation and 8abor CostsO e0erance @ayO 8abor 8a5
I:8 Classi.icationH I23O I3O I,'O <31
GGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGG
GGGGGGG
(D) :C8AC, 9ni0ersidad Cat#lica AndrEs /ello. o!ar.belloLce+al.or% (DD) @ri0ate Consultant. ber!udezadrianaLya)oo.co!.
;e are
%rate.ul to &uiller!o Cruces, $icardo Hauss!an, Ioyce Iacobsen, $a!on @ineda, 3rancisco $odr%uez, and +artici+ants o. t)e
M?enezuelan
:cono!ic &ro5t) 1970>200'N second con.erence )eld in A+ril 200, at t)e Center .or 6nternational 7e0elo+!ent, Har0ard
9ni0ersity .or
)el+.ul co!!ents.
%1 &ntro,uction
7urin% t)e last 30 years ?enezuela )as e*+erienced disa++ointin% labor !ar2et results. ()e real
2
a0era%e 5a%e )as declined s)ar+ly .ro! /s. 3,"99 in 19A0 to /s. A,' in 2003. (!easured in 1997
+rices)1.
10er ti!e !ini!u! 5a%es )a0e beco!e !ore bindin% as t)e di..erence bet5een t)e a0era%e
5a%e and
!edian 5a%e )as di!inis)ed 5it) res+ect to t)e !ini!u! 5a%e. Alar%er +ortion o. ?enezuelan
5or2ers
are t)us earnin% 5a%es at or belo5 t)e le0el o. !ini!u! 5a%es2. 7es+ite t)e dro+ in real 5a%es,
t)ere
)as been an increasin% trend in une!+loy!ent since 19A0. Anot)er si%n o. t)e deterioration o.
t)e labor
!ar2et is t)e s)ar+ decrease in t)e .or!ality rate since 19933.
()ere are so!e indications t)at t)e ?enezuelan re%ulatory en0iron!ent Jand +articularly labor
re%ulations> could be an i!+ortant .actor e*+lainin% t)e ad0erse outco!es in t)e labor !ar2et.
tudies
suc) as M[r-uez and @a%Es (199A), /otero et al. (2003), Hec2!an and @a%Es (2000 and 2003),
and ;orld
/an2 (2007) )a0e created indices t)at ca+ture t)e cost o. labor re%ulations in cross>country
co!+arisons
usin% one or t5o obser0ations +er country. 6n all o. t)ese studies ?enezuela is .ound to )a0e one
o. t)e
!ost burdenso!e and e*+ensi0e labor re%ulations 5)en co!+ared to ot)er countries in 8atin
A!erican
and t)e rest o. t)e 5orld.
An i!+ortant .eature o. ?enezuelaBs labor !ar2et is t)at t)ere )a0e been se0eral c)an%es in
re%ulations in t)e last t)irty years". ()e case o. ?enezuela s)ould be interestin% to labor
econo!ists
5orld5ide becauseH 1) t)e structural labor re.or!s in ?enezuela )a0e not been studied
e!+iricallyO 2)
so!e o. t)ose c)an%es )a0e not been a++lied to all sectors or .ir!s at t)e sa!e ti!e, and 3) so!e
o. t)e
re%ulations )a0e been c)an%ed !ore .re-uently t)an in ot)er countries'. 3or e*a!+le 5)ile in
t)e 9 t)e
.ederal !ini!u! 5a%e )as not been !odi.ied since 1997, in ?enezuela it )as been !odi.ied at
least
annually since t)at year
M[r-uez et al. (199') and 1rlando (2000) )a0e docu!ented t)e e..ects o. so!e o. t)ose
re%ulations in ?enezuela in ter!s o. t)e i!+act on labor cost at a sin%le +oint in ti!e. ()ose
aut)ors
s)o5 t)at due to t)ose inter0entions in t)e labor !ar2et t)ere is a di..erence bet5een 5a%e and
!ar%inal
cost o. labor. Mar-uez et al. (199') calculated t)at in 199", t)e yearly cost o. a 5or2er earnin%
t)e
1 =o!inal 5a%es de.lated usin% consu!erBs +rice inde* base 1997.
2 :0idence o. t)is )as been .ound by 3rei4e (2003), 6A7/ (1999) and <ristensen and Cunnin%)a!! (200,).
3 ?enezuela is t)e country t)at e*+erienced t)e .astest %ro5t) in t)e in.or!ality rate in 8AC durin% t)e +eriod 1990>
2001
accordin% to t)e 681.
" ?enezuelaBs labor !ar2et re%ulations )a0e a lon% tradition. ()e .irst ?enezuelan 8abor 8a5 (193,) %a0e t)e
%o0ern!ent t)e
!andate to i!+le!ent a !ini!u! 5a%e. ()is occurred earlier t)an in t)e 9nited tates 5)ere t)e !ini!u! 5a%e
le%al
.ra!e5or2, t)e 3air 8abor tandards Act, 5as a++ro0ed in 193A.
' 8ora and @a%Es (199,), 8ora (2001) re+orted t)at t)ere 5ere 0ery .e5 labor re.or!s in 8atin A!erican countries
bet5een t)e
!id ei%)ties and 1999 >includin% ?enezuela > but /er!]dez (200,) re+orted i!+ortant and drastic structural c)an%es
in
?enezuelan labor re%ulations, es+ecially bet5een 1990 and 199", in addition to t)e !ore co!!only 2no5n labor
re.or! o.
1997.
3
!ini!u! 5a%e 5as 11A +ercent %reater t)an t)e annual 5a%e 5)ile .or a 5or2er earnin% ten
!ini!u!
5a%es t)at .i%ure 5as ", +ercent )i%)er t)an t)e 5a%e. 1rlando (2000), usin% t)e 1997 labor
re%ulatory
le%al .ra!e5or2, esti!ated t)at .or a 5or2er 5it) .i0e year o. tenure t)e yearly labor cost 5as 73
+er
cent )i%)er t)an t)e annual 5a%es.
/er!]dez (200,) describes, -uanti.ies, and analyzes in detail t)e c)an%es o. labor la5s and
re%ulations .or t)e +eriod 197'>200'. ()ose re%ulations include se0eral !ini!u! 5a%e c)an%esO
+ayroll
ta*es suc) asH 6=C:, social security, une!+loy!ent insurance, and national )ousin% +olicy
contributionsO
di..erent bonuses suc) asH 0acation bonus, c)ild>care bonus, +artici+ation in t)e .ir!Bs +ro.it
bonus,
inde*ed bonus and se0eral non>inde*ed bonusesO and so!e direct dis!issal costs suc) asH
ad0ance notice,
seniority +ay!ents, and se0erance +ay!ents. 6n addition, t)ere )a0e been se0eral +eriods durin%
5)ic)
dis!issals )a0e been banned .or lo5 5a%e 5or2ers. )e .ound t)at all t)ese labor re%ulations in
?enezuela )a0e !ade t)e +rocess o. )irin% and .irin% 5or2ers .or lar%e .ir!s costlier and !ore
di..icult
t)en .or s!aller .ir!s. =otice t)at t)ose c)an%es in re%ulations constitute 0ariations to labor
costs t)at are
e*o%enous to .ir!s. u!!arizin%, s)e .ound t5o stylized .acts re%ardin% ?enezuelaBs labor
!ar2etH it is
)ea0ily re%ulated, and t)e !andated labor cost i!+lied by t)ose re%ulations )as increased o0er
ti!e.
6n t)is +a+er, 5e esti!ate t)e i!+act o. c)an%es in so!e o. t)e ?enezuelaBs labor !ar2ets
re%ulations on !anu.acturin% sector e!+loy!ent durin% t)e 199'>2001 +eriod. +eci.ically in
1997 a
re.or! o. t)e 1r%anic 8abor 8a5, too2 +lace 5)ic) c)an%ed seniority and se0erance +ay!ents,
and t)e
conce+t o. 5a%e used in t)e calculation o. t)ose costs. Additionally, so!e !andated bonuses
be%an to be
considered as 5a%es and t)us to .i%ure in t)e calculation o. se0eral +ay!ents and +ayroll ta*es.
3urt)er!ore durin% t)is +eriod, in 1999, a ne5 inde*ed .ood bonus 5as establis)ed 5)ic)
re+resents
about "'C o. t)e !ini!u! 5a%e cost .or .ir!s 5it) !ore t)an '0 5or2ers. All o. t)ese c)an%es
si%ni.icantly increased t)e labor costs associated 5it) )irin% +er!anent 5or2ers, and +articularly
.or t)ose
5it) lo5 le0els o. s2ills. ;e use a +anel data set .ro! t)e ?enezuelan Manu.acturin% ector
ur0ey
(?M) +rocessed by @ineda and $odr%uez7 (200') .or t)e 199'>2001 +eriodA.
3ollo5in% &ruber (1997) 5e a0era%ed t)e 0ariables on our data set .or t5o +eriodsH 199'>1997,
and 199A>2001. ;e +er.or!ed t)at +rocedure .or bot) a balanced +anel and an unbalanced +anel
o.
, ()e 1r%anic 8abor 8a5 a++ro0ed in 1997 is still in e..ect.
7 ()is +anel data set .ro! t)e ?enezuelan 6ndustrial ur0ey is a0ailable at )tt+HUU.rrdri%uez.5eb.5esleyan.edu
A ()e uni0erse o. t)is sur0ey is .ir!s in t)e !anu.acturin% sector 5it) !ore t)an .i0e 5or2ers. =otice t)at under t)e
de.inition
used by ?enezuelaBs =ational tatistics 6nstitute t)e in.or!al sector consists o. all 5or2ers 5)o )a0e a 4ob in .ir!s
5it) less
t)an .i0e e!+loyees, or 5)o are Msel.>e!+loyedN non>+ro.essional (or inde+endent) 5or2ers. ()ere.ore, t)is sur0ey
only
co0ers !anu.acturin% .ir!s in t)e .or!al sector.
"
.ir!s. 9sin% t)ose a0era%es 5e esti!ated re%ressions in di..erences .or blue collar 5or2ers,
5)ite collar
5or2ers, and all 5or2ers usin% .ir! e!+loy!ent as a de+endent 0ariable and a0era%e 5a%es and
ot)er
controls as inde+endent 0ariables. 6n order to a0oid an endo%eneity +roble! in our esti!ations,
5e used
di..erent labor re%ulation cost inde*es calculated by /er!]dez (200,), 5)ic) are inde+endent o.
e!+loyersB c)oices.
()e rest o. t)e +a+er is or%anized as .ollo5s. 6n t)e ne*t section, 5e e*+lain t)e !ost i!+ortant
as+ects o. ?enezuelaBs labor !ar2et re%ulations. ;e e!+)asize t)e c)an%es t)at too2 +lace in
!ini!u!
5a%es, seniority and se0erance +ay!ents, and t)e inclusion o. !andated bonuses in +lace at t)at
ti!e
5it)in t)e conce+t o. 5a%es, startin% in 1997. ()e t)ird +art s)o5s so!e .acts on ?enezuelaBs
!anu.acturin% sector. 6n t)e .ourt) section 5e +resent our esti!ations. 6n t)e last +art, 5e
co!!ent on
our results and !a2e so!e .inal considerations.
+1 @abor market reform in Venezuela ,urin$ the perio, %0021+;;%0
()e !ain structure o. t)e labor re%ulation in ?enezuela is establis)ed in t)e 1r%anic 8abor 8a5
and its rulin% statutes, but t)ere )a0e been nu!erous ot)er re%ulations suc) as decrees, statutes,
and
u+re!e Court rulin%s t)at )a0e a..ected labor costs t)rou%)out ti!e. ()e !ost i!+ortant
ele!ents o.
labor costs a..ected t)rou%) labor re%ulations durin% t)e +eriod 199'>2001 5ereH !ini!u!
5a%es,
!andated bonuses and 4ob security costs.
+!% .inimum *a$e an, non1in,exe, man,ate, bonue
6n ?enezuela 5a%e settin% t)rou%) decrees 5as rarely used bet5een 197" and 19A', but since
19A' it )as been used annually. 6n .act, in e0ery year bet5een 199'>2001, 5it) t)e e*ce+tion o.
199', t)e
!ini!u! 5a%e 5as increased by a %o0ern!ent decree (see table 2.1). ()e !ini!u! 5a%e )as
been set at
di..erent le0els .or di..erent 2ind o. 5or2ers (a++rentice, concier%es, 0s. t)e rest), and )as also it
)as been
set di..erently .or di..erent 2inds o. sectors (urban 0s. rural sectors). ince 2000, it also )as been
di..erentiated by .ir! size so t)at .ir!s t)at e!+loy 1>20 5or2ers +ay a !ini!u! 5a%e t)at is
lo5er t)an
t)e one set .or .ir!s t)at e!+loy 21 or !ore 5or2ers.
9 ()is section is based on /er!udez (200,) 5)o describes in detail t)e +rinci+al labor !ar2et re.or!s .ro! 197' to
200'.
'
Table +!%
Beginning
Date Urban 20- Urban 21+ Rural 20- Rural 20+ Apprentice Domestic Concierge Urban Rural No. Date
04/30/94 15,000.00 15,000.00 12,500.00 12,500.00 15,000.00 0 0 35,441 04/15/94
02/28/96 22,020.00 22,020.00 20,010.00 20,010.00 0 0 35,900 02/13/96
06/20/97 75,000.00 75,000.00 68,000.00 68,000.00 0 0 36,232 06/20/97
05/01/98 100,000.00 100,000.00 90,000.00 90,000.00 75,000.00 75,000.00 0 0 36,399 02/19/98
05/01/99 120,000.00 120,000.00 108,000.00 108,000.00 90,000.00 90,000.00 0 0 36,690 04/29/99
05/01/00 132,000.00 144,000.00 129,600.00 129,600.00 108,000.00 144,000.00 15%-10% 0 36,985 07/03/00
05/01/01 145,200.00 158,400.00 142,560.00 142,560.00 118,800.00 158,400.00 0 0 37,239 07/13/01
VENEUE!AN "#N#"U" $A%E& AND %ENERA!#ED $A%E& #NCREA&E& 1''(-2001
Decrees o) %eneral #ncrease o)
Decrees o) "ont*l+ "inimum $age ,Boli-ars per mont*. $ages %a/ette
()e labor statutes )a0e re%ulated not only !ini!u! 5a%es but also t)e conce+t o. 5a%e. ()is
.act
is e*tre!ely i!+ortant since it de.ines t)e a!ount to be used to calculate ot)er labor costs suc)
as
seniority and se0erance +ay!ents. 1ne o. t)e !ost i!+ortant structural c)an%es in t)e re.or! o.
t)e
1r%anic 8abor 8a5 carried out durin% 1997 co!es .ro! t)e c)an%es in t)is de.inition. ince
Iune o. 1997
.ir!s )a0e )ad to include ot)er bonuses (includin% %o0ern!ent !andated or !utually arran%ed
bonuses
but not t)e c)ild care bonus) 5it)in t)e conce+t o. 5a%e, t)ere.ore drastically i!+actin% ot)er
non>5a%e
labor costs.
3i%ure 2.1 s)o5s t)e real !ini!u! 5a%e (usin% t)e !anu.acturin% +rice inde*) .or .ir!s 5it) 1>
20 5or2ers and .or .ir!s 5it) 21 or !ore 5or2ers, as 5ell as t)e !ini!u! !andated !ont)ly
+ay!ent
+er .ir! size once 5e add t)e !andated non>inde*ed bonuses to t)e !ini!u! 5a%es .or t)ose
5or2ers
earnin% !ini!u! 5a%es. :0en t)ou%) t)e c)an%e in t)e !ont)ly +ay!ents bet5een 199, and
199A 5as
not 0ery e*tre!e t)at 5as not t)e case .or t)e 4u!+ in real !ini!u! 5a%es durin% t)e sa!e
+eriod %i0en
t)e .act t)at t)e %o0ern!ent !andated bonuses be%an to .or! an inte%ral +art o. t)e !ini!u!
5a%e10.
#i$ure +!%
10 ()e !a%nitude o. t)e total annual !andated non>inde*ed bonuses as a +ro+ortion o. %ross annual !ini!u! 5a%es
be%an to
increase s)ar+ly a.ter 199". ()ose bonuses re+resented on a0era%e 97.2"C, 1A0."9C and "0.29C o. %ross annual
!ini!u!
5a%es .or years 199', 199, and 1997 res+ecti0ely.
,
250
350
450
550
650
750
850
950
1,050
1993 1994 1995 1996 1997 1998 1999 2000 2001
1-4 5-9 10-20 21-+ Min W 1-20 Min W 21-+
9ont>ly <abor Pay$ents :s6 9ini$u$ Wage per fir$ si;e
Real Bolivars per month (MP Base 1997)
9ont>ly Pay$ents+ $ini$u$
Dages F non0inde"ed bonuses
6n order to co!+le!ent 5a%e re0enues 5it) ot)er ty+es o. inco!e ?enezuelan %o0ern!ents
intensi0ely used t)e +olicy o. !andated bonuses suc) as trans+ortation bonuses or .ood bonuses
+er
5or2day, es+ecially durin% +eriods .ollo5in% acute !acroecono!ic crises. ()e idea be)ind t)is
+olicy
desi%n 5as to raise labor co!+ensation 5it)out )a0in% any i!+act on se0erance +ay!ents,
seniority
+re!iu!s, on any ot)er +ayroll ta*es or costs directly related to t)e 5a%es (suc) as 0acation
bonuses,
5or2ersB +artici+ation in .ir!Bs +ro.it, etc). ince 70.,C o. t)e total !ont)ly inco!e 5as
+re0iously
e*cluded .ro! t)e 5a%e used to calculate ot)er non>5a%e labor costs, 5e 5ould e*+ect a
si%ni.icant e..ect
on e!+loy!ent .or 5or2ers earnin% t)e !ini!u! 5a%e or a 5a%e close to t)e !ini!u!..
(o )a0e an idea o. t)e +otential i!+act o. t)is c)an%e in re%ulation, it is i!+ortant to note t)at
4ust
be.ore t)e re.or! a 5or2er +ercei0in% a !ini!u! !ont)ly urban 5a%e o. /s. 22,020, s)ould
)a0e also
been +ercei0in% .ro! t)e !andated bonuses an additional !ont)ly inco!e o. /s. '2,9A0 (t)at is
/s.
2A,,00 by 7ecree 12"0, /s. 11,000 by 7ecree ,17 and /s. 13,3A0 by 7ecree 1A2")11, and t)us
t)e total
!ont)ly inco!e +ercei0ed by t)is 5or2er s)ould )a0e been /s. 7',000 o. 5)ic) only 22,020
s)ould )a0e
been used to calculate t)e rest o. t)e labor cost.12
11 7ecree ,17 establis)ed a bonus +er 5or2day due to t)e loss o. t)e 5or2erBs +urc)ase +o5er. 7ecree 12"0
establis)ed a
bonus to co0er trans+ortation and .ood e*+enses +er 5or2day, and 7ecree 1A2" establis)ed a ne5 bonus to
co!+le!ent t)e
ot)er t5o bonuses and t)e !ont)ly 5a%e so t)at t)e !ini!u! !ont)ly total 5or2erBs inco!e 5ould )a0e been /s.
7',000.
()e ;orld /an2 (199A) re+orted t)at about "7., o. all 5or2ers in t)e .or!al sector (2A.7C o. all 5or2ers in t)e
econo!y)
recei0ed t)e trans+ortation and .ood bonuses, so al!ost t)e sa!e +ercenta%e o. +eo+le s)ould )a0e been recei0in%
t)e inco!e
co!+ensatin% bonus.
12 ;)en t)e 1r%anic 8abor 8a5 entered into e..ect t)ose bonuses be%an to be +art o. t)e !ini!u! 5a%e, so t)at t)e
ne5
!ini!u! 5a%e 5as establis)ed at /s. 7',000. 7es+ite t)e .act t)at t)e 1997 1r%anic 8abor 8a5 )ad a +ro0isional
rule
7
(5o ot)er i!+ortant c)an%es 5ere introduced 5it) t)e ne5 1997 8abor 8a5 related to t)e 5a%e
conce+tH 3irst, it establis)ed an e*+licit li!itation to t)e +ercenta%e o. !ont)ly earnin%s t)at
e!+loyers
could +ay to 5or2ers J.or e*a!+le t)rou%) !utually arran%ed bonuses> 5it)out a..ectin% t)e rest
o. labor
costs. 6t also establis)ed . econd, it !odi.ied t)e conce+t o. 5a%e to be used .or t)e s+eci.ic
calculation
o. se0erance and ad0anced notice +ay!ents in t)e case o. dis!issal .or un4usti.ied reasons13.
#i$ure +!+
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
1.00
1.10
1.20
1.30
1.40
1994-
1995-
1995-
1996-
1996-
1997-
1997-
1998-
1998-
1999-
1999-
2000-
2000-
2001-
2001-
W#0$ean W#0$edian 1#0$ean 1#0$edian %ll0$ean %ll0$edian
9ini$u$ Wage relatie to t>e 9ean and 9edian Wage
for Priate e$ployees age &*0=*
9ini$u$ Dage for a fir$ si;e &0., in t>e urban sector
W#+ W>ite collar Dor8er
1#+ 1lue collar Dor8er
()e !ini!u! 5a%e )as )ad an increasin% i!+ortance in ?enezuelaBs 5a%e distribution.
Co!+ared to ot)er 8atin A!erican countries ?enezuelaBs !ini!u! 5a%e is closer to its a0era%e
and
!edian 5a%es and is t)us a bindin% constraint .or !ore e!+loyees.1". 3i%ure 2.2 s)o5s t)e
be)a0ior o.
t)e ratio o. !ini!u! 5a%e to t)e !edian and !ean 5a%e .or 5)ite collar and blue collar
e!+loyees 5)o
5ere .ull ti!e 5or2ers in t)e +ri0ate sector ("0 )ours or !ore +er 5ee2) as re+orted in t)e
=ational
establis)in% t)at until a special Law 5as +ublis)ed >concernin% t)e 5a%es to calculate +ayroll ta*es> t)e !ont)ly
5a%e o. /s.
1',000 5ould re+lace t)e +)rase M!ini!u! 5a%esN in all statutes t)at )ad de.ined any contribution, +ayroll ta* or
+enalty as a
.unction o. !ini!u! 5a%e, t)e 0ery ne*t day t)e labor la5 entered into e..ect a ne5 Mspecial lawN 5as +ublis)ed
settin% t)e
ne5 !ini!u! 5a%e at /s. 7',000. ()us in 4ust 3 days J .or t)ose earnin% !ini!u! 5a%es> t)e 5a%e used to
calculate t)e rest
o. labor cost 4u!+ed .ro! /s. 22,020 to /s. 7',000, a no!inal increase e-ui0alent to 2"0.'9C. 6n addition, on
0AU01U1997 a
la5suit 5as .illed at t)e u+re!e Court a%ainst t)e 8abor MinisterBs rulin% re%ardin% t)is Ms+ecial 8a5N but it 5as
not until
0'U2"U2000 t)at t)e Court ruled in .a0or o. t)e +lainti.., see /er!]dez (200,) .or !ore on t)is.
13 ;e 5ill e*+lain !ore on t)is later 5)en 5e re0ie5 t)e c)an%es in t)e 4ob security costs.
1" ee M[r-uez and @a%Es (199A), 6A7/ (1999), Hec2!an and @a%Es (2003), and <ristensen and Cunnin%)a!!
(200,).
/er!udez (200,) .ound t)at t)e !ini!u! 5a%e )as been !ore bindin% in t)e +ri0ate sector t)an in t)e +ublic
sector. 7urin%
199A t)e national urban !ini!u! 5a%e re+resented A9.3 +ercent o. t)e !edian 5a%e in t)e +ri0ate sector 5)ereas it
only
re+resented ,,.3C o. t)e !edian 5a%e in t)e +ublic sector.
A
House)old ur0eys. As 5e can see t)ere is a di..erent be)a0ior in t)ose ratios bet5een 199'>97
and 199A>
2001, as t)ere is a clear di..erence a.ter 1997 in t)e be)a0ior o. t)e ratios .or blue and 5)ite
collar
5or2ers.
/et5een 1997 and 2001 !ini!u! 5a%es in ?enezuela )a0e been increased annually, co!!only
usin% t)e +re0ious yearBs consu!er +rice inde*. Ho5e0er, durin% t)e sa!e +eriod t)e a0era%e
!anu.acturer +rice inde* )as been lo5er t)an t)e a0era%e consu!er +rice inde*. ()us .or t)e
!anu.acturin% sector t)e relati0e increase in real !ini!u! 5a%es )as been !ore +ronounced
t)an .or
ot)er sectors in t)e econo!y. 3urt)er!ore, so!e sectors 5it)in t)e !anu.acturin% industry )a0e
e*+erienced )ea0y co!+etition .ro! i!+orted %oods Jsuc) as t)e s)oes, a++arel and te*tile
industries%i0en
t)e real a++reciation o. t)e /oli0ar.
/indin% 5a%e .loors can )a0e a si%ni.icant in.luence on 5a%e distribution and t)e costs .aced by
e!+loyers. ()ere is a broad consensus1' t)at e!+loy!ent is li2ely to be reduced i. !ini!u!
5a%es are
set Mtoo )i%)N. Hi%) 5a%e .loors could create si%ni.icant e!+loy!ent barriers in +articular .or
lo5+roducti0ity
5or2ers, 5it) youn% +eo+le bein% !ore 0ulnerable. @ayroll ta*es and social contributions
+aid by t)e e!+loyer cannot be +assed on to !ini!u! 5a%e 5or2ers by lo5erin% t)eir
re!uneration 5it)
bindin% Jand en.orced> 5a%e .loors. Ho5e0er e!+loyers !i%)t be able to s)i.t ta*es +aid .or
!ini!u!
5a%e 5or2ers to )i%)er>earnin% 5or2ers by lo5erin% t)eir 5a%es. (o t)e e*tent t)at !ini!u!
5a%es
could cause labor costs and 5or2er +roducti0ity to beco!e !isali%ned, t)en t)ey 5ill +robably
result in
lo5er e!+loy!ent .or t)e %rou+s 5)ic) initially 5ere su++osed to be bene.ited by t)e !easure.
6!!er0oll (2007) s)o5s t)at in order to alle0iate t)e costs o. e!+loyin% lo5>+roducti0ity
5or2ers, a nu!ber o. countries )a0e i!+le!ented !easures to restrain non>5a%e labor costs
s+eci.ically
.or 5or2ers 5)ose 5a%es are at or close to t)e le%al !ini!u!. ()is )as not been t)e case .or
?enezuela,
5)ere total ta*es and contributions +aid .or !ini!u! 5a%e 5or2ers )a0e been increasin%
s)ar+ly,
+articularly a.ter 1990.
9sin% ?enezuelaBs House)old ur0ey, 3rei4e (2003) .ound e0idence t)at 5or2ers 5)ose initial
salary 5as belo5 t)e !ini!u! 5a%e 5ere !ore li2ely to beco!e une!+loyed or transition out
o. t)e
labor .orce t)an 5or2ers 5)ose initial 5a%e 5as abo0e t)e !ini!u!, and t)at 5or2ers in t)at
sector
)ad a )i%)er +robability o. une!+loy!ent t)an ot)er 5or2ers. He also re+orted no e0idence o. a
!ar%inal e..ect o. actual !ini!u! 5a%e c)an%es u+on e!+loy!ent dyna!ics. ()at is, )e .ound
t)at
5or2ers in t)e botto! end o. t)e 5a%e distribution a++ear to )a0e !ore turno0er t)an ot)er
5or2ers, but
1' ee /ell (1997), Maloney and =u\ez (2003), Aran%o and @ac)#n (200"), ;orld /an2 (200,) .or so!e 8AC
countries cases,
and an e*tensi0e e!+irical re0ie5 by =eu!ar2 and ;asc)er (200,).
9
)e .ound no e0idence t)at !ini!u! 5a%e c)an%es increase t)e +robability o. e!+loy!ent
c)an%e a!on%
t)ese 5or2ers.1,
+!+ .an,ate, &n,exe, Aonue
?enezuela )as !aintained a 0ery co!+le* syste! o. !andated bonuses, 5)ic) )a0e not been
a++lied to all .ir!s in t)e sa!e !a%nitude or at t)e sa!e ti!e. /y t)eir nature t)e !andated
bonuses can
be classi.ied as non>inde*ed and auto!atically inde*ed bonuses, t)e last o. 5)ic) can )a0e
i!+ortant
i!+lications .or e!+loyerBs e*+ectations about labor costs in t)e .uture. ()e .irst ty+e includes
t)ose
bonuses t)at establis) a subsidy in ter!s o. a no!inal !easure, so t)at i. t)at decree 5as not
!odi.ied t)e
real cost o. t)ose bonuses 5ould be -uic2ly eroded by in.lation.. 17
()e second ty+e o. bonuses include t)ose t)at by desi%n are auto!atically ad4usted eac) ti!e a
ne5 !andatory !ini!u! 5a%e is set, or eac) ti!e t)at a ne5 tributary unit1A ((9) is reset at t)e
be%innin% o. eac) year, based on t)e +re0ious yearBs in.lation. :*a!+les o. suc) bonuses are t)e
+er>c)ild
daycare bonus Jinde*ed usin% !ini!u! 5a%es> establis)ed in 1992, and t)e 5or2erBs inde*ed
.ood
bonus >usin% (9> establis)ed in e+te!ber 9A, and enterin% into e..ect at t)e be%innin% o. 1999.
()e 199A decree19 created t)e obli%ation 4ust .or .ir!s 5it) '1 or !ore e!+loyees and t)e
5or2ers
5)o 5ere bene.ited by t)is ne5 +ro%ra! 5ere t)ose 5)o earned u+ to 2 !ini!u! 5a%es, losin%
t)e
bene.it 5)en t)ey earned 3 !ini!u! 5a%es. ()is ne5 re%ulation s)ould )a0e a..ected a )i%)
+ro+ortion
o. 5or2ers since in t)e second se!ester o. 199A a++ro*i!ately ,0C o. 5or2ers in t)e .or!al
sector
+ercei0ed 5a%es at or belo5 2 !ini!u! 5a%es.
()e decree clearly establis)ed t)at t)e bonus s)ould not be included .or t)e calculation o.
1, ()e literature analyzin% t)e e..ects o. !ini!u! 5a%es is 0ery e*tensi0e. =eu!ar2 and ;asc)er (200,) did an
e*tensi0e
re0ie5 o. t)e literature .or t)e 9 econo!y as 5ell as ot)er countries (includin% de0elo+in% countries) since t)e
early 1990s.
()ey .ound t)at nearly t5o>t)irds o. 102 studies %a0e a relati0ely consistent indication o. ne%ati0e e!+loy!ent
e..ects o.
!ini!u! 5a%es, 5)ereas only ei%)t %a0e a relati0ely consistent indication o. +ositi0e e!+loy!ent e..ects. 3ro!
t)e 33
studies t)at t)ey 0ie5ed as +ro0idin% t)e !ost credible e0idenceO 2A (A' +ercent) o. t)e! .ound ne%ati0e
e!+loy!ent e..ects.
3urt)er!ore, 5)en researc)ers .ocused on t)e least>s2illed %rou+s !ost li2ely to be ad0ersely a..ected by !ini!u!
5a%es,
t)ey .ound t)at t)e e0idence .or dise!+loy!ent e..ects see!ed es+ecially stron%. ()ere.ore, !ini!u! 5a%es !ay
)ar! t)e
least s2illed 5or2ers !ore t)an is su%%ested by t)e net dise!+loy!ent e..ects esti!ated in !any studies.
17 o!e e*a!+les o. t)ese ty+es o. bonuses 5ere t)e 7ecrees ,17, 12"0 and 1A2" 5)ic) in 1997 5ere inte%rated
into t)e
!ini!u! 5a%e.
1AA tributary unit is a !easure!ent t)at 5as created in 199" by t)e (a* Code in order to auto!atically ad4ust t)e
inco!e
brac2ets used to establis) t)e !ar%inal ta* rate, and conse-uently t)e +ersonal and business inco!e ta*. Also, it is
used in
al!ost all current decrees to set +enalties .or 0iolations o. di..erent la5s. ()is is a !ec)anis! to ad4ust eac) decree
auto!atically to in.lation so t)at t)e +enalties do not lose t)eir 0alue (or incenti0e) +o5er to en.orce t)e la5. 6t is
ad4usted
al!ost auto!atically at t)e be%innin% o. eac) year usin% t)e +re0ious year in.lation.
19 ()e decree 5as +ublis)ed on 09U1"U199A but it entered into e..ect in Ianuary 1999.
10
se0erance +ay!ents, +ayroll, etc., and allo5ed !any .or!s o. co!+liance 5it) t)e re%ulation .or
all .ir!s
sub4ected to it. ()e e!+loyer could c)oose bet5een settin% u+ )is o5n restaurant, contractin% t)e
ser0ice
.ro! a t)ird +arty, or +ro0idin% cou+ons (e*clusi0ely .or +ay!ents o. .ood at restaurants and
.ood
!ar2ets), but t)e +ro0ision o. cas) directly to t)e 5or2er 5as not allo5ed. ()e cou+on 5as set at
a
!ini!u! 0alue o. 0.2' (9 U5or2day and a !a*i!u! 0alue o. 0.'0 (9 U5or2day. ()us it
o+ened a
5indo5 o. o++ortunity .or .ir!s to use t)is bonus as an inco!e co!+ensation !ec)anis!
5it)out direct
i!+lications on ot)er labor costs >rat)er t)an t)rou%) 5a%es increases> %i0en t)at t)e use o. t)is
bonus by
t)e e!+loyer (e0en i. t)ey )ad .e5er e!+loyees or i. 5or2ers 5ere earnin% )i%)er le0els o.
5a%es) 5as
not +ro)ibited. 3or e*a!+le, an e!+loyer could )a0e +aid a 5or2er an a!ount o. " !ini!u!
5a%es as
nor!al 5a%es (5it) total i!+act on ot)er labor costs) and at t)e sa!e ti!e could )a0e +aid )i!
additionally an a!ount e-ui0alent to t)e u++er>li!it o. t)e bonus. 3or .ir!s 5it) '1 5or2ers or
!ore t)e
lo5er>li!it o. t)e rule i!+lied t)at on a0era%e t)e .ood bonus re+resented a++ro*i!ately "'C o.
t)e
!ini!u! 5a%e, 5)ile t)e u++er>li!it i!+lied a++ro*i!ately a 90C o. t)e !ini!u! 5a%e.
6n ?enezuela ot)er inde*ed bonuses 5ere in +laced durin% t)e +eriod 199'>2001 . Ho5e0er, t)e
structural c)an%e in t)e de.inition o. 5a%es and t)e ne5 !ini!u! 5a%e si%ni.icantly increased
t)e cost o.
labor as t)ese bonuses 5ere calculated as a .unction o. 5a%es, es+ecially .or 5or2ers earnin%
!ini!u!
5a%es, or 5a%es near !ini!u! 5a%es. 1ne o. t)ese bonuses 5as t)e c)ild care bonus. ()is
re%ulation
establis)ed a c)ild care bonus +er c)ild J bet5een birt) and .i0e years o. a%e> 5)ose +arents
earned a
!ont)ly 5a%e t)at 5as e-ual or in.erior to t)e e-ui0alent o. ' ti!es t)e national !ini!u!
5a%es, i. and
only i. t)ey 5or2ed at a co!+any t)at )ired !ore t)an 20 5or2ers. ()e bonus +er c)ild 5ould be
t)e
e-ui0alent o. 3AC o. t)e !ini!u! 5a%e. 6nstead o. +ayin% t)e c)ild care bonus t)e a..ected
.ir!s )ad t)e
o+tion o. establis)in%, .inancin% and !aintainin% a c)ildrenBs day>care center 5ere t)e c)ildren
bene.ited
5ould be ta2en care o...
()e ot)er t5o bonuses t)at 5ere a..ected by t)e de.inition o. 5a%es Jan in +articular !ini!u!
5a%es> 5ere t)e 0acation bonus and t)e +artici+ation in .ir!Bs end o. t)e year +ro.it bonus. ()e
0acation
bonus oscillated bet5een 7 and 22 days e-ui0alent o. daily 5a%es de+endin% on t)e 5or2erBs
tenure. ()e
+artici+ation in t)e .ir!Bs +ro.it bonus .luctuated bet5een 1' and 120 days o. daily 5a%es
de+endin% on
t)e .ir!Bs size and t)e .raction o. t)e year t)at t)e e!+loyee actually 5or2ed at t)e .ir!20.
()ere.ore t)e drastic !odi.ication in !ini!u! 5a%es also increased t)ese !andated bonuses
t)at
5ere in +lace in 1997, increasin% t)e relati0e cost o. uns2illed 5or2ers, es+ecially !ini!u!
5a%e
20 3or !ore details on t)ese bonuses see /er!]dez (200,)
11
5or2ers. ()is distortion 5as a%%ra0ated 5it) t)e introduction o. t)e ne5 1999 inde*ed .ood
bonus. 1n
t)e ot)er )and, t)e introduction o. a ne5 inde*ed .ood bonus to%et)er 5it) t)e increase in t)e
c)ild care
bonus increased t)e labor cost di..erences bet5een di..erent sized .ir!s 5)ic) !i%)t )a0e
encoura%ed
e!+loyers to do5nsize Jor sto+ increasin% t)e +ayroll > e0en .urt)er a.ter 199A %i0en t)at it
increased t)e
labor cost o. !ini!u! 5a%e 5or2ers .or lar%er .ir!s relati0e to t)e labor cost o. t)e sa!e ty+e
o.
5or2ers in s!aller .ir!s.
+!3 Payroll taxe
6n ?enezuela t)e +ayroll ta*es are !ade u+ by contributions to 6=C:21, social security,
une!+loy!ent insurance, and t)e national )ousin% +ro%ra!. (able 2.2 s)o5s t)e !ain
deter!inants o.
t)e labor cost o. eac) o. t)ese +ro%ra!s. ()e ocial ecurity statute is t)e !ost i!+ortant in
ter!s o. t)e
+ayroll cost %i0en t)at it )as t)e )i%)est no!inal rate, 5)ic) in turn de+ends on t)e ris2 o.
e!+loy!ent in
t)e .ir!22. ()e ta* rate s)o5n in (able 2.2 .or social security is a contribution t)at is used to
.inance
social insurance .or labor related accidents, !aternity lea0e, !edical care, and retire!ent
+ensions, 5)ile
une!+loy!ent insurance is re%ulated in a se+arate nor!. ()e i!+ortant c)an%es !ade to +ayroll
ta*es
durin% t)e +eriod 199'>2001 )a0e to do 5it) t)e no!inal ta* rate o. t)e une!+loy!ent
insurance and t)e
!a*i!u! ta*able 5a%es. ()e interaction bet5een t)e no!inal ta* rate and t)e !a*i!u! ta*able
5a%e is
i!+ortant since t)at deter!ines t)e actual e..ecti0e ta* rate on labor .or t)ese conce+ts, .or
di..erent
le0els o. 5a%e.
A +ro0isional nor! establis)ed in t)e 8abor 8a5 re.or! o. 1997 re%ardin% t)e 5a%e to be used
.or t)e calculation o. +ayroll ta*es a..ected t)e !a*i!u! ta*able 5a%e, returnin% it to a s+eci.ic
!onetary
0alue instead o. a c)an%in% !onetary nor!23. ()e s+eci.ic !onetary 0alue 5as c)an%ed " ti!esH
to /s.
1',000 by t)e 97>8abor 8a5, to /s. 7',000 and /s. 90,000 by 2 Mspecial lawsN in 1997 and 1999
res+ecti0ely, and /s. 1',000 a%ain by a u+re!e (ribunal decision in 2000. ()ese c)an%es
created a
di0er%ence bet5een t)e e..ecti0e rate and t)e no!inal rate 5)ic) +ersisted until 7ec>2002, 5)en
t)e
1r%anic 8a5 o. t)e ocial ecurity yste! abolis)ed t)e +ro0isional rule o. t)e 1997 8abor
8a5. ()ese
c)an%es also a..ected t)e !a*i!u! ta*able 5a%e .or t)e national )ousin% +ro%ra! and t)e
21 =ational 6nstitute .or :ducati0e Coo+eration
22 ()e ris2 o. e!+loy!ent in t)e .ir! is establis)ed de+endin% on t)e de%ree to 5)ic) t)e .ir!Bs 5or2ers are
e*+osed to
dan%erous labor related accidents. ()us a c)e!ical .ir! 5ould be !ore ris2y t)an an a++arel .ir!.
23 ee .ootnote 12 abo0e .or an e*+lanation.
12
une!+loy!ent insurance syste!.
Table +!+
Fro$ !$ployee 9a"i$u$ ta"able
dd?$$?yy 9in6 ris8 9ediu$ ris8 9a"6 Ris8 )@- rate 9ont>ly Dage
07/01/93 9 10 11 4 5 minimum urban wages
06/21/97 9 10 11 4 5 * 75000 Bs
05/01/99 9 10 11 4 5 * 90000 Bs
04/28/00 9 10 11 4 5 * 15000 Bs
0.5% of annual none
01/08/70 2 2 2 participation of profits none
03/15/94 2 2 2 1 15 minimum wages
06/21/97 2 2 2 1 15 * 75000 Bs
11/05/98 2 2 2 1 none
07/01/93 1.70 1.70 1.70 0.50 5 minimum urban wages
06/21/97 1.70 1.70 1.70 0.50 5 * 75000 Bs
04/19/99 1.70 1.70 1.70 0.50 20 * 75000 Bs
05/01/99 1.70 1.70 1.70 0.50 20 * 90000 Bs
10/22/99 1.70 1.70 1.70 0.50 5 * 90000 Bs
04/28/00 1.70 1.70 1.70 0.50 5 * 15000 Bs
07/01/00 2.00 2.00 2.00 0.50 20 * 15000 Bs
Firms with 5 or more employees
I/#!
/ational Eousing Progra$
All employers
3ne$ploy$ent insurance
All employers
By TSJ decision on 04/27/2000
By TSJ decision on 04/27/2000
Payroll Ta" Policy
&99*0.,,&
!$ployer )@- rate
4ocial 4ecurity
All employers
()e be)a0ior o. t)e total +ayroll ta* to be +aid by e!+loyers .or 5or2ers earnin% !ini!u!
5a%es
in a !ediu! ris2 establis)!ent >by .ir! size> is +resented in 3i%ure 2.3. As can be seen, durin%
!ost o.
t)e +eriod 199'>2001 t)e total no!inal +ayroll ta* 5as relati0ely stable and e-ual to t)e total
e..ecti0e
rate, e*ce+t durin% 2000 and 2001 5)en t)e u+re!e (ribunal decided in .a0or o. t)e +lainti..,
and
re0erted to t)e M' ti!es /s. 1',000N rule (no!inal) 5)ic) 5as clearly lo5 co!+ared to t)e
e*istent
!ini!u! urban 5a%es durin% t)ose years > /s. 132,000 and /s. 1"',000 res+ecti0ely.
#i$ure <o! +!3
13
4
6
8
10
12
14
16
18
20
1993 1994 1995 1996 1997 1998 1999 2000 2001
Fir$s &07 nr Fir$s &07 er Fir$s *F nr Fir$s *F er
Total Payroll Ta" Rate per fir$ si;e
/o$inal :s6 !ffectie
T>e payroll ta" includes: 4ocial security,
I/#!, national >ousing progra$ and
une$ploy$ent insurance contributions
nr + no$inal rate
er+ effectie rate6 T>is is calculated for Dor8ers earning $ini$u$ Dage
+!- Fob ecurity cot: a,(ance employment ceation noticeE eniority an, in,emnity
payment
()e ot)er i!+ortant re.or! carried out t)rou%) t)e !odi.ication o. t)e 1r%anic 8abor 8a5 in
1997 )as to do 5it) 4ob security costs. ?enezuelan labor la5s include 3 di..erent e!+loyer costs
in order
to ter!inate a labor relations)i+H t)e ad0ance notice +eriod, t)e seniority .ee, and an inde!nity
.ee2". 6n
%eneral, t)e +arty 5antin% to end t)e labor relations)i+ )as to %i0e t)e ot)er +arty an ad0ance
notice
+eriod, 5)ic) de+ends on 5or2erBs tenure >and i. it is not %i0en> t)e +arty t)at ends t)e
relations)i+ )as to
+ay t)e ot)er +arty an a!ount e-ual to t)e .ore%one 5a%es durin% t)e ad0ance notice +eriod. ()e
ad0ance
notice )as been asy!!etrical bet5een 5or2ers and e!+loyers. 3i%ure 2." s)o5 t)e ad0ance
notice
+eriods as a .unction o. tenure t)atH 1) a 5or2er 5)o -uits .or un4usti.ied reasons2' )as to %i0e )is
e!+loyerO 2) an e!+loyer )as to %i0e t)e 5or2er in t)e case o. .irin% .or econo!ic, tec)nolo%ical
or
un4usti.ied reasons2,O and 3) an e!+loyer )as to %i0e to t)e 5or2er in t)e case t)e .irin% is .ound
by a
2" ()e 1990 and 1997 8a5s establis)ed t)at in t)e unGutifie, .irin% case t)e e!+loyer )ad to +ay additional
ad0anced notice
Jonly .or tenure le0els lo5er t)an ' years. /ot) la5s establis)ed an inde!nity to be +aid in t)e case o. an
un4usti.ied .irin%.
()us in order to a++ly t)e usual de.inition o. se0erance +ay!ent and to co!+are t)e 1990 and 1997 la5s 5e added
t)e
di..erence bet5een t)e e!+loyerBs ad0anced notice .or un4usti.ied .irin% and t)e nor!al e!+loyerBs ad0ance notice
to t)e
inde!nity +ay!ents establis)ed in t)e la5s to an Madditional inde!nity or traditional se0erance +ay!entN.
2' (o +ursue a better 4ob, .or e*a!+le. 6. t)e 5or2er -uits .or 4usti.ied reasons J .or e*a!+le se*ual )arass!ent> t)e
5or2er can
lea0e i!!ediately and t)e e!+loyer 5ould )a0e to +ay t)e ad0anced notice and inde!nity .or t)e case o. an
un4usti.ied
dis!issal.
2, ()e 8abor 8a5 in ?enezuela )as not included econo!ic and tec)nolo%ical reasons 5it)in t)e list o. 4usti.iable
reasons to
dis!iss a 5or2er, so it is at t)e CourtBs discretion to -uali.y t)e .irin%.
1"
#i$ure <o! +!- #i$ure <o! +!2
0
1
2
3
4
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
No. of years at firm
No. of months
9,?97 e$ployer &997 3D &99, 3D 9,?97 Dor8er
Total nu$ber of $ont>s for adance notice depending on
Dor8erGs tenure under t>e &99, and &997 Organic <abor <aDs
A0-ance notice t*at a 1uitting 2or3er *as to gi-e to *is emplo+er.
4*e number is t*e same )or t*e 1''0 an0 1''5 !abor !a2s
A0-ance notice t*at an emplo+er *as to gi-e to *is 0ismisse0 2or3er.
4*e number is t*e same )or t*e 1''0 an0 1''5 !abor la2s
A0-ance notice t*at an emplo+er *as to pa+
to *is 0ismisse0 2or3er i) t*e courts )oun0
t*at to be an un6usti)ie0 0ismissal ,UD.7 or to
a-oi0 t*e courts.
0
5
10
15
20
25
30
35
40
45
50
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
No. of years at firm
No. of months
&99, O<< &997 O<<
Total accu$ulated nu$ber of $ont>s for seniority pay$ents
depending on Dor8erGs tenure
8artial 0eposits -using t*e 2age earne0 at t*e
time o) t*e 0eposit- are ma0e on a mont*l+ basis
into an account earning interest . No
recalculation at t*e separation time.
8artial 0eposits -using t*e 2age earne0 at t*e time
o) t*e 0eposit - are ma0e on a annual basis into an
account earning interest . Recalculation o) t*ose
0eposits at t*e separation time.
#i$ure <o! +!9 #i$ure <o! +!7
0
2
4
6
8
10
12
14
16
18
20
22
24
26
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
No. of years at firm
No. of months
&99, O<< &997 O<<
Total nu$ber of $ont>s for inde$nity pay$ents due to unHustified
dis$issal depending on Dor8erGs tenure
1''0 #t is e1ui-alent to anot*er seniorit+ pa+ment
0
4
8
12
16
20
24
28
32
36
40
44
48
52
56
60
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
No. of years at firm
No. of months
&99, Total &997 Total &997 W<W
Total nu$ber of $ont>s for adance notice, seniority and
inde$nity pay$ents due to an unHustified dis$issal
depending on Dor8erGs tenure
$!$9 8a+ments
using last 2age
1'
Court to be un4usti.iable, or 4ust +aid by t)e e!+loyer to a0oid %oin% to court27.
()e1997 8abor 8a5 si%ni.icantly increased t)e nu!ber o. !ont)s to be +aid .or total seniority,
5)ic) )as to be +aid no !atter t)e %rounds .or endin% t)e labor relations)i+. 3i%ure 2.' s)o5s
t)e total
nu!ber o. !ont)ly 5a%es t)at a 5or2er s)ould )a0e accu!ulated by t)e end o. t)e labor
relations)i+ >
de+endin% on tenure. ()e seniority +artial de+osits )a0e to be accu!ulated into an indi0idual
account
earnin% an interest rate t)at 5as re%ulated by t)e Central /an2. ;)ereas t)e 1990 la5
establis)ed t)at
+artial de+osits 5ere to be !ade on an annual basis, t)e 1997 8a5 establis)ed it on a !ont)ly
basis.
6. t)e dis!issal is un4usti.ied, or a Court -uali.ies it as un4usti.ied or i. t)e e!+loyer dis!isses a
5or2er and 5ants to a0oid a Court +rocedure t)e e!+loyer )as to +ay an inde!nity .ee. ()e
nu!ber o.
!ont)s to be +aid .or t)e conce+t o. Minde!nityN 5as 2e+t t)e sa!e u+ to ' years o. tenure, but
it
decreased s)ar+ly .or )i%)er le0el o. tenure under t)e 1997 8a5(see 3i%ure 2.,). 3i%ure 2.7
s)o5s t)e
total nu!ber o. !ont)s to be +aid under un4usti.ied dis!issal, and as 5e can see t)e 1997 la5
increased
t)e nu!ber o. !ont)s to be +aid co!+ared 5it) t)e +re0ious re%ulation in +lace. Ho5e0er, t)is
si!+le
co!+arati0e analysis is not co!+letely satis.actory because 5)ile t)e total 1990 a!ount )ad to
be +aid
usin% t)e last 5a%e earned by t)e 5or2er, under t)e 1997 8a5 only a +ortion o. it )ad to use t)e
last
5a%e.
9nder t)e 1990 8abor 8a5 t)e 5a%e used to calculate t)e total +ay!ents .or seniority and t)e
inde!nity 5as t)e 5a%e in +lace one !ont) +re0ious to t)e date in 5)ic) t)e labor relations)i+
ended. 6.
t)e e!+loyer )ad !ade t)e +artial annual de+osits at t)e ti!e o. se+aration )e )ad to recalculate
t)e
+rinci+al a%ain and +ay t)e di..erence. ()is rulin% !ade t)e cost associated 5it) t)e seniority
and
inde!nity +ay!ents 0ery 0olatile, un+redictable and uncontrollable .or t)e e!+loyer, es+ecially
in ti!es
o. )i%) in.lation, suc) as 199,. ()e !ain ob4ecti0e +ursued by t)e 8abor re.or! o. 1997 5as to
c)an%e
t)e ti!in% o. t)e 5a%e to be used in t)e calculations, reducin% t)e un+redictability o. t)ose
+ay!ents in
27 ;)en decidin% to dis!iss a 5or2er >de+endin% on t)e le%al actions ta2en by t)e e!+loyee and t)e courts
decisions> t)e
e!+loyer 2no5s e*>ante t)at )e could .ace t)e .ollo5in% " cases de+endin% on 5)at )e c)ooses to doH
a) @ay t)e 5or2er 4ust t)e nor!al ad0ance notice and t)e seniority +ay!ents, and t)e 5or2er does not sue t)e
e!+loyerO
b) @ay t)e 5or2er 4ust t)e nor!al ad0ance notice and t)e seniority +ay!ents, and t)e 5or2er sues t)e e!+loyer but
t)e courts
decide t)at it 5as a M4usti.ied reasonN in 5)ic) case t)e e!+loyer does not )a0e to +ay anyt)in% elseO
c) @ay t)e 5or2er 4ust t)e nor!al ad0ance notice and t)e seniority +ay!ents, and t)e 5or2er sues t)e e!+loyer but
t)e courts
decide t)at it 5as an Mun4usti.ied reasonN, in 5)ic) case t)e e!+loyer 5ould )a0e to +ay t)e .or%one 5a%es >.ro!
t)e .irin%
u+ to t)e court decision> and reinstate t)e 5or2er in )is 4ob, or +ay t)e .or%one 5a%es, t)e inde!nity .or un4usti.ied
.irin%
and t)e di..erence bet5een t)e ad0ance notice under un4usti.ied reason and t)e ad0anced notice t)at t)e e!+loyer
already
+aidO or
d) @ay t)e 5or2er t)e ad0ance notice under un4usti.ied reason, t)e seniority +ay!ents, and t)e inde!nity +ay!ent,
in 5)ic)
case t)e e!+loyer a0oids t)e court +rocedure and t)e +ossibility o. +ayin% .or%one 5a%es, no !atter t)e reason .or
dis!issin% t)e 5or2er.
1,
t)e .uture.
1n t)e ot)er )and, t)e ne5 labor la5 !odi.ied t)e conce+t o. 5a%es to be used in t)e calculation
o. eac) o. t)e ele!ents o. t)e 4ob security cost (see (able 2.3). ()us t)e si!+le co!+arison o.
!ont)ly
5a%es in 3i%ure 2.7 is !isleadin% because 5e also )a0e to ta2e into account t)e 5a%e used .or
t)e
calculations, t)e ti!in% o. t)at 5a%e, and t)e +eriodicity o. t)e de+osits, 5)ic) in turn a..ects
interest
+ay!ents (see (able 2.3). As 5e can see t)ere )a0e been so!e re%ulatory c)an%es in t)ese
as+ects as 5ell
t)at !a2e t)e direct co!+arison bet5een t)e di..erent 8a5s !ore di..icult. Additionally, t)e .act
t)at 4ob
security +ay!ents also ta2e into consideration t)e +artici+ation in t)e .ir!Bs +ro.its creates a
di..erence in
t)e 4ob security +ay!ents as re%ards di..erent .ir! sizes, e0en i. t)e !ont)ly 5a%es 5ere t)e
sa!e a!on%
t)e!.
Table +!3
& year 2 years * years &, years ., years
1991 1.00 1.00 2.00 3.00 3.00 Month before ending labor relationship Normal monthly wage
1997 1.00 1.00 2.00 3.00 3.00 Month before ending labor relationship
Normal monthly wage plus monthly
proportion of participation in firms profit
plus monthly proportion of vacation
bonus
1991 1.00 3.00 5.00 10.00 20.00
Annual partial deposits with the wage at the
time of the deposit, but at the dismissal
time recalculate those deposits using wage
of one month before ending labor
relationship. Do not recalculate interest.
yes Normal monthly wage plus monthly
proportion of participation in firms profit
1997 1.50 5.63 9.77 20.10 40.50
Monthly partial deposits with the wage at
the time of the deposit. No recalculation at
the end of the relationship.
yes Normal monthly wage plus monthly
proportion of participation in firms profit
1991 2.00 4.00 5.00 10.00 20.00 Month before ending labor relationship Normal monthly wage plus monthly
proportion of participation in firms profit
1997 1.50 4.00 5.00 5.00 5.00 Month before ending labor relationship
Normal monthly wage plus monthly
proportion of participation in firms profit
plus monthly proportion of vacation
bonus
1991 4.00 8.00 12.00 23.00 43.00 (*) ncludes the indemnity payment plus the diference between the employer's advance
1997 4.00 10.63 16.77 28.10 48.50 notice under unjustified dismissal minus the normal employer's advance notice
!$ployerGs adance notice )t>is is only for t>e firing case-
4eniority pay$ents )for bot> Auitting and firing-
%dditional Inde$nity pay$ents )only for t>e firing under unHustified reason case)I--
Total nu$ber of $ont>s for Job0security pay$ents for t>e firing under unHustified reason case
#ost of Job 4ecurity
(ear of a
regulatory
c>ange
Total nu$ber of $ont>ly Dages to pay
Wage used for t>e calculation Interest #oncept of Dage used for calculation
6n order to co!+are t)e 4ob security costs deri0ed .ro! eac) 8a5 our a++roac) is to calculate t)e
e-ui0alent !onetary 0alue o. eac) one .or di..erent tenure le0els usin% a s+eci.ic ti!e series o.
5a%es,
17
.ollo5in% /er!]dez (200,). ;e too2 t)e !ont)ly series o. !ini!u! 5a%e and t)e !andated
interest rate
.or seniority +ay!ents .or t)e +eriod 197'>200' and calculated 5)at 5ould )a0e been t)e 4ob>
security
cost J.or 2 cases, un4usti.ied -uittin% and un4usti.ied dis!issin%> i. eac) o. t)e re%ulations )ad
been 2e+t
durin% t)e 5)ole +eriod 197'>200'. ;e are able to calculate .or e*a!+le )o5 !uc) an e!+loyer
5ould
)a0e )ad to +ay a -uittin% 5or2er Jor a dis!issed one> durin% t)e 5)ole +eriod 197'>200' i. t)e
1990
8a5 (or t)e 1997 8a5) )ad been in +lace durin% t)e 5)ole +eriod, assu!in% t)at eac) !ont) t)e
5or2er
5as )ired on a +er!anent basis and t)en -uitted (or 5as .ired) ( years latter2A.
3i%ure A.1 in t)e a++endi* s)o5s t)e be)a0ior o. t)e 4ob security +ay!ents as a +ro+ortion o.
t)e
lat *a$e and t)e real 4ob security +ay!ents (.or ( _1, 3, ' and 10 years o. tenure29) .or bot)
casesH an
e!+loyee 5)o -uits and e!+loyee 5)o is dis!issed >bot) .or an un4usti.ied reason> .or a .ir!
5it) '1>
100 e!+loyees. 3i%ure A.1.a s)o5s t)at 5)ile under t)e 1990 8a5 an e!+loyer )ad to +ay t)e
e-ui0alent
o. 1.2' !ont)s usin% t)e lat *a$e to a -uittin% e!+loyee 5it) one year o. tenure in 199', under
t)e
1997>8a5 )e 5ould )a0e )ad to +ay t)e e-ui0alent o. 2 !ont)sB 5a%es. As 5e can see t)e 4ob
security
cost .or a -uittin% 5or2er on a0era%e increased drastically 5it) t)e 1997 8a5 co!+ared to t)e
1990 8a5,
but t)e co!+arison o. t)e 4ob security cost .or t)e case o. un4usti.ied dis!issal under bot) la5s
5ould
de+end on t)e year o. e0aluation and t)e 5or2erBs tenure. 1n a0era%e t)e 1997 la5 i!+lied t)at
t)e 4ob
security cost increased .or 5or2ers 5it) less t)an ' years o. tenure, 5)ereas .or a )i%)er le0el o.
tenure
t)e 1997 8a5 tended to decrease t)e 4ob security cost. 3or e*a!+le in 3i%ure A.1.% in t)e
a++endi* t)e
4ob security costs o. t)e 1997 8a5 s)i.ted do5n 5it) res+ect to t)e 1990 8a5.
o in %eneral, 5)en co!+ared t)e 1990 8a5 5it) t)e 1997 8a5 increased 4ob security costs .or
5or2ers 5it) u+ to ' years o. tenure, but reduced t)e! only +artially .or t)ose 5or2ers 5it)
tenure le0els
abo0e ' years. 3i%ure A.2 s)o5s t)e esti!ated 4ob security costs .or bot) cases Jun4usti.ied
dis!issin%
and -uittin%> .or a .ir! 5it) '1>100 e!+loyees but ta2in% t)e 0alid +eriod under 5)ic) eac) la5
5as
under e..ect. &i0en t)atH 1) t)e !edian tenure .or +ri0ate 5or2ers oscillated bet5een 1 and 2
years o.
tenure, 2) a++ro*i!ately "7C o. +ri0ate e!+loyees )ad tenure less t)an or e-ual to 1 year
bet5een 199"
and 199A (see (able A.1 in t)e a++endi*) and 3) t)at t)ere is a )i%) correlation bet5een t)e real
4ob
2A 3or e*a!+le, i. a +er!anent e!+loyee 5as )ired on 01U01U99, and on 12U1'U99 )e -uit and %a0e ad0ance notice to
t)e
e!+loyer 5or2in% e*actly u+ to 01U01U00 )e 5ould only recei0e seniority +ay!ents +lus t)e interest on t)e! on t)at
date. 6n
t)e case o. un4usti.ied .irin% 5e are assu!in% t)at on 01U01U00 t)e e!+loyer dis!issed t)e 5or2er and
si!ultaneously +aid )i!
t)e ad0ance notice .or un4usti.ied .irin%, t)e seniority +ay!ents and interests, and t)e inde!nity +ay!ent. 6n bot)
cases t)e
e!+loyee 5ould )a0e 5or2ed e*actly one year. ()e a!ounts +aid on 01U01U00 5ill be +resented in real ter!s, and
also
e*+ressed as a ratio o. t)e lat *a$e earned by t)e 5or2er on 12U01U99. ()is 5ould be t)e one year tenure case +aid
on
01U01U00O doin% t)is .or eac) !ont) o. 2000 and a0era%in% t)e! 5e %et t)e 0alue .or year 2000.
29 ;e )a0e assu!ed t)at 5or2erBs 5a%e is only a .unction o. t)e !ini!u! 5a%e and tenure. ee /er!]dez (200,)
1A
security costs .or di..erent le0els o. tenure Jsee 3i%ures A.2.a t)rou%) A.2.d in t)e a++endi*> 5e
5ill use
t)e one year tenure le0el 5or2er as t)e re+resentati0e 5or2er .or e!+irical +ur+oses.
As 5e ar%ued be.ore, +artici+ation in t)e .ir!Bs +ro.its increases 5it) .ir! size and t)ere.ore 4ob
security costs also increase 5it) .ir! size as a result o. t)e 5a%e conce+t used .or its calculation.
(see
(able 2.3 abo0e)30. ()us t)e lines in 3i%ures A.1 and A.2 in t)e a++endi* 5ill s)i.t u+ (or do5n)
as .ir!
size increases (or decreases). ;e esti!ated t)e 4ob security costs .or bot) cases Jun4usti.ied
dis!issal
and -uittin%> .or di..erent .ir! sizes. 3i%ure 2.A s)o5s t)e e*+ected 4ob security costs assu!in%
t)at bot)
cases )a0e e-ual +robability o. 0.'.
#i$ure <o! +!3
2.40
2.60
2.80
3.00
3.20
3.40
3.60
3.80
4.00
4.20
1993 1994 1995 1996 1997 1998 1999 2000 2001
&0 9 &,0&9 ., .&0.* .=0*, *&0&,, &,&F
!"pected Hob security pay$ents as a proportion of last Dage due to a
Dor8er Dit> & year of tenure by fir$ si;e
!"pected Hob security+ ,6*IAuitting pay$ents F ,6* dis$issing pay$ents
()e indicator o. 4ob security cost s)o5s t)at t)e increase in t)e e*+ected 4ob security costs due to
t)e 1997 8abor 8a5 re.or! 5as dra!atic. ()e re.or! !ade it !ore di..icult .or .ir!s in %eneral
to ad4ust
to labor de!and as t)is re.or! tended to increase 4ob security costs Jin +articular .or lo5 le0els
o. tenurebut
it )as s+ecially )indered labor de!and ad4ust!ents .or bi% .ir!s. /y a0oidin% 5or2er
!o0e!ents
.ro! less to !ore +roducti0e units, t)is !icroecono!ic in.le*ibility reduces a%%re%ate out+ut
and slo5s
do5n econo!ic %ro5t). Caballero et al. (200">a) !easured t)e !icroecono!ic .le*ibility .or t)e
!anu.acturin% sector by t)e s+eed at 5)ic) establis)!ents reduce t)e %a+ bet5een t)eir labor
30 9nions also can increase t)e a0era%e 5a%es .or bi% .ir!s relati0e to t)e a0era%e 5a%es o. s!aller .ir!s t)rou%)
collecti0e
a%ree!ents.
19
+roducti0ity and t)e !ar%inal cost o. suc) labor. ()e lon%er t)e +ersistency o. t)e %a+ t)rou%)
ti!e t)e
!ore in.le*ible t)e econo!y 5as at t)e !icroecono!ic le0el. ()ey .ound t)at ?enezuela 5as t)e
!ost
in.le*ible a!on% ' 8AC econo!ies, )a0in% sli%)tly o0er '3.9 +ercent o. ad4ust!ent 5it)in a
year31. ()ey
also .ound t)at, 5it) t)e e*ce+tion o. ?enezuela, in t)e econo!ies analyzed, lar%e establis)!ents
(abo0e
t)e 7't) +ercentile o. 5or2ers) 5ere substantially !ore .le*ible t)an s!all establis)!ents (belo5
t)e
!edian nu!ber o. 5or2ers)32. Caballero et al. (200">b) .ound t)at labor !ar2et re%ulations33,
and
+articularly 4ob>security re%ulations, are a!on% t)e institutional .actors t)at reduce
!icroecono!ic
.le*ibility by increasin% ad4ust!ent costs. Iob security re%ulations increase t)e costs o.
dis!issals 5)en
.ir!s e*+erience ne%ati0e s)oc2s and, as a conse-uence, t)ese re%ulations reduce t)e rate o.
.irin%s durin%
t)ose +eriods. Ho5e0er, durin% %ood ti!es %i0en t)e di..iculties o. ad4ustin% labor de!and t)e
o+ti!al
e!+loy!ent res+onse to a +ositi0e s)oc2 is also bein% reduced, t)us t)e o0erall e..ect is a
reduction in t)e
s+eed o. ad4ust!ent to s)oc2s.
+!2 Huantifyin$ the effect of labor reform on minimum man,ate, labor cot
As 5e discussed +re0iously, in ?enezuela !ini!u! 5a%es are bindin% and +ri0ate 5or2ers )a0e
been c)aracterized by )a0in% lo5 tenure le0els %i0en t)at durin% t)e +eriod 199'>199A t)e
!edian tenure
oscillated bet5een 1 and 2 years. ()us 5e 5ill use t)e urban3" 5or2er 5it) 1 year o. tenure as a
re+resentati0e 5or2er .or t)e !anu.acturin% sector, assu!in% also t)at t)is 5or2er earns a
!ini!u!
5a%e. ()e indicator o. e*+ected !ini!u! !andated labor cost ta2es into account all as+ects o.
t)e labor
costs t)at 5e )a0e discussed u+ to t)e +resent. 3ro! t)e analysis o. t)e labor re%ulations 5e
.ound t)at
t)e statutes )a0e created di..erent costs .or di..erent .ir! sizes, and )a0e also di..erentiated t)e
cost o.
31 ()e aut)ors .ound t)at e0en t)ou%) C)ile, Colo!bia and /razil 5ere !ore in.le*ible t)an t)e 9 t)ese countries
e*)ibited a
relati0ely )i%) de%ree o. !icroecono!ic .le*ibility 5it) 72.", 72.2 and 70.1 +ercent res+ecti0ely o. labor ad4ust!ent
ta2in%
+lace 5it)in a year, co!+ared to t)e 90 +ercent .or t)e 9, 5)ereas Me*ico ran2ed lo5er 5it) about 'A.1 +ercent o.
ad4ust!ent 5it)in a year.
32 6n /razil, s!all establis)!ents closed about ,7 +ercent o. t)eir %a+ 5it)in a year, 5)ile lar%e establis)!ents
closed about
A0.A +ercentO in Colo!bia, ,7.' and 79, res+ecti0elyO in C)ile ,A.' and 7A.3O in Me*ico ',.1 and ,0.7O 5)ereas in
?enezuela
t)e indicator 5as '2.9 +ercent .or bot) sizes.
33 9sin% a sa!+le o. ,0 countries .or t)e +eriod 19A0>199A t)ey too2 t)e indices o. labor re%ulation created by
/otero et al.
(2003) and Hec2!an and @a%Es (2000) to%et)er 5it) di..erent +ro*ies .or la5>en.orce!ent, and t)rou%) a dyna!ic
labor
de!and s+eci.ication esti!ated t)e e..ects o. 4ob security re%ulations. ()ey consistently .ound a relati0ely lo5er
s+eed o.
e!+loy!ent ad4ust!ent in countries 5it) e*tensi0e le%al +rotection a%ainst dis!issal, +articularly 5)en 4ob
+rotection 5as
li2ely to be en.orced. 6n countries 5it) a stron% rule o. la5 t)ey .ound t)at !o0in% .ro! t)e 20t) to t)e A0t)
+ercentile o. 4ob
security reduced t)e s+eed o. ad4ust!ent to s)oc2s by 3' +ercent and di!inis)ed annual +roducti0ity %ro5t) by 0.A,
+ercent.
3" ()e urban !ini!u! 5a%e is t)e rele0ant 5a%e to be a++lied in t)e !anu.acturin% sector. ;e assu!e t)at t)is
e!+loyee
5or2 only durin% t)e day s)i.t 5it)out o0erti!e.
20
e!+loyees de+endin% on t)e nu!ber o. c)ildren 0>' years old t)at eac) 5or2er )as. ()ere.ore,
ta2in% into
account all o. t)ese di..erences, 5e %enerated t)e !onetary indicator o. labor re%ulations in
?enezuela.
()e total annual cost o. a 5or2er 5it) one year o. tenure 5ill be calculated asH
Total Annual Expected cost = 7ross annual minimum wages D man,ate, non+in,e$e, 8onuses D payroll
ta$es D
participation in firmEs profit 8onus D )acation lea)e D )acation 8onus D 4=F total un#ustifie, ,ismissal
cost D 4=F
*uitting cost an, ,epen,ing on firm size Gchil, care 8onus D in,e$e, foo, 8onusH
3i%ure 2.9 s)o5s t)e ti!e series o. t)e real e*+ected cost +er one year o. ser0ice o. an e!+loyee
earnin% !ini!u! 5a%e, de+endin% on .ir! size and t)e nu!ber o. c)ildren under ' years old
t)at t)e
e!+loyee )as. ()e real 0alues are +resented usin% t)e a0era%e !anu.acturin% +rice inde* (base
1997),
)o5e0er .or econo!etric +ur+oses t)ose 0alues 5ill 0ary .or di..erent sub>sectors 5it)in t)e
!anu.acturin% industry as 5ell as by usin% eac) sub>sector +rice inde*.
As 5e can see t)ere is a clear structural c)an%e in t)e total e*+ected annual cost o. a !ini!u!
5a%e 5or2er in 1997 .or all .ir! sizes. 7urin% t)e +eriod 199A>2001 t)e total real cost o. a
!ini!u!
5a%e 5or2er increased drastically 5)en co!+ared 5it) t)e a!ounts +aid durin% t)e +eriod
1993>199,,
es+ecially .or .ir!s 5it) !ore t)an 21 e!+loyees.
:0en i. 5e assu!e .or no5 t)at none o. t)e 5or2ers )a0e c)ildren 0>' years old, t)e di..erences
in t)e cost structure bet5een di..erent .ir! sizes is so dra!atic t)at it is +ossible t)at t)ese
di..erences are
encoura%in% .ir! do5nsizin%, t)e e*itin% o. bi% .ir!s and t)e entry o. ne5 .ir!s at sub>o+ti!al
scales, or
at scales o. +roduction t)at do not allo5 ?enezuelan .ir!s to co!+ete internationally and
nationally 5it)
.orei%n co!+etitors. 1n t)e ot)er )and, 5)en 5e co!+are t)e annual cost o. )irin% a 5or2er
5it)
c)ildren 0>' years old it is clear t)at t)e cost to t)e e!+loyer is +ro+ortional to t)e 5or2erBs
.a!ily load,
so it is 0ery +ossible t)at t)e c)ild care bonus +olicy in creatin% anot)er distortion by 5)ic)
e!+loyers
5ill be discoura%ed to )ire 5or2ers in c)ildbearin% a%e, 5or2ers 5it) a bi% .a!ily load, or
5or2ers 5)o
+otentially can beco!e bene.iciaries o. t)is +olicy because t)ey earn under ' !ini!u! 5a%es.
21
#i$ure <o! +!0
/a4 /b4
2,500
7,500
12,500
17,500
22,500
27,500
32,500
37,500
42,500
1993 1994 1995 1996 1997 1998 1999 2000 2001
9ini$u$ Wage &07 *09 &,0&9 .,
Total %nnual <egal #ost :s6 <egal 9ini$u$ Wage
1oliars per & year of Dor8 )Real 9PI 1ase &997-
Fir$s Dit> &0., Dor8ers: For t>is fir$Gs si;e it
does not $atter >oD $any c>ildren under *
years eac> Dor8er >as
2,500
7,500
12,500
17,500
22,500
27,500
32,500
37,500
42,500
1993 1994 1995 1996 1997 1998 1999 2000 2001
9ini$u$ Wage /o c>ild & #>ild . #>ildren 2 #>ildren
Total %nnual <egal #ost :s6 <egal 9ini$u$ Wage
1oliars per & year of Dor8 )Real 9PI 1ase &997-
%erage for Fir$s Dit> .&0*, Dor8ers
Industry III
/c4 /,4
2,500
7,500
12,500
17,500
22,500
27,500
32,500
37,500
42,500
1993 1994 1995 1996 1997 1998 1999 2000 2001
9ini$u$ Wage /o c>ild & #>ild . #>ildren 2 #>ildren
Total %nnual <egal #ost :s6 <egal 9ini$u$ Wage
1oliars per & year of Dor8 )Real 9PI 1ase &997-
Fir$s Dit> *&0&,, Dor8ers
Industry II
2,500
7,500
12,500
17,500
22,500
27,500
32,500
37,500
42,500
1993 1994 1995 1996 1997 1998 1999 2000 2001
9ini$u$ Wage /o c>ild & #>ild . #>ildren 2 #>ildren
Total %nnual <egal #ost :s6 <egal 9ini$u$ Wage
1oliars per & year of Dor8 )Real 9PI 1ase &997-
Fir$s Dit> &,& or $ore Dor8ers
Industry I
22
3! VenezuelaI manufacturin$ ector: ome fact!
6n t)e last 30 years, t)e ?enezuelan labor !ar2et )as been c)aracterized by a decrease in real
5a%es, an increase in une!+loy!ent, and a relati0e reduction o. t)e .or!al sector. Consistent
5it) t)e .all
in +er ca+ita &7@ and +roducti0ity re+orted by Haus!ann and $odr%uez (200,) and /ello and
$estuccia
(2002), t)e real a0era%e 5a%e )as been declinin% s)ar+ly since 19A0. 6n 2003 t)e real a0era%e
5a%e
!easured in 1997 +rices 5as /s. A,' 5)ereas in 19A0 t)e a0era%e real 5a%e 5as /s. 3,"993'.
()rou%)
ti!e !ini!u! 5a%es )a0e beco!e !ore o. a bindin% constraint since t)e %a+s bet5een t)e
a0era%e 5a%e
and t)e !edian 5a%e 5it) res+ect to t)e !ini!u! 5a%e le0el )a0e beco!e s!aller. A lar%er
+ortion o.
?enezuelan 5or2ers are t)us earnin% 5a%es at or belo5 !ini!u! 5a%es. 7es+ite t)e dro+ in real
5a%es
t)ere )as been an increasin% trend in une!+loy!ent since 19A0. Anot)er si%n o. t)e deterioration
in t)e
labor !ar2et is %i0en by t)e s)ar+ decrease in t)e .or!ality rate since 1993.
1utco!es o. t)e !anu.acturin% sector )a0e not been t)e e*ce+tion, as is s)o5n by t)e
?enezuelan
Manu.acturin% ector ur0ey (?M)3,. ()e obser0ational unit o. t)is sur0ey is t)e
establis)!ent in t)e
!anu.acturin% sector 5it) !ore t)an .i0e 5or2ers and t)us does not include t)e !anu.acturin%
.ir!s in
t)e in.or!al sector. :stablis)!ents are classi.ied in .our cate%ories de+endin% on t)e nu!ber o.
5or2ers
t)ey are )irin%, see (able 3.1. ()e ?M inter0ie5ed all establis)!ents t)at belon% to M6 strata
and 86
strata. 3or t)e re!ainin% %rou+s t)e ?M construct a re+resentati0e sa!+le.
Table 3!%
)R'=P <=.AER '# >'RJER8
&rou+ 6H 8ar%e 6ndustry (86) More t)an 100
&rou+ 66H Mediu! 6ndustry (M6) '1 to 100
&rou+ 666H !all 6ndustry (6) 21 to '0
&rou+ 6?H ?ery !all 6ndustry (?6) ' to 20
ourceH 6=:
()e a%%re%ate data o. t)e ?M s)o5s t)at bet5een 1991 and 2003 e!+loy!ent )as been
declinin% s)ar+ly(see 3i%ure 3.1). :!+loy!ent in t)e !anu.acturin% sector in 2003 5as 'A.1AC
o. +ea2
.or t)is +eriod. A reduction o. e!+loyees too2 +lace in eac) o. t)e di..erent cate%ories 5)en 5e
co!+are
t)e e*tre!e +oints o. t)e +eriod under analysis (see 3i%ure 3.2). 3or t)e 86 %rou+ !a*i!u!
e!+loy!ent
3' =o!inal 5a%es de.lated usin% consu!er +rice inde* base 1997.
3, ()e ?M is conducted by ?enezuelaBs =ational tatistics 6nstitute. /e.ore 197', .our ?M too2 +lace in t)e
.ollo5in%
datesH 19,1, 19,,, 1971 and 197". =ote t)at t)ere 5as no ?M in 19A0
23
5as attained in 19AA. 6n 2003 t)e nu!ber o. 5or2ers in t)is cate%ory re+resented '7.1AC o. t)is
+eriodBs
!a*i!u! e!+loy!ent. 3or t)e M6 %rou+ e!+loy!ent %re5 until 1979, and t)e 2003
e!+loy!ent
re+resented ,1."9C o. t)e 1979 le0el. 3or t)e 6 t)e !a*i!u! e!+loy!ent 5as ac)ie0ed in
1991, and by
2003 it re+resented only ''."2C o. t)at le0el. 6t is i!+ortant to note t)at t)e %rou+ t)at
e*+erienced an
abru+t increase in t)e e!+loy!ent le0el 5as t)e ?6 in t)e year 199,37, )o5e0er t)is %rou+ )as
also
e*+erienced a +ersistent decline in e!+loy!ent a.ter t)at year, so t)at e!+loy!ent durin% 2003
5as only
39.12C o. t)at ac)ie0ed durin% 199,.
#i$ure <o! 3!%
275000
300000
325000
350000
375000
400000
425000
450000
475000
500000
525000
550000
1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003
Total nu$ber of Dor8ers
4000
6000
8000
10000
12000
14000
16000
/o6 of establis>$ents
Total Dor8ers /o of establis>$ents
/u$ber of establis>$ents and total Dor8ers in t>e
9anufacturing Industry
3i%ures 3.1 and 3.2 also e*)ibit t)e e0olution in t)e nu!ber o. +lants by %rou+ .ro! 197' to
2003.
i!ilar to e!+loy!ent at t)e end o. t)e +eriod t)e nu!ber o. +lants 5as s!aller t)an at t)e
be%innin%.
()is is t)e rule .or eac) %rou+. 6n t)e case o. t)e 86, t)e nu!ber o. +lants %re5 until 1991, 5)en
it
re%istered its +eriod !a*i!u! (979). ()e 2003 nu!ber o. +lants o. t)is %rou+ 5as '7C o. t)e
!a*i!u! (,3.1"C .or t)e M6). =otice t)at t)e %rou+ t)at concentrated t)e !ost .ir!s is t)e
?6. 1n
a0era%e, durin% t)e 197'>2003 +eriod ,7.3,C o. t)e .ir!s belon%ed to t)at sector. Ho5e0er on
a0era%e
t)e ?6 +roduced ,.3C o. total !anu.acturin% +roduction. ()ere.ore, +roduction +er .ir! is 0ery
lo5 in
t)is sector. 1n t)e ot)er )and 86 accounts .or 79.7AC o. !anu.acturin% +roduction.
37 ()is be)a0ior !i%)t be e*+lained by t)e do5nsizin% and di0ision o. incu!bent .ir!s rat)er t)an ne5 entry in t)e
!anu.acturin% sector %i0en t)at t)e di..erentials in labor costs bet5een .ir! sizes be%an to %ro5 in 1991. 6t ta2es
ti!e .or .ir!s
to reduce e!+loy!ent le0els or to reor%anize.
2"
#i$ure <o! 3!+
/a4 /b4
150000
175000
200000
225000
250000
275000
300000
325000
350000
1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003
Total nu$ber of Dor8ers
500
600
700
800
900
1000
1100
1200
/o6 of establis>$ents
Total Dor8ers /o of establis>$ents
/u$ber of establis>$ents and total Dor8ers in
'roup I of t>e 9anufacturing Industry
Group : Firms with 101- + workers
20000
25000
30000
35000
40000
45000
50000
55000
60000
1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003
Total nu$ber of Dor8ers
350
400
450
500
550
600
650
700
750
800
850
900
950
/o6 of establis>$ents
Total Dor8ers /o of establis>$ents
/u$ber of establis>$ents and total Dor8ers in
'roup II of t>e 9anufacturing Industry
Group : Firms with 51-100 workers
/c4 /,4
30000
40000
50000
60000
70000
80000
90000
100000
1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003
Total nu$ber of Dor8ers
1000
1100
1200
1300
1400
1500
1600
1700
1800
1900
2000
2100
2200
/o6 of establis>$ents
Total Dor8ers /o of establis>$ents
/u$ber of establis>$ents and total Dor8ers in
'roup III of t>e 9anufacturing Industry
Group : Firms with 21-50 workers
20000
30000
40000
50000
60000
70000
80000
90000
100000
110000
120000
1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003
Total nu$ber of Dor8ers
3500
4000
4500
5000
5500
6000
6500
7000
7500
8000
8500
9000
9500
10000
10500
11000
/o6 of establis>$ents
Total Dor8ers /o of establis>$ents
/u$ber of establis>$ents and total Dor8ers in
'roup I: of t>e 9anufacturing Industry
Group V: Firms with 5-20 workers
2'
()e net e*it o. establis)!ents in t)e 86, M6 and 6 %rou+s )as not been co!+ensated .or by
%reater entry into t)e ?6, t)us resultin% in net 4ob destruction3A (see 3i%ure 3.1). ;)ereas in
1991 t)ere
5ere 10,'39 establis)!ents o+eratin% in t)e .or!al !anu.acturin% sector, %eneratin% "9A,712
4obs, in
2003 t)e nu!ber o. establis)!ents 5as ',970 and %enerated only 290,171 4obs. ()us ",',9
establis)!ents e*ited t)e !ar2et destroyin% 20A,'"1 4obs.
A +otential and +artial e*+lanation .or t)e entry>e*it be)a0ior o. .ir!s 5it)in di..erent %rou+
sizes
!i%)t lie in t)e distortions created by t)e dis+arities in t)e labor cost structures bet5een di..erent
%rou+s39. ()is could be illustrated by calculatin% t)e di..erences in t)e minimum1man,ate,
total labor
cot .or a year o. ser0ice o. a !ini!u! 5a%e 5or2er .or di..erent co!binations o. %rou+
sizes(see .i%ure
3.3). ()us, .or e*a!+le in 2001 a .ir! in t)e 86 (&rou+ 6) )ad to +ay 70C !ore .or a year o.
ser0ice o.
t)is ty+e o. 5or2er t)an a .ir! in t)e ?6 (&rou+ 6?). As 5e can see, t)e !ini!u! !andated
labor costs
di..erences bet5een %rou+ sizes beca!e !ore +ronounced a.ter 1990 and s2yroc2eted a.ter
199A.
#i$ure <o! 3!3
0
5
10
15
20
25
30
35
40
45
50
55
60
65
70
75
80
1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003
I0II I0III I0I: II0III II0I: III0I:
Diferences betDeen t>e annual labor cost of a
$ini$u$ Dage Dor8er per fir$ si;e
Percentages
I+ Fir$s Dit> &,&F Dor8ers
II+ Fir$s Dit> *&0&,, Dor8ers
III+ fir$s Dit> .&0*, Dor8ers
I:+ fir$s Dit> *0., Dor8ers
As a +ercenta%e o. e!+loy!ent in t)e .or!al sector, e!+loy!ent in t)e !anu.acturin% sector
(re+orted
3A 3ro! t)e ?M a%%re%ate data durin% t)e 197'>2003 +eriod t)e a0era%e nu!ber o. 5or2ers +er establis)!ent .or
a .ir!
5it) !ore t)at 101 e!+loyees 5as 32, 5or2ers, 73 .or .ir!s 5it) '1>100 5or2er ,33 .or .ir!s 5it) 21>'0 , and .or
a .ir! 5it)
'>20 e!+loyees it 5as 11 5or2ers.
39 ;e can calculate t)ose dis+arities by 2no5in%H 1) t)e a0era%e nu!ber o. 5or2ers +er establis)!ent +er %rou+ size
durin%
t)at +eriodO 2) t)e !ini!u!>!andated>total annual labor cost +er .ir! size .or a 5or2er t)at earns t)e !ini!u!
5a%eO 3)
assu!in% t)at all 5or2ers )a0e a +robability o. 0.2'C o. )a0in% one c)ild a%e 0>'.
2,
by t)e ?M) decreased in i!+ortance bet5een 197' and 2002. 6n 197' it re+resented 1'.2"C
o. total
.or!al e!+loy!ent, by 2003 t)at .i%ure )ad .allen to ,.27C. /et5een 199' and 2001 t)e
reduction in
e!+loy!ent 5as 0ery si!ilar to t)e decrease e*+erienced by t)e nu!ber o. +lants .or all %rou+s.
;)en
5e co!+are e!+loy!ent and nu!ber o. +lants a0era%es bet5een t)e 199'>1997 +eriod and t)e
199A>
2001 +eriod, .or t)e 86 %rou+ t)e reduction in e!+loy!ent 5as 1A.2C 5)ile +lant reduction 5as
1A.9C,
.or t)e M6 %rou+ t)ose .i%ures 5ere 1'.3C an 17C, .or 6 %rou+ t)ey 5ere 1A,'C and 1AC, and
.or t)e
?6 t)ey 5ere 23.3C and 23."C. ()is .indin% is si!ilar to t)at o. /artels!an et al. (200").
9sin% anot)er
!et)odolo%y, t)ey .ound t)at t)e net e!+loy!ent decrease in t)e 199'>2000 +eriod in
?enezuelaBs
!anu.acturin% sector 5as !ostly due to +lant s)ut do5ns (in t)eir esti!ates, ,,C o. t)e %ross
4ob losses
5ere e*+lained by .ir!s e*itin% t)e !ar2et).
-! Etimation!
;e use a +anel data .ro! t)e ?M +rocessed by @ineda and $odr%uez (200,) .or t)e +eriod
199'>2001. 3ro! t)is data set 5e %at)ered in.or!ation on e!+loy!ent, (:it), +roduction (Kit),
total labor
cost ((8Cit) and its co!+onentsH 5a%e and salary, (;it), ot)er +ay!ents, (1@it), and
co!+le!entary
costs, (CCit). 1t)er +ay!ents include earnin%s .or 5or2in% o0erti!e, +ro.it s)arin%, s+ecial
bonuses,
+ro0ision .or se0erance +ay!ents caused durin% t)e year, and ot)er co!+ensations.
Co!+le!entary costs
include 6=C: +ay!ents, e!+loyer contribution to 5or2ersB ocial ecurity and to 5or2ersB
retire!ent
.unds. As 5e !entioned be.ore, t)e ?M )as in.or!ation at .ir! le0el, but it does not )a0e any
in.or!ation at indi0idual le0el. 6t does, )o5e0er, contain in.or!ation .or t)e blue>collar 5or2er
%rou+
and t)e 5)ite collar 5or2er %rou+. An i!+ortant .eature o. t)is data set is t)at it )as in.or!ation
on t)e
+roducer +rice inde* by sector at a t)ree di%it le0el o. a%%re%ation"0. ;e use it to e*+ress labor
costs and
+roduction in real ter!s to construct an additional control .or t)e le0el o. acti0ity o. t)e .ir!.
6n addition, 5e use ' 0ariables as indicators o. c)an%es in labor re%ulationsH 1) !ini!u! 5a%es,
2) seniority +ay!ents (-uittin% cost), 3) total un4usti.ied dis!issal cost (5)ic) includes seniority
+ay!ents, ad0ance notice and inde!nity +ay!ents .or un4usti.ied dis!issal) ") ot)er costs, and
') t)e
total annual e*+ected cost deri0ed in section 2.'"1
"0 ()is in.or!ation co!es .ro! t)e Central /an2Bs @roducer @rice 6nde* and 5as incor+orated into t)e 6ndustrial
ur0ey
7atabase by @ineda and $odr%uez (200,).
"1 Other cost I man,ate, non+in,e$e, 8onuses D payroll ta$es D participation in firmJs profit 8onus D )acation
lea)e D
)acation 8onus an, ,epen,ing on firm size Gchil, care 8onus D in,e$e, foo, 8onusH
Total Annual Expected cost I 7ross annual minimum wages D man,ate, non+in,e$e, 8onuses D payroll ta$es D
27
()ose real annual cost (e*+ressed as inde*es) 5ere calculated on t)e assu!+tion t)at a 5or2er is
earnin% t)e !ini!u! 5a%e. ()ey re.lect e*o%enous c)an%es to .ir!sB labor cost 5)ic) are based
on
c)an%es in t)e labor re%ulatory .ra!e5or2, so t)ey are correlated 5it) labor costs but t)ey are
not
correlated 5it) t)e error ter!. ()ose inde*es 5ere calculated de+endin% on t)e classi.ication
based on
.ir! size .ro! t)e ?MM. ()ere.ore t)ey )a0e t)ree di!ensions o. 0ariationH ti!e, .ir!Bs size,
and t)e
industrial acti0ity o. t)e .ir!.
As 5e discussed be.ore, in 1997 t5o i!+ortant c)an%es in labor re%ulations too2 +laceH a) t)e
!andated bonuses beca!e +art o. 5a%es, and b) t)e !odi.ication on t)e le%islation related to t)e
se0erance and seniority +ay!ents. =otice t)at t)e .or!er is t)e base .or +ay!ents in b), and .or
+ayroll
ta*es. ()ere.ore a) and b) 5ere t5o di..erent sources o. 0ariation .or se0erance and seniority
+ay!ents.
=otice t)at 199A 5as t)e .irst .ull year t)ose c)an%es too2 +lace. ;e 5ould li2e to esti!ate t)e
e..ects o.
t)ose c)an%es on e!+loy!ent. 6n order to do t)at, 5e i!+le!ented t)e .ollo5in% e!+irical
strate%y. ;e
a0era%ed eac) 0ariable o0er t)e +eriod 199'>1997 and t)e 199A>2001 +eriod"2. ;e ended u+ 5it)
t5o
ti!e obser0ations .or eac) .ir! in our +anel. ;e used t5o +anels to a0era%e t)e data, a balanced
+anel
and an unbalanced +anel. 6n t)e .irst one, 5e only included .ir!s t)at 5ere sur0eyed in eac) o.
t)e se0en
year +eriods. ()is +anel )ad ,70 .ir!s. 6n t)e ot)er one, 5e used an unbalanced +anel Jo. 2'7A
.ir!sincludin%
t)ose 5it) at least one obser0ation .or eac) o. t)e di..erent +eriodsH 199'>97, and 199A>2001.
;e too2 t)e a0era%es usin% only t)e years in 5)ic) t)e .ir!s are sur0eyed. (a2in% a0era%es in
t)is 5ay
)as a +otential ad0anta%eO it could )el+ to reduce errors in 0ariables (;ooldrid%e, 2000), and it
allo5s us
to a0oid t)e +roble! o. not )a0in% data .or so!e years .or so!e .ir!s since .or so!e +ortion o.
t)e .ir!s
in our +anel t)ere is no in.or!ation .or at least one year. A.ter t)at, 5e ta2e .irst di..erences o.
t)e
0ariables in our data set.
As 5as !entioned be.ore, t)e ?M is a census .or t)e 86 strata and t)e M6 strata. 3or t)e
re!ainin% %rou+s, rando! sa!+lin% tec)ni-ues are used. o .or t)e 6 and ?6 %rou+s a .ir!
!i%)t not
be sur0eyed because it is no lon%er o+eratin%"3 or because it 5as not sa!+led. 6n t)e balanced
+anel, as
5e e*+ected, .ir!s .ro! t)e 86 and M6 %rou+s are o0erre+resented. 6n .act, 93.7C o. t)e .ir!s in
t)e
participation in firmEs profit 8onus D )acation lea)e D )acation 8onus D 4=F total un#ustifie, ,ismissal cost D 4=F
*uitting cost
an, ,epen,ing on firm size Gchil, care 8onus D in,e$e, foo, 8onusH
"2 =otice t)at t)e second 5indo5 is lon%er t)an t)e .irst 5indo5. 6n order to %et sa!e size 5indo5s, 5e re>esti!ated
our
!odels usin% a 199'>1997 5indo5 and a 199A>2000 5indo5 instead o. a 199A>2001 5indo5. 6n ter!s o. si%n and
si%ni.icance
t)ere 5ere no c)an%es in our results.
"3 ;e are not ta2in% into account .ir!s t)at e*it t)e !ar2et in 199A because 5e do not )a0e any in.or!ation .or t)e!
bet5een
199A and 2001.
2A
balanced +anel belon% to t)ose strata"". ;e conducted our .irst set o. esti!ations usin% a
balanced +anel.
()e tec)ni-ue 5e used to +rocess t)e data is si!ilar to &ruber (1997), 5)o esti!ated t)e c)an%e
in t)e C)ilean labor !ar2et outco!es due to an e*o%enous decrease in e!+loyer +ayroll ta*es
caused by
t)e +ri0atization o. C)ileBs social security syste!. His results indicate t)at t)e incidence on
e!+loy!ent
o. t)is +olicy 5as not statistically si%ni.icant, but t)e incidence on 5a%es 5as ne%ati0e and
statistically
si%ni.icant.
;e esti!ated t)e .ollo5in% re%ressions se+arately .or all 5or2ers, .or blue>collar 5or2ers, and
.or
5)ite>collar 5or2ers"'.
g log(Ei) = _0 + _1*g log(Wi) + _2* g log(Yi) + ` (4.1)
g log(Ei) = _0 + _1*g log(CCi) + _2* g log(Yi) + ` (4.2)
g log(Ei) = _0 + _1*g log(OPi) + _2* g log(Yi) + ` (4.3)
g log(Ei) = _0 + _1*g log(TLCi) + _2* g log(Yi) + ` (4.4)
;e do not use a ti!e subscri+t in ".1>"." because a.ter 5e di..erenced t)e data 5e end u+ 5it)
one obser0ation +er .ir!. 6n t)e conte*t o. a +anel data 5it) ti!e di!ension e-ual to 2, a .irst
di..erence
re%ression is e-ui0alent to esti!ate a .i*ed e..ects !odel. =otice t)at any o. t)e cost !easures in
".1>"."
are a..ected by e*o%enous c)an%es in labor re%ulations as 5ell as endo%enous decisions by t)e
.ir!s
about e!+loy!ent because t)ey de+end on t)e nu!ber o. e!+loyees, and also de+end on t)e
ty+e o.
contract o..ered to ne5 e!+loyees. o, i. 5e use data on t)ose costs .ro! t)e ?M, t)ere is a
+otential
endo%eneity +roble!. o, instead o. t)ose costs 5e use t)e indicators deri0ed .ro! c)an%es in
labor
re%ulations outlined abo0e.
9sin% t)e a0era%es .ro! t)e balanced +anel, 5e esti!ate se+arate re%ressions .or blue>collar
5or2ers, .or 5)ite>collar and .or all 5or2ers. ()ose esti!ations are re+orted in tables ".1>".3.
3or t)e
case o. all 5or2ers, t)e esti!ated coe..icients .or all labor re%ulation inde*es, e*ce+t .or Mother
cost
in,e$N 5ere ne%ati0e and statistically si%ni.icant",, e0en in t)e case t)at 5e control .or t)e
di..erence o.
real +roduction. 6n t)e case o. t)e blue collar 5or2ers, all coe..icients 5ere statistically
si%ni.icant and
t)ey )a0e t)e e*+ected si%ns, 5it) t)e e*ce+tion o. t)e Mother costN inde*. 6t is i!+ortant to
notice t)at t)e
"" ()ere 5as !obility a!on% t)e di..erent %rou+s in t)e balanced +anel. 1n a0era%e, "C o. t)e .ir!s c)an%e %rou+s
bet5een
199' and 2001.
"' ;or2ers are t)e su!!ation o. blue>collar 5or2ers and 5)ite>collar 5or2ers. ;e do not include o5ners or .ir!Bs
directors.
", ;e additionally use du!!ies .or t)e di..erent !anu.acturin% sectors. ()ose esti!ated coe..icients are not
+resented.
29
esti!ated coe..icients .or t)e Mtotal la8or cost in,e$N are e-ual to t)e esti!ated coe..icient .or
t)e
Mminimum wageN. 6n t)e case o. t)e 5)ite collar 5or2ers none o. t)e coe..icients .or t)e labor
re%ulation
inde*es 5ere statistically si%ni.icant.
()e re%ressions usin% t)e a0era%es .ro! t)e unbalanced +anel are re+orted in tables ".">".,. As
s)o5n in table ".', .or blue collar 5or2ers o0er t)e t5o +eriods under consideration, eac) 2ind
o. labor
re%ulation inde*es, e*ce+t .or t)e ot)er costs inde*"7 )as a ne%ati0e and statistically si%ni.icant
e..ect on
a0era%e e!+loy!ent. =otice t)at t)e res+onse .or t)e un4usti.ied dis!issal cost inde* 5as
%reater t)an
t)e res+onse .or t)e c)an%e o. t)e real !ini!u! 5a%e inde*. ;)en 5e add as a re%ressor J in
any o.
t)ose s+eci.ications> t)e di..erence o. t)e a0era%e o. real +roduction in order to co!+ensate .or
c)an%es
in e!+loy!ent due to c)an%es in +roduction in ter!s o. si%n and statistical si%ni.icance, t)e
+ara!eters
are 0ery si!ilar to t)e results in (able ".". 3or all cases, t)e esti!ated coe..icient .or t)e real
+roduction
0ariable is +ositi0e and statistically si%ni.icant. 6n 3 out o. ' s+eci.ications t)e coe..icients
related to labor
re%ulations are bi%%er Jin absolute 0alue> in t)e unbalanced +anel t)an in t)e balance +anel 5)ile
at t)e
sa!e ti!e t)e coe..icient o. real +roduction is s!aller.
3or t)e case o. 5)ite collar 5or2ers, t)e esti!ated coe..icients .or t)e un4usti.ied dis!issal and
seniority +ay!ents are statistically si%ni.icant and 5it) t)e e*+ected ne%ati0e si%n, 5)ereas t)e
esti!ate
.or t)e di..erence o. ot)er costs )as t)e 5ron% si%n. As be.ore, t)e slo+e .or t)e real +roduction is
statistically si%ni.icant and it s)o5s a +ositi0e relations)i+. 6n t)is case, t)e coe..icient .or t)e
di..erence
o. t)e real !ini!u! 5a%e is not statistically si%ni.icant. 6t could indicate t)at 5a%es and ot)er
labor costs
.or t)e 5)ite collar 5or2ers are not !o0in% si!ilarly to t)e !ini!u! 5a%e 0ariation. 6t di..ers
.ro! t)e
case o. t)e blue collar 5or2er re%ressions 5)ere t)e !ini!u! 5a%e 5as statistically si%ni.icant
in
e*+lainin% e!+loy!ent c)an%es.
2! Conclu,in$ remark!
()e .indin%s in t)is +a+er su%%est t)at t)e c)an%es in cost re%ulations t)at too2 +lace in t)e
second
se!ester o. 1997 )ad a ne%ati0e e..ect on !anu.acturin% sector e!+loy!ent. ()e %eneralization
o. t)ese
"7 ;)en 5e used a +ooled re%ression t)e esti!ated coe..icient .or g lo% o. real total cost, e*cludin% seniority and
se0erance
real costs, 5as not statistically di..erent .ro! zero.
30
results .or t)e 5)ole econo!y )as to be considered 5it) care because t)e data co0ers only t)e
!anu.acturin% sector, and t)e +anel data set is o0erre+resented 5it) .ir!s .ro! 86 and M6 strata.
()e
esti!ated coe..icients .or t)e labor re%ulations inde*es .or blue collar 5or2ers re%ressions )a0e
t)e
e*+ected ne%ati0e si%n and 5ere statistically si%ni.icant. ()is 5as not t)e case .or t)e 5)ite
collar
re%ressions in t)e balanced +anel. Ho5e0erin t)e unbalanced +anel t)e coe..icients .or seniority
+ay!ents and t)e un4usti.ied dis!issal cost inde* 5ere ne%ati0e and statistically si%ni.icant .or
t)is ty+e
o. 5or2er. /ear in !ind t)at all labor re%ulation inde*es 5ere calculated usin% a 5or2er earnin%
t)e
!ini!u! 5a%e as a re+resentati0e a%ent.
=otice t)at 5e +rocessed t)e data in a 5ay t)at t)e +anel only includes .ir!s t)at 5ere sur0eyed
in
at least one year o. t)e .irst +eriod 199'>1997, and t)at also 5ere sur0eyed in at least one year in
t)e
+eriod 199A>2001. ()is allo5s us to .ocus on t)e e!+loy!ent outco!es o. continuin% .ir!s. ;e
t)ere.ore do not address t)e e!+loy!ent c)an%es caused by incu!bent .ir!s e*itin% or ne5
.ir!s
enterin% t)e !ar2et, an issue 5)ic) s)ould be dealt 5it) in .uture researc).
Table -!%
7e+endent ?ariableH g log of Number of Workers
Balanced panel
g log of real total labor
cost index 0,6&7 0,6&.
[0.03]*** [0.03]***
g log of real unjustified
dismissal cost index 0,6,8 0,6,7
[0.01]*** [0.01]***
g log of real seniority cost
index 0,6,9 0,6,7
31
[0.01]*** [0.01]***
g log of real minimum
wage cost index 0,6&7 0,6&2
[0.02]*** [0.02]***
g log of real other costs
index 0.01 -0.001
[0.31] [0.004]
g log of real production ,6&7 ,6&. ,6&7 ,6&2 ,6&7
[0.02]*** [0.02]*** [0.02]*** [0.02]*** [0.02]***
Number of observations 670 670 670 670 670 670 670 670 670 670
F p-value 0 0 0 0 0 0 0 0 0.750 0
Notes: standard errors in parenthesis, *** significant at 1%, **significant at 5%, *significant at 10%.
Table -!+
7e+endent ?ariableH g log of Number of Blue Collar Workers
Balanced panel
g log of real total labor
cost index 0,6&= 0,6&*
[0.08]** [0.08]*
g log of real unjustified
dismissal cost index 0,6,9 0,6,8
[0.03]*** [0.03]***
g log of real seniority cost
index 0,6& 0,6,8
[0.03]*** [0.03]***
g log of real minimum
wage cost index 0,6&= 0,6&7
[0.06]*** [0.06]***
g log of real other costs
index 0.053 0.04
[0.10] [0.10]
g log of real production ,6&7 ,6&7 ,6&7 ,6&2 ,6&*
[0.05]*** [0.05]*** [0.05]*** [0.05]*** [0.05]***
Number of observations 670 670 670 670 670 670 670 670 670 670
F p-value 0.043 0.002 0.026 0.001 0.002 0 0.003 0 0.596 0.01
Notes: standard errors in parenthesis, *** significant at 1%, **significant at 5%, *significant at 10%.
Table -!3
7e+endent ?ariableH g log of Number of White Collar Workers
Balanced panel
g log of real total labor
cost index -0.02 -0.01
[0.06] [0.06]
g log of real unjustified
dismissal cost index 0,6,7 -0.03
[0.02]* [0.04]
g log of real seniority cost
index -0.04 -0.04
32
[0.03] [0.03]
g log of real minimum
wage cost index -0.04 -0.03
[0.04] [0.04]
g log of real other costs
index 0.1 0.09
[0.07] [0.03]
g log of real production ,6&. ,6&. ,6&. ,6&. ,6&.
[0.04]*** [0.04]*** [0.04]*** [0.04]*** [0.04]***
Number of observations 670 670 670 670 670 670 670 670 670 670
F p-value 0.160 0.006 0.145 0.003 0.086 0.002 0.315 0.005 0.219 0.004
Notes: standard errors in parenthesis, *** significant at 1%, **significant at 5%, *significant at 10%.
Table -!-
7e+endent ?ariableH g log of Number of Workers
Unbalanced panel
g log of real total labor
cost index 0,6,8 0,6,8
[0.02]*** [0.02]***
g log of real unjustified
dismissal cost index + 0,6&* 0,6&2
[0.02]*** [0.02]***
g log of real seniority cost
index 0,6& 0,6,9
[0.01]*** [0.01]***
g log of real minimum
wage cost index 0,6,9 0,6,8
[0.02]*** [0.02]***
g log of real other costs
index 0,6,* 0,6,&
[0.02]** [0.02]**
g log of real production ,6&* ,6&2 ,6&2 ,6,8 ,6,*
[0.06]*** [0.05]** [0.05]** [0.06]*** [0.06]***
Number of observations 2023 2023 1883 1883 1883 1883 2023 2023 2023 2023
F p-value 0 0 0 0 0 0 0 0 0 0
Notes: standard errors in parenthesis, *** significant at 1%, **significant at 5%, *significant at 10%.
Table -!2
7e+endent ?ariableH g log of Number of Blue Collar Workers
Unbalanced panel
g log of real total labor
cost index 0,6.7 0,6.*
[0.00]*** [0.00]***
g log of real unjustified
dismissal cost index 0,6.. 0,6.,
[0.00]*** [0.00]***
g log of real seniority cost
index 0,6&* 0,6&7
33
[0.03]** [0.00]***
g log of real minimum
wage cost index 0,6,= 0,6&7
[0.05]** [0.00]***
g log of real other costs
index 0.01 -0.01
[0.29] [0.86]
g log of real production ,6&. ,6,= ,6,7 ,6,2 ,6&.
[0.03]*** [0.03]*** [0.03]*** [0.03]*** [0.03]***
Number of observations 2578 2578 2578 2578 2578 2578 2578 2578 2578 2578
F p-value 0.001 0 0.005 0 0.004 0 0.03 0 0.772 0.05
Notes: standard errors in parenthesis, *** significant at 1%, **significant at 5%, *significant at 10%.
Table -!9
7e+endent ?ariableH g log of Number of White Collar Workers
Unbalanced panel
g log of real total labor
cost index -0.02 -0.05
[0.73] [0.30]
g log of real unjustified
dismissal cost index 0,6&. 0,6&&
[0.00]*** [0.03]**
g log of real seniority cost
index 0,6,7 0,6,=
[0.02]*** [0.05]*
g log of real minimum
wage cost -0.02 -0.03
[0.15] [0.11]
g log of real other costs
index ,6*. ,6,7
[0.05]** [0.07]*
g log of real production ,6,2 ,6,8 ,6,8 ,6,2 ,6,7
[0.00]*** [0.01]** [0.02]** [0.00]*** [0.00]***
Number of observations 2578 2578 2578 2578 2578 2578 2578 2578 2578 2578
F p-value 0.7303 0.008 0.013 0.006 0.02 0.008 0.149 0.006 0.002 0.007
Notes: standard errors in parenthesis, *** significant at 1%, **significant at 5%, *significant at 10%.
Reference
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/ite
on t)e @oorN. /anco de la $e+]blica.
2. /artels!an, :., I. Halti5an%er and . car+etta, 200". MMicroecono!ic :0idence o. Creati0e
7estruction in 6ndustrial and 7e0elo+in% CountriesN. ;orld /an2.
3"
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$e%ulation
o. 8aborN. ;or2in% @a+er 97',. =/:$.
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;or2in% @a+er =o. 1039A. =/:$
A. Caballero, $., <. Co5an, :. :n%el and A. Micco, 200">b. M:..ecti0e 8abor $e%ulation and
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Assess!ent. Caracas
11. 3rei4e, , <. /etancourt, and &. M[r-uez, 199'. M$e.or!as del Mercado 8aboral ante la
8iberalizaci#n de la econo!aH el caso de ?enezuelaN. C)a+ter ' in M$e.or!as del Mercado
8aboral ante la 8iberalizaci#n de la econo!a en A!Erica 8atinaN. 6nstituto de :studios
u+eriores de Ad!inistraci#n (6:A).
12. &ruber, I., 200". M()e 6ncidence o. Mandated Maternity /ene.itsN. ()e A!erican :cono!ic
$e0ie5, ?ol. A", =o. 3.
13. Ha!er!es), 7, 1993. M8abor 7e!andN. @rinceton 9ni0ersity @ress.
1". Hauss!an, $. and 3. $odri%uez. 200,. M;)y did ?enezuelan &ro5t) Colla+asePN.
1'. Hec2!an, I and C. @a%Es, 2000. M()e Cost o. Iob ecurity $e%ulationH :0idence .ro! 8atin
A!erican 8abor Mar2etsN. =/:$.
1,. Hec2!an, I. and C. @a%Es, 2003. M8a5 and :!+loy!entH 8essons .ro! 8atin A!erica and
t)e
Caribbean. An 6ntroductionN. =/:$.
17. 6!!er0oll, H., 2007. MMini!u! ;a%es, Mini!u! 8abor Costs and t)e (a* (reat!ent o.
8o55a%e
:!+loy!ent. 1:C7 ocial, :!+loy!ent and Mi%ration ;or2in% @a+ers =o. ",.
1A. 6nter>A!erican 7e0elo+!ent /an2 (6A7/). 1999. MA!Erica 8atina 3rente a la
7esi%ualdadN.
3'
6n.or!e de @ro%reso :con#!ico y ocial (6@:).
19. 8ora, :., and C. @a%Es, 199,. M8a 8e%islaci#n 8aboral en el @roceso de $e.or!as
:structurales de
A!Erica 8atina y el CaribeN. 6nter>A!erican 7e0elo+!ent /an2.
20. 8ora, :., 2001. Mtructural $e.or!s in 8atin A!ericaH ;)at Has /een $e.or!ed and Ho5 to
Measure it.N ;or2in% @a+er ",,. 6A7/
21. Maloney, ;., and I. =u\ez, 2003. MMeasurin% t)e 6!+acts o. Mini!u! ;a%esH :0idence
.ro!
8atin A!ericaN. ;or2in% +a+er 9A00. =/:$.
22. M[r-uez, &., and C. @a%Es, 199A. M(ies t)at /indH :!+loy!ent @rotection and 8abor Mar2et
1utco!es in 8atin A!ericaN. 6nter>A!erican 7e0elo+!ent /an2.
23. <ristensen, =., and ;. Cunnin%)a!, 200,. M7o Mini!u! ;a%es in 8atin A!erica and t)e
Caribbean MatterP :0idence .ro! 19 CountriesN. ;orld /an2 @$ ;or2in% @a+er 3A70.
2". =eu!ar2, 7., and ;. ;asc)er, 200,. MMini!u! ;a%es and :!+loy!entH A re0ie5 o.
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.ro! ()e =e5 Mini!u! ;a%e $esearc)N. =/:$ ;or2in% @a+er 12,,3.
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la @obrezaN. 9CA/
2,. 1:C7. 199'. MIob &ains and Iob 8ossesH $ecent 8iterature and (rendsN.
27. @ierre, &., and . car+etta 200". MHo5 8abor Mar2et @olicies Can Co!bine ;or2erBs
@rotection
5it) Iob CreationH A @artial $e0ie5 o. o!e <ey 6ssues and @olicies 1+tionsN. ;orld /an2.
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A!erican
Manu.acturin% ector, 1990>199A.N C:@A8. $e0ie5 ,9.
29. ;orld /an2, 199A. M?enezuela tylized 3acts and t)e C)aracteristics o. t)e 8abor u++ly in
?enezuelaH ;)at Can /e 7one to 6!+ro0e t)e 1utco!eP.N
30. ;orld /an2, 200,. MMini!u! ;a%es in 8atin A!erica and t)e CaribbeanH t)e 6!+act on
:!+loy!ent, 6ne-uality, and @o0ertyN. 1..ice o. t)e C)ie. :cono!ist. Hu!an 7e0elo+!ent
Mana%e!ent 9nit. 8atin A!erica and t)e Caribbean $e%ion.
31. ;orld /an2. 2007. 7oin% /usiness
3,
APPE<D&K
Table A!%
37
Total 9en Wo$en Total 9en Wo$en Total 9en Wo$en
1994- 3.91 4.00 3.68 4.49 4.84 4.04 3.51 3.59 3.18
1995- 3.54 3.59 3.44 4.09 4.36 3.74 3.15 3.20 2.98
1995- 3.49 3.56 3.32 3.94 4.18 3.59 3.17 3.22 2.95
1996- 3.40 3.49 3.20 3.72 4.02 3.30 3.18 3.21 3.06
1996- 3.32 3.34 3.27 3.71 3.93 3.41 3.04 3.04 3.06
1997- 3.38 3.39 3.34 3.88 4.18 3.49 3.03 3.01 3.13
1997- 3.49 3.58 3.29 4.06 4.47 3.52 3.09 3.12 2.98
1998- 3.50 3.57 3.35 4.18 4.66 3.56 3.07 3.08 3.07
1998- 3.46 3.45 3.46 4.10 4.40 3.75 3.00 3.01 2.97
4e$ester
1994- 2.00 2.00 2.00 3.00 3.00 2.00 2.00 2.00 1.00
1995- 2.00 2.00 2.00 2.00 2.00 2.00 1.00 1.00 1.00
1995- 2.00 1.00 2.00 2.00 2.00 2.00 1.00 1.00 1.00
1996- 2.00 2.00 2.00 2.00 2.00 2.00 1.00 1.00 1.00
1996- 2.00 2.00 2.00 2.00 2.00 2.00 1.00 1.00 1.00
1997- 2.00 2.00 2.00 2.00 2.00 2.00 1.00 1.00 1.00
1997- 1.00 1.00 1.00 2.00 2.00 2.00 1.00 1.00 1.00
1998- 1.00 1.00 1.00 2.00 2.00 2.00 1.00 1.00 1.00
1998- 1.00 1.00 1.00 2.00 2.00 2.00 1.00 1.00 1.00
4e$ester
1994- 43.86 44.04 43.45 35.32 33.24 38.07 49.70 49.35 50.99
1995- 49.12 49.73 47.69 41.28 40.16 42.75 54.69 54.55 55.21
1995- 48.70 50.03 45.38 40.49 40.25 40.85 54.52 55.28 51.59
1996- 46.60 47.01 45.57 38.78 36.44 42.15 52.23 52.66 50.56
1996- 47.99 49.37 44.61 38.92 38.19 39.91 54.40 55.03 51.77
1997- 48.61 49.63 46.28 40.24 38.04 43.10 54.29 55.27 50.69
1997- 50.34 50.44 50.09 41.35 37.88 45.95 56.60 56.84 55.73
1998- 51.79 52.13 50.98 42.85 40.28 46.22 57.46 57.46 57.48
1998- 51.79 52.40 50.34 43.09 40.42 46.31 57.92 58.09 57.17
Source: Venezuelan Household Surveys
Job Tenure in t>e Priate 4ector
/u$ber of years Dor8ing at t>e sa$e fir$
4e$ester
1lue K D>ite collar Dor8ers W>ite collar Dor8ers 1lue collar Dor8ers
by Type of Dor8er and 'ender
@ of Dor8ers Dit>in eac> group Dit> a tenure of & year or less
9edian
9ean
3A
#i$ure <o! A!%
/a4 /b4
0
1
2
3
4
5
6
7
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
&99, 3D &997 3D &99, L &997 L
Job security Pay$ents due to a Dor8er Dit> & year of tenure
as a proportion of last Dage
Transition period
8a+ments 0ue i) t*e 2or3er is
0ismisse0 un0er un6usti)ie0 reasons
8a+ments 0ue i) t*e 2or3er 1uits
un0er un6usti)ie0 reasons
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
5500
6000
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
&99, 3D &997 3D &99, L &997 L
Job security Pay$ents due to a Dor8er Dit> & year of tenure
1oliars )Real 9PI 1ase+&997-
Transition period
/c4 /,4
3
5
7
9
11
13
15
17
19
21
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
&99, 3D &997 3D &99, L &997 L
Job security Pay$ents due to a Dor8er Dit> 2 years of tenure
as a proportion of last Dage
8a+ments 0ue i) t*e 2or3er is Transition period
0ismisse0 un0er un6usti)ie0 reasons
8a+ments 0ue i) t*e 2or3er 1uits un0er un6usti)ie0
reasons
0
2000
4000
6000
8000
10000
12000
14000
16000
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
&99, 3D &997 3D &99, L &997 L
Job security Pay$ents due to a Dor8er Dit> 2 years of tenure
1oliars )Real 9PI 1ase+&997-
Transition period
39
/e4 /f4
4
6
8
10
12
14
16
18
20
22
24
26
28
30
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
&99, 3D &997 3D &99, L &997 L
Job security Pay$ents due to a Dor8er Dit> * years of tenure
as a proportion of last Dage
Transition period
0
2500
5000
7500
10000
12500
15000
17500
20000
22500
25000
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
&99, 3D &997 3D &99, L &997 L
Job security Pay$ents due to a Dor8er Dit> * years of tenure
1oliars )Real 9PI 1ase+&997-
Transition period
/$4 /h4
6
11
16
21
26
31
36
41
46
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
&99, 3D &997 3D &99, L &997 L
Job security Pay$ents due to a Dor8er Dit> &, years of tenure
as a proportion of last Dage
Transition period
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
&99, 3D &997 3D &99, L &997 L
Job security Pay$ents due to a Dor8er Dit> &, years of tenure
1oliars )Real 9PI 1ase+&997-
Transition period
"0
#i$ure <o! A!+
/a4 /b4
4.0
4.2
4.4
4.6
4.8
5.0
5.2
5.4
5.6
5.8
6.0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
5
7
9
11
13
15
17
19
21
23
25
27
& . 2 7 *
3nHustified dis$issal adance notice, seniority and additional inde$nity
pay$ents as a proportion of last Dage depending on years of tenure for a
fir$ Dit> *&0&,, e$ployees
1,000
4,000
7,000
10,000
13,000
16,000
19,000
22,000
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
& . 2 7 *
3nHustified dis$issal adance notice, seniority and additional inde$nity
pay$ents depending on years of tenure
for a fir$ Dit> *&0&,, e$ployees
1oliars )Real 9PI 1ase+&997-
/c4 /,4
0.8
1.0
1.2
1.4
1.6
1.8
2.0
2.2
2.4
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
2
4
6
8
10
12
14
16
& . 2 7 *
4eniority pay$ents due to a Auitting Dor8er in a fir$ Dit> *&0&,,
e$ployees as a proportion of last Dage
depending on years of tenure
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
& . 2 7 *
4eniority pay$ents due to a Auitting Dor8er in a fir$ Dit>
*&0&,, e$ployees depending on years of tenure
1oliars )Real 9PI 1ase+&997-
1
CHAPTER 9:
=n,ertan,in$ Economic )ro*th in Venezuela: %07;1+;;2
The Real Effect of a #inancial Collape
Matas /raun
9ni0ersity o. Cali.ornia, 8os An%eles
9ni0ersidad Adol.o 6b[\ez
1ctober 200,
GGGGGGGG
6 a! %reatly indebted to $icardo Haus!ann, 3rancisco $odr%uez, Mic)ael <lein, and to
+artici+ants at t)e C67 ?enezuelan :cono!ic &ro5t) econd Con.erence (A+ril 200,) .or 0ery
)el+.ul co!!ents and su%%estions.
2
3
%! &ntro,uction
()e literature relatin% to t)e lin2s bet5een a countryBs de%ree o. .inancial
de0elo+!ent and its +er ca+ita inco!e le0el and rate o. %ro5t) is lar%e and lon% datin%
(/a%e)ot (1A73), Hic2s (19,9), c)u!+eter (1912), $obinson (19'2), 8ucas (19AA)). ()e
e*istence o. a correlation 5as lon% a%o docu!ented (Ca!eron et. al. (19,7), &olds!it)
(19,9), and Mc<innon (1973)), )o5e0er correlation does not i!+ly causality. Most recently
<in% and 8e0ine (1993) s)o5ed t)at .inancial de0elo+!ent and %ro5t) are not 4ust
conte!+oraneously correlated, but t)e .irst antici+ates t)e second in a cross>section o.
countries. ()e size o. t)e e..ect 5as s)o5n to be lar%eH a one standard de0iation )i%)er le0el
o. .inancial de0elo+!ent Jas +ro*y +ri!arily by !easures related to t)e size o. t)e ban2in%
sector and t)e stoc2 !ar2et relati0e to t)e econo!y> i!+lies around one +ercenta%e +oint
)i%)er %ro5t) rates o0er lon% +eriods o. ti!e. Ad0ances )a0e been !ade in addressin% t)e
+otential endo%eneity o. t)e size o. t)e .inancial syste! to .uture %ro5t) +ros+ects (8e0ine
and Zer0os (199A), and /ec2, 8e0ine and 8oayza (2000)). ()e use o. le%al ori%ins and
.inancierBs ri%)ts as instru!ents )as been critical. ()e latest researc) )as .ocused on
identi.yin% !ore direct c)annels or !ec)anis!s t)rou%) 5)ic) .inance a..ects %ro5t). ()is
)as been +ursued in t)e cross>country %ro5t) re%ressions settin% (/ec2 et al. (2000)), usin%
!icro data ($a4an and Zin%ales (199A), ;ur%ler (2000), and 8o0e (2001)), and t)rou%) t)e
natural>e*+eri!ent a++roac) (Iayaratne and tra)an (199,)).
Most o. t)e literature on t)e real e..ects o. .inancial de0elo+!ent to date rests )ea0ily
on t)e co!+arison across countries. ()is, des+ite t)e .act t)at around one )al. o. t)e 0ariation
o. t)e traditional indicators o. .inancial de0elo+!ent co!es .ro! t)e ti!e series 5it)in
countries (/raun and $addatz (200')). 7etailed country studies are needed to c)ec2 t)at t)e
!ain results on t)e literature are +resent in t)e ti!e series, and to learn !ore about t)e
"
s+eci.ic !ec)anis!s at 5or2. ?enezuela, in t)is sense, re+resents a %reat o++ortunity .or Jas
5e 5ill see> it )as seen !ar2ed c)an%es on its de%ree o. .inancial de0elo+!ent in t)e last
.our decades.
()e +a+er be%ins s)o5in% t)at, no !atter )o5 you !easure it, ?enezuelaBs de%ree o.
.inancial de0elo+!ent today is e*tre!ely lo5. Ho5e0er, t)is 5as not al5ays t)e case. 6n t)e
.ollo5in% section 5e date and -uanti.y t)e colla+se in ban2 credit, and +ro0ide a brie.
descri+tion o. t)e succession o. e0ents surroundin% it. 6n t)e .ourt) section 5e docu!ent t)e
lar%e, ne%ati0e e..ects t)e lo5 le0el o. .inancial de0elo+!ent )as )ad on ?enezuelaBs %ro5t).
+! VenezuelaI #inancial 8ytem To,ay
;)en t)e size o. its econo!y is ta2en into account ?enezuelaBs .inancial syste! is
today one o. t)e s!allest and least de0elo+ed in t)e 5orld. /an2 credit to t)e +ri0ate sector
a!ounts to 4ust around 9C o. &7@, ran2in% t)e country in +osition 132 out o. t)e 1'7
countries 5)ere t)e .i%ure is a0ailable .or t)e 2000s1. ()e ratio is t)e lo5est a!on% t)e 8atin
A!erican countries, and e0en lo5er t)an t)e !edian in ub>a)aran A.rica. ()is is not 4ust
due to t)e .act t)at ?enezuelaBs econo!y is relati0ely lar%eO a .i%ure o. S"00 .or +er ca+ita
+ri0ate credit still lea0es t)e country 5ell belo5 t)e ot)er !ayor 8atin A!erican econo!ies,
and at one se0ent) t)e 0alue .or C)ile. ()e total stoc2 o. around S10 billion is 1'C lo5er
t)an @eruBs (5)ose econo!y is )al. t)e size), and ,0C lo5er t)an Colo!biaBs.
()ese 0ery lo5 indicators are not easily e*+lained 5it) t)e i!+ortance o. t)e oil
sector in t)e econo!y. :0en i. 5e assu!e t)at t)e oil sector does not de!and any do!estic
.inancial ser0ices >eit)er directly or indirectly t)rou%) t)e inco!e %enerated, > and consider
1 ()e cross>country data .or t)e size and e..iciency o. .inancial syste!s co!e .ro! /ec2 et al (200,). ()e
data .or &7@ and ot)er econo!ic country 0ariables co!e .ro! ;orld 7e0elo+!ent 6ndicators. All .i%ures
in t)is section corres+ond to t)e a0era%e o. t)e indicator bet5een 199' and 200".
'
only t)e non>oil &7@ (around 3U" o. t)e total), t)e stoc2 o. ?enezuelaBs ban2 credit is still
!uc) lo5er t)an ot)er countriesB. Moreo0er, ?enezuela still ran2s in t)e lo5est decile o.
+ri0ate credit to &7@ a!on% t)e 30 econo!ies t)at are !ore de+endent on oil.
6s it t)e lo5 le0el o. +er ca+ita &7@, t)enP 3i%ure 1 de+icts t)e 5ell 2no5 .act t)at
t)e ratio o. +ri0ate credit to &7@ increases 5it) (t)e lo% o.) +er ca+ita &7@. 6ndeed, +er
ca+ita &7@ alone e*+lains around )al. t)e cross>country 0ariation in +ri0ate credit.
Accordin% to t)is relation, ?enezuelaBs ban2in% sector s)ould be '., ti!es lar%er t)an it
actually is2. 6n +ercenta%e ter!s t)ere is no ot)er country 5it) a !ore underde0elo+ed syste!
relati0e to 5)at t)is relation i!+lies.
()is de%ree o. underde0elo+!ent is not +eculiar to t)e ban2in% syste!. 1ut o. t)e '"
countries .or 5)ic) data on e-uity !ar2ets is a0ailable, ?enezuelaBs !ar2et ca+italization to
&7@ o. 'C sur+asses only t)at o. /an%lades). ;it) ' dozen listed .ir!s >t)at are 5ort) on
a0era%e around S100 !illion eac), > t)e !ar2et is only lar%er t)an t)at o. :cuador, Ia!aica,
and (rinidad and (oba%o in 8atin A!erica. ()e relation bet5een +er ca+ita &7@ and stoc2
!ar2et ca+italization is a%ain 0ery si%ni.icant (see 3i%ure 2), i!+lyin% t)at ?enezuelaBs
!ar2et s)ould be '." ti!es lar%er t)an it actually is3. ()e nu!ber o. listed .ir!s +er ca+ita
5as e*+ected to be 7.' ti!es lar%er based solely on t)e le0el o. inco!e in t)e country.
10erall, t)e co!+osition o. t)e .inancial syste! is not +articularly di..erent in
?enezuela 5)en co!+ared to ot)er countries. ()e ban2in% sector and t)e stoc2 !ar2et
a++ear to be si!ilarly underde0elo+ed 5)en co!+ared to ot)er countries (see 3i%ure 3).
()e size o. t)e +ri0ate bond !ar2et in ?enezuela is not e0en recorded by t)e /an2 o.
6nternational ettle!ents, and t)e total li.e and non>li.e insurance +re!iu!s are bot)
ne%li%ible. (able 1 +resents basic statistics about ?enezuelaBs bond !ar2ets based on
2 ()is di..erence is statistically si%ni.icant at +>0alues belo5 0.1C.
3 ()is di..erence is statistically si%ni.icant at +>0alues belo5 0.1C.
,
issuance data recorded in t)e 7C @latinu! dataset. (otal issuance is e*tre!ely s!all e0en
by 8atin A!erican standards. Moreo0er, only around "0C o. t)e ca+ital raised 0ia bonds is
raised in t)e local !ar2et, 5)ere t)e a0era%e +rinci+al (S17 !illion) is -uite s!all, and t)e
!aturities (1.9 years) are e*tre!ely s)ort.
?enezuelaBs .inancial underde0elo+!ent is not only related to t)e size o. its .inancial
syste! but is also re.lected in its e..iciency. :0en a.ter controllin% .or its s!all size, ban2sB
net interest !ar%ins o. 1,.'C are about t5o ti!es too )i%), and t)e )i%)est in t)e entire
sa!+le o. countries" (see 3i%ure ").
()ese lar%e !ar%ins )a0e %enerated a 0irulent acade!ic discussion on its
deter!inants. A series o. +a+ers collected in /anco de ?enezuela (2001) o..er a nu!ber o.
+ossible e*+lanations includin% )i%) trans.or!ation costs, underca+italization o. ban2s, )i%)
ris2s, and collusi0e +ractices. ()e conclusions reac)ed by t)e di..erent aut)ors are not
+articularly consistent, and .or t)e !ost +art )a0e le.t t)e -uestion unans5ered. ()ere is e0en
disa%ree!ent as to 5)et)er t)e !ar%ins are )i%) or not. =e0ert)eless, %o0ern!ent o..icials
a++ear to )a0e .a0ored t)e !ar2et +o5er e*+lanation. At least since 2001 t)e %o0ern!ent )as
+ut +ressure on ban2s to reduce t)eir interest>rate !ar%ins in order to o..er loans at lo5er
interest rates and +ay )i%)er rates to de+ositors. ()is 5ould )el+ consolidate t)e reco0ery by
sto++in% t)e ca+ital .li%)t and %eneratin% e!+loy!ent.
3i%ures 'a and 'b s)ed so!e li%)t into t)e -uestion. ;)ile o0er)ead costs are
e*tre!ely )i%) and !uc) lar%er t)an e*+ected %i0en t)e size o. t)e ban2in% syste!, t)e le0el
o. concentration in t)e industry is 0ery lo5. 6ndeed, t)e ba2in% sector in ?enezuela )as been
traditionally -uite dis+ersed and )as only be%un to consolidate since around 2000 .ollo5in%
t)e resolution o. t)e 199" crisis and t)e aut)orization o. .orei%n ban2 o+erations. ()is
su%%ests t)at )i%) costs, +resu!ably due to t)e industry not ta2in% ad0anta%e o. t)e
" ()is .i%ure is statistically si%ni.icant at 1C.
7
econo!ies o. scale in t)e sector, rat)er t)an !ar2et +o5er are !ore li2ely to e*+lain )i%)
!ar%ins. 1ne s)ould not o0erstress t)is conclusion, )o5e0er. 3irst, it )as been di..icult to
docu!ent t)e e*istence o. econo!ies o. scale in ?enezuelaBs ban2in% sector. ()is, des+ite
t)e .act t)at econo!ies o. scale )a0e lon% a%o been docu!ented in ot)er ban2in% !ar2ets
and t)at t)e %lobal 5a0e o. consolidation in t)e industry since t)e late 1990s )as been ta2en
as +ri!a>.acie e0idence .or t)ese. econd, alt)ou%) concentration !a2es collusion !ore
di..icult, it !ay not +reclude it. ()e .act t)at a.ter t)e 2001 ne%otiations 5it) t)e %o0ern!ent
ban2s indeed reduced loan rates and increased de+osit ones is consistent 5it) t)is 0ie5.
3inally, in a syste! so de+endent on lendin% to t)e %o0ern!ent t)e sco+e .or +olitical
econo!y e*+lanations is 5ide. 6t is +ossible t)at an i!+ortant +art o. ban2sB acti0ity consist
no5 in see2in% rents .ro! t)e %o0ern!ent instead o. lendin% to t)e +ublic. 1nly around )al.
t)e assets o. t)e industry are lent to t)e +ri0ate sector (see ne*t section). 6. rents are indeed
+lenti.ul Jas it see!s t)ey )a0e been since t)e %o0ern!ent )as been 5illin% to +ay 0ery )i%)
real rates to .inance its de.icits> co!+etition in +ri0ate lendin% !ay not be +articularly
5ort)5)ile.
6nterestin%ly, t)e ine..iciency in t)e ban2in% industry is not .ound in t)e stoc2
!ar2et. (urno0er alt)ou%) e*tre!ely lo5, is not lo5er t)an 5)at t)e size o. t)e !ar2et
5ould i!+ly (3i%ure ,).
()e literature )as identi.ied a series o. .actors t)at e*+lain t)e cross>country
di..erences in .inancial de0elo+!ent. ()ese can be %rou+ed in t5oH t)ose related to t)e la5s
+rotectin% t)e .inanciers and t)eir en.orce!ent, and t)ose related to t)e a0ailability and o. t)e
in.or!ation on t)e borro5ers. ()e le0el o. ?enezuelaBs .inancial de0elo+!ent is !ore or less
consistent 5it) )o5 it ran2s on t)ese !easures (see 3i%ures 7 and A). ;)ile t)e de%ree o.
+rotection %ranted to bot) creditors and !inority s)are)olders, and t)e -uality o. in.or!ation
A
a0ailable to s)are)olders are -uite lo5, t)ere see!s to be reasonably %ood in.or!ation about
borro5ers.
Alt)ou%) t)ese .actors can .or! t)e basis .or .uture re.or!, t)ey co!e s)ort in
e*+lainin% ?enezuelaBs lo5 le0el o. .inancial de0elo+!ent .or t)e country did not )a0e a
!assi0ely underde0elo+ed syste! be.ore. =eit)er ban2 credit to t)e +ri0ate sector nor stoc2
!ar2et ca+italization 5as si%ni.icantly di..erent t)an 5)at 5as e*+ected .ro! its le0el o.
inco!e +er ca+ita in t)e 1970s and 19A0s. ()is is .ar .ro! t)e usual +icture since t)e le0el o.
.inancial de0elo+!ent is -uite +ersistent in ti!e (see 3i%ures 10 and 11). 6ndeed, t)e ran2in%
o. +ri0ate credit to &7@ across countries in t)e 1970s e*+lains around "'C o. t)e .i%ure 30
years later, and t)e ran2in% o. stoc2 !ar2et ca+italization in t)e early 19A0s e*+lains ,'C o.
t)e .i%ure today. ()is +ersistence and t)e initial 0alues .or ?enezuela i!+ly t)at t)e ban2in%
syste! and stoc2 !ar2et s)ould no5 be ".' and ' ti!es lar%er, res+ecti0ely.
Abiad and Mody (200') s)o5 t)at t)e ti!e series 0ariation in .inancial de0elo+!ent
can be ti%)tly lin2ed to s+eci.ic .inancial>sector +olicies. 3i%ure 9 de+icts )o5 t)ese +olicies
c)an%ed in t)e case o. ?enezuela. Aside .ro! +artial allo5ance o. international ca+ital .lo5s,
as o. t)e late 19A0s ?enezuela still )ad directed credit +olicies, entry barriers into t)e
ban2in% syste!, interest rate controls, 0ery 5ea2 .inancial re%ulation, and )ad not yet
en%a%ed in ban2in% sector +ri0atization. Alt)ou%) de0elo+ed countries )ad by t)at ti!e
abandoned t)ese +olicies alto%et)er, t)e situation in ?enezuela 5as not 0ery di..erent .ro!
t)at o. t)e ty+ical de0elo+in% country. As a nor!, less de0elo+ed countries only be%an
liberalizin% t)eir do!estic .inancial syste!s in t)e early 1990s. ()us, t)e .act t)at u+ to t)at
+oint ?enezuela did not a++ear underde0elo+ed in relation to ot)er countries o. si!ilar
econo!ic de0elo+!ent is consistent 5it) t)e +olicies t)at 5ere bein% .ollo5ed.
Ho5e0er, 5)at is +eculiar to ?enezuela is t)at since t)e early 1990s (+artial) re.or!
e..orts t)e +olicies )a0e been all but consistent in ti!e. ()is !irrors 5)at )a++ened in t)e
9
conduction o. econo!ic +olicy and t)e +olitical syste! !ore %enerally. As 5e 5ill see in t)e
ne*t section, it is also i!+ortantly t)e result o. t)e 5ay t)e 199" ban2in% crisis 5as !ana%ed.
()e role o. +olitics in t)e e0olution o. t)e .inancial sector cannot be o0ere!+)asized. As t)e
li0ely account o. t)e 199" crisis by 7e <ri0oy (2000) s)o5s, +olitical 5ill is critically
re-uired to create and sustain t)e buildin% bloc2s o. a sound .inancial syste!. ()is M5illN
de+ends i!+ortantly on t)e +olitical econo!y %a!e t)e +layers in0ol0ed ta2e +art in (see
/raun and $addatz (200', 200,)).
3! VenezuelaI #inancial 8ytem Collape
;)en co!+ared to ot)er countriesB, ?enezuelaBs .inancial syste! loo2s
e*traordinarily s!all and ine..icient. ;)at is !ore stri2in% is t)at it also loo2s out o. line
5it) 5)at one 5ould +redict based on t)e countryBs inco!e +er ca+ita and +ast +er.or!ance,
e0en 5)en ta2in% into account t)e i!+ortance o. t)e oil sector and t)e .act t)at it is located in
8atin A!erica.
hen did Credit Collapse!
3i%ure 12 loo2s at t)e e0olution o. +ri0ate credit and stoc2 !ar2et ca+italization to
&7@ in t)e ti!e series. 6t is a++arent t)at .ollo5in% a %olden era since t)e !id>1970s, +ri0ate
credit .alls abru+tly in t)e late 19A0s and a%ain in t)e !id>1990s. ince t)en, t)e inde* )as
stabilized at a le0el o. A>9C, 5)ic) is around )al. t)e 19,0>197" le0els. ()e stoc2 !ar2et
inde* .ollo5s a si!ilar +attern, standin% today at si%ni.icantly lo5er le0els t)an in t)e 19A0s.
()is is +artly due to t)e .all in +rices and t)e .all in t)e nu!ber o. listed .ir!s. ()e +oststabilization
boo!s o. t)e early 1990s +ro0ed s)ort>li0ed.
()e colla+se o. t)e ban2in% syste! indicator is al!ost entirely e*+lained by t)e
e0olution o. +ri0ate credit itsel. rat)er t)an by 5)at )a++ened to t)e deno!inator (3i%ure
10
13). ;)ile total &7@ and non>oil &7@ %re5 by 23C and 1'C in t)e 19AA>199A +eriod, real
ban2 credit to t)e +ri0ate sector colla+sed by '"C. @rior to 19AA real +ri0ate credit s)o5s a
stable relations)i+ 5it) non>oil &7@, 5it) a )i%)ly si%ni.icant esti!ated elasticity o. 1.1'.
()is elasticity is 0ery si!ilar to t)at o. t)e a0era%e country in since 19,0 (1.07),. 3or t)e
19A9>200" +eriod, )o5e0er, t)e elasticity is cut in )al. (0.'3) and is no lon%er si%ni.icant.
3i%ure 1" s)o5s t)is brea2. ()e brea2 in t)e lin2 bet5een t)e non>oil econo!y and
t)e .inancial sector !ay )a0e started around 197A 5)en des+ite continuin% %ro5t)O real
credit re!ained relati0ely constant .or al!ost a decade. ()e brea2 !ay )a0e only dee+ened
durin% t)e 19A9 recession. ()e statistical tests +er.or!ed are only su++orti0e o. a brea2 in
19A97, )o5e0er. 3urt)er!ore, 5)en loo2ed at !ore closely, t)e relation is lar%ely dri0en by
t)e e0olution o. t)e non>tradable co!+onent o. t)e non>oil econo!y. /raun and $addatz
(200,) s)o5 t)at t)is is indeed t)e rule across countriesH non>tradable sectors bene.it !uc)
!ore .ro! .inancial de0elo+!ent t)an tradable ones, +articularly 5)en t)e econo!y is o+en
to trade in %oods and ca+ital so t)at tradable industries )a0e %reater access to .orei%n
.inancin%. ()us, t)e .inancial sta%nation decade is t)us +er.ectly consistent t)e %reatly
reduced rate o. %ro5t) in t)e non>tradable co!+onent o. ?enezuelaBs &7@. ()is does not
establis) causality, but lends su++ort to t)e 0ie5 t)at t)e brea2 occurred in 19A9 and not
be.ore. 1. course, t)is does not +reclude t)e +ossibility t)at t)e roots o. t)e brea2 are to be
.ound in t)e +eriod +recedin% t)e ban2in% colla+se (see, .or instance, 7e <ri0oy (2000)).
()e situation )as not %otten bac2 to nor!al sinceO t)e +eriod 1997>200" does not
loo2 statistically di..erent .ro! 19A9>199, in ter!s o. t)e non>oil &7@ elasticity o. real
+ri0ate credit. 6nterestin%ly, t)e elasticity o. +ri0ate credit 5it) oil &7@ is 4ust 0.2 and not
' ()is co!+utation is done in lo%s and allo5s .or a ti!e trend.
, ()is is based on 5it)in 0ariation in a yearly sa!+le o. 13' countries bet5een 19,0 and 200".
7 +>0alue lo5er t)an 0.1C
11
statistically si%ni.icant. 1il>related %ro5t) does not see! +articularly use.ul .or t)e
de0elo+!ent o. t)e do!estic .inancial syste!.
6t can still be t)e case t)at 5)at )a++ened to ?enezuelaBs ban2in% syste! can be
e*+lained 5it) its de+endency to oil or to its 8atin A!erican location. A.ter all real oil +rices
.ell by 22C in t)e 19AA>199A decade and t)e +eriod includes t)e Ar%entine and Me*ican
colla+ses.
3i%ure 1' s)o5s t)e e0olution o. +ri0ate credit to &7@ a0era%ed o0er t)e 8atin
A!erican and t)e %rou+ o. oil>de+endent countries. ()e e0olution o. +ri0ate credit in
?enezuela is 0ery consistent 5it) 5)at 5as )a++enin% in t)ese t5o %rou+s +rior to 19A9.
tartin% in 19A9 ?enezuelaBs ban2in% sector +arts a5ay 5it) t)at o. t)e co!+arable %rou+s.
/ot) series did %ro5 slo5er in t)e early 1990s 5)en co!+ared to t)e 19,0s and 1970sO
)o5e0er by 2000 t)ey )ad bot) easily sur+assed t)eir +re0ious record le0els. 3or 8atin
A!erica, t)e 19AA>199A decade 5as in .act t)e best e0er in ter! o. ban2in% syste!
dee+enin%. ()e lin2 to oil does not see! +articularly rele0ant eit)erH alt)ou%) real oil +rices
.ell, t)is decrease 5as !uc) s!aller t)an t)at o. 19A0>19AA (,0C) 5)en real credit re!ained
stable. Also, oil inco!e actually increased by 2,C durin% t)e +eriod .ueled by t)e sur%e in
+roduction.
"rief Anatomy of the Collapse
6n order to e*+lore 5)at )a++ened to ?enezuelaBs ban2in% syste! around t)e
colla+se 5e ta2e a loo2 at -uarterly data .or a nu!ber o. indicatorsA. 3i%ure 1A ta2es a loo2 at
real credit to t)e +ri0ate sector and real assets, 3i%ure 19 at t)e sources o. .inancin% used by
ban2s, 3i%ure 20 at reser0es, and 3i%ure 21 at interest rates.
A ()ese data co!e .ro! 6M3Bs 6nternational 3inancial tatistics.
12
$eal de+osits start .allin% s)ar+ly in !id 19A7 5)en !onetary +olicy turns 0ery
contracti0e in t)e .ace o. increasin% in.lation. 6nitially t)e colla+se in real de+osits did not
translate into a colla+se in ban2Bs assets. 9+ until 7ece!ber 19AA t)e .all in de+osits 5as
.inanced 5it) .orei%n borro5in% and ca+italization (see 3i%ure 19). 3orei%n .inancin% driesu+
.ollo5in% t)e balance o. +ay!ents crisis o. 19A9. 3i*ed no!inal lendin% rates and
!ountin% in.lation, and t)e inability to .inance t)e loss o. de+osits start ta2in% a bi% toll on
ban2 +ro.itability. /an2 losses start s)o5in% u+ as reduced ca+ital, so t)at t)e continuin% .all
in de+osits .inally traduces into a colla+se in credit to t)e +ri0ate sector.
6s t)en t)e colla+se in +ri0ate credit si!+ly t)e re.lection o. t)e inability o. ban2s to
e*tend creditP =ot li2ely. ()e .all in credit 5ent !uc) .urt)er t)an 5)at can be e*+lained
si!+ly 5it) t)e be)a0ior o. de+osits, .orei%n .inancin%, and ca+ital. :0en a.ter 1991, 5)en
bot) real de+osits and assets bounced stron%ly and all but returned to t)eir le0els in t)e .irst
)al. o. t)e 19A0s, +ri0ate credit 5as still around ,0C lo5er. ()e ratio o. +ri0ate credit to
ban2 assets t)at )ad been 0ery stable since t)e 19,0s at 7'C .ell to around ''C in 19A9 and
re!ained t)ere .or t)e .ollo5in% t)ree years (3i%ure 1A). ()e ban2sB c)an%e in co!+osition
o. assets to5ards $eser0es and Central /an2 +a+er >attracted by 0ery )i%) +ositi0e real rates
.ollo5in% t)e end o. t)e interest rate controls> .ully e*+lains t)e dro+ in t)e ratio o. +ri0ate
credit to assets (3i%ure 20). 6ndeed, as t)e +ost>de0aluation in.lation receded, no!inal rates
re!ained -uite )i%), and real rates turned +ositi0e t)rou%) t)e 1991>93 +eriod .or t)e .irst
ti!e in !ore t)an 10 years.
/y !id 1993 in.lation starts %ettin% out o. control a%ain and by !id 199" real rates
)ad %one bac2 to t)e ne%ati0e side. A )u%e increase in Central /an2 credit to t)e ban2s >
neutralizin% t)eir ca+ital losses > and t)e .ollo5in% reca+italization co!+ensated t)e .all in
de+osits t)at at t)at +oint 5as +retty !odest. 8ac2 o. coordination in addressin% t)e early
colla+se o. /anco 8atino dee+ened t)e lost o. trust in t)e syste!. ;it) t)e Central /an2
13
un5illin% to 2ee+ lendin% lar%e su!s to troubled ban2s %i0en t)e inacti0ity o. t)e
%o0ern!ent, 3o%a+e lac2in% su..icient .unds, and sound ban2s !issin% t)e incenti0es to
co!e to t)e rescue +artly due to t)e lac2 o. a le%al .ra!e5or2 .or !er%ers and ac-uisitions,
t)e crisis beca!e syste!ic.
@ri0ate credit colla+sed once a%ain as ban2s s)i.ted to5ards )oldin% Central /an2
+a+er and reser0es (total reser0es). =e5 ris2>5ei%)ted ade-uacy ratios, enacted as +art o. t)e
199" /an2in% 8a5, boosted t)e incenti0e to in0est in zero>ca+ital re-uire!ent assets. 7urin%
199, real de+osits catc) u+ and start .allin% s)ar+ly.
/y !id 199,, 5)en t)e crisis reac)es its trou%), ban2s 5ere )oldin% as !uc)
reser0es as +ri0ate credit. ince t)e reco0ery total reser0es )a0e re!ained bet5een 20C and
"0C o. assets, and t)e be)a0ior o. real +ri0ate credit )as !ore or less !irrored t)at o. real
de+osits as 5as t)e case be.ore t)e late 19A0s. ()e ratio o. +ri0ate credit to assets reco0ered
its +re>199"U9' crisis le0el but ne0er a%ain reac)ed t)e le0el o. t)e 19,0s, 1970s and !ost o.
19A0s. ()e ratio )as been relati0ely constant at around '0C in t)e +ast 10 years.
hy did Credit Collapse!
A .irst +otential %eneric e*+lanation .or t)e .inancial colla+se is t)at %ro5t) caused
t)e colla+se in credit 5)ic) t)en a!+li.ied t)e initial .all in %ro5t). 6n (able 3 5e e*+lore
t)is story by conductin% &ran%er>causality tests .or a nu!ber o. yearly real acti0ity
a%%re%ates in t)e last "0 years. ()ese tests do not establis) causality in t)e econo!ic sense
but do )el+ at least in deter!inin% 5)ic) sectors !i%)t res+ond !ore to t)e .luctuations o.
ban2sB +ri0ate credit and 5)at is t)e se-uence o. e0ents. ;e .ocus on establis)in% causality
in t)e ection ". ()e tests consist on c)ec2in% 5)et)er +ast 0alues o. +ri0ate credit )a0e
si%ni.icant e*+lanatory +o5er .or acti0ity o0er and abo0e 5)at is e*+lained by t)e dyna!ics
1"
o. acti0ity itsel.. 1ur +articular s+eci.ication uses real %ro5t) rates and includes t5o la%s. ;e
also tested 5it) t)e 0ariables in lo%s +lus a trend obtainin% 0ery si!ilar results.
3or t)e entire 19,3>2003 +eriod one cannot re4ect t)at total &7@ %ro5t) does not
cause real +ri0ate credit %ro5t) nor t)at +ri0ate credit does not cause &7@ (see t)e .irst ro5
o. (able A). ;)ile t)e .or!er is true also .or eac) sub +eriod (be.ore and a.ter t)e colla+se),
5e do .ind so!e e0idence t)at t)e .inancial dee+enin% o. t)e 19,0s and 70s did contribute to
(!ore +recisely antici+ate) t)e ra+id %ro5t) durin% t)ose years. ()e second ro5 s)o5s t)at
t)is is +articularly t)e case .or non>oil &7@ .or 5)ic) 5e cannot rule out &ran%er>causality
.or t)at (and also t)e entire) +eriod. ()ere a++ears to be si%ni.icant .eedbac2 into t)e %ro5t)
o. t)e ban2in% syste! .or 5e can also re4ect t)e )y+ot)esis o. no causality %oin% .ro! nonoil
&7@ to +ri0ate credit.
6n t)e ne*t t5o colu!ns 6 s+lit non>oil &7@ into t)e tradable and t)e non>tradable
co!+onents. ;e de.ine a%riculture, !inin%, and !anu.acturin% as tradable and let t)e rest o.
t)e non>oil econo!y be t)e non>tradable +art. ()e ability o. bot) co!+onents in e*+lainin%
.uture +ri0ate credit is -uite stron% bot) be.ore and a.ter t)e colla+se. ()e )i%) de%ree o.
.inancial de0elo+!ent be.ore t)e colla+se see!s to )a0e bene.ited t)e non>tradable sector
!uc) !ore clearly t)an t)e tradable one. 6n .act, 5)ile 5e easily establis) causality .ro!
%ro5t) to +ri0ate credit in bot) +eriods, it doesnBt 5or2 t)e ot)er 5ay around. ()is is not
sur+risin% .or !ost tradable .ir!s (i!+orters and e*+orters, in +articular) are !uc) !ore
li2ely to )a0e access to bot) su++lier and ban2 credit .ro! o0erseas. (raded %oods can be
used as collateral because t)ey can be consu!ed by t)e .orei%n lender and t)eir 0alue does
not correlate as stron%ly 5it) t)e business cycle as t)at o. non>tradable ones (see /raun and
$addatz (200,)).
6n t)e ne*t t5o ro5s 5e s+lit 0alue added in t)e !anu.acturin% sector into t5o
co!+onents based on t)e natural de!and .or e*ternal .inancin% o. di..erent industries. 6n
1'
order to do so 5e use s+lit all t)e non>oil related industries accordin% to t)e !edian o. $a4an
and Zin%ales (199A)Bs !easure o. e*ternal .inance de+endence. ()e !easure corres+onds to
t)e s)are o. ca+ital e*+enditure t)at is not .inanced 5it) internal .unds co!+uted .or 9..
listed .ir!s t)rou%) t)e 19A0s, and a%%re%ated into 66C>3 industries. ()e actual use o.
e*ternal .inance is associated 5it) t)e desired a!ount in 0ie5 t)at t)ese lar%e .ir!s listed in
(by !ost !easures) t)e !ost de0elo+ed .inancial !ar2et are not 0ery li2ely to be +articularly
constrained. 6. t)is de!and is a relati0ely stable tec)nolo%ical or industry c)aracteristic, 5e
can use t)is !easure not only .or t)e 9.. but .or ot)er countries as 5ell as an e*o%enous
!easure o. t)e de!and .or e*ternal .unds. 7ata on t)e %ro5t) o. t)e di..erent industries is
obtained .ro! 9=671Bs 6ndstat dataset. ;e )a0e e*cluded t)e oil>related industries
(@etroleu! $e.ineries and Miscellaneous @etroleu! and Coal +roducts) to !a2e t)e
conclusions robust to t)e e0olution o. t)e in.luential sector. (able 9 +resents t)e !easure .or
t)e di..erent industries. 6nterestin%ly durin% t)e .inancial crisis +eriod, +ri0ate credit a++ears
to &ran%er>cause %ro5t) in t)e )i%)ly e*ternal .inance de+endence sectors, so!et)in% t)at is
not .ound .or t)e less de+endent industries. /e.ore t)e colla+se t)e o++osite see!s to be true.
10erall t)e e0idence is not 0ery su++orti0e o. t)e %ro5t) colla+se causin% t)e credit
colla+se )y+ot)esis. Alt)ou%) %ro5t) see!s to )a0e a +ositi0e e..ect on credit, t)is is !ainly
dri0en by t)e +re>crisis +eriod, 5)en credit 5as eit)er e*+andin% 0ery .ast or sta%natin%. ()e
causality .ro! %ro5t) to credit disa++ears in t)e crisis +eriod 5)en usin% t)e a%%re%ate and
non>oil &7@ series. ()e causes o. t)e colla+se, t)en, a++ear to reside !ore on t)e ban2in%
sector and not Jat least +ri!arily> on 5)at )a++ened to t)e econo!y.
A second +otential e*+lanation .or t)e credit colla+se is t)e con0entional cro5din%
out story 5)ereby a .iscal colla+se increases t)e +ublic>sector de!and .or .unds, s)ar+ly
raisin% interest rates. Hi%) rates discoura%e ban2s .ro! lendin% to t)e +ri0ate sector because
1,
o. in.or!ational asy!!etries (!oral )azard and ad0erse selection), and discoura%e +ri0ate
borro5ers .ro! ta2in% on loans.
A nu!ber o. .acts Jso!e o. 5)ic) 5e already docu!ented> see! consistent 5it) t)is
)y+ot)esis. 3irst, bot) e+isodes o. credit colla+se are +receded by a cou+le o. years o. stron%
re0ersals in .iscal accounts. econd, t)ese sa!e e+isodes o. increase de!and .or %o0ern!ent
.inancin% coincide 5it) +eriods in 5)ic) .orei%n .inancin% )ad beco!e !ore strin%ent,
lea0in% t)e do!estic .inancial syste! as t)e only source o. .inancin%. ()ird, in t)e absence
o. si%ni.icant c)an%es in t)e su++ly o. credit and !ore strin%ent .orei%n borro5in%
conditions, real rates 5ere bound to rise si%ni.icantly. And t)ey certainly did. 6n .act, as 5e
)a0e seen, .or t)e .irst ti!e in !any years t)ey turned +ositi0e and re!ained 0ery )i%)
t)rou%)out t)e 19A9>199" credit colla+se +eriod (3i%ure 21). 3ourt), ban2s do not a++ear to
)a0e been unable but rat)er un5illin% to lend to t)e +ri0ate sector. /an2 ca+ital and assets
declined .ar less t)an +ri0ate credit. 3i.t), ban2s indeed increased +ublic>sector lendin%
substantially. ()is e*+lains al!ost entirely t)e .all in real +ri0ate credit.
#ow deep was the collapse!
6n 3i%ure 1, 6 construct t)ree benc)!ar2sH t)e .irst one based solely on t)e +re>19A9
relation bet5een +ri0ate credit and &7@ in ?enezuela (in lo%s, and allo5in% .or a ti!e trend
and 2 la%s .or &7@), t)e second one based on t)e +re>19A9 relation bet5een ?enezuelaBs
+ri0ate credit series 5it) t)ose o. t)e a0era%e 8atin A!erican and oil>de+endent country (in
lo%s and allo5in% .or a ti!e trend), and t)e t)ird one based on bot) relations. ()ese
benc)!ar2s i!+ly, res+ecti0ely t)at by t)e !id 2000s ?enezuelaBs stoc2 o. +ri0ate credit
s)ould )a0e been ".", 10.,, and 2.9 ti!es lar%er t)an it actually 5as. ()e a0era%e o. t)ese
0alues ('.9) is not 0ery .ar .ro! t)e !a%nitudes 5e obtained based solely on cross>country
co!+arisons and t)e +ersistence o. t)e indicators (".' and '.,, res+ecti0ely).
17
9sin% t)e t)ird benc)!ar2, 3i%ure 17 as2s )o5 !uc) o. t)e !isali%n!ent is due to
eac) o. t)e !ayor crises t)at .or! t)e colla+seH t)e 19A9 stabilization and t)e 199" ban2in%
crisis. 6t turns out t)at eac) o. t)e crises e*+lains around )al. t)e de0iation .ro! t)e e*+ected
t)at 5e see today.
-! The Real Effect of VenezuelaI #inancial 8ytem Collape
?enezuelaBs .inancial syste! 5as not al5ays as underde0elo+ed as it is today. A
cou+le o. bi% crises startin% in t)e late 19A0s too2 t)e syste! .ro! a le0el consistent 5it) t)e
countryBs econo!ic de0elo+!ent to 5)at it is no5. ()is, t)e !ain section o. t)e +a+er, tries
to deter!ine 5)et)er t)e credit crunc) )ad si%ni.icant real e..ects on t)e econo!y. ;e
e*+loit a nu!ber o. di..erent datasets to ta2e a loo2 at t)e issue .ro! a nu!ber o. di..erent
an%les. (o t)e ti!e>series a%%re%ate e0idence o. t)e last section 5e add e0idence .ro! crosssectional
!ana%erBs +erce+tions and e*+ectations, industry +anel, and listed>.ir!s +anel.
$erceptions %&ur'ey E'idence
()e ;orld /an2Bs 7oin% /usiness ur0ey is conducted in a lar%e nu!ber o.
countries 5it) t)e %oal o. deter!inin% t)e !ain conditions t)at eit)er enable or constrain
business. 6n eac) country it as2s t)e 0ie5s o. !ana%ers o. around 100 .ir!s. 6n addition to
recordin% t)e 0ie5s on t)e !ayor constraints .aced in doin% business, t)e dataset includes a
nu!ber o. c)aracteristics o. t)e .ir!s and, i!+ortantly, t)e e*+ectations about .uture
in0est!ent and %ro5t). 1ne o. t)e !ain sub4ects o. t)e sur0ey is .inancin%. 6n t)is section 5e
as2 5)et)er !ana%ersB +erce+tions about t)e i!+ortance o. lac2 o. .inancin% are consistent
5it) 5)at t)e !acro data s)o5, and e*+lore 5)et)er it !atters .or t)eir .uture
+lansUe*+ectations.
1A
(able 3 s)o5s t)at, 5)en co!+ared to ot)er +roble!s, o0erall !ana%ers do not
+ercei0e lac2 o. .inancin% as a !ayor obstacle to doin% business in ?enezuela. @olitical
instability, in.lation, and cri!e see! to t)e! !uc) !ore i!+ortant. $elati0e to ot)er
countries, bot) +oor and ric), t)e +osition o. .inancin% in t)e ran2 is -uite lo5. ()is does not
!ean t)at .inancin% is uni!+ortant in ?enezuelaO it 4ust !eans t)at t)ere are ot)er !ayor
constraints. 6n .act, 31.3C o. t)e !ana%ers sur0eyed res+onded t)at .inancin% 5as a !ayor
constraint, a !uc) lar%er .i%ure t)an in t)e 1:C7 ((able "). till, 5)en co!+ared to t)e
a0era%e country, countries in 8atin A!erica and to countries o. si!ilar de%ree o.
de0elo+!ent, ?enezuelan !ana%ers do not .eel +articularly constrained by lac2 o. .inancin%.
()e +icture t)at e!er%es .ro! (able ', 5)ic) s)o5s t)e sources o. .inancin% used by
t)e .ir!s, is so!e5)at di..erent. More consistent 5it) t)e lo5 ratio o. +ri0ate credit to &7@,
ban2 .inancin% accounts .or a !ere 1'.'C o. t)e total in ?enezuela. ()is .i%ure is 1'
+ercenta%e +oints lo5er t)an 5)at 5ould be e*+ected %i0en t)e countryBs inco!e le0el and
its %eo%ra+)ical re%ion9. 1n t)e ot)er side o. t)e coin internal .inancin%, 5)ic) includes
retained earnin%s and .a!ily .inancin%, accounts .or ,0C o. t)e total, 22.3 +oints lar%er t)an
e*+ected and also 0ery si%ni.icant in statistical ter!s.
At least in ter!s o. t)e 5ay t)ey actually .inance t)eir o+erations, !ana%ers in
?enezuela be)a0e as i. t)ey 5ere .inancially constrained. @er)a+s t)ey 4ust do not e*+ress it
directly because lac2 o. .inancin% is o0ers)ado5ed by ot)er i!+ortant .actors suc) as
+olitical instability and in.lation uncertainty. ()ese can certainly )a0e an e..ect on %ro5t)
o++ortunities and t)ere.ore on t)e de!and .or e*ternal .unds. Ho5e0er, t)e !i* bet5een t)e
internal and e*ternal .inancin% o. t)e in0est!ent t)at is actually done is !ore consistent 5it)
a su++ly story, na!ely 5it) t)e ban2in% syste! not bein% able to +ro0ide t)e .unds >or at
least not at conditions t)at !ana%ers are 5illin% to acce+t. 6t is li2ely t)at (+ast and actual)
9 +>0alue lo5er t)an 0.1C.
19
instability increases +ercei0ed credit ris2 and ends u+ in )i%) interest rates. 6n .act, 5)en
as2ed about t)e s+eci.ic issues t)at li!it t)eir access to e*ternal .inance !ana%ers na!e )i%)
interest rates on to+ o. e0eryt)in% else.
/ut, does it !atter .or in0est!ent and (ulti!ately) .or %ro5t)P 6n t)e end internal and
e*ternal .unds, alt)ou%) not al5ays +er.ect ones, are in essence substitutes. Also, a.ter al!ost
t5o decades o. 5or2in% 5it) al!ost no .inancial syste! on 5)ic) to rely, !ana%ers !i%)t
)a0e co!e u+ 5it) ot)er J+er)a+s in.or!al> !ec)anis!s to .inance in0est!ent. (able ,
s)o5s t)at, 5it)in ?enezuelan !ana%ers, e*+ected .uture in0est!ent %ro5t) is 0ery
si%ni.icantly correlated 5it) t)e 0ie5s o. !ana%ers about 5)at 5ill )a++en to t)e .ir!Bs debt.
()is is true e0en a.ter controllin% .or in0est!ent o++ortunities (+ro*ied 5it) t)e e*+ected
rate o. %ro5t) .or sales), and t)e +erce+tion o. ot)er .actors li!itin% t)e ability to do business
(+ro*ied 5it) t)e a0era%e i!+ortance o. non>.inancial constraints). :*+ected e*ternal
.inancin% is also )i%)ly correlated 5it) t)e e*+ected %ro5t) in e!+loy!ent and e*+orts.
All t)is su%%ests t)at e*ternal .inancin% is +ercei0ed to be an i!+ortant +art o. t)e
.uture %ro5t) +icture. Ho5e0er, correlation does not establis) causality. An i!+ortant +art o.
t)e story is +robably in0est!ent causin% increased de!and .or all 2inds o. .unds, includin%
debt. ()is +roble! is, o. course, not ne5 in t)e real>e..ects>o.>.inance literature. 1ne 5ay in
5)ic) it )as been dealt 5it) is by loo2in% at 5)et)er t)e .inancin% or in0est!ent be)a0ior
di..ers across .ir!s. 3azzari, Hubbard, and @etersen (19AA) in +articular +ro+ose loo2in% at
t)e sensiti0ity o. in0est!ent to t)e a0ailability o. internal .unds. 6n a 5orld 5it) no .inancial
.rictions >5)ere internal and e*ternal .unds are +er.ect substitutes> in0est!ent s)ould not
de+end at all on t)e a0ailability o. internal .unds, but only on t)e e*istence o. %ro5t)
o++ortunities. A lar%e literature )as establis)ed t)at t)ese sensiti0ities are si%ni.icantly
+ositi0e and +articularly so .or .ir!s !ore li2ely to be a+priori .inancially constrained (s!all,
o+a-ue, $^7 intensi0e, etc.).
20
(able 7 loo2s at t)is in t)e conte*t o. t)e !ana%ersB sur0ey in ?enezuela. ;e e*+lore
t)e e*tent to 5)ic) .uture in0est!ent can be e*+lained 5it) %ro5t) o++ortunities 0is>`>0is
internal cas). ;e !easure %ro5t) o++ortunities 5it) t)e !ana%erBs e*+ectation o. .uture
sales %ro5t), and t)e a0ailability o. internal .unds 5it) +ast sales %ro5t). ()ese !easures are
not +er.ectH e*+ectations o. .uture sales %ro5t) are endo%enous to in0est!ent, and +ast sales
%ro5t) Jalt)ou%) a !easure o. +ast success> !i%)t be only 5ea2ly correlated 5it) t)e stoc2
o. cas). 1n t)e ot)er )and, t)e a++roac) is -uite robust to t)e !ain criticis! to t)e related
literatureH %ro5t) o++ortunities are !easured 5it) si%ni.icant error t)at is li2ely to be
correlated 5it) cas) or cas) .lo5s. Here 5e )a0e a !uc) !ore direct !easure .or %ro5t)
o++ortunities (t)e o+inion o. t)e !ana%er), and t)e cas) .lo5 +ro*y is !uc) !ore li2ely to be
e*o%enous. Also, 5e are not +articularly interested on t)e absolute !a%nitude o. t)e
coe..icient o. eac) 0ariable but rat)er on )o5 t)ey co!+are to eac) ot)er across sa!+les o.
.ir!s !oreUless li2ely to be .inancially constrained. ;e loo2 at a%e, size, and .orei%n
o5ners)i+. !all .ir!s 5ill .ind it )arder to access e*ternal .inance %i0en t)e i!+ortance o.
.i*ed costs in !onitorin% and screenin%. Koun% .ir!s 5ill ty+ically be !ore o+a-ue si!+ly
because t)ey lac2 a trac2 record. ()ese t5o !easures )a0e been e*tensi0ely used be.ore as
+ro*ies .or t)e li2eli)ood t)at a .ir! is .inancially constrained. (o t)ese 5e add .orei%n
o5ners)i+ on t)e assu!+tion t)at t)e o0erseas o5ner )as access to !ore de0elo+ed .inancial
syste!s. Considerin% t)e +osition o. ?enezuela in t)e .inancial de0elo+!ent ran2in% t)is is
-uite li2ely t)e case e0en i. t)e o5ner 5ere not .ro! a ric) country.
10erall, t)e results s)o5 t)at 5)ile in0est!ent o++ortunities ty+ically enter in a
+ositi0e and si%ni.icant 5ay, t)e a0ailability o. internal .unds is less robustly correlated 5it)
e*+ected in0est!ent %ro5t). ()e related literature ty+ically .inds a stron% +ositi0e coe..icient
.or cas) .lo5 but .ail to .ind si%ni.icance .or %ro5t) o++ortunities. ()is di..erence is natural
and %oes in t)e sa!e direction as t)e relati0e i!+ro0e!ent 5e !a2e in t)e !easure!ent o.
21
t)e t5o 0ariables. ()e i!+ortance o. non>.inancial constraints is %enerally ne%ati0e but
insi%ni.icant. More to t)e +oint, 5)en co!+arin% t)e re%ression coe..icients across t)e
%rou+s it is clear t)at relati0e to t)e a0ailability o. internal .unds in0est!ent o++ortunities are
!uc) i!+ortant in t)e relati0ely .inancially>unconstrained %rou+s. 6n all cases, t)e coe..icient
.or %ro5t) o++ortunities is lar%er and !ore si%ni.icant in t)e unconstrained %rou+, 5)ile
e*actly t)e o++osite is .ound .or t)e coe..icient .or internal .unds. ()e last ro5 o. t)e table
s)o5s t)at 5)ile 5e cannot re4ect t)at bot) coe..icients are e-ual in any o. t)e constrained
%rou+s, 5e are able to re4ect t)e )y+ot)esis in eac) o. t)e unconstrained ones.
;e inter+ret t)e set o. results in t)is section as su%%estin% t)at in0est!ent in
?enezuela is today i!+ortantly deter!ined by t)e a0ailability o. e*ternal .unds. ()e li!ited
a!ount o. e*ternal .unds a0ailable i!+lies t)at s!all, youn%, and local .ir!s cannot in0est
.ully into t)eir o++ortunities and %ro5 as .ast as t)ey could.
(ndustry)le'el E'idence
;e already +ro0ided so!e e0idence on t)e e0olution o. +ri0ate credit &ran%ercausin%
%ro5t) es+ecially in t)e non>tradable sector, and in t)e )i%) e*ternal .inance
de+endence tradable one. 6n t)is section 5e ta2e a closer loo2 at t)e !anu.acturin% industry
data t)at consist on yearly obser0ations .or 2, !anu.acturin% industries .or t)e 19,3>199A
+eriod. 8oo2in% at a +anel o. industries )as t5o i!+ortant ad0anta%es o0er 4ust considerin%
a%%re%ates. ()e .irst one is t)at one is better able to control .or o!itted 0ariable bias by
.ocusin% on )o5 industries di..er in a +articular !o!ent in ti!e and not 4ust on )o5 eac)
+articular one e0ol0es. (i!e>0aryin% .actors co!!on to all industries can be controlled .or.
()e second bi% ad0anta%e is t)at t)e endo%eneity concerns are eased si%ni.icantly. Alt)ou%)
it is -uite li2ely t)at t)e entire non>oil tradable sector a..ects in so!e 5ay t)e e0olution o.
+ri0ate credit t)rou%) a de!and c)annel, it is not 0ery li2ely t)at 5)at )a++ens in one
22
+articular sector t)at re+resents at !ost around 1C o. &7@ a..ects t)e entire ban2in% syste!.
()ese 2ind o. data also allo5s to be !ore s+eci.ic about t)e s+eci.ic !ec)anis! t)rou%)
5)ic) t)e a0ailability o. .inance !atters .or %ro5t).
()ere is by no5 a lar%e literature usin% t)is !et)odolo%y and si!ilar data. ()e %oal
)as been establis)in% t)at .inance does !atter .or real outco!es and t)e li2ely !ec)anis!s at
5or2. $a4an and Zin%ales (199A) s)o5ed t)at, relati0e to less de+endent ones, industries t)at
are )i%)ly de+endent on e*ternal .inancin% %ro5 slo5er in countries 5it) +oor .inancial
de0elo+!ent (!easured as +ri0ate credit to &7@). /raun and 8arrain (200') si!ilarly
+ro0ided e0idence .or t)e .inancial c)annel o. t)e business cycle by s)o5in% t)at !ore
de+endent industries .are !uc) 5orse relati0e to ot)ers durin% recessions in countries 5it)
less de0elo+ed .inancial syste!s. 3inally, <roszner et al (2002) s)o5ed t)at t)e %ro5t) o.
t)ese sa!e industries is t)e !ost a..ected durin% .inancial crises.
;e start 5it) t)is last +iece o. e0idence and as2 5)et)er t)is 5as indeed t)e case
durin% ?enezuelaBs 19A9>199, .inancial colla+se. ()e ans5er 5e %et in (able 10 is yes. ()e
.irst colu!n s)o5s t)at t)e 19A9>9, +eriod is associated 5it) an a0era%e decrease in
!anu.acturin% real 0alue added %ro5t) o. '."C +er year or 3,C in total (beyond 5)at is
+redicted by !ean re0ersion alone). ()e dro+ 5as not )o!o%eneous across industries,
)o5e0er. Colu!n 2 s)o5s t)at t)e .all 5as increasin% 5it) t)e de%ree o. e*ternal .inance
de+endence, and 0ery si%ni.icantly so (see t)e coe..icient .or t)e interaction bet5een t)e
credit colla+se +eriod and t)e industry e*ternal .inance de+endence). ()e ty+ical )i%)ly
de+endent industry sa5 its %ro5t) rate .all " +ercenta%e +oints .aster a year t)an t)e ty+ical
less de+endent one (>,.AC 0s. >3.3C). 6n .act, .or t)ose industries 5it) lo5er t)an !edian
de+endence, t)e credit crunc) 5as not e0en associated 5it) statistically lo5er %ro5t) rates.
Assu!in% t)at less de+endent industries are si!+ly una..ected by credit crunc)es, and %i0en
t)at t)ese industries re+resented about ,0C o. non>oil !anu.acturin%, t)ese results su%%est
23
t)at t)e .all in !anu.acturin% %ro5t) could )a0e been cut in !ore t)an )al. )ad t)e colla+se
in credit been a0oided.
=otice t)at )ere 5e are e*+licitly controllin% .or syste!atic di..erences in t)e %ro5t)
rate across sectors in t)e ?enezuelan data 5it) t)e inclusion o. t)e industryBs e*ternal .inance
de+endence .i%ure. Colu!ns t5o t)rou%) .our c)ec2 t)at t)e result is not dri0en by t)e
o!ission o. eit)er industry c)aracteristics or 5)at 5as )a++enin% eac) +articular year by
addin% to t)e s+eci.ication industry .i*ed e..ects, year .i*ed e..ects, and t)en bot) at t)e
sa!e ti!e. 6n all cases t)e .inancial de+endence colla+se interaction enters ne%ati0ely and in
a statistically si%ni.icant 5ay, 5)ile t)e coe..icient is re!ar2ably si!ilar.
6t could still be ot)er o!itted industry c)aracteristics correlated 5it) e*ternal .inance
de+endence and t)at )a++en to be a..ected di..erently by crises t)at are dri0in% t)e results. (o
c)ec2 t)is, 5e added t)ree industry c)aracteristics t)at !i%)t !atter in e*+lainin% %ro5t) in
ti!es o. econo!ic distressH t)e de%ree o. tradability o. t)e %ood, and 5)et)er it is durable or
an in0est!ent %ood10. ()e interaction .or t)e de%ree o. tradability enters si%ni.icantly
+ositi0e. ()is is consistent 5it) t)e .act t)at, des+ite t)e .allin% trend, t)e 19A9>9, +eriod 5as
one o. )i%) real e*c)an%e rate by )istorical standards i!+lyin% )i%)er relati0e +rices .or
tradable +roducers (!ore +recisely, .or t)ose t)at are more tradable since all industries
belon% to t)e !anu.acturin% sector 5)ic) is -uite tradable as a 5)ole). ;)et)er an industry
+roduced eit)er a durable or in0est!ent %ood see!ed not to !atter !uc) durin% t)e colla+se
in credit.
()e credit colla+se indeed a..ected !ore stron%ly t)ose industries t)at are su++osed
to be !ore reliant on ban2 credit .or .inancin% in0est!ent. ()is >to%et)er 5it) t)e .act t)at
credit a++ears to &ran%er>cause t)e %ro5t) o. t)e )i%)ly de+endent a%%re%ate durin% t)is
10 All t)ese 0ariables are co!+uted usin% 9.. data. 7etails on t)e e*act de.initions can be .ound on /raun
and 8arrain (200').
2"
+eriod> )ints at a su++ly>side e*+lanation, a real e..ect o. t)e inter!ediation crunc). 6t also
su%%ests t)at !isallocation o. resources across sectors is a critical +iece o. t)e !ec)anis!
t)rou%) 5)ic) .inance a..ects %ro5t). ;ur%ler (2000) +ro0ides so!e e0idence on t)e issue
by s)o5in% t)at in less de0elo+ed settin%s in0est!ent is less res+onsi0e to c)an%es in %ro5t)
o++ortunities. He !easures t)is by co!+utin% a 0alue>added %ro5t) elasticity o. in0est!ent
%ro5t) usin% +ooled industry data .or a decade in eac) o. a lar%e nu!ber o. countries. 8ess
.inancially de0elo+ed countries e*)ibit lo5er elasticities, !eanin% t)at t)ey do not ra+idly
cut in0est!ent in declinin% sectors and increase it in boo!in% ones. ()is is ta2en as e0idence
o. t)e i!+ortant allocation role o. ca+ital !ar2ets.
6n 5)at .ollo5s 5e c)ec2 5)et)er t)e -uality o. allocation o. resources declined
.ollo5in% t)e credit crunc) relati0e to its le0el 5)en credit 5as +lenti.ul, as ;ur%lerBs crosscountry
analysis 5ould i!+ly. ;e consider t)e 0alue>added elasticities o. in0est!ent %ro5t)
((able 11) and e!+loy!ent %ro5t) ((able 12). ()e .irst colu!n in eac) table s)o5s t)at
in0est!ent and e!+loy!ent %ro5t) are bot) si%ni.icantly sensiti0e to %ro5t) o++ortunities
5)en !easured 5it) real 0alue>added %ro5t). ()ey also s)o5 t)at t)e sensiti0ity declined
a.ter t)e credit colla+se, es+ecially in t)e case o. e!+loy!ent %ro5t) (not si%ni.icantly so .or
in0est!ent).
()e t)ird colu!ns add t)e interaction 5it) t)e de%ree o. e*ternal .inance de+endence,
s)o5in% t)at it is .or t)e set o. )i%)ly de+endent ones t)at t)e -uality o. allocation dro+s t)e
!ost. ()ese re%ressions rely on t)e +ooled data. 6n t)e ne*t t)ree colu!ns 5e e*+lore
5)et)er t)e !isallocation co!es +ri!arily .ro! not directin% t)e resources to5ards t)e ri%)t
industries in a %i0en !o!ent o. ti!e, or .ro! not directin% t)e resources to a +articular
industry in t)e +recise !o!ent, or .ro! bot). (o do t)is 5e add, in turn, industry and country
.i*ed e..ects. /y co!+arin% t)e coe..icients across t)ese colu!ns 5e obtain t)at in t)e case
2'
o. in0est!ent, !ost o. t)e e..ect co!es .ro! cross>industry !isallocation, 5)ile .or
e!+loy!ent t)e +roble! resides in not )irin% 5)en it see!s a++ro+riate.
Listed)*irms E'idence
()is section !a2es use o. ;orldsco+e data on a lar%e nu!ber o. listed .ir!s around
t)e 5orld .ro! t)e early 19A0s t)rou%) 2003. ;e are interested in deter!inin% 5)et)er lar%e,
listed .ir!s 5ere also a..ected by t)e credit colla+se or 5)et)er %i0en t)eir size and +re.erred
access to e*ternal .unds t)ey !ana%ed to esca+e .ro! it. ;e .ocus on !anu.acturin% .or
5)ic) data is !ore co!+arable across .ir!s and a%%re%ate t)e .ir!>le0el data into 66C>3
cate%ories to a0oid )a0in% t)e results de+endin% too !uc) on one +articular .ir!.
()e .irst colu!n in (able 13 contains t)e i!+le!entation o. 3azzari et al (19AA)Bs
s+eci.ication .or t)e '2 countries in our sa!+le. Consistent 5it) t)eir results, 5)ile (obinBs
R (t)e ratio o. !ar2et to boo2 0alue o. .ir!s) is not +articularly use.ul in e*+lainin%
in0est!ent, t)e a0ailability o. internal .unds (net inco!e o0er assets) is stron%ly +ositi0ely
correlated 5it) it. ()e second colu!n s)o5s t)at t)e i!+ortance o. %ro5t) o++ortunities
increases stron%ly across countries 5it) .inancial de0elo+!ent, 5it) t)e le0el o. +ri0ate
credit o0er &7@ in +articular. ()e role o. internal .unds declines 5it) .inancial de0elo+!ent,
alt)ou%) not si%ni.icantly so.
()ese results 5ould lead us to e*+ect t)at %i0en t)e e*tre!ely lo5 le0el o.
?enezuelaBs .inancial de0elo+!ent, in0est!ent t)ere 5ould be !uc) !ore conditioned by
t)e a0ailability o. internal .unds t)an in ot)er countries. As t)e t)ird colu!n s)o5s, t)is is
indeed t)e case. ()e coe..icient o. t)e interaction bet5een internal .unds a0ailable and t)e
?enezuela du!!y is not only )i%)ly si%ni.icant but also e*tre!ely lar%e, su%%estin% t)at
.ir!s t)ere are about ' ti!es !ore de+endent on internal .unds 5)en in0estin% t)an in t)e
a0era%e country. ()is %oes .ar beyond 5)at one 5ould e*+ect %i0en t)e relation in t)e
2,
+re0ious colu!n. ()is 5ould be consistent 5it) t)e .act t)at, as 5e sa5 in t)e .irst +art, t)e
.inancial syste! in ?enezuela is not only s!all but also not +articularly e..icient %i0en its
s!all size. ()e interaction 5it) (obinBs R is +ositi0e but not si%ni.icant.
6s t)is )i%)er de+endence o. in0est!ent on t)e a0ailability o. internal .unds related to
t)e 19A9>199, credit colla+seP ()e ne*t t)ree colu!ns o. t)e table as2 +recisely t)is by
.ocusin% on t)e ti!e series 0ariation o. t)e data 5it)in ?enezuela. ;e add to t)e basic
s+eci.ication t)e interaction 5it) a ti!e du!!y t)at ta2es a 0alue o. 1 i. t)e data corres+ond
to t)e years bet5een 19A9 and 199,, and zero ot)er5ise. ince t)e data .or ?enezuela s+ans
19AA t)rou%) 2001, 5e are basically as2in% 5)et)er t)e de+endence 5as )i%)er durin% t)e
credit colla+se 5)en co!+ared to t)e +ost>colla+se reco0ery +eriod. ()at 5as indeed t)e
caseH t)e de+endence on internal .unds al!ost doubled durin% t)e colla+se +eriod, 5)ile t)e
e..ect o. %ro5t) o++ortunities 5ent .ro! +ositi0e to essentially zero. ()is de+endence on
internal cas) )as continued to be -uite lar%e re.lectin% t)e .act t)at alt)ou%) +ri0ate credit
reco0ered so!e5)at in t)e late 1990s and early 2000s, it ne0er %ot bac2 to t)e +re>colla+se
le0els nor ac)ie0ed le0els !ore consistent 5it) t)e size o. t)e econo!y.
/y addin% industry and year .i*ed e..ects 5e can assess 5)et)er t)is e..ect is
e*+lained 5it) t)e inability to in0est unless one )as internal .unds at t)e ri%)t ti!e or in t)e
ri%)t sector. ()e results su%%est t)at it is a co!bination o. bot). 6. anyt)in%, )o5e0er, it
a++ears t)at t)e colla+se i!+acted relati0ely !ore stron%ly t)e cross>industry allocation o.
.unds (colu!n ') t)an t)e interte!+oral one (colu!n ,).
()e results .or listed .ir!s are 0ery consistent 5it) t)ose .ound .or t)e entire
econo!y in t)e +re0ious sections. ()is su%%ests t)at t)e stron%, ne%ati0e e..ects o. t)e credit
crunc) 5ere not li!ited to s!all .ir!s and +er)a+s relati0ely less +roducti0e, youn%er, and
!ore .ra%ile .ir!s, but e*tended t)rou%) t)e econo!y and e0entually reac)ed e0en t)e
lar%est and stron%est ones. Moreo0er, 5)ile t)in%s %ot e0entually better in t)e late 1990s, t)e
27
in0est!ent o. listed .ir!s in ?enezuela re!ains !uc) !ore de+endent on t)e a0ailability o.
internal .unds and less de+endent on .uture %ro5t) o++ortunities t)an in ot)er countries.
2! Concluion
A nu!ber o. i!+ortant .acts are clearly +resent in all t)e di..erent datasets 5e used to
assess bot) ?enezuelaBs actual le0el o. .inancial de0elo+!ent and its e0olution t)rou%) ti!e.
?enezuelaBs .inancial sector is !assi0ely underde0elo+ed. ()is is t)e case 5)en co!+ared to
any benc)!ar2H it is 0ery s!all relati0e to t)e econo!y in ter!s o. bot) ban2in%, and e-uity
and bond !ar2ets >e0en a.ter considerin% its oil>de+endency and bein% +art o. 8atin
A!erica>. =ot only t)at, but is also less e..icient t)an one 5ould e*+ect %i0en its size. ()in%s
5ere not t)e sa!e al5ays, )o5e0er. ?enezuela )ad a .inancial !ar2et t)at 5as consistent
5it) its econo!ic size until t)e late 19A0s. A series o. crunc)es >!ost li2ely ori%inated in
dee+ re0ersals in .iscal accounts t)at contributed to )i%) real interest rates> con.i%ured a
colla+se bet5een 19A9 and 199, .ro! 5)ic) ban2 credit to t)e +ri0ate sector ne0er really
reco0ered. As o. t)e !id 2000s, t)e size o. t)e .inancial sector in ?enezuela is bet5een " and
, ti!es s!aller t)an one 5ould e*+ect. An i!+ortant +art o. t)e story is t)e lar%e .all in t)e
ratio o. ban2 credit to t)e +ri0ate sector to ban2 assets. 6. t)is ratio 5ould 4ust %o bac2 to its
+re>colla+se le0el (or 5ere !ore si!ilar to ot)er countriesB) +ri0ate credit 5ould al!ost
double.
A colla+se o. t)is !a%nitude 5as bound to )a0e an i!+ortant e..ect on t)e real
econo!y. ur0ey e0idence indicates t)at, alt)ou%) !ana%ers do not +ercei0e lac2 o.
.inancin% as t)e !ost i!+ortant constraint to doin% business, t)ey be)a0e in a 5ay -uite
consistent 5it) t)e issue bein% a !ayor +roble!. =ot only t)ey rely !uc) !ore on internal
and .a!ily .unds .or .inancin%, but t)ey are not +articularly able to e*+loit t)eir %ro5t)
2A
o++ortunities. Access to (t)e li!ited) ban2 debt a++ears to be as i!+ortant as t)e e*istence o.
%ro5t) o++ortunities 5)en in0estin%, )irin%, and e*+ortin%, e0en a.ter controllin% .or ot)er
+ercei0ed constraints to doin% business. !all, local, and youn% .ir!s a++ear to be t)e !ost
a..ected.
()ese +erce+tions are con.ir!ed in t)e a%%re%ate data .or t)e econo!y. ()e
e0olution o. +ri0ate credit >its colla+se in +articular> )el+s +redict t)at o. t)e tradable sector
t)at is !ost de+endent on e*ternal .unds and t)e one o. t)e non>tradable sector, 5)ic) is
ty+ically less able to obtain .inancin% o0erseas. 1ur +anel o. !anu.acturin% industries
indicates t)at t)e colla+se o. credit indeed a..ected !ore stron%ly t)ose industries t)at are
su++osed to be !ore reliant on ban2 credit .or .inancin% in0est!ent. ()e -uality o. allocation
o. bot) e!+loy!ent and in0est!ent decreased si%ni.icantly .or t)ese sa!e sectors .ollo5in%
t)e .inancial crisis. 3inally, not e0en t)e lar%est .ir!s in t)e country (t)e listed ones) could
esca+e t)e e..ects o. t)e colla+seH t)ese sa5 t)eir de+endence on t)e a0ailability o. internal
.unds .or in0estin% increase si%ni.icantly. ()e cross>sectional allocation o. resources in t)e
econo!y a++ears to be in all cases t)e !ost a..ected. =ot only it a++ears t)at t)e .inancial
syste! ceased c)annelin% ca+ital to t)e +ri0ate sector, but also t)at t)e little a!ount t)ey
+ro0ided 5as not directed to t)e ri%)t borro5ers.
()e +a+er )as docu!ented a nu!ber o. real e..ects o. t)e .inancial colla+se usin%
-uite di0erse datasets. ()is is use.ul .or t5o reasons. 3irst, t)ey +ro0ide a robustness to t)e
analysis since t)e results do not see! to de+end too !uc) on t)e +articular s+eci.ication
c)osen nor on t)e data used. econd, t)e results turned out to be -uite consistent, and t)e
e..ects o. t)e colla+se to a..ect +retty !uc) e0eryone in t)e econo!y.
29
30
RE#ERE<CE8
Abiad, Abdul and Mody, As)o2a (2003). W3inancial $e.or!H ;)at )a2es 6tP ;)at )a+es
6tP,W American .conomic %e)iew 9' (1).
/a%e)ot, ;., a1999b 1A73. 8o!bard treet. ;iley 6n0est!ent Classics, Ho!e5ood, 68.
$e+rint.
/anco Central de ?enezuela (2001). M8as (asas de 6nterEs en ?enezuela, 7i0ersos
Criterios,N $e0ista /C? V? (2).
/ec2, (., 8e0ine $., 8oayza =., 2000. 3inance and t)e sources o. %ro5t). Iournal o.
3inancial :cono!ics 'A, 2,1J300.
/raun and 8arrain (200'). M3inance and t)e /usiness Cycle,N !he :ournal of (inance, Iuly.
/raun and $addatz (200'). M(rade 8iberalization and t)e @olitics o. 3inancial 7e0elo+!ent,N
<orl, "ank <orking Paper.
/raun and $addaz (200,). M(rade liberalization, Ca+ital Account 8iberalization and t)e $eal
:..ects o. 3inancial 7e0elo+!ent,N ;or2in% @a+er.
Ca!eron, $., Cris+ 1., Hu%) @., (illy, $. (eds.), 19,7. /an2in% in t)e early sta%es o.
industrializationH A study in co!+arati0e econo!ic )istory. 1*.ord 9ni0ersity @ress,
1*.ord, 9.<.
3azzari, te0en M., Hubbard, $. &lenn and @etersen, /ruce C. (19AA). W3inancin%
Constraints and Cor+orate 6n0est!entW, /roo2in%s @a+ers on :cono!ic Acti0ity, ?ol. 1,
++. 1"1>19'.
Hic2s, I., 19,9. A t)eory o. econo!ic )istory. Clarendon @ress, 1*.ord.
&olds!it), $., 19,9. 3inancial structure and de0elo+!ent. Kale 9ni0ersity @ress, =e5
Ha0en, C(.
31
Iayaratne, I., tra)an, @. :., 199,. ()e .inance>%ro5t) ne*usH :0idence .ro! ban2 branc)
dere%ulation. Ruarterly Iournal o. :cono!ics 111, ,39J70.
<in%, $. &., 8e0ine, $., 1993. 3inance and %ro5t)H c)u!+eter !i%)t be ri%)t. Ruarterly
Iournal o. :cono!ics 'A, 717J37.
8e0ine, $., Zer0os, ., 199A. toc2 !ar2ets, ban2s and econo!ic %ro5t). A!erican
:cono!ic $e0ie5 AA, '37J'A.
8o0e, 6., 2001. 3inancial de0elo+!ent and .inancin% constraintsH 6nternational e0idence .ro!
t)e structural in0est!ent !odel. 9n+ublis)ed 5or2in% +a+er. ;orld /an2, ;as)in%ton.
7e <ri0oy, $ut) (2000). Colla+seH ()e ?enezuelan /an2in% Crisis o. 199". ()e &rou+ o.
()irty. ;as)in%ton 7.C.
<roszner, $andy ^ <lin%ebiel, 7aniela ^ 8ae0en, 8uc (2002). W3inancial crises, .inancial
de+endence, and industry %ro5t),W Policy %esearch <orking Paper 'eries 3KFF, ()e
;orld /an2.
8ucas, $., 19AA. 1n t)e !ec)anis!s o. econo!ic de0elo+!ent. Iournal o. Monetary
:cono!ics 22, 3J"2.
Mc<innon, $., 1973, Money and ca+ital in econo!ic de0elo+!ent. /roo2in%s 6nstitution,
;as)in%ton.
$a4an, $., Zin%ales, 8., 199A. 3inancial de+endence and %ro5t). A!erican :cono!ic
$e0ie5 AA, ''9JA,.
$obinson, I., 19'2. ()e %eneralization o. t)e %eneral t)eory, inH ()e rate o. interest and ot)er
essays. MacMillan, 8ondon.
c)u!+eter, I., 1912 a193"b. ()e t)eory o. econo!ic de0elo+!ent. Har0ard 9ni0ersity
@ress. $e+rint.
;ur%ler, Ie..rey (2000). M3inancial Mar2ets and t)e Allocation o. Ca+ital,N :ournal of
(inancial .conomics, 1ctober.
32
36&9$: 1H /an2in% ector ize and :cono!ic 7e0elo+!ent
36&9$: 2H toc2 Mar2et ize and :cono!ic 7e0elo+!ent
ARG
ARM
AUS
AUT
BEL
BGD
BGR
BOL
BRA
BWA
CAN
CHE
CHL
CHN
CV COL
CR
CZE
DEU
DNK
ECU
EGY
ESP
EST
FN
FJ
FRA
GBR
GHA
GRC
GTM
HKG
HND
HHRUVN DN
ND
RL
RN
SL
SR
TA
JAM
JOR
JPN
KEN
KGZ
KOR
KWT
LKA LLVTAULBN
MAR
MEX
MNG
MUS
MYS
NGA NAM
NLD
NOR
NPL
NZL
OMN
PAK
PER PAN
PHL
POL
PRT
PRYROM
RUS
SAU
SGP
SLV SVK
SVN
SWE
THA
TUN TUR UKR
URY
USA
UZB ZAF
ZMB
ZWE
VEN
0 .5 1 1.5 2 2.5
Stock Market Cap to GDP 1995-2004
10000 200003004000000
GDP per capita, 2000 US$
AGO
ALB
ARG
ARM
AUS
AUT
BD
BEL
BFA BEN
BGD
BGR
BLR
BOL
BRA
BTN
BWA
CAF
CAN
CHE
CHL
CHN
CV
CMR COG
COL CR
CZE
DEU
DNK
DOM
DZA
ECU
EGY
ESP
EST
ETH
FN
FJ
FRA
GBR
GHA GEO
GRC
GTM
GUY
HKG
HND
HRV
HT
HUN
DN
ND
RL
RN
SL
SR
TA
JAM
JOR
JPN
KAZ
KEN
KKHGMZ
KOR
KWT
LAO
LKA
LSO LTU
LVA
MAR
MDG MDA
MDV
MKD MEX
ML MNG
MOZ
MRT
MUS
MW
MYS
NAM
NER
NGA
NC
NLD
NOR
NPL
NZL
OMN
PAK
PAN
PER
PHL
PNG
POL
PRT
PRY
ROM
RUS
RWA
SAU
SDN
SEN
SGP
SLB
SLE
SLV
SVK SVN
SWE
SYR
TCD
TGO
THA
TON
TUN
TUR
UGTAZA UKR
URY
USA
VEN
VNM
VUT
WSM
YEM
ZAF
ZAR
ZMB
ZWE
0 .5 1 1.5 2
Private credit by deposit money banks to GDP 1995-2004
10000 200003004000000
GDP per capita, 2000 US$
33
36&9$: 3H /an2in% ector and toc2 Mar2et ize
ARG
ARM
AUS
AUT
BEL
BGD
BGR
BOL
BRA
BWA
CAN
CHE
CHL
CHN
CCVOL
CR
CZE
DEU
DNK
ECU
EGY
ESP
EST
FN
FJ
FRA
GBR
GHA
GRC
GTM
HKG
HND
HUN HRV DN
ND
RL
RN
SL
SR
TA
JAM
JOR
JPN
KEN
KGZ
KOR
KWT
LTU LKA LVA
MAR
MEX
MNG
MUS
MYS
NGA NAM
NLD
NOR
NPL
NZL
OMN
PAK
PER PAN
PHL
POL
PRT
ROM PRY
RUS
SAU
SGP
SLV SVK
SVN
SWE
THA
TUR TUN UKR
URY
USA
VEN
ZAF
ZMB
ZWE
0 .5 1 1.5 2 2.5
Stock Market Cap to GDP 1995-2004
.5 1 1.5 2
Private credit by deposit money banks to GDP 1995-2004
3"
36&9$: "H /an2in% ector ize and =et 6nterest Mar%ins
36&9$: 'aH Concentration 36&9$: 'bH 10er)ead Costs
36&9$: ,H toc2 !ar2et ize and (urno0er
AGO
ALB
ARG
ARM
AUS
AUT
BD
BEL
BEN
BFA
BGD
BGR
BLR
BOL
BRA
BWA
CAN
CHE
CHL
CHN
CV
CMR
COG
COL
CR
CZE
DEU
DNK
DOM
DZA
ECU
EGY
ESP
EST
ETH
FN
FRA GBR
GGEHOA
GRC
GTM
GUY
HND HKG
HUN HRV
DN
ND
RL
RN
SRSL
TA
JAM
JOR
JPN
KAZ
KEN
KGZ
KHM
KOR
KWT
LKA
LSO
LTULVA
MAR
MDA
MDG
MMEXKD
ML
MNG
MOZ
MRT
MUS
MW
MYS
NAM
NER
NGA
NC
NLD
NPL NOR
NZL
PAK OMN PAN
PER
PHL
PNG
POL
PRT
PRY
ROM
RUS
RWA
SAU
SDN
SEN
SGP
SLE
SLV
SVK
SVN
SWE
TCD
TGO
TUN THA
TUR
TZA
UUKGRAURY
USA
VEN
VNM
WSM
YEM
ZAF
ZMB
ZWE
0 .05 .1 .15
Banking Sector Overhead Costs 1995-2004
0 .5 1 1.5 2
Private credit by deposit money banks to GDP 1995-2004
AGO
ALB
ARG
ARM
AUS
AUT
BD
BEL
BEN
BFA
BGR BGD
BLR
BOL
BRA
BWA
CAN
CHE
CHL
CHN
CV
CMR
COG
COL
CR
CZE
DEU
DNK
DOM
DZA
ECU
EGY
ESP
EST
ETH
FN
FRA
GBR
GGEHOA
GRC
GTM
GUY
HKG
HND
HRV
HT
HUNDN
ND
RL
RN
SL
SR
TA
JAM
JOR
JPN
KAZ
KEN
KGZ
KHM
KOR
KWT
LKA
LSO
LTU
LVAMAR
MDA
MDG
MEX
MKD
ML
MNG
MOZ
MRT
MUS
MW
MYS
NAM
NER
NGA
NC
NLD
NOR
NPL
NZL
OMN
PAK
PAN
PER
PHL
PNG
POL
PRT
PRY
ROM
RUS
RWA
SAU
SDN
SEN
SGP
SLE
SLV
SVK
SVN
SWE
TCDSYR
TGO
THA
TUN
TUR
TZA
UGA
UKR
URY
USA
VNM
WSM
YEM
ZAF
ZMB
ZWE
VEN
.2 .4 .6 .8 1
Banking Sector Concentration 1995-2004
0 .5 1 1.5 2
Private credit by deposit money banks to GDP 1995-2004
AGO
ALB
ARG
ARM
AUS
AUT
BD
BEL
BEN
BFA
BGD
BGR
BLR
BOL
BRA
BWA
CAN CHE
CHL
CHN
CV
CMR
COG
COL
CR
CZE DEU
DNK
DOM
DZA
ECU
EGY
ESP
EST
ETH
FN
FRA
GBR
GEO
GHA
GRC
GTM
GUY
HKG
HND
HUNDNHRV
ND
RL
RN
SRSL
TA
JAM
JOR
JPN
KAZ
KEN
KGZ
KHM
KOR
KWT
LKA
LSO
LTULVA
MAR
MDA
MDG
MEX
MKD
ML
MNG
MOZ
MRT
MUS
MW
MYS
NAM
NER
NGA
NC
NLD
NOR
NPL
NZL
OMN
PAK PAN
PER
PHL
PNG
POL
PRT
PRY
ROM
RWARUS
SAU
SDN SEN
SGP
SLE
SLV
SVK
SVN
SWE
SYR
TCD
TGO
THA
TUN
TUR
TZA
UGA
UKR
URY
USA
VEN
VNM
WSM
YEM
ZAF
ZMB
ZWE
0 .05 .1 .15 .2
Net nterest Margin 1995-2004
0 .5 1 1.5 2
Private credit by deposit money banks to GDP 1995-2004
ARM ARG
AUS
AUT
BEL
BGD
BGR
BOL
BRA
BWA
CAN
CHE
CHL
CHN
CV
COL
CR
CZE
DEU
DNK
ECU
EGY
ESP
EST
FN
FJ
FRA
GBR
GHA
GRC
GTM
HKG
HND
HRV
HUN
DN
ND
RL
RN
SL
SR
TA
JAM
JOR
JPN
KEN
KOR
KWT
LBN
LLTKUA
LVA
MAR
MEX
MNG
MUS
MYS
NNGAAM
NLD
NOR
NPL
NZL
OMN
PAK
PAN
PER
PHL
POL
PRT
PRY
ROM
RUS SAU SGP
SLV
SVK
SVN
SWE
THA
TUN
TUR
URYUKR
USA
UZB
VEN
ZAF
ZMB
ZWE
0 1 2 3
Stock Market Turnover 1995-2004
0 .5 1 1.5 2 2.5
Stock Market Cap to GDP 1995-2004
3'
36&9$: 7aH CreditorBs $i%)ts 36&9$: 7bH CreditorBs 6n.or!ation
36&9$: AaH )are)older @rotection 36&9$: AbH )are)older 7isclosure
36&9$: 9H 3inancial ector @olicies in ?enezuelaH 19A0>1997
ARG
AUS
AUT
BEL
BGD
BGR
BOL
BRA
BWA
CAN
CHE
CHL
CHN
CR CV COL
CZE
DEU
DNK
ECU
EGY
ESP
EST
FN
FJ
FRA
GBR
GHA
GRC
GTM
HKG
HND
HRV HUN DN
ND
RL
RN
SL
SR
TA
JAM
JOR
JPN
KEN
KGZ
KOR
KWT
LBN LLTKUA LVA
MAR
MEX
MUS
MYS
NGA NAM
NLD
NOR
NPL
NZL
OMN
PAK
PAN PER
PHL
POL
PRT
RPORMY
RUS
SAU
SGP
SVK SLV
SVN
SWE
THA
TUN TUR UKR
URY
USA
VEN
UZB
ZAF
ZMB
ZWE
0 .5 1 1.5 2 2.5
0 2 4 6 8 10
Shareholder Protection
ARG
AUS
AUT
BEL
BGD
BGR
BOL
BRA
BWA
CAN
CHE
CHL
CHN
CR CV COL
CZE
DEU
DNK
ECU
EGY
ESP
EST
FN
FJ
FRA
GBR
GHA
GRC
GTM
HKG
HND
HUN HRV DN
ND
RL
RN
SL
SR
TA
JAM
JOR
JPN
KEN
KGZ
KOR
KWT
LKA LLTVUALBN
MAR
MEX
MUS
MYS
NGA NAM
NLD
NOR
NPL
NZL
OMN
PAK
PAN PER
PHL
POL
PRT
PRY ROM
RUS
SAU
SGP
SVK SLV
SVN
SWE
THA
TUN TUR UKR
URY
USA
VEN
UZB
ZAF
ZMB
ZWE
0 .5 1 1.5 2 2.5
0 2 4 6 8 10
Shareholder Disclosure
AGO
ALB
ARG
ARM
AUS
AUT
BD
BEL
BBEFNA
BGD
BGR
BLR
BOL
BRA
BTN
BWA
CAF
CAN
CHE
CHL
CHN
CV
COG CMR
CCORL
CZE
DEU
DNK
DOM
DZA
ECU
EGY
ESP
EST
ETH
FN
FJ
FRA
GBR
GHA GEO
GRC
GTM
GUY
HKG
HND
HRV
HT
HUN
DN
ND
RL
RN
SL
SR
TA
JAM
JOR
JPN
KAZ
KEN
KHM KGZ
KOR
KWT
LAO
LKA
LTU LSO
LVA
MAR
MDG MDA
MDV
MEX MKD
ML MNG
MOZ
MRT
MUS
MW
MYS
NAM
NER
NGA
NC
NLD
NOR
NPL
NZL
OMN
PAK
PAN
PER
PHL
PNG
POL
PRT
PRY
ROM
RUS
RWA
SAU
SDN
SEN
SGP
SLB
SLE
SLV
SVN SVK
SWE
SYR
TCD
TGO
THA
TON
TUN
TUR
UTGZAA UKR
URY
USA
VNM
VUT
WSM
YEM
ZAF
ZAR
ZMB
ZWE
VEN
0 .5 1 1.5 2
Private credit by deposit money banks to GDP 1995-2004
0 2 4 6 8 10
Creditors Legal Rights
AGO
ALB
ARG
ARM
AUS
AUT
BD
BEL
BBEFNA
BGD
BGR
BLR
BOL
BRA
BTN
BWA
CAF
CAN
CHE
CHL
CHN
CV
CCOMGR
COL CR
CZE
DEU
DNK
DOM
DZA
ECU
EGY
ESP
EST
ETH
FN
FJ
FRA
GBR
GEHOA
GRC
GTM
GUY
HKG
HND
HRV
HT
HUN
DN
ND
RL
RN
SL
SR
TA
JAM
JOR
JPN
KAZ
KEN
KHM KGZ
KOR
KWT
LAO
LKA
LSO LTU
LVA
MAR
MDA MDG
MDV
MKD MEX
ML MNG
MOZ
MRT
MUS
MW
MYS
NAM
NER
NGA
NC
NLD
NOR
NPL
NZL
OMN
PAK
PAN
PER
PHL
PNG
POL
PRT
PRY
ROM
RUS
RWA
SAU
SDN
SEN
SGP
SLB
SLE
SLV
SVK SVN
SWE
SYR
TCD
TGO
THA
TON
TUN
TUR
UUTGKZARA
URY
USA
VNM
VUT
WSM
YEM
ZAF
ZAR
ZMB
ZWE
VEN
0 .5 1 1.5 2
Private credit by deposit money banks to GDP 1995-2004
0 2 4 6
Creditors nformation
0 1 2 3
1980 1985 1990 1995
year
Directed credit/reserve requirements nterest rate controls
Entry barriers/pro-competition measures Regulation/ securities markets
Privatization nternational capital flows
3,
36&9$: 10H @ersistence o. /an2in% ector ize
36&9$: 11H @ersistence o. toc2 Mar2et ize
ARG
AUS
AUT
BEL
BGD
BRA
CAN
CHE
CHL
CCOVL
CR
DEU
DNK
EGY
ESP
FN
FRA
GBR
GRC
HKG
DN
ND
SR
TA
JAM
JOR
JPN
KOR
MAR
MEX
MYS
NGA
NLD
NOR
NZL
PAK
PER
PHL
PRT
SGP
SWE
THA
TUR
URY
USA
VEN
ZAF
ZWE
0 .5 1 1.5 2 2.5
Stock Market Cap to GDP 1995-2004
0 .5 1 1.5
Stock Market Cap to GDP 1980-85
ARG
AUS
AUT
BD
BEL
BOL
BWA
CAN
CHE
CHL
CV
CMR
COL CR
DEU
DNK
DOM
DZA
ECU
EGY
ETH
FN
FJ
FRA
GBR
GHA
GRC
GTM
HND
HT
ND
RL
RN
SL
SR
TA
JAM
JOR
JPN
KEN
KOR
KWT
LKA
LSO
MAR
MDG
MEX
MUS
MYS
NER
NGA
NC
NLD
NOR
NPL
NZL
PAK
PAN
PER
PHL
PNG
PRT
PRY
RWA
SAU
SDN
SEN
SGP
SLB
SLE
SLV
SWE
SYR
TGO
THA
TONURY
USA
VEN
ZAF
ZAR
0 .5 1 1.5 2
Private credit by deposit money banks to GDP 1995-2004
0 .2 .4 .6 .8 1
Private credit by deposit money banks to GDP 1970s
37
36&9$: 12H :0olution o. 3inancial 7e0elo+!ent in ?enezuela 19,0>200"
36&9$: 13H @ri0ate Credit and &7@
10 10.5 11 11.5 12 12.5
10 10.5 11 11.5 12
Log Bank Credit to the Private Sector
1960 1970 1980 1990 2000
Year...
Actual log non-oil GDP Tradables
log oil GDP log non-oil GDP Non-tradables 0
.1 .2 .3
1960 1970 1980 1990 2000
Year
Private Credit by Deposit Money Banks to GDP
Stock market capitalization to GDP
3A
36&9$: 1"H $elation bet5een @ri0ate Credit and =on>1il &7@
36&9$: 1'H @ri0ate CreditH ?enezuela 0s. 1il 7e+endent and 8atin A!erican Countries
196119612963
1964
1965
1966
19617968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
11998801
19189382
19189485
191896189788
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
10 10.5 11 11.5 12
log Real Bank Credit to the Private Sector
11 11.5 12 12.5 13
log non-oil GDP
.1 .2 .3 .4
Private Credit by Deposit Money Banks to GDP
1960 1970 1980 1990 2000
Year
Venezuela Oil Dependent
Latin America
39
36&9$: 1,H ()e size o. t)e Credit Colla+se (1)
36&9$: 17H ()e size o. t)e Credit Colla+se (2)
10 10.5 11 11.5 12
Log Private Credit by Deposit Money Banks
1960 1970 1980 1990 2000
Year
10 11 12 13
Log Private Credit by Deposit Money Banks
1960 1970 1980 1990 2000
Year
Actual Pred OL & LAC
Pred GDP Pred GDP, OL & LAC
"0
36&9$: 1AH ()e )are o. @ri0ate Credit in /an2 Assets
36&9$: 19H 9ses o. /an2 3inancin%
0 1 2 3
Jan60 Jan65 Jan70 Jan75 Jan80 Jan85 Jan90 Jan95 Jan0 Jan5
date
Real Private Credit Real Capital
Real Deposits Real Public Financing
Real Foreign Financing
.3 .4 .5 .6 .7 .8
Private Credit / Assets
0 1 2 3
Jan60 Jan65 Jan70 Jan75 Jan80 Jan85 Jan90 Jan95 Jan0 Jan5
date...
Real Private Credit Real Bank Assets
Private Credit / Assets
"1
36&9$: 20H $eser0es and @ri0ate Credit
36&9$: 21H 6nterest $ates 0
.5 1
1.5 2
-.6 -.4 -.2 0 .2 .4
Realized Real Lending Rate
Jan85 Jan90 Jan95 Jan0 Jan5
date...
Realized Real Lending Rate Annualized nflation
Nominal Lending Rate
0 .2 .4 .6 .8
Jan60 Jan65 Jan70 Jan75 Jan80 Jan85 Jan90 Jan95 Jan0 Jan5
date
Private Credit / Assets Mandatory Reserves
Voluntary Reserves Total Reserves
"2
(A/8: 1
(A/8: 2
1an8ing 4ector Indicators around t>e crises
DourceH Aut)orBs calculations based on 6nternational 3inancial tatistics.
(A/8: 3
'ranger0causality Tests )p0alues-
Variable does not G-cause Private Credit
Variable 1963-2003 1963-1988 1989-2003 1963-2003 1963-1988 1989-2003
Total GDP 0.423 ,6,&7 0.197 0.123 0.105 0.250
Non-oil GDP ,6,78 ,6,7* 0.362 ,6,,, ,6,,, 0.149
Non-oil Non-Tradable GDP ,6,8. ,6,,& 0.502 ,6,,& ,6,,, ,6,7=
Non-oil Tradable GDP 0.204 0.924 0.152 ,6,.7 ,6,&, ,6,&*
Manufacturing VA High Ext. Fin. Dep. 0.160 0.333 ,6,2, ,6,87 ,6,,. 0.539
Manufacturing VA Low Ext. Fin. Dep. 0.531 0.641 0.394 ,6,,2 0.238 ,6,&=
Private Credit does not G-cause Variable
Real
%ssets
Real
Priate
#redit
Real
Deposits
Priate
#redit ?
%ssets
Pre0&977 0.67 0.51 0.58 0.77
&9770&987 2.58 1.97 2.29 0.76
&989 Pre )&988- 2.90 2.21 2.24 0.76
Troug> )4ep09,- 1.98 -32% 1.12 -49% 1.12 -50% 0.57
Post )&99.- 2.41 -17% 1.41 -36% 1.96 -12% 0.59
&997?9* Pre )&992?97- 2.18 1.15 1.78 0.53
Troug> )Jun09=- 1.24 -43% 0.42 -63% 0.42 -76% 0.34
Post )&997- 1.45 -34% 0.76 -34% 1.08 -39% 0.52
&9980.,,7 1.46 0.73 1.08 0.51
Dec0.,,* 2.81 1.45 2.16 0.52
Priate 1ond Issuance &99*0.,,7
Total Amount
(million US$) # of ssues
Total
Amount
(million US$)
Share of
Total
# of
ssues
Share of
Total
Mean
Principal
Mean
Maturity
Share
Maturity
>5 years
:ene;uela .,82, 77 &,&&& 2962@ =* 8768@ &7 &69 &6*@
Bolivia 1,249 135 1,249 100.0% 135 100.0% 9 7.7 43.0%
Peru 4,954 397 4,754 96.0% 395 99.5% 12 4.8 22.0%
Whole Sample (45) 15,834,106 101,136 13,278,972 61.2% 88,301 71.6% 112 6.0 35.1%
ndustrial (20) 15,302,326 92,659 12,998,860 67.6% 81,711 68.7% 198 7.3 46.3%
Developing (25) 471,654 7,536 245,671 56.2% 5,840 73.7% 45 5.0 26.7%
Latin America & Caribbean (14) 211,453 3,671 123,951 71.5% 3,086 91.3% 27 5.2 28.2%
Eastern Europe (3) 8,382 42 238 4.1% 6 16.9% 46 3.3 0.0%
East Asia & Pacific ex. Japan & Aus ( 267,914 3,978 124,076 44.4% 2,800 62.1% 69 5.2 27.4%
*Source SDC Platinum
Local Market
ssuers Country
All Markets
"3
(A/8: "H Mayor Constraints .or 7oin% /usiness
Ran8ing of 9ayor #onstraints for Doing 1usiness according to 9anagers
DourceH ;orld /usiness ur0ey 200'.
(A/8: 'H @erce+tions on 3inancin% Constraints
@ of 9anagers t>at respond Financing is a 9ayor #onstraint to Doing 1usiness
:ene;uela %ll
#ountries
<oD0
9iddle
Inco$e
<atin
%$erica
O!#D
Financing 31.3% 36.0% 40.0% 38.8% 15.4%
DourceH ;orld /usiness ur0ey 200'.
(A/8: ,H 3inancin% ources o. 3ir!s
Financing 4ources according to 9anagers )@ of total-
DourceH ;orld /usiness ur0ey 200'.
:ene;uela %ll
#ountries
<oD0
9iddle
Inco$e
<atin
%$erica
O!#D
nternal/Family 60.1% 55.7% 64.1% 47.5% 41.4%
Bank 15.5% 17.7% 16.6% 25.9% 18.4%
Trade Credit/Leasing 7.2% 8.6% 9.3% 11.5% 8.1%
Equity 2.6% 4.7% 2.7% 3.2% 8.5%
:ene;uela %ll
#ountries
<oD0
9iddle
Inco$e
<atin
%$erica
O!#D
Financing 8 3 4 5 2
nfrastructure 9 9 9 9 7
Political nstability 1 4 3 1 3
nflation 2 2 2 4 4
Exchange Rate 4 5 5 6 5
Street Crime 3 7 6 3 6
Organized Crime 7 8 8 8 9
Taxes and Regulations 5 1 1 2 1
Corruption 6 6 7 7 8
""
(A/8: 7H 3inancial Constraints and $eal 1utco!esH ur0ey :0idence
Dependent :ariable:
0.202*** 0.345*** 0.290***
0.0745 0.087 0.100
0.352*** 0.437 0.321**
0.114 0.134 0.153
-0.146 -0.283*** -0.051
0.106 0.124 0.141
# Obs 90 90 90
R2 0.19 0.29 0.15
* 10%, **5%, ***1%. Constant included but not reported.
!"pected
Inest$ent
'roDt>
!"pected
!$ploy$ent
'roDt>
!"pected
!"ports
'roDt>
Expected increase on Debt
Expected ncrease on Sales
Average mportance of non-financial
constraints
(A/8: AH 3inancial Constraints and $eal 1utco!esH ur0ey :0idence JHetero%eneity
across .ir!s
Dependent :ariable: !"pected Future Inest$ent 'roDt>
4$all <arge <ocal Foreign (oung Old
0.271 0.397*** 0.316** 0.598*** -0.072 0.612***
0.203 0.147 0.149 0.183 0.175 0.154
0.368 -0.126 0.040 -0.034 0.251 -0.194
0.228 0.185 0.165 0.303 0.171 0.210
0.095 -0.139 -0.190 0.097 -0.247 -0.086
0.248 .1301 0.133 0.202 0.165 0.146
# Obs 32 58 67 23 44 46
R2 0.16 0.14 0.09 0.36 0.10 0.28
* 10%, **5%, ***1%. Constant included but not reported.
Tests )p0alue-
H0: b_futuresalesgr=b_pastsalesgr 0.773 0.034 0.245 0.086 0.207 0.006
Future Expected Sales Growth
Past Sales Growth
Average mportance of non-financial
constraints
"'
(A/8: 9H 6ndustry :*ternal 3inance 7e+endence 6nde*
Industry
Beverages 0.010
Fabricated metal products 0.201
Food products 0.097
Footwear, except rubber or plastic -0.169
Furniture, except metal 0.198
Glass and products 0.297
ndustrial chemicals 0.161
ron and steel 0.037
Leather products -0.089
Machinery, electric 0.515
Machinery, except electrical 0.300
Non-ferrous metals 0.100
Other chemicals 0.073
Other manufactured products 0.296
Other non-metallic mineral products 0.076
Paper and products 0.085
Plastic products 1.140
Pottery, china, earthenware -0.298
Printing and publishing 0.097
Professional & scientific equipment 0.681
Rubber products 0.150
Textiles 0.180
Tobacco -0.288
Transport equipment 0.267
Wearing apparel, except footwear 0.030
Wood products, except furniture 0.282
!"ternal
Finance
Dependenc
",
(A/8: 10H 3inancial Constraints and &ro5t)H 6ndustry @anel :0idence
Dependent :ariable: Industry Real :alue %dded 'roDt>
-0.709** -0.620* -3.975*** -0.574** -4.148** -4.647***
0.331 0.332 0.874 0.283 0.760 0.800
0.104*** 0.109***
0.039 0.033
-0.054** -0.025 -0.033
0.021 0.024 0.024
0,6&=7II 0,6&*2II 0,6&==III 0,6&**II 0,6&77II
0.074 0.074 0.063 0.062 0.071
0.181**
0.081
0.007
0.057
-0.008
0.098
# Obs 777 777 777 777 777 746
R2 0.01 0.02 0.07 0.32 0.40 0.37
ndustry FE No No Yes No Yes Yes
Year FE No No No Yes Yes Yes
* 10%, **5%, ***1%. Constant included but not reported.
ndustry Tradeability X Priv Credit
Collapse period
ndustry Durable Good X Priv Credit
Collapse period
ndustry nvestment Good X Priv
Credit Collapse period
ndustry External Finance
Dependence
Private Credit Collapse period (1989-
96)
Industry !"ternal Finance Dep M
Pri #redit #ollapse period
Share in Manuf Value Added t-1
(A/8: 11H 3inancial Constraints and 6n0est!entH 6ndustry @anel :0idence
Dependent :ariable: Industry Real Inest$ent 'roDt>
0.691** 0.661*** 0.421 0.425 0.523 0.524
0.318 0.163 0.401 0.414 0.362 0.375
-0.011 0.017 0.028
0.144 0.201 0.172
0.039 0.064 0.065
0.083 0.097 0.099
-0.429 1.193 1.142 0.896 0.848
0.513 1.080 1.110 0.954 0.983
-0.160 -0.167 -0.130 -0.135
0.292 0.299 0.250 0.257
-0.095 0.281 0.279 -0.162 -0.174
0.362 0.440 0.454 0.410 0.424
0.6.*,I 0.6.*8I 0&6777 0&67*,
&6.72 &6.77 &6,9, &6&.2
# Obs 488 488 488 488 488 488
R2 0.03 0.03 0.04 0.05 0.32 0.32
ndustry FE No No No Yes No Yes
Year FE No No No No Yes Yes
* 10%, **5%, ***1%. Constant included but not reported.
Low Priv Credit Period (1989-1998) X ndustry
External Finance Dep
Real Value Added Growth X Low Priv Credit
Period (1989-1998)
Real :alue %dded 'roDt> M Industry !"ternal
Finance Dep M <oD Pri #redit Period )&9890
Real Value Added Growth
ndustry External Finance Dependence
Low Private Credit Period (1989-1998)
Real Value Added Growth X ndustry External
Finance Dep
"7
(A/8: 12H 3inancial Constraints and :!+loy!entH 6ndustry @anel :0idence
Dependent :ariable: !$ploy$ent 'roDt>
0.406*** 0.191*** 0.320*** 0.314*** 0.327*** 0.319***
0.026 0.021 0.035 0.035 0.033 0.033
0.009 0.006 0.006
0.017 0.020 0.019
-0.037*** -0.035*** -0.035***
0.010 0.012 0.012
0.314*** 0.265*** 0.257*** 0.266*** 0.255***
0.054 0.074 0.076 0.067 0.069
-0.015 -0.017 -0.027 -0.030
0.037 0.037 0.032 0.033
-0.306*** -0.230*** -0.221*** -0.215*** -0.206***
0.036 0.043 0.044 0.043 0.045
0,6&7= 0,6&8* 0,6.77III 0,6.82III
,6&&7 ,6&&* ,6&,7 ,6&,*
# Obs 777 777 777 777 777 777
R2 0.28 0.23 0.29 0.30 0.45 0.46
ndustry FE No No No Yes No Yes
Year FE No No No No Yes Yes
* 10%, **5%, ***1%. Constant included but not reported.
Real Value Added Growth X Low Priv Credit
Period (1989-1998)
Real :alue %dded 'roDt> M Industry !"ternal
Finance Dep M <oD Pri #redit Period )&9890
ndustry External Finance Dependence
Low Private Credit Period (1989-1998)
Real Value Added Growth X ndustry External
Finance Dep
Low Priv Credit Period (1989-1998) X ndustry
External Finance Dep
Real Value Added Growth
(A/8: 13H 3inancial Constraints and 6n0est!entH 8isted 3ir!s :0idence
Dependent :ariable: Real #apital !"penditure 'roDt>
Entire Sample Venezuela
0.001 -0.029*** 0.001 0.243 -0.081 -0.077
0.001 0.006 0.001 0.541 0.561 0.764
0.714*** 0.748* 0.699*** 2.967*** 3.262* 5.542***
0.204 0.447 0.200 0.791 1.541 1.757
0.160***
.0320
-0.109
.3914
0.137
0.276
4.181***
0.507
-0.240 0.690 -0.160
0.615 0.581 0.664
2.834*** 2.094 1.537
0.874 1.555 1.391
0.189 0.162
0.596 0.626
# Obs 11655 11655 11655 52 52 52
R2 0.03 0.02 0.03 0.31 0.52 0.41
Country FE Yes Yes Yes No No No
Year FE No No No No Yes No
ndustry FE No No No No No Yes
* 10%, **5%, ***1%. Constant included but not reported. Robust errors clustered at the year level.
Tobin's Q X Credit Collpase
Period (1989-1996)
Net ncome / Assets X Credit
Collapse Period (1989-1996)
Credit Collapse Period (1989-
1996)
Tobin's Q
Net ncome / Assets
Tobin's Q X Venezuela
Net ncome / Assets X Venezuela
Tobin's Q X Private Credit to
GDP
Net ncome / Assets X Private
Credit to GDP
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Figure 6. Wage premia from Mincer Equations after controlling for
experience
0%
100%
200%
300%
400%
500%
600%
700%
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
Primary Secondary College or more
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Figure 7. Primary and Secondary Public Schools in Venezuela
0
2000
4000
6000
8000
10000
12000
14000
1961-62
1962-63
1963-64
1964-65
1965-66
1966-67
1967-68
1968-69
1969-70
1970-71
1971-72
1972-73
1973-74
1974-75
1975-76
1976-77
1977-78
1978-79
1979-80
0
200
400
600
800
1000
1200
1400
Primary (left axis)
Secondary (right axis)
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Figure 8. Simulated Wages
-
20
40
60
80
100
120
140
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
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-
20
40
60
80
100
120
140
160
180
1975
1977
1979
1981
1983
1985
1987
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1999
2001
2003
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Figure &,6 Test scores 4%T
0
5
10
15
20
25
30
35
40
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1988
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Figure 11. Teacher Dummy in Mincer regressions where schooling enters via level
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#i$ure %3: Allocation of hi$hly kille, labor amon$t labor force cate$orie
of 5cience6E 5inno(ation6 an, 5rent eekin$
4>ares6 Eig> 4c>ool 'raduates
0
0.05
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1976
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nnovation RentSeek Science
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'evelo2ment Economics, /o.9, ((.25-46
Lambe%$, Ae$e% (2002, 94e distri(ution and redistri(ution of &ncome. Han",es$e% :ni'e%si$- A%ess, 3%d 2di$ion.
Le%man, R.I. (1999 !*o= do in"ome so&%"es a11e"$ ineF&ali$-P) in Silbe%, C. (edi$ :and(oo3 of &ncome &ne,uality
)easurement, ;l&=e% A"ademi" A&blis,e%s
HainEon, .,ais (2004 !Aol3$i"a So"ial en 4ene5&ela). Cuadernos del CE+'E., /o.55, ((.7-73.
HK%F&e5, B&s$a'o (1995 !Ao'e%$- and So"ial Aoli"ies in 4ene5&ela) in /. L&s$iE (ed. Co2in- wit4 0usterity and
&ne,uality in /atin 0merica. .,e 9%oo0inEs Ins$i$&$e. Ias,inE$on, #+
NNNNNNNNNNNNNN and +. R&i5-.aEle (2004 !Sea%", me$,ods and o&$"omes in de'elo(inE "o&n$%ies? $,e "ase o1
4ene5&ela) In$e%Ame%i"an #e'elo(men$ 9an0, Resea%", #e(a%$men$, Io%0inE Aa(e% 519, Ias,inE$on. #.+.
Hon$e1e%%an$e, A. (2003 !La "o$idianeidad del 'ene5olano? en$%e el miedo - la 'iolen"ia) in A. HK%F&e5 and R. Ai7anEo
(edi$. En esta Veneuela* Reliadades y +uevos Caminos. 2di"iones I2SA. +a%a"as.
Ho%$ensen, #.. (1996 !Hodels o1 Sea%", in $,e Labo% Ha%0e$) As,en1le$e%,<. and R.La-a%d (eds :and(oo3 of /a(or
Economics, /o%$, *olland.
[A
H"+o-, C. and #. H-e%s (2005 (edi$s .,e :n%a'elinE o1 Re(%esen$a$i'e #emo"%a"- in 4ene5&ela,Co,ns *o(0ins
:ni'e%si$- A%ess.
<+2I, <1i"ina +en$%al de 2s$ad3s$i"a e In1o%mK$i"a (1998 9reinta a;os de la encuesta de 4o-ares 2or muestreo,
+a%a"as.
Ae%sson .. and B. .abellini (1996 !Aoli$i"al 2"onomi"s and Ha"%oe"onomi" Aoli"-) in .a-lo%, C and H. Iood1o%d
(eds :and(oo3 of )acroeconomics, /o%$,-*olland.
A&en$e, CosO Han&el (2004 Re'is$a 9an"o +en$%al de 4ene5&ela, 4ol.Q4III, /o.1. +a%a"as, ene%o-R&nio 2004.
Ra'allion, Ha%$in (2002 !A%e $,e (oo% (%o$e"$ed 1%om b&dEe$ "&$sP 2'iden"e 1%om A%Een$ina) 7ournal of 022lied
Economics, 4ol.4, /o.1, ((.95-121
NNNNNNNNNNNNNN (1994 Poverty Com2arisons *a%d=ood A"ademi" A&blis,e%s.
SeiRas, Li5be$,> Ha%3a An$onia Ho%eno - Iil1%edo Bon5Kle5 (2003 !La in"iden"ia 1is"al ne$a en 4ene5&ela), 9an"o
+en$%al de 4ene5&ela, Se%ie #o"&men$os de .%abaRo, /o. 48.
S&i$s, #.9. (1977 !Heas&%emen$ o1 .aJ A%oE%essi'i$-) 0merican Economic Review, 'ol.67, ((.747-752
SinE,, A. 9elais", A. +oll-ns, +.,#eHasi A. ;%ieEe%, R., He%edi$,, B. and Renn,a"0, R. (2005 .ta(iliation and
Reform in /atin 0merica! 0 )acroeconomic Pers2ective on t4e Ex2erience .ince t4e Early 1%%#s. In$e%na$ional
Hone$a%- @&nd. Ias,inE$on, #.+.
S$iEli$5, C. (1969 !#is$%ib&$ion o1 In"ome and Ieal$, amonE Indi'id&als) 2"onome$%i"a, 37(3, ((.382-397
Ri&$o%$, Ha$3as (1999 Po(rea6 'esi-ualdad Crecimiento Econ<mico en Veneuela. :ni'e%sidad +a$8li"a And%Os
9ello, Ins$i$&$o de In'es$iEa"iones 2"on8mi"as - So"iales, +a%a"as.
:,liE *. and M./. ManaEa=a (1996 !In"%easinE $,e "a(i$al in"ome $aJ ma- lead $o 1as$e% E%o=$,) 2&%o(ean 2"onomi"
Re'ie= 40, ((.1521-1540
IanE, M-S and .s&i ;-M (2000 !Aola%i5a$ion <%de%inEs and /e= +lasses o1 Aola%i5a$ion Indi"es), 7ournal of Pu(lic
Economic 94eory, 2(3, ((. 349-363
Io%ld 9an0 (1991 4ene5&ela Ao'e%$- S$&d-. Ias,inE$on #+. mimeo
Dand'a0ili, So&%&s,e (1994 In"ome dis$%ib&$ion and %edis$%ib&$ion $,%o&E, $aJa$ion? An in$e%na$ional "om(a%ison,
Em2irical Economics6 4ol&me 19, /&mbe% 3 AaEes? 473 -491
[Y
T-H)'%
T-H)' "M T'%,% +0 /*$,B.++,% -*& (+$*,'7.-,$+* 0+. (-1$,-)h)-H+. .-,$+ -*&
0-(,+.% %#-.' 333 [Z
T-H)' JM j'7.'%%$+*% +0 0-(,+.$-) &$%,.$H/,$+* +* (-1$,-)h)-H+.
.-,$+333333333333333333333333333333333 [i
T-H)' [M l-7' C*'L/-)$,9 &'(+=1+%$,$+* H9
7.+/1% 33333333333333333333333333333333333333333333333333333333 [@
T-H)' EM l-7' $*'L/-)$,9 &'(+=1+%$,$+* H9 1.+&/(,$2' (#-.-(,'.$%,$(% -*&
,#'$. .',/.*% [@
T-H)' AM ;-.*$*7% 'L/-,$+*% 0+. %')'(,'&
9'-.%33333333333333333333333333333333333333333333333333333333333333333 EU
T-H)' YM C*(+=' %#-.' +0 ,#' 1++.'%,
L/$*,$)'3333333333333333333333333333333333333333333333333333333333333333333 E"
T-H)' ZM P+2'.,9 '-&(+/*, &'(+=1+%$,$+* H9 #+/%'#+)&
7.+/1%33333333333333333333333333333333333 EJ
T-H)' iM P+2'.,9 #'-&(+/*, &'(+=1+%$,$+* $*,+ 7.+6,# -*& $*'L/-)$,9
(+=1+*'*,% 333333 E[
T-H)' @M q$*$ (+'a($'*, H'0+.' -*& -0,'. ,-X'% $* 4'*'5/')-
("@@Z)333333333333333333333333333333 E[
T-H)' "UM K'(+=1+%$,$+* +0 %+($-) 'X1'*&$,/.'% H9 1+)$,$(-)
1'.$+& 3333333333333333333333333333333 E[
T-H)' ""M ;)-%,$($,9 +0 (#-*7'% $* :+($-)
;X1'*&$,/.' 33333333333333333333333333333333333333333333333333333 EE
T-H)' "JM C+*%+)$&-,'& C'*,.-) q+2'.*='*, ,-X (+))'(,$+* H9 %+/.(' $*
4'*'5/')- 333333 EA
T-H)' "[M K'(+=1+%$,$+* +0 H/&7',-.9 1.'%%/.' H9 1+)$,$(-)
1'.$+&33333333333333333333333333333333 EY
T-H)' "EM D77.'7-,' C+*%+)$&-,'& C'*,.-) q+2'.*='*, .'2'*/'% H9 1+)$,$(-)
1'.$+& (") EZ
T-H)' "AM m-)-*(' D((+/*, +0 ,#' 4'*'5/')-* :+($-)
:'(/.$,9 333333333333333333333333333333333333333 Ei
T-H)' "YM 4'*'5/')-* :+($-) :'(/.$,9
C+2'.-7'33333333333333333333333333333333333333333333333333333333333333 E@
[Z
T-H)' "M T'%,% +0 /*$,B.++,% -*& (+$*,'7.-,$+* 0+. (-1$,-)h)-H+. .-,$+ -*&
0-(,+.% %#-.'
[i
Table +M j'7.'%%$+*% +0 0-(,+.$-) &$%,.$H/,$+* +* (-1$,-)h)-H+. .-,$+
[@
Table 3: >a$e &ne"uality ,ecompoition by $roup
Table -: >a$e ine"uality ,ecompoition by pro,ucti(e characteritic an, their return
EU
T-H)' AM ;-.*$*7% 'L/-,$+*% 0+. %')'(,'& 9'-.%
E"
Table 9: &ncome hare of the pooret "uintile
EJ
Table 7: Po(erty Hea,count ,ecompoition by houehol, $roup
E[
Table 3: Po(erty hea,count ,ecompoition into $ro*th an, ine"uality component
Table 0: )ini coefficient before an, after taxe in Venezuela /%0074
:+/.('M :'$F-% ', -)3 (JUU[)< 13 Y@
/o$es? +ase 1 %e1e%s $o $,e ass&m($ion o1 100% in"iden"e o1 "o%(o%a$e $aJ &(on "ons&me%s, =,e%eas "ase 2 %e1e%s
$o $,e ass&m($ion o1 50% in"iden"e o1 "o%(o%a$e $aJ &(on "ons&me%s and 50% &(on s,a%e,olde%s.
Table %;: Decompoition of ocial expen,iture by political perio,
:+/.('M D/,#+.V% (-)(/)-,$+* /%$*7 CkFV% q+2'.*='*, F$*-*($-) :,-,$%,$(%
(2-.$+/% 9'-.%)
-% 6')) -% k$*$%,.9 +0 F$*-*(' -*& 8\C;Pj; &-,- 1.+('%%'& H9 C;:DPV%
4'*'%(+1$+
case & case .
Before taxes and social expenditures 0.4006 0.4006
After taxes and before social expenditures 0.3782 0.3930
After taxes and social expenditures 0.3011 0.3140
(comparing end-year to end-year)
1974-1978 4.0% 34.4% -18.5% -6.0% 14.0%
1979-1983 -18.6% -4.3% 19.6% -3.5% -6.9%
1984-1988 5.2% -15.0% 3.0% -1.1% -7.9%
1989-1993 -0.9% -18.0% 55.0% -10.2% 25.9%
1994-1998 -2.4% 11.2% -27.7% -2.6% -21.5%
1999-2003 -23.7% 28.9% 18.5% -7.2% 16.6%
(comparing 5-year averages)
1979-1983 -8.3% -12.3% 29.5% -4.8% 4.1%
1984-1988 -11.4% -19.9% 14.1% -1.8% -19.0%
1989-1993 2.8% -9.1% 25.7% -1.9% 17.4%
1994-1998 -0.1% 0.1% -11.1% 0.0% -11.0%
1999-2003 -11.6% 15.5% 6.5% -1.7% 8.7%
social
expenditure
GDP budgetary
pressure
fiscal priority interaction
EE
Table %%: ;)-%,$($,9 +0 (#-*7'% $* :+($-) ;X1'*&$,/.'
So&%"e? A&$,o%Gs "al"&la$ion &sinE IH@Gs Bo'e%nmen$ @inan"ial S$a$is$i"s ('a%io&s -ea%s
/o$es? #e(enden$ 'a%iable? +,anEe in loEa%i$,m o1 So"ial 2J(endi$&%e. S$anda%d e%%o%s in (a%en$,eses. SiEni1i"an"e =i$, 95%
(TTT and 90% (TT "on1iden"e
(1 I$ %e1e%s $o .o$al Bo'e%nmen$ eJ(endi$&%e laEEed one (e%iod
OLS Prais-Winsten 2SLS OLS Prais-Winstein 2SLS
Constant 0.031 0.054 0.044 -0.078 -0.082 ** -0.078 **
(0.058) (0.051) (0.062) (0.043) (0.040) (0.043)
Expansion 0.103 0.082 0.090 0.183 0.186 0.180 ***
( dicotomous variable) (0.086) (0.077) (0.089) (0.067) (0.061) (0.069)
Total Government Expenditure 0.767 *** 1.042 *** 0.825 *** 0.362 *** 0.359 *** 0.362 ***
( change in log of real millions of Bs) (0.350) (0.287) (0.360) (0.204) (0.170) (0.204)
nteraction -1.046 *** -1.266 *** -1.104 *** 0.053 *** -0.065 *** 0.056
(expansion x total gov. expenditure) (0.481) (0.422) (0.489) (0.440) (0.430) (0.442)
Contemporaneous Lagged (1)
EA
T-H)' "JM C+*%+)$&-,'& C'*,.-) q+2'.*='*, ,-X (+))'(,$+* H9 %+/.(' $*
4'*'5/')-
So&%"e? IH@, Bo'e%nmen$ @inan"ial S$a$is$i"s, 'a%io&s -ea%s
/o$es? (1 As a (e%"en$aEe o1 $o$al eJ(endi$&%e
(2 In million o1 "&%%en$ 9oli'a%es
on ncome
Social Security
and payroll
on Property and
other
on Goods and
Services
on nternational
trade
1970 39.7% 6.1% 1.1% 6.6% 6.3% 29.5% 2.0% 8.8% 11,454
1971 52.3% 6.2% 1.2% 6.3% 6.2% 27.8% 0.5% -0.6% 12,527
1972 50.5% 6.2% 1.0% 6.3% 5.7% 25.1% 1.1% 4.2% 13,943
1973 63.1% 6.1% 1.1% 5.9% 5.1% 25.4% 0.2% -6.8% 16,058
1974 70.0% 3.8% 0.5% 2.5% 3.7% 25.5% 0.1% -6.1% 41,985
1975 64.3% 4.0% 0.7% 2.9% 6.7% 26.0% 0.2% -4.7% 40,565
1976 56.3% 4.2% 0.9% 4.2% 6.1% 19.1% 0.3% 9.1% 43,972
1977 50.9% 4.4% 0.9% 4.2% 5.9% 19.8% 0.3% 13.6% 49,735
1978 45.7% 5.3% 2.0% 4.5% 7.3% 20.9% 0.4% 13.8% 49,797
1979 65.8% 5.5% 1.1% 6.1% 8.0% 21.5% 0.4% -8.4% 47,146
1980 67.2% 5.6% 0.8% 4.2% 6.7% 15.2% 0.4% -0.2% 66,693
1981 71.8% 4.2% 0.7% 2.8% 5.4% 10.8% 0.4% 3.8% 101,725
1982 53.7% 4.8% 0.9% 4.1% 7.2% 15.9% 0.4% 13.1% 96,690
1983 52.0% 5.2% 0.9% 5.6% 16.7% 14.1% 0.2% 5.4% 81,864
1984 67.5% 4.8% 1.0% 4.9% 20.5% 16.0% 0.1% -14.9% 91,078
1985 75.7% 4.8% 1.4% 6.0% 16.8% 18.1% 0.1% -22.9% 102,976
1986 39.4% 4.8% 1.2% 8.1% 21.4% 16.7% 0.0% 8.4% 118,625
1987 45.9% 0.0% 0.9% 7.0% 10.1% 17.6% 0.0% 20.4% 154,595
1988 46.4% 3.7% 1.7% 5.9% 10.1% 15.4% 0.0% 19.9% 209,722
1989 63.1% 3.0% 0.5% 4.1% 7.8% 26.1% -5.1% 0.4% 289,648
1990 64.0% 3.8% 0.1% 3.2% 6.8% 22.3% 0.0% -0.2% 538,595
1991 68.8% 3.6% 0.1% 3.9% 8.7% 24.0% 0.0% -9.2% 658,443
1992 45.9% 4.3% 0.1% 6.4% 9.7% 19.1% 0.0% 14.6% 877,296
1993 45.4% 3.9% 0.2% 11.0% 9.7% 18.1% 0.0% 11.7% 1,071,008
1994 28.9% 4.3% 5.5% 16.0% 6.9% 14.9% 0.0% 23.6% 2,060,930
1995 28.1% 3.5% 0.2% 26.8% 7.5% 16.0% 0.0% 18.0% 2,736,412
1996 37.1% 1.8% 0.1% 30.2% 7.5% 32.0% 0.0% -8.6% 5,311,298
1997 38.1% 1.7% 0.1% 33.3% 7.5% 29.6% 0.0% -10.3% 9,285,487
1998 14.6% 3.4% 2.5% 25.8% 9.1% 27.0% 0.0% 17.6% 10,919,236
1999 18.9% 3.9% 7.0% 26.7% 8.6% 22.6% 0.0% 12.4% 12,251,621
2000 25.3% 3.3% 3.6% 20.2% 6.7% 32.0% 0.0% 9.0% 17,853,900
2001 16.6% 2.9% 2.1% 21.2% 5.9% 35.7% 0.0% 15.5% 22,883,800
2002 10.5% 2.3% 7.0% 19.7% 4.8% 43.3% 0.0% 12.4% 28,117,400
2003 11.4% 2.1% 6.5% 20.0% 3.0% 42.3% 0.0% 14.6% 37,786,000
TOTAL
EXPENDTURE
Non Taxes Other (2)
Revenues
Taxes
Revenues Debt/Surplus
(financing)
EY
Table %3: K'(+=1+%$,$+* +0 H/&7',-.9 1.'%%/.' H9 1+)$,$(-) 1'.$+&
So&%"e? A&$,o%Gs "al"&la$ion &sinE IH@Gs Bo'e%nmen$ @inan"ial S$a$is$i"s ('a%io&s -ea%s as =ell as
Hinis$%- o1 @inan"e and </+2AR2 da$a (%o"essed b- +2SAAGs 4enes"o(io
...oil/gdp ...non-oil/gdp ...debt/gdp
(comparing end-year to end-year)
1973-1978 -4.0% 13.0% 25.4% 34.4%
1979-1983 -1.5% 5.9% -8.7% -4.3%
1984-1988 -9.1% -17.5% 11.6% -15.0%
1989-1994 -3.0% -4.7% -10.4% -18.0%
1994-1998 -10.5% 13.9% 7.8% 11.2%
1994-1998 1.3% 28.9%
1999-2003 (3) 32.1% -4.1% -16.2% 11.8%
27.6%
Change in
budgetary
pressure
Change in.
EZ
Table %-: D77.'7-,' C+*%+)$&-,'& C'*,.-) q+2'.*='*, .'2'*/'% H9 1+)$,$(-)
1'.$+& (")
So&%"e? A&$,o%Gs "al"&la$ion &sinE IH@Gs Bo'e%nmen$ @inan"ial S$a$is$i"s ('a%io&s -ea%s> Hinis$%- o1
@inan"e !Res&l$ado @inan"ie%o del Se"$o%
A6bli"o %es$%inEido) and </+2AR2 da$a (%o"essed b- +2SAAGs 4enes"o(io
/o$es? (1 In millions o1 %eal boli'a%es (2000U100
(2 .,e 4al&e-added $aJ =as in$%od&"ed in 1993.
(3 @iE&%es a""o%dinE $o Hinis$%- o1 @inan"e
total of D>ic>: oil
1973-1978 51,451,254 43,482,168 3,876,392 9,461,124 3 ,273,115 20,137,412 15,682,407 4,617,273 89,543,454
57% 49% 4% 11% 4% 22% 18% 5% 100%
1979-1983 53,585,267 44,500,193 4,285,732 11,906,878 3 ,795,607 13,300,397 7,777,978 3,006,428 86,084,701
62% 52% 5% 14% 4% 15% 9% 3% 100%
1984-1988 37,510,387 26,938,754 2,473,467 16,097,620 4 ,439,548 11,627,557 3,384,527 2,378,445 69,319,504
54% 39% 4% 23% 6% 17% 5% 3% 100%
1989-1994 42,100,511 36,573,867 2,756,846 10,698,765 4 ,231,975 15,400,935 2,695,692 73,652,750
57% 50% 4% 15% 6% 21% 4% 100%
1994-1998 24,129,363 2,457,731 29,700,279 2 1,841,786 19,767,521 7,024,756 83,079,650
29% 3% 36% 26% 24% 8% 100%
1999-2003 15,287,541 2,692,862 30,190,480 2 0,048,782 33,437,836 12,095,606 93,704,491
16% 3% 32% 21% 36% 13% 100%
1999-2003 (3) 7,262,840 2,692,862 28,815,860 - 74,691,832 -632,708 114,096,122
6% 2% 25% 0% 65% -1% 100%
TOT%<
on consu$ption ).- total of D>ic>: oil !MP!/DIT3R!
Deficit ?
surplus
Ta"es /on ta"es
4ocial Ot>er Ta"es
4ecurity and
payroll
on inco$e
total
Ei
Table %2: m-)-*(' D((+/*, +0 ,#' 4'*'5/')-* :+($-) :'(/.$,9
Total Extra
1980 4.6 3.4 1.2 35.3%
1981 5.2 1.5 3.9 1.3 33.3%
1982 5.5 1.6 4.1 1.4 34.1%
1983 5.1 1.6 4.5 0.6 13.3%
1984 5.4 1.8 4.4 1.0 22.7%
1985 5.8 2.1 5.0 0.8 16.0%
1986 7.2 2.9 6.4 0.8 12.5%
1987 8.4 2.6 7.5 0.9 12.0%
1988 11.4 3.2 9.2 2.2 23.9%
1989 15.0 7.3 14.9 0.1 0.7%
1990 26.5 6.4 27.5 -1.0 -3.6%
1991 33.3 9.4 33.4 -0.1 -0.3%
1992 56.3 18.9 38.8 17.5 45.1%
1993 99.1 57.2 103.4 -4.3 -4.2%
1994 127.8 55.8 127.8 0.0 0.0%
1995 122.3 27.9 126.8 -4.5 -3.5%
1996 187.5 87.9 274.3 -86.8 -31.6%
1997 228.1 65.6 476.3 -248.2 -52.1%
1998 910.4 534.6 910.4 0.0 0.0%
1999 756.4 277.1 1184.2 -427.8 -36.1%
2000 829.8 1436.7 (606.9) -42.2%
2001 1192.1 1858.4 (666.3) -35.9%
2002 1296.9 2295.0 (998.1) -43.5%
2003 1953.0 3216.0 (1263.0) -39.3%
Sources
VENEZUELA, Ministerio del Trabajo, Memoria 2001
Expenditure Balance Share of
deficit/surplus
Revenues
OCE, Anuario estadstico, varios aos
VSS, Memoria y Cuenta 1997
E@
Table %9: 4'*'5/')-* :+($-) :'(/.$,9 C+2'.-7'
#ontributors 1eneficiaries 1eneficiaries
per#ontributor
Population
#oerage
<abor Force
#oerage
1975 1,200,725 3,128,735 2.61 24.7% 34.7%
1976 1,265,464 3,289,081 2.60 25.1% 32.2%
1977 1,384,713 3,592,173 2.59 26.4% 33.3%
1978 1,512,989 3,956,343 2.61 28.1% 35.0%
1979 1,522,323 4,482,981 2.94 30.8% 34.2%
1980 2,350,208 6,192,978 2.64 41.2% 50.7%
1981 1,798,100 5,384,845 2.99 34.8% 37.5%
1982 1,836,890 5,464,104 2.97 34.3% 37.3%
1983 1,770,289 5,264,661 2.97 32.1% 35.9%
1984 1,816,597 5,470,132 3.01 32.5% 36.8%
1985 1,896,358 5,768,674 3.04 33.3% 37.1%
1986 1,998,285 6,227,391 3.12 35.5% 37.0%
1987 2,149,156 6,704,929 3.12 37.3% 37.7%
1988 2,333,851 7,319,840 3.14 40.3% 38.7%
1989 2,302,047 7,286,884 3.17 38.6% 37.7%
1990 2,431,694 7,710,160 3.17 39.5% 38.0%
1991 2,524,443 8,071,122 3.20 40.4% 37.7%
1992 2,448,289 7,790,756 3.18 38.1% 35.0%
1993 2,738,750 8,621,861 3.15 40.8% 38.6%
1994 2,642,569 9,297,358 3.52 43.0% 36.4%
1995 2,354,328 8,365,856 3.55 37.9% 30.7%
1996 2,372,585 8,460,157 3.57 37.5% 30.3%
1997 2,383,484 8,500,948 3.57 36.9% 28.8%
1998 2,367,563 8,619,497 3.64 36.7% 27.2%
1999 2,194,035 8,444,793 3.85 35.3% 25.2%
2000 2,247,626 8,687,953 3.87 35.6% 25.5%
2001 2,283,088 8,945,772 3.92 36.0% 24.3%
2002 2,297,570 8,994,565 3.91 35.5% 23.7%
2003 2,301,660 9,278,983 4.03 35.9% 23.6%
Source:
OCE, Anuario Estadstico de Venezuela, varios aos.
AU
F$7/.'%
F$7/.' "M F-(,+.$-) &$%,.$H/,$+* +0 K$%1+%-H)' C*(+=' (H'0+.' *', ,-X'%) $*
4'*'5/') 3333 A"
F$7/.' JM :#-.' +0 W-H+. 6$,#$* *+*B+$) *-,$+*-)
$*(+='3333333333333333333333333333333333333333333333333 AJ
F$7/.' [M C-1$,-)hW-H+.
j-,$+ 3333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333 A[
F$7/.' EM C*'%,='*,h+/,1/,
.-,$+% 33333333333333333333333333333333333333333333333333333333333333333333333333333333333333 AE
F$7/.' AM F-=$)9 -*& 6+.G'.% q$*$
(+'a($'*,33333333333333333333333333333333333333333333333333333333333333333 AA
F$7/.' YM C*'L/-)$,9 $*&'X'% 0+. #+/.)9 6-7'% -=+*7 '=1)+9'&
6+.G'.%33333333333333333333333 AY
F$7/.' ZM k$%%$*7 +H%'.2-,$+*% -% - 1.+1+.,$+* +0 ,+,-) '=1)+9='*,
33333333333333333333333333333333333333 AZ
F$7/.' iM 81'* !*'=1)+9='*, -*& C*0+.=-) ;=1)+9='*,
j-,'% 33333333333333333333333333333333333 Ai
F$7/.' @M P+2'.,9
#'-&(+/*, 333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333333 A@
F$7/.' "UM j'-) 6-7'%< qKP 1'. 6+.G'. -*& qKP 1'.
#'-&33333333333333333333333333333333333333333333 YU
F$7/.' ""M qKP< T+,-) -*& :+($-) P/H)$( ;X1'*&$,/.'% 1'. #'-& $*
4'*'5/')-333333333333333 Y"
F$7/.' "JM;2+)/,$+* +0 :+($-) 'X1'*&$,/.'< >%(-) 1.$+.$,9 -*& H/&7',-.9
1.'%%/.' 333333333 YJ
F$7/.' "[M :#-.' +0 (+*%+)$&-,'& ('*,.-) 7+2'.*='*, 'X1'*&$,/.' H9 $*(+='
%+/.(' 33333 Y[
F$7/.' "EM ;2+)/,$+* +0 ,#' >%(-) +$)B$*&/%,.9B.')-,'& .'2'*/'% ,+
qKP 3333333333333333333333333 YE
A"
F$7/.' "M F-(,+.$-) &$%,.$H/,$+* +0 K$%1+%-H)' C*(+=' (H'0+.' *', ,-X'%) $*
4'*'5/')
Factorial Distribution of Disposable Inco$e )before ta"es-
0%
25%
50%
75%
100%
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1997
1998
1999
2000
2001
2002
2003
2004
2005
labor share non-oil capital share oil capital share
Source: A uthors calculation using Antivero (1992) and Banco Central de Venezuela (various years) Sistema de Cuentas Nacionales
AJ
#i$ure +: 8hare of @abor *ithin non1oil national income
<abor s>are D it>in non0oil national disposable inco$e
-
0.1000
0.2000
0.3000
0.4000
0.5000
0.6000
0.7000
0.8000
1957
1959
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
Source: A uthors calculation us ing A ntivero(1992) and Banco Central de V enezuela (v arious years ) Sistema de Cuentas Nacionales
A[
#i$ure 3: C-1$,-)hW-H+. j-,$+
#%PIT%<?<%1OR R%TIO
-
50.000
100.000
150.000
200.000
250.000
1950
1952
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
Eof$an ? RodrBgue;
)in t>ousand 1s of &98,-
0
5
10
15
20
25
FreiHe
)in $illion 1s of &997-
by Hofman by Rodrguez (only oil sector) by Freije
Source: Hofman (2000) and authors ow n calculations
AE
#i$ure -: &netmentLoutput ratio
Fi"ed 'ross #apital For$ation )F'#P- in t>e :ene;uelan !cono$y
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
1952
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
GFCF/aggregate demand Private GFCF/Aggregate demand Private GFCF/Private Aggregate demand
Source: Authors calculation using BCV (various years) System of National Accounts
AA
#i$ure 2: F-=$)9 -*& 6+.G'.% q$*$ (+'a($'*,
!arnings Distribution as $easured by 'ini coefficient
0.30
0.35
0.40
0.45
0.50
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
0.30
0.35
0.40
0.45
0.50
family m onthly earnings per head
hourly wages am ong employed workers (bars represent confidence intervals)
Source: A uthors calculation us ing NE (v arious years) Encuesta de Hogares por Muestro
AY
#i$ure 9: C*'L/-)$,9 $*&'X'% 0+. #+/.)9 6-7'% -=+*7 '=1)+9'& 6+.G'.%
Wage IneAuality Inde"es
0.0
0.3
0.5
0.8
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
0
1
2
3
Gini GE(-1) GE(2) A(0.5) A(2) p90/p50 p50/p10
Source: A uthors calculation using NE (various years) Encuesta de Hogares por Muestro
AZ
#i$ure 7: .iin$ ober(ation a a proportion of total employment
9issing data )as a proportion of total e$ploy$ent-
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
top coded non-reported wages non-reported hours total missing data
Source: A uthors calculation using NE (various years) Encuesta de Hogares por Muestro
Ai
#i$ure 3: 81'* !*'=1)+9='*, -*& C*0+.=-) ;=1)+9='*, j-,'%
3ne$ploy$ent and Infor$ality in :ene;uela
-
3.0
6.0
9.0
12.0
15.0
18.0
04-67
03-68
11-68
07-69
04-70
12-70
07-71
03-72
04-73
04-74
04-75
04-76
04-77
04-78
04-79
04-80
04-81
04-82
04-83
04-84
04-85
04-86
04-87
04-88
04-89
04-90
04-91
03-92
03-93
03-94
03-95
03-96
03-97
03-98
03-99
03-00
03-01
03-02
03-03
03-04
03-05
as a percentage of labor force
Infor$ality
3ne$ploy$ent
Source: NE, Encuesta de Hogares por muestreo, varios aos; OCE (1997) 30 aos de la encuesta de hogares por mue
A@
#i$ure 0: Po(erty hea,count
Poerty Eeadcount
0.000
0.050
0.100
0.150
0.200
0.250
0.300
0.350
0.400
0.450
0.500
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
percentage
reported labor earnings reported labor earnings and other incomes official figures
Source: Authors calculation using NE (various years) Encuesta de Hogares por Muestro and NE (2006) La Pobreza
YU
#i$ure %;: Real *a$eE )DP per *orker an, )DP per hea,
-
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
16,000,000
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
annual bolivares of 2000
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
monthly bolivares of 2000
real total worker compensation/worker real GDP/head real GDP/worker real hourly wage
Source: Authors calculation using Antivero(1992) , Banco Central de Venezuela (various years) Sistema de Cuentas Nacionales and NE (various years)
Encuesta de Hogares por
M t
Y"
#i$ure %%: )DPE Total an, 8ocial Public Expen,iture per hea, in Venezuela
So&%"e? A&$,o%Gs "al"&la$ions &sinE IH@Gs Bo'e%nmen$ @inan"ial S$a$is$i"s ('a%io&s -ea%s and +2SAAGs 4enes"o(io
-
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
4,000,000
4,500,000
5,000,000 1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
(bolivares of 2000)
GDP/head total gov. expenditure/head social expenditure / head
YJ
#i$ure %+:E(olution of 8ocial expen,itureE fical priority an, bu,$etary preure
So&%"e? A&$,o%Gs "al"&la$ions &sinE IH@Gs Bo'e%nmen$ @inan"ial S$a$is$i"s ('a%io&s -ea%s and +2SAAGs 4enes"o(io
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
50.0%
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
social expenditure/GDP fiscal priority budgetary pressure
Y[
#i$ure %3: 8hare of conoli,ate, central $o(ernment expen,iture by income ource
So&%"e? A&$,o%Gs "al"&la$ions &sinE IH@Gs Bo'e%nmen$ @inan"ial S$a$is$i"s ('a%io&s -ea%s and Hinis$%- o1 @inan"e
-40.0%
-20.0%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
share of oil revenues (MF) surplus/deficit (MF)
share of oil revenues (Ministry of Finance) surplus/deficit (Ministry of Finance)
YE
#i$ure %-: E(olution of the fical oil1in,utry1relate, re(enue to )DP
:+/.('M D/,#+.V% (-)(/)-,$+*% /%$*7 CkFV% q+2'.*='*, F$*-*($-) :,-,$%,$(% (2-.$+/% 9'-.%) -*&
k$*$%,.9 +0 F$*-*('
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
fiscal oil revenues / GDP (MF) fiscal oil revenues / GDP (Ministry of Finance)
CHAPTER 0:
Competin$ for Fob or Creatin$ Fob?
The &mpact of &mmi$ration on <ati(e1Aorn =nemployment in VenezuelaE
%03;1+;;3
7an 8e0y
<ennedy c)ool o. &o0ern!ent
Har0ard 9ni0ersity
7ean Kan%
3ord c)ool o. @ublic @olicy and 7e+art!ent o. :cono!ics
9ni0ersity o. Mic)i%an
=o0e!ber 200,
Abtract
()e ?enezuelan econo!ic colla+se since 19A0 5as associated 5it) 0ery lar%e in.lo5s o.
Colo!bians and e0en lar%er out.lo5s o. :uro+eans in t)e +ast t)ree decades. ;e s)ed li%)t on
t)e i!+act t)at t)ese lar%e !i%rant in.lo5s and out.lo5s )a0e )ad on t)e labor !ar2et
+er.or!ance o. nati0e>born ?enezuelans. (o identi.y t)e causal e..ect o. net !i%rant in.lo5s on
nati0e labor !ar2et outco!es, 5e e*+loit e*o%enous 0ariation in !i%rant in.lo5s dri0en by
econo!ic s)oc2s in !i%rant source areas. ;e .ind t)at e*o%enous increases in Colo!bian
+resence in ?enezuelan industries )as led to increases in nati0e>born une!+loy!ent, su%%estin%
t)at Colo!bians co!+ete directly 5it) ?enezuelans .or 4obs. ;e esti!ate t)at nati0e>born
une!+loy!ent rises rou%)ly one>.or>one 5it) increases in Colo!bian +resence in ?enezuelan
industries. 6n contrast, declines in :uro+ean +resence are li2ely to )a0e been neutral in t)eir e..ect
on ?enezuelan une!+loy!ent. :*o%enous declines in :uro+ean +resence in ?enezuelan
industries )a0e not led to declines in nati0e>born une!+loy!ent rates, +er)a+s because :uro+ean
+resence )as a M4ob creatin%N e..ect t)at on a0era%e o..sets any co!+etition .or 4obs bet5een
:uro+eans and ?enezuelans.
:!ailH danGle0yL2s%.)ar0ard.edu, deanyan%Lu!ic).edu. ;e t)an2 Mi%uel Al!unia>Candela, (odd
@u%atc), and Ariel zna4der .or e*cellent researc) assistance.
1
%! &ntro,uction
/et5een 19,' and 2000, t)e .raction o. indi0iduals li0in% outside t)eir
countries o. birt) %re5 .ro! 2.2C to 2.9C o. 5orld +o+ulation, reac)in% a total o. 17'
!illion +eo+le in t)e latter year.1 ;)at e..ects do !i%rant in.lo5s )a0e on t)e labor
!ar2et outco!es o. nati0es in )ost countriesP ()is -uestion is o. %reat interest to o..icials
in c)ar%e o. i!!i%ration +olicy in bot) de0elo+ed and de0elo+in% countries, but t)e
e!+irical 5or2 on t)e to+ic )as +ro0ided unclear %uidance. CardBs (1990) study o. t)e
i!+act o. t)e Mariel /oatli.t on t)e Mia!i labor !ar2et .ound no e..ect o. a lar%e in.lu*
o. Cuban re.u%ees on t)e 5a%es o. +otentially a..ected (lo5er>s2illed and Cuban)
5or2ers. 3riedber% and HuntBs (199') sur0ey o. t)e literature concludes t)at i!!i%ration
)as only a s!all e..ect on t)e labor !ar2et outco!es o. nati0e 5or2ers, a .indin% ec)oed
by !it) and :d!ondston (1997). 6n contrast, in an analysis o. labor su++ly s)i.ts across
educationUe*+erience %rou+s in t)e 9nited tates, /or4as (2003) .ound relati0ely lar%e
ne%ati0e e..ects o. i!!i%ration on t)e 5a%es o. co!+etin% 5or2ers.
?enezuela is uni-ue a!on% Andean nations in )a0in% e*+erienced dra!atic
!i%rant in.lo5s and out.lo5s in t)e +ost>;orld ;ar 66 +eriod. ()e -uestion naturally
arisesH )o5 )a0e t)ese !i%rant in.lo5s and out.lo5s a..ected t)e labor !ar2et
+er.or!ance o. ?enezuelan nati0esP
6n t)is c)a+ter 5e c)aracterize t)e )istory o. international !i%ration in ?enezuela
in t)e 197'>2003 +eriod, and assess t)e lin2 t)at !i%rant .lo5s !ay )a0e )ad 5it) t)e
countryBs %ro5t) colla+se. ;e c)aracterize international !i%ration in ?enezuela by
e*a!inin% t)ree -uestionsH (1) )o5 )as t)e stoc2 o. i!!i%rants e0ol0ed o0er ti!eP (2)
1 :sti!ates o. t)e nu!ber o. indi0iduals li0in% outside t)eir countries o. birt) are .ro! 9nited =ations
(2002), 5)ile data on 5orld +o+ulation are .ro! 9.. /ureau o. t)e Census (2002).
2
)o5 )as t)e co!+osition o. i!!i%rants e0ol0ed o0er ti!eP and (3) )o5 do i!!i%rants
di..er .ro! ?enezuelan nati0es in t)eir entre+reneurs)i+ and t)eir )u!an ca+italP
;e assess t)e lin2 bet5een international !i%ration and %ro5t) by in0esti%atin%
t)e e*tent to 5)ic) c)an%es in t)e +resence o. .orei%n>born +eo+le in ?enezuelan
industries a..ected une!+loy!ent a!on% ?enezuelan nati0es. A standard +rediction .ro!
a basic labor !ar2et !odel is t)at e*o%enous increases in .orei%n>born labor su++ly in a
%i0en industry leads to )i%)er nati0e>born une!+loy!ent, a M4ob co!+etitionN e..ect.
()is +resu!es 5a%e stic2iness, as 5ell as an i!+er.ect ability o. e*istin% 5or2ers to s)i.t
.ro! one industry to anot)er in res+onse to an in.lu* o. ne5 5or2ers .ro! o0erseas. 1n
t)e ot)er )and, it is also +ossible t)at in.lo5s o. .orei%n labor !i%)t create 4obs .or nati0e
5or2ers, i. t)e ne5 .orei%n 5or2ers establis) ne5 entre+reneurial enter+rises t)at e!+loy
nati0es.
1ur e!+irical analysis tests 5)ic) e..ect do!inates on a0era%e, loo2in%
se+arately at t)e e..ect o. in.lo5s o. Colo!bians, on t)e one )and, and :uro+eans, on t)e
ot)er. (o identi.y t)e causal e..ect o. net !i%rant in.lo5s on nati0e labor !ar2et
outco!es, 5e e*+loit e*o%enous 0ariation in !i%rant in.lo5s dri0en by econo!ic s)oc2s
in !i%rant source areas. ;e .ind t)at e*o%enous increases in Colo!bian +resence in
?enezuelan industries )as led to increases in nati0e>born une!+loy!ent as Colo!bians
co!+ete directly 5it) ?enezuelans .or 4obs. =ati0e>born une!+loy!ent a++ears to rise
rou%)ly one>.or>one 5it) increases in Colo!bian +resence in ?enezuelan industries. 6n
contrast, declines in :uro+ean +resence )a0e )ad no a++arent e..ect on ?enezuelan
une!+loy!ent. :*o%enous declines in :uro+ean +resence in ?enezuelan industries )a0e
not led to declines in nati0e>born une!+loy!ent rates, +er)a+s because :uro+ean
3
+resence )as a M4ob creatin%N e..ect t)at on a0era%e o..sets any co!+etition .or 4obs
bet5een :uro+eans and ?enezuelans.
()e ne*t section o. t)is c)a+ter +ro0ides a brie. )istory o. i!!i%ration to
?enezuela. ;e t)en describe t)e data used in t)is +a+erBs e!+irical analyses in ection 3,
and describe !a4or trends in i!!i%ration to ?enezuela in t)e last t)ree decades in
ection ". ection ' s)eds li%)t on t)e i!+act o. !i%rant in.lo5s to ?enezuela on
une!+loy!ent rates a!on% nati0es. ection , concludes.
+! A brief hitory of immi$ration to Venezuela
8ar%e !i%rant in.lo5s to ?enezuela started in 1922 5it) t)e be%innin% o. t)e .ull
e*+loitation o. t)e countryBs oil resources. 6n 193,, t)e ?enezuelan %o0ern!ent +assed
t)e 8a5 on 6!!i%ration and ettle!ent 5)ic) set %uidelines .or t)e !ore t)an one
!illion s2illed i!!i%rants t)at arri0ed .ro! 19"A to 19'A. Muc) Colo!bian i!!i%ration
ca!e at t)is ti!e due to t)e +etroleu! boo!. A +eriod in Colo!biaBs )istory bet5een
19"A and 19,, 2no5n as La Violencia led to !assi0e internal !i%rations to t)e 2,219
2ilo!eters o. land borderin% ?enezuela as 5ell as :cuador and @ana!a.
()e !a4ority o. i!!i%rants to ?enezuela in t)e +ost>;orld ;ar 66 +eriod ca!e
.ro! :uro+e. Many i!!i%rants stayed in et)nic encla0es in Caracas and s+ecialized in
certain industriesH 6talians .ocused on arts and cra.ts, construction and 5ere o.ten
e!+loyed as !ec)anics. +aniards 5ere !ore di0ersi.ied, 5or2in% as +lu!bers,
car+enters and !ana%ers o. ca.es and restaurants, 5)ile @ortu%uese usually 5or2ed in
.oodstu..s retail. Colo!bian i!!i%rants in t)e 19,0s usually 5or2ed in t)e
!anu.acturin%, a%ricultural and construction sectors.
"
6n 19'A and 19'9, t)e %o0ern!ent be%an to discoura%e i!!i%ration, but
i!!i%ration 5as already in s)ar+ decline, and ?enezuela be%an a +eriod o. ne%ati0e net
!i%ration .lo5s (/lutstein et al 19A'). ()e 19'0s )ad been do!inated by +ost>5ar
:uro+ean i!!i%rants to t)e cities, 5)ile i!!i%ration in t)e 19,0s 5as !ainly
undocu!ented i!!i%rants .ro! Colo!bia and ot)er 8atin A!erican countries 5)o
5or2ed in t)e rural sector (assen><oob 1979, +. "7A).
6n 19,', :uro+ean i!!i%rants in ?enezuela nu!bered rou%)ly 300,000 (Mille
19,'). 6n t)at year, '".9C o. i!!i%rants li0ed in t)e Caracas !etro+olitan area, 5)ereas
Colo!bian i!!i%rants 5ere concentrated in t)e borderin% states o. ([c)ira (A.,C), Zulia
(10.3C) and Ara%ua, Carabobo (A.,C) and ot)er (17C) (C)en 19,A).
6n 1973, .ollo5in% a 2'0C rise in %o0ern!ent re0enue due to t)e rise in
international oil +rices, t)e ?enezuelan %o0ern!ent instituted a selecti0e +olicy to
encoura%e i!!i%ration to res+ond to t)e increase in labor de!and (assen><oob 1979, +.
"',). 3ollo5in% t)e 19A0 econo!ic do5nturn, i!!i%rant +o+ulations be%an to arri0e
.ro! t)e 7o!inican $e+ublic, &uyana and Haiti ((orales 2003, +. 3'). /y 1990, !ore
t)an )al. o. .orei%n residents in ?enezuela ca!e .ro! Colo!bia, 5it) t)e !a4ority li0in%
in t)e ?enezuelan border states o. Zulia and ([c)ira. 6n 1999, 0iolence 5as a !a4or
catalyst .or Colo!bian !i%ration to ?enezuela, 5it) t)e 9nited tatesB Plan Colom8ia
causin% re.u%ee .lo5s into ?enezuela. 6n Colo!bian border +ro0inces, Arauca and =orte
de antander, 1.'1C and 3.'2C o. t)e +o+ulation res+ecti0ely, )a0e been dis+laced into
?enezuela.
'
3! Data
()e !ain data source used in t)is study is t)e ?enezuelan .ncuesta ,e Cogares, a
se!i>annual sur0ey conducted since 197' on re+resentati0e sa!+les o. )ouse)olds li0in%
in ?enezuela. 3or e0ery year in 5)ic) t)e sur0ey 5as conducted, 5e )a0e in.or!ation on
t)e year o. birt) and +lace o. birt) o. t)e +erson inter0ie5ed. ()is allo5s us to construct
a )istory o. t)e nu!ber o. .orei%n>born +eo+le li0in% in ?enezuela and o. t)e net .lo5s o.
.orei%n>born.
()e sur0ey )as in.or!ation on 5)et)er t)e indi0idual 5as an e!+loyer, and 5e
code all e!+loyers as entre+reneurs .or t)e +ur+osed o. t)e study. 6t also )as in.or!ation
on t)e years o. sc)oolin% o. eac) +erson, 5)ic) allo5s us to loo2 at 5)et)er t)ere are
lar%e di..erences in le0els o. sc)oolin% bet5een !i%rants .ro! di..erent countries.
()e sur0ey )as t5o !ain li!itations .or t)e +ur+oses o. our studyH 3irst, it be%an
in 197', 5)ic) !eans 5e cannot rely on it to c)aracterize !i%ration be.ore t)en, and 5e
can only assess t)e lin2 bet5een international !i%ration and t)e %ro5t) colla+se .ro!
197' on5ards.2 econd, because it only sa!+les +eo+le li0in% in ?enezuela, 5e do not
2no5 )o5 !any .orei%n>born le.t t)e country and )o5 !any ca!e into t)e country .ro!
one year to anot)er, i.e. 5e can only in.er net .lo5s o. .orei%n>born +eo+le li0in% in
?enezuela.
-! @ar$e1cale tren, in international mi$ration to Venezuela
()e nu!ber o. .orei%n born li0in% in ?enezuela increased .ro! about ,00,000 in
197' to about 1,000,000 in 2003. Most o. t)e increase occurred in t)e .irst .i0e years o.
t)is +eriod. ince 19A0, t)e nu!ber o. .orei%n>born li0in% in ?enezuela oscillated
2 ()e sur0ey collected data on year o. arri0al to ?enezuela, but only .or t)e +eriod 199">2003.
,
bet5een A00,000 and 1,000,000. &i0en t)at t)e o0erall +o+ulation in ?enezuela %re5
durin% t)e 197'>2003 +eriod, t)is +attern in t)e e0olution in t)e nu!ber o. .orei%n born
!eant t)at t)e +ro+ortion o. .orei%n>born li0in% in ?enezuela increased in t)e 197'>19A0
+eriod (.ro! about 'C to ,C), and declined consistently since t)en (to about "C in
2003). ee 3i%ure 1 and A++endi* (able 1 .or details.
3orei%n>born +eo+le are !uc) !ore li2ely to be entre+reneurs t)an ?enezuelans.
6n .act, t)e .raction o. .orei%n>born +eo+le li0in% in ?enezuela 5)o are entre+reneurs
ran%ed bet5een 1"C and 31C in t)e 197'>2003 +eriod, 5)ereas t)e .raction o.
?enezuelans 5)o are entre+reneurs ran%ed bet5een "C and ,C in t)is sa!e +eriod.
A!on% t)e .orei%n>born li0in% in ?enezuela, t)e :uro+eans are !uc) !ore li2ely t)an
t)e Colo!bians to be entre+reneurs (A++endi* (able 2).
()ere 5as a bi% s)i.t in t)e co!+osition o. .orei%n>born .ro! !ostly :uro+eans
to !ostly Colo!bians in t)e +eriod 197'>2003 (3i%ure 2). ()e .raction o. Colo!bians
5ent u+ .ro! about a t)ird to t5o t)irds, 5)ereas t)e .raction o. :uro+eans 5ent do5n
.ro! about '0C to about 1'C. ()e .raction o. .orei%n>born t)at 5as not born in eit)er
Colo!bia or :uro+e stayed relati0ely constant t)rou%)out t)e +eriod.3
()is s)i.t in co!+osition o. .orei%n>born c)an%ed entre+reneurs)i+ in ?enezuela
(3i%ure 3). As t)e .raction o. :uro+eans a!on% +eo+le li0in% in ?enezuela )as decreased
o0er ti!e, so )as t)e .raction o. entre+reneurs 5)o are .orei%n born. 6ndeed, t)e .raction
o. entre+reneurs 5)o are .orei%n born decreased .ro! about 27C in 197' to about 1"C
in 2003. :uro+eans entre+reneurs 5)o re+resented al!ost 20C o. all entre+reneurs in
?enezuela in 197' no5 re+resent less t)an "C (A++endi* (able 2). ()e nu!ber o.
3 ()e a%e trends are consistent 5it) a )i%)er in.lu* o. Colo!bians t)an o. :uro+eans. ()e a0era%e a%e o.
Colo!bians increased .ro! 31 to "" years old in t)e +eriod 197'>2003, 5)ereas t)e a0era%e a%e o.
:uro+eans increased .ro! about "0 to about ,0 years old in t)at sa!e +eriod.
7
.orei%n>born entre+reneurs li0in% in ?enezuela started at about ,',000 in 197', reac)ed
its +ea2 (around 120,000) in t)e +eriod 19A7>1992, and t)en declined to about 7',000 in
2003.
;)ile t)ere are so!e !odest di..erences bet5een :uro+eans and ?enezuelans in
ter!s o. a0era%e years o. sc)oolin%, t)ese di..erences are 0ery s!all a!on% t)e subset o.
entre+reneurs (A++endi* (able 3). :uro+eans entre+reneurs and ?enezuelan
entre+reneurs )a0e on a0era%e about t)e sa!e le0el o. sc)oolin% (7 years).
6n su!!ary, t)e !ain .indin%s on t)e )istory o. international !i%ration in
?enezuela t)at are rele0ant to t)is c)a+ter are t)e .ollo5in%H (1) t)e +ercent o. .orei%nborn
li0in% in ?enezuela )as decreased .ro! about 'C to about "C in t)e +eriod 197'>
2003, (2) t)ere )as been a bi% s)i.t in t)e co!+osition o. .orei%n born .ro! !ostly
:uro+eans to !ostly Colo!bians, (3) t)e .orei%n born !uc) !ore li2ely t)an
?enezuelans to be entre+reneurs, but t)e .raction o. .orei%n born entre+reneurs decreased
o0er ti!e, and (") 3orei%n born indi0iduals do not di..er !ar2edly .ro! locals in ter!s o.
educational attain!ent. ()e ne*t section describes )o5 t)ese .actors !ay )a0e been
related to t)e %ro5t) colla+se in ?enezuela.
2! &mpact of forei$n1born preence on nati(e1born unemployment
()e dra!atic declines in :uro+ean +resence and t)e increases in Colo!bian
+resence in ?enezuela o0er t)e last t)ree decades +ro!+ts t)e -uestionH )o5 )a0e t)ese
c)an%es a..ected t)e labor !ar2et +er.or!ance o. ?enezuelan nati0esP
()e standard +rediction .ro! a basic labor !ar2et !odel is t)at e*o%enous
increases in .orei%n>born labor su++ly in a %i0en industry 5ould lead to )i%)er nati0eA
born une!+loy!ent, a M4ob co!+etitionN e..ect. ()is +resu!es 5a%e stic2iness, as 5ell
as i!+er.ect or delayed ability o. e*istin% 5or2ers to s)i.t .ro! one industry to anot)er in
res+onse to an in.lu* o. ne5 5or2ers .ro! o0erseas. 1ne !i%)t e*+ect t)at t)is M4ob
co!+etitionN e..ect 5ould be !ore i!+ortant i. t)e ne5 inco!in% 5or2ers )a0e si!ilar
s2ill c)aracteristics to e*istin% nati0e>born 5or2ers.
Ho5e0er, a less 5idely>considered +ossibility is t)at in.lo5s o. .orei%n labor
!i%)t create 4obs .or nati0e 5or2ers, i. t)e ne5 .orei%n 5or2ers establis) ne5
entre+reneurial enter+rises t)at e!+loy nati0es. ;e !i%)t e*+ect t)at t)is M4ob creationN
e..ect 5ould be !ore li2ely .or in.lo5s o. 5or2ers 5it) entre+reneurial s2ills, a0ailable
.inancial ca+ital, or )i%)er education le0els.
6n +rinci+le, t)en, t)e i!+act o. ne5 in.lo5s o. t)e .orei%n>born into ?enezuelan
industries could )a0e eit)er a ne%ati0e or +ositi0e e..ect on nati0e une!+loy!ent. ()e
e!+irical analysis 5ill test 5)ic) e..ect do!inates on a0era%e, loo2in% se+arately at
in.lo5s o. Colo!bians, on t)e one )and, and :uro+eans, on t)e ot)er.
2!%! &,entification trate$y
Consider t)e .ollo5in% re%ression e-uation .or t)e une!+loy!ent rate Uit .or
nati0e>born ?enezuelans in industry i in year tH
i t it
#
it it U =( + + +` . (1)
6n e-uation (1), #
it ( is t)e +resence in industry i o. indi0iduals born in location #
in year t.
i is a .i*ed e..ect .or industry i,
t is a year .i*ed e..ect, and `it is a !ean>zero
error ter!.
9
A +roble! 5it) esti!atin% t)is re%ression e-uation 0ia ordinary least>s-uares is
t)at t)e coe..icient on .orei%n>born +resence in t)e industry, , need not re+resent t)e
causal e..ect on nati0e>born une!+loy!ent. 3or e*a!+le, t)ere !ay be re0erse causation,
i. net in.lo5s o. nati0e>born 5or2ers into t)e industry sti!ulate net e*it by t)e .orei%nborn,
leadin% ne%ati0e bias in t)e re%ression coe..icient. 1!itted 0ariable concerns also
arise, suc) as t)ird .actors (e.%., tec)nolo%y>dri0en i!+ro0e!ents in 5or2er +roducti0ity)
t)at sti!ulate in.lo5s o. bot) nati0e> and .orei%n>born 5or2ers. ()is latter case 5ould
lead t)e re%ression coe..icient on #
it ( to be +ositi0ely biased.
6t is t)ere.ore i!+ortant to isolate a source o. 0ariation in .orei%n>born industry
+resence t)at is e*o%enous 5it) res+ect to nati0e>born outco!es in t)e industry. ;e
t)ere.ore .ocus on 0ariation in .orei%n>born industry +resence t)at is dri0en by econo!ic
.luctuations ta2in% +lace outsi,e o. ?enezuela, in !i%rant source countries. (o t)e e*tent
t)at !i%rant .lo5s to ?enezuela are in +art dri0en by econo!ic conditions in !i%rant
source areas, i!+ro0e!ents in econo!ic conditions o0erseas s)ould reduce net !i%ration
(in.lo5s !inus out.lo5s) to ?enezuela.
:cono!ic conditions outside o. ?enezuela s)ould )el+ +redict net !i%ration to
t)e country as a 5)ole, but )o5 t)en does one +redict t)e allocation o. t)ese !i%rants
across ?enezuelan industriesP ;e assu!e t)at 5)en !i%rants arri0e, t)ey are !ore li2ely
to see2 e!+loy!ent in industries 5)ere !i%rants .ro! t)e sa!e source areas are already
e!+loyed. ()is !a2es sense i. t)e e*istence o. 5it)in>industry !i%rant net5or2s lo5er
t)e costs o. 4ob searc) (as in Muns)i 2003).
10
(o !a2e t)is idea !ore concrete, consider (able 1, 5)ic) dis+lays .orei%n>born
+resence (:uro+eans and Colo!bians se+arately) by industry in ?enezuela .or t)ree ti!e
+eriods (197'>1979, 19A0>1991, and 1992>2003). 6n t)e earliest +eriod, :uro+ean>born
industry +resence 5as )i%)est in international or%anizations (39."9C), 5)olesale trade
(13.22C), real estate and ser0ices to .ir!s (12.'0C), and restaurants and )otels (11.A9C),
and lo5est in )ydraulic 5or2s and 5ater su++ly (1.2,C), +ublic ad!inistration and
de.ense (0.92C), and 5ood e*traction (0.21C). 6n t)e sa!e ti!e +eriod, Colo!bian>born
+resence s)o5ed di..erent +atterns, bein% )i%)est in +ro.essional ser0ices includin%
)ouse2ee+in% (9.19C), 5ood industry and .urniture ('.1'C), restaurants and )otels
('.01C), and clot)in% and leat)er (".'0C), and lo5est in .is)in% (0."0C), oil and natural
%as +roduction (0.19C), and carbon !ines e*+loitation (0.00C).
6. e*istin% !i%rant net5or2s lo5er 4ob searc) costs .or ne5ly>arri0ed !i%rants,
5e s)ould e*+ect t)at ne5 !i%rant in.lo5s into ?enezuela s)ould lead to lar%er
+ercenta%e>+oint increases in !i%rant +resence in t)ose industries 5)ere !i%rant
+resence is already )i%). Con0ersely, 5)en net !i%rant out.lo5s occur, 5e s)ould e*+ect
lar%er +ercenta%e>+oint declines in industries 5)ere t)e !i%rants 5ere initially 5ellre+resented.
As docu!ented earlier in t)is c)a+ter, t)e +ast t)ree decades )a0e seen dra!atic
increases in Colo!bian i!!i%ration to ?enezuela. ;e 5ould t)en e*+ect t)at Colo!bian
+resence by industry rises !ore (in +ercenta%e>+oint ter!s) in industries 5)ere
Colo!bians 5ere initially 5ell>re+resented. ()is +rediction recei0es so!e su++ort in
(able 1. ()e lar%est +ercenta%e>+oint increases in Colo!bian industry +resence .ro!
197'>1979 to 1992>2003 5ere in t5o industries t)at )ad nearly t)e )i%)est initial
11
Colo!bian +resenceH 5ood industry and .urniture (initial s)are '.1'C, risin% to 9.A2C)
and clot)in% and leat)er (initial s)are ".'0C, risin% to 9.A2C).
;it) t)e lar%e declines in net !i%ration by t)e :uro+ean>born into ?enezuela, 5e
see an analo%ous +attern but 5it) t)e o++osite si%nH t)e lar%est +ercenta%e>+oint declines
in :uro+ean>born industry +resence occur in industries 5)ere :uro+eans 5ere initially
5ell>re+resented. Most dra!atically a!on% t)e lar%er industries, :uro+ean +resence in
5)olesale trade declines .ro! 13.22C to 2.""C, and in real estate and ser0ices to .ir!s
.ro! 12.'0C to 2.2AC. (()e decline in :uro+ean +resence in international or%anizations
is e0en lar%er, .ro! 39."9C to 10.0,C, but t)is is a 0ery !inor e!+loy!ent
classi.ication.)
Moti0ated by t)ese considerations, 5e construct an instru!ental 0ariable .or
.orei%n>born industry +resence #
it ( , 5)ic) is la%%ed o0erseas econo!ic conditions in
location # ( #
Yit1 ) interacte, 5it) initial industry +resence o. t)ose born in location # ( #
i ( 0 ).
(;e la% o0erseas econo!ic conditions by one year because !i%ration cannot ty+ically
occur i!!ediately, but s)ould re-uire so!e ad0ance +lannin%.) ()e .irst>sta%e re%ression
+redictin% .orei%n>born industry +resence #
it ( is t)ere.ore si!+lyH
( ) i t it
#
it
#
i
#
it ( = ( Y + +w + 0 1 D , (2)
5)ere
i is a .i*ed e..ect .or industry i, w
t is a year .i*ed e..ect, and it is a !ean>zero
error ter!.
1ur strate%y, t)en, is to e*a!ine 5)et)er and )o5 t)ese instru!ented c)an%es in
.orei%n +resence are associated 5it) c)an%es in nati0e>born une!+loy!ent. ()e
+redicted 0alue o. .orei%n +resence .ro! t)e .irst sta%e, #
it (c , is used instead o. #
it ( in t)e
12
second>sta%e instru!ental 0ariables re%ressionH
i t it
#
it it U =ddddddddddd(c + + +` . (3)
6n +anel data conte*ts, +ositi0e correlation in t)e error ter!s across obser0ations
in di..erent ti!e +eriods but 5it)in t)e sa!e unit o. analysis (in t)is case, 2>di%it
industries) biases standard errors do5n5ards (/ertrand, 7u.lo, and Mullainat)an 200").
;e t)ere.ore re+ort standard errors t)at account .or arbitrary co0ariance structures
a!on% obser0ations .ro! t)e sa!e industry (standard errors are clustered by industry).
6t is desirable to )a0e t)e re%ression esti!ates re+resent t)e i!+act o. .orei%nborn
+resence .or t)e ty+ical ?enezuelan 5or2er. Ho5e0er, industries 0ary considerably
in total size, and so si!+le un5ei%)ted re%ressions 5ould %i0e e-ual 5ei%)t in t)e
analyses to s!aller as 5ell as lar%er industries. ;e t)ere.ore run 5ei%)ted re%ressions,
5)ere 5e 5ei%)t eac) industry>year obser0ation by its size (total nu!ber o. 5or2ers) in
t)e initial (197'>1979) +eriod.
2!+! Contruction of the ,ataet for analyi
7ata .or t)e e!+irical analysis co!es .ro! t)e ?enezuelan .ncuesta ,e Cogares
(described earlier) .ro! 197' to 2003. 7ata are a%%re%ated at t)e industry>year le0el to
calculate :uro+ean>born +resence, Colo!bian>born +resence, and t)e nati0e>born
une!+loy!ent rate. ()e :uro+ean and Colo!bian +resence 0ariables are si!+ly t)e
.raction o. 5or2ers in t)e industry 5)o 5ere born in eit)er :uro+e or Colo!bia. ;e do
not brea2 out :uro+eans by e*act country o. birt) because, un.ortunately, .or !ost years
o. data (all years +rior to 199") t)e e*act country o. birt) 5it)in :uro+e is not re+orted in
t)e sur0ey. All industries t)at are re+resented in t)e data .or 2' or !ore years are
13
included in t)e analysis (so!e !inor industries only a++ear in t)e sur0ey .or a .e5 years
o0er t)e ti!e +eriod). (o eli!inate outliers t)at are li2ely to be due to inconsistencies in
data collection o0er ti!e, 5e a++ly a data>cleanin% screen to all 2ey inde+endent and
de+endent 0ariables used in t)e analysesH 5e re+lace t)e 0alue o. a 0ariable 5it) !issin%
i. its 0alue is !ore t)an t)ree standard de0iations a5ay .ro! t)e !ean 0alue o. t)e
0ariable across all years.
6n constructin% t)e instru!ental 0ariables .or bot) Colo!bian> and :uro+eanborn
industry +resence, t)e .irst co!+onent is Colo!bian> and :uro+ean>born industry
+resence in an initial +eriod, 5)ic) 5e ta2e to be 197'>1979. ()e !easure o. econo!ic
conditions is si!+ly lo% +er ca+ita &7@ (la%%ed one year) in t)e +lace o. ori%in .ro!
;orld 7e0elo+!ent 6ndicators 200". 8o% +er ca+ita &7@ is clearly de.ined .or
Colo!bia, but 5)at about t)e analo%ous !easure .or :uro+ean !i%rantsP
;)ile t)e .ncuesta ,e Cogares records t)e e*act country ori%ins o. :uro+eans in
197'>1979, 5e do 2no5 t)at !ost :uro+eans in ?enezuela durin% t)at +eriod 5ould )a0e
been .ro! sout)ern :uro+ean countries. ()e 1971 ?enezuelan census (5)ic) 5as
so!e5)at better at recordin% e*act country o. birt)) .ound t)at a!on% t)e rou%)ly 0.,
!illion .orei%n>born indi0iduals in t)e country, 30C 5ere born in Colo!bia, 2'C in
+ain, 1'C in 6taly, 1"C in @ortu%al, and t)e re!ainin% 1,C in ot)er locations
(includin% ot)er 8atin A!erican countries) (/lutstein et al 19A'). ()ere.ore, t)e !easure
5e use .or econo!ic conditions in :uro+ean source areas is t)e 5ei%)ted a0era%e o. lo%
+er ca+ita &7@ a!on% t)e t)ree !ost )i%)ly>re+resented sout)ern :uro+ean countries,
+ain, 6taly, and @ortu%al. ;e use 5ei%)ts t)at are +ro+ortional to relati0e +resence o.
1"
!i%rants .ro! t)ese countries in t)e 1971 ?enezuelan census (0.",, 0.2A, and 0.2,,
res+ecti0ely).
u!!ary statistics .or t)e 2ey 0ariables used in t)e analysis are +resented in
(able 2. ()e unit o. obser0ation is t)e industry>year, across 33 industries and 2" years
(19A0>2003). ()e .irst year o. data 5e use is 19A0 because t)e initial years o. data (197'>
1979) are used to esti!ate t)e initial .orei%n>born +resence by industry, and t)ere.ore
cannot be used in t)e !ain e!+irical analysis. ()e !ean 0alues o. :uro+ean and
Colo!bian +resence across industries and ti!e +eriods are 0.02' and 0.3' res+ecti0ely.
()e nati0e>born (?enezuelan) une!+loy!ent rate )as a !ean o. 0.20,, 5it) a standard
de0iation o. 0.0A' and a ran%e o. a0.000, 0."A,b.
2!3! #irt1ta$e etimate
Coe..icient esti!ates on t)e .orei%n +resence instru!ents .ro! esti!ation o. .irststa%e
e-uation (2) are +resented in (able 3. ()e .irst t5o colu!ns +resent coe..icient
esti!ates in re%ressions 5)ere t)e de+endent 0ariable is Colo!bian>born +resence in t)e
industry, 5)ile in t)e latter t5o colu!ns t)e de+endent 0ariable is :uro+ean>born
+resence.
6n colu!n 1, t)e coe..icient on t)e instru!ent .or Colo!bian +resence is ne%ati0e
and statistically si%ni.icantly di..erent .ro! zero at t)e 1C le0el. 6!+ro0e!ents in
Colo!bian econo!ic +er.or!ance (5it) a one year la%) lead to %reater declines in
Colo!bian +resence in industries 5)ere Colo!bians )a0e %reater +resence to be%in 5it).
()e re%ression in colu!n 2, is identical to t)at in colu!n 1 e*ce+t t)at t)e instru!ent .or
:uro+ean +resence is included as an inde+endent 0ariable. ()e instru!ent .or :uro+ean
1'
+resence is co!+arati0ely 0ery s!all in !a%nitude and is not statistically si%ni.icantly
di..erent .ro! zero. ()is is sensibleH s)oc2s in :uro+e do not a..ect Colo!bian +resence
in ?enezuelan industries. 6nclusion o. t)e :uro+ean instru!ent does not !aterially a..ect
t)e coe..icient on t)e Colo!bian instru!ent.
()e !a%nitude o. t)e coe..icient on t)e Colo!bian instru!ent in bot) colu!ns 1
and 2 indicates t)at, .or an industry 5it) initial Colo!bian +resence o. 0.0' ('C), a 0.02
decline in lo% +er ca+ita &7@ in Colo!bia leads to a 0.0022 (0.22C) increase in
Colo!bian industry +resence.
$esults .or :uro+ean +resence are -uite si!ilar. ()e coe..icient on t)e :uro+ean
+resence instru!ent in colu!n 3 is ne%ati0e and statistically si%ni.icantly di..erent .ro!
zero at t)e 1C le0el. 6nclusion o. t)e Colo!bian +resence instru!ent in colu!n " does
not !aterially c)an%e t)e coe..icient on t)e :uro+ean +resence instru!ent.
6!+ro0e!ents in :uro+ean econo!ic +er.or!ance lead to %reater declines in :uro+ean
+resence in industries 5it) %reater initial :uro+ean +resence, 5it) a one year la%.
o!e5)at sur+risin%ly, t)e coe..icient on t)e Colo!bian +resence instru!ent is also
ne%ati0e and statistically si%ni.icantly di..erent .ro! zero at t)e 1C le0el, and in
!a%nitude is nearly t5o>.i.t)s t)e size o. t)e :uro+ean +resence instru!ent. 1ne
+ossibility is t)at :uro+ean>born !i%rants currently residin% in Colom8ia consider t)e
Colo!bian and ?enezuelan labor !ar2ets to be relati0ely close substitutes and decide
5)ere to locate on t)e basis o. Colo!bian econo!ic conditions. ()e :uro+ean>born 5)o
enter ?enezuela 0ia Colo!bia !ay distribute t)e!sel0es across industries in a !anner
!ore si!ilar to t)e Colo!bian>born t)an t)e :uro+ean>born. ()is 5ould !ean t)at t)e
1,
Colo!bian +resence instru!ent is correlated 5it) t)eir +ro+ensity to locate across
?enezuelan industries.
()e !a%nitude o. t)e coe..icients on t)e :uro+ean instru!ents in colu!ns 3 and
" indicates t)at .or an industry 5it) initial :uro+ean +resence o. 0.0' ('C), a 0.02
decline in 5ei%)ted>a0era%e sout)ern :uro+ean lo% +er ca+ita &7@ leads to a 0.0013
(0.13C) increase in :uro+ean industry +resence.
/ot) t)e Colo!bian and :uro+ean instru!ents are -uite stron%, as e*)ibited by
t)e 3>statistics at t)e botto! o. (able 3. /y t)e!sel0es, 3>statistics .or eac) res+ecti0e
source>country instru!ent e*ceed t)e rule>o.>t)u!b le0el o. 10 reco!!ended by /ound,
Iae%er, and /a2er (199'). ;)en t)e ot)er !i%rant source locationBs instru!ent is
included in t)e re%ression, t)e 3>stat increases in t)e re%ression .or :uro+ean +resence
(colu!n "), but declines so!e5)at in t)e re%ression .or Colo!bian +resence (colu!n 2).
2!-! 8econ,1ta$e etimate /or,inary leat "uare an, intrumental
(ariable4
(able " +resents re%ression esti!ates o. t)e i!+act o. Colo!bian and :uro+ean
+resence on nati0e>born une!+loy!ent in ?enezuelan industries. @anel A +resents
ordinary least s-uares esti!ates .ro! esti!ation o. e-uation (1), 5)ile @anel / +resents
instru!ental 0ariables esti!ates. 6n t)e 6? re%ressions, +redicted 0alues o. Colo!bian
and :uro+ean +resence .ro! t)e .irst>sta%e re%ressions o. (able 3. All re%ressions
include .i*ed e..ects .or industry and year. 6n bot) +anels, t)e re%ression in colu!n 1
additionally includes only t)e Colo!bian +resence 0ariable on t)e ri%)t )and sideO t)e
re%ression in colu!n 2 includes only t)e :uro+ean +resence 0ariable on t)e ri%)t )and
17
sideO and t)e re%ression in colu!n 3 includes bot) Colo!bian and :uro+ean +resence
se+arately on t)e ri%)t )and side.
()e ordinary least s-uares results in @anel A indicate t)at increases in Colo!bian
+resence in ?enezuelan industries are associated 5it) increases in ?enezuelan
une!+loy!ent. ()e coe..icients on Colo!bian +resence in bot) colu!ns 1 and 3 are
statistically si%ni.icantly di..erent .ro! zero at t)e 'C le0el. /y contrast, :uro+ean
+resence is not stron%ly associated 5it) ?enezuelan une!+loy!ent by industryH t)e
coe..icients on :uro+ean +resence are s!all in !a%nitude (and actually ne%ati0e in si%n)
and are 0ery .ar .ro! bein% statistically si%ni.icantly di..erent .ro! zero at con0entional
le0els.
()e ordinary least s-uares results cannot be %i0en a causal inter+retation, so 5e
no5 turn to t)e instru!ental 0ariables results in @anel /. As it turns out, t)ese results
con.ir! t)e +atterns .ound in t)e ordinary least s-uares re%ressions. ()e coe..icient on
instru!ented Colo!bian +resence is lar%e in !a%nitude (ran%in% .ro!1.0' to 1.1,7
across s+eci.ications) and is statistically si%ni.icantly di..erent .ro! zero at t)e 1C le0el
in bot) colu!ns 1 and 3. /y contrast, t)e coe..icient on instru!ented :uro+ean +resence
()ere +ositi0ely si%ned, in contrast to t)e ordinary least s-uares results) is s!aller in
!a%nitude and is not statistically si%ni.icantly di..erent .ro! zero at con0entional le0els.
6n su!, e*o%enous increases in Colo!bian +resence in ?enezuelan industries
cause increases in ?enezuelan une!+loy!ent. ;)en it co!es to Colo!bian>born
+resence in ?enezuelan industries, t)e M4ob co!+etitionN e..ect 5ould a++ear to do!inate
any M4ob creatin%N e..ect. ()e ne%ati0e e..ect o. Colo!bian +resence is lar%eH t)e
coe..icient esti!ates on instru!ented Colo!bian +resenced.ro! 1.0'0 to 1.1,7d
1A
indicate t)at t)e nati0e born une!+loy!ent rate rises rou%)ly one>.or>one 5it)
Colo!bian +resence in t)e industry. /y contrast, t)ere is no statistically si%ni.icant e..ect
o. e*o%enous increases in :uro+ean +resence, +er)a+s because so!e .raction o.
:uro+ean entry into ?enezuelan industries is M4ob creatin%N and t)ere.ore o..sets to so!e
e*tent any M4ob co!+etitionN e..ect. ()is !ay be due to :uro+eansB %reater li2eli)ood o.
bein% entre+reneurs. 1n net, 5e cannot distin%uis) t)e e..ect o. :uro+ean +resence on
?enezuelan une!+loy!ent .ro! zero.
9! Concluion
;e docu!ent in t)is c)a+ter t)at t)e ?enezuelan econo!ic colla+se since 19A0
)as been associated 5it) 0ery lar%e in.lo5s o. Colo!bians and e0en lar%er out.lo5s o.
:uro+eans in t)e +ast t)ree decades. ;e s)ed li%)t on t)e li2ely i!+act t)at t)ese lar%e
!i%rant in.lo5s and out.lo5s )a0e )ad on t)e labor !ar2et +er.or!ance o. nati0e>born
?enezuelans.
1ur analysis o. ?enezuelan labor !ar2et data .ro! 19A0 to 2003 re0eals t)at
e*o%enous increases in Colo!bian +resence in ?enezuelan industries )as led to increases
in nati0e>born une!+loy!ent as Colo!bians co!+ete directly 5it) ?enezuelans .or 4obs.
1ur esti!ates indicate t)at nati0e>born une!+loy!ent rises rou%)ly one>.or>one 5it)
increases in Colo!bian +resence in ?enezuelan industries. 6n contrast, declines in
:uro+ean +resence are li2ely to )a0e been so!e5)at neutral in t)eir e..ect on
?enezuelan une!+loy!ent. :*o%enous declines in :uro+ean +resence in ?enezuelan
industries )a0e not led to declines in nati0e>born une!+loy!ent rates, +er)a+s because
19
:uro+ean +resence )as a M4ob creatin%N e..ect t)at on a0era%e o..sets any co!+etition .or
4obs bet5een :uro+eans and ?enezuelans.
20
Reference
/ertrand, Marianne, :st)er 7u.lo and end)il Mullainat)an, MHo5 Muc) )ould ;e
(rust 7i..erence>in>7i..erence :sti!atesPN Nuarterly :ournal of .conomics, ?ol. 119,
=o.1, 3ebruary 200", ++. 2"9>27'.
/lutstein, Ho5ard, I. 7a0id :d5ards, <at)ryn ()erese Io)nston, 7a0id McMorris, and
Ia!es $udol+). Venezuela: A Country 'tu,y= ;as)in%ton 7CH A!erican 9ni0ersity and
9nited tated Ar!y, 19A'.
/or4as, &eor%e, M()e 8abor 7e!and Cur0e is 7o5n5ard lo+in%H $ee*a!inin% t)e
6!+act o. 6!!i%ration on t)e 8abor Mar2et,N Nuarterly :ournal of .conomics-
=o0e!ber 2003.
/ound, Io)n, 7a0id Iae%er, and $e%ina /a2er (199'). M@roble!s 5it) 6nstru!ental
?ariables :sti!ation 5)en t)e Correlation /et5een t)e 6nstru!ents and t)e :ndo%enous
:*+lanatory ?ariables is ;ea2,N :ournal of the American 'tatistical Association, ?ol.
90, =o. "30, ++. ""3>"'0.
Card, 7a0id, Y()e 6!+act o. t)e Mariel /oatli.t on t)e Mia!i 8abor Mar2et.B 1n,ustrial
an, La8or %elations %e)iew- 0ol."3, Ianuary 1990, ++. 2"'>2'7.
C)en, C)i>Ki. ;o)imientos ;igratorios en Venezuela. CaracasH 9ni0ersidad Catolica
Andres /ello, 19,A.
3riedber%, $ac)el M., and Ienni.er Hunt, M()e 6!+act o. 6!!i%ration on Host Country
;a%es, :!+loy!ent and &ro5t),N :ournal of .conomic Perspecti)es 6V (199'), 23J "".
Mille, =icolas. 34 ASos ,e ;usiues: Aspectos Cistoricos 'ociologicos y :uri,icos ,e la
1nmigraciBn .uropea en Venezuela >T?F+>T@F. CaracasH :ditorial ucre, 19,'.
Muns)i, <ai0an, M=et5or2s in t)e Modern :cono!yH Me*ican Mi%rants in t)e 9..
8abor Mar2et,N Nuarterly :ournal of .conomics, ?ol. 11A, =o. 2, 2003, ++. '"9>'97.
@elle%rino, Adela. MMi%ration .ro! 8atin A!erica to :uro+eH (rends and @olicy
C)allen%esN. 1O; ;igration %esearch 'eries. =o. 1,. Monte0ideoH 6nternational
1r%anization .or Mi%ration, May 200".
@elle%rino, Adela. M?enezuelaH 6lle%al 6!!i%ration .ro! Colo!biaN. 1nternational
;igration %e)iew. ?ol. 1A =o. 3 +ecial 6ssueH 6rre%ular Mi%rationH An 6nternational
@ers+ecti0e ++. 7"A>7,, Autu!n 19A".
ando0al, Al0arez. 1ntegracion y (ronteras en America Latina= ed. ando0al and
Al0arez. MeridaH 9ni0ersidad de 8os Andes :ditorial ?enezolana, 2003.
21
ar!iento, &itan4ali uarez. M7ia%nostico obre 8as Mi%raciones Caribe\as Hacia
?enezuelaN Programa Latinoamericano ,e Cooperacion !ecnica en ;igraciones
PPLAC;1L /uenos AiresH 6nternational 1r%anization .or Mi%ration, 2000.
assen><oob, as2ia. M:cono!ic &ro5t) and Mi%ration in ?enezuelaN. 1nternational
;igration %e)iew. ?ol. 13 =o. 3 ++. "''>"7" Autu!n 1979.
!it), Ia!es @., and /arry :d!onston, eds., !he ew Americans: .conomic-
&emographic- an, (iscal .ffects of 1mmigration (;as)in%ton, 7CH =ational Acade!y
@ress, 1997).
(orales, &onzalez, ?ic)ic). MMi%raciones laborales en uda!ericaH 8a Co!unidad
AndinaN. .stu,ios 'o8re ;igraciones 1nternacionales &ene0aH 1..icina 6nternacional del
(raba4oH ector @roteccion ocial @ro%ra!a de Mi%raciones 6nternacionales, 2003.
(orrealba, $icardo. M6nternational Mi%ration 7ataH ()eir @roble!s and 9se.ullness in
?enezuelaN. 1nternational ;igration %e)iew. ?ol. 21 =o. " +ecial 6ssueH Measurin%
6nternational Mi%rationH ()eory and @ractice ++. 1270>127, ;inter 19A7.
9nited =ations, 1nternational ;igration %eport 3443, 9= @o+ulation 7i0ision, =e5
Kor2.
9nited tates /ureau o. t)e Census, 1nternational &ata "ase, ;as)in%ton, 7.C., 2002.
?an $oy, $al+). M9ndocu!ented Mi%ration to ?enezuelaN. 1nternational ;igration
%e)iew. ?ol. 1A =o. 3 +ecial 6ssueH 6rre%ular Mi%rationH An 6nternational @ers+ecti0e
++. '"1>''7 Autu!n 19A".
22
Figure & 0 Foreign born as a percentage of total population
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
1975 1980 1985 1990 1995 2000
(ear
Percent of Foreign 1orn
Figure . 0 #o$position of stoc8 of foreign0born oer ti$e
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1975 1980 1985 1990 1995 2000
(ear
Percent of foreign born
Other
Europeans
Colombians
23
Figure 2 0 Prealence of entrepreneurs>ip
0%
5%
10%
15%
20%
25%
30%
35%
40%
1975 1980 1985 1990 1995 2000
(ear
@ entrepreneurs
Foreign born
Venezuelans
Europeans
Colombians
Figure 7 0 /u$ber of Foreign born entrepreneurs liing in :ene;uela
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
1975 1980 1985 1990 1995 2000
(ear
/u$ber of indiiduals
"
CHAPTER %;:
8leepin$ in the Ae, 'ne .ake:
The Venezuelan #ical Policy Repone to the 'il Aoom
.arDa Antonia .oreno an, Cameron A! 8helton
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&ntro,uction
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19712973
1974
1976 1975 1977
1978
1979
1980
-15 -10 -5 0 5 10
0 2000 4000 6000 8000
1972-1980
The First Cycle
1980
1982 1981
1983
-15 -10 -5 0 5 10
0 2000 4000 6000 8000
1980-1983
The Second Cycle
1983
1984
1985
191189968878
1989
-15 -10 -5 0 5 10
0 2000 4000 6000 8000
1983-1989
The Third Cycle
1989
1990
1992 1991
1993
1994
-15 -10 -5 0 5 10
0 2000 4000 6000 8000
1989-1994
The Fourth Cycle
1963
1964
1965
1966
11996687 1969
1970
11997721
-15 -10 -5 0 5 10
0 2000 4000 6000 8000
1963-1972
Pre-Spiral Performance
1995
1996
1997
1998
1999
22000010
2002
2003
-15 -10 -5 0 5 10
0 2000 4000 6000 8000
1995-2003
Post-Spiral Performance
Growth of per capita non-oil GDP
Per capita fiscal oil revenues
1972-1994
The Venezuelan Growth Spiral
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Price of Venezuelan Oil (Constant US$)
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
1949
1951
1953
1955
1957
1959
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
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Average Standard
Deviation
Coefficient
of Variation
Average
absolute
rate of growth
Characterization of
the era
Period 1
(1962-73)
11.22 1.77 0.158 8.39 Low level,
Low volatility
Period 2
(1974-85)
44.96 8.31 0.185 10.18 High Level,
Moderate Volatility
Period 3
(1986-99)
19.77 4.17 0.211 19.80 Moderate Level,
High Volatility
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Per #apita Fiscal !"penditures
<---era of higher oil prices--->
0
500
1000
1500
2000
2500
3000
3500
4000
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
&987 1s
Government Consumption Transfers to S&M Transfers to Private Sector
Broad nvestment nterest Payments on Public Debt
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Spending the Boom: Consumption and nvestment
year Government
Consumption
Government
nvestment
Transfers to
SOEs
Net loansdomestic
Total
nvestment
nterest
Payments
phase
[1] [2] [3] [4] [2]+[3]+[4] [5]
ncrease over historical average (1962-1973) as a fraction of excess oil revenues
1974 21.3% 0.9% 23.2% 50.1% 51.0% 0.2%
1975 32.5% 3.5% 23.1% 33.8% 37.3% 0.6% Net Loans
1976 37.2% 23.9% 50.1% 2.1% 26.0% 3.0%
1977 48.5% 11.7% 28.4% 32.5% 44.1% 4.0%
1978 66.5% 23.6% 27.7% 12.3% 35.9% 10.7%
1979 48.8% 10.9% -9.3% 4.5% 15.4% 12.6%
SOEs + G
1980 43.5% -0.3% -1.3% 24.9% 24.5% 11.0%
1981 36.9% -0.4% 13.7% 28.2% 27.8% 9.4%
1982 53.4% 17.0% -3.0% 28.5% 45.5% 15.4%
Net Loans
1983 68.6% -1.3% -25.2% 19.1% 17.7% 18.4%
1984 22.9% -8.5% 10.1% 13.5% 32.9% 20.6%
1985 20.1% -11.5% 14.4% 13.2% 28.8% 21.5% SOEs + NL
total
1974-85 21.3% 0.9% 23.2% 50.1% 51.0% 0.2% Net Loans
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86-99 0.05 -0.04 -0.09 -0.07 -0.08 0.05 2 -0.05 6
Response of GDP to a Public Spending Shock
Sample 2 4 8 12 20 max quarter min quarter
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I$pulse Response of
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1962-1973
-0.12
-0.08
-0.04
0.00
0.04
0.08
0.12
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
%
Expansion Contraction
quarter
I$pulse Response of
!"penditures to Reenues
1974-1985
-0.12
-0.08
-0.04
0.00
0.04
0.08
0.12
0
2
4
6
8
10
12
14
16
18
20
22
24
@
Expansion Contraction
quarter
I$pulse Response of
!"penditures to Reenues
1986-1999
-0.12
-0.08
-0.04
0.00
0.04
0.08
0.12
0
2
4
6
8
10
12
14
16
18
20
22
24
quarter
%
Expansion Contraction
#u$ulatie Fiscal Response to
a Decline in Oil Reenues
1986-1999
-0.6
-0.4
-0.2
0
0.2
0.4
0.6
0 4 8 12 16 20 24 28 32 36 40
quarter
@
Nonoil Revenues Total Expenditures
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"" The administration of Jaime Lusinchi (1983-88) implemented a heterodox stabiliation
pro!ram that included
stron! cuts in !o"ernment spendin! bet#een 198$ and 198%& multi-tier exchan!e-rate
s'stem& import
protection& stimulus to a!riculture& extended producer and consumer subsidies and the
external debt
rene!otiation( )lthou!h these measures stimulated !ro#th from 198% to 1988& the
!o"ernment could no lon!er
support the subsidies and the hi!h debt burden& particularl' after the 198* fall of oil prices(
+arlos )ndres
,ere (1988-93) launched a neoliberal shoc- therap' pro!ram (The Great Turn El Gran
Virae) #ith the
support of the .nternational /onetar' 0und and the 1orld 2an- that pursued the reduction
of the
!o"ernment3s role in the econom' throu!h a lar!e-scale pri"atiation& a tax reform& a free-
mar-et orientation in
economic acti"ities& the correction of macroeconomic imbalances and 4scal de4cits& the
reform of the 4nancial
sector& the liberaliation of prices& exchan!e rates and ,.-&'& the rene!otiation of the
external debt pa'ments
and subsidies for the poor( .ts implementation& that faced stron! political opposition and
popular re5ection& #as
incomplete& distorted and e"en interrupted durin! periods of unexpected oil price
increases( ) decentraliation
process that had been proposed 'ears bac- and dela'ed b' the traditional political parties
()6 and +7,8.) #as
le!all' appro"ed in 1989& 5ust after a bi! riot (8l +aracao) exploded as a reaction a!ainst
those measures9
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CHAPTER %%:
&<8T&T=T&'<A@ C'@@AP8E:
THE R&8E A<D DEC@&<E '#
DE.'CRAT&C )'VER<A<CE
&< VE<EM=E@A%
3rancisco Monaldi2
Mic)ael @en.old3
=o0e!ber 200,
1 ;e are %rate.ul to MoisEs dB1rey, Maria :u%enia Mi-uilena, 7aniel Mo%oll#n, and :lisa (ru4illo, .or researc)
assistance. ()e aut)ors 5is) to ac2no5led%e )el+.ul co!!ents, discussion, data, and ad0ice .ro! $ic)ard
1buc)i, $osa A!elia &onzalez, Mariano (o!!asi, :rnesto tein, Ia!es $obinson, 3rancisco $odri%uez,
$icardo Haus!ann, Miria! <ornblit), Moses =a!, $icardo ?illas!il, Mercedes /rice\o, Ia0ier Corrales,
Mauricio C[rdenas, Iuan Carlos :c)e0erry, 3abrice 8e)ouc-, Mar2 @ayne, and +artici+ants in se!inars at 6:A
and Har0ard 9ni0ersity.
2 Coordinator, 6nternational Center .or :ner%y and t)e :n0iron!ent, 6:A, and @ro.essor 9CA/
!onaldiLstan.ordalu!ni.or%
3 Associate @ro.essor 6:A !ic)ael.+en.oldLiesa.edu.0e
2
Abtract
()is study s)o5s t)at t)e +olitical institutions t)at establis)ed ?enezuelaBs
de!ocracy in t)e si*ties 5ere deliberately set u+ to %enerate a coo+erati0e
e-uilibriu! 5it) lo5 sta2es o. +o5er. Constitutionally 5ea2 +residents and
stron% centralized +olitical +arties c)aracterized t)is institutional .ra!e5or2.
Coo+eration induced a relati0ely e..ecti0e +olicy!a2in% +rocess and %ood
+olicy outco!es. Ho5e0er, an oil boo! and its a.ter!at), in t)e se0enties and
ei%)ties, unra0eled t)e coo+erati0e .ra!e5or2 and induced ra+id econo!ic
decay. ()e +olitical re.or!s i!+le!ented in t)e late ei%)ties to i!+ro0e t)e
de!ocratic +rocess .urt)er 5ea2ened t)e +arty syste! and induced a )i%)ly
uncoo+erati0e and 0olatile +olicy!a2in% +rocess. ()e recent institutional
trans.or!ation +ro!oted by @resident C)[0ez, increased t)e sta2es o. +o5er,
sti!ulatin% a co!+lete brea2do5n in coo+eration and a )i%)ly +olarized
+olitical syste!.
3
&! &<TR'D=CT&'<
6n t)e last -uarter o. a century, ?enezuela )as )ad t)e 5orst econo!ic +er.or!ance in 8atin
A!erica, 5it) t)e e*ce+tion o. =icara%ua. 6n contrast, in t)e +re0ious t)irty years, t)e country
)ad a re!ar2able econo!ic and social +er.or!anceO and 5as considered a !odel de!ocracy
in t)e re%ion. ()is c)a+ter ar%ues t)at political economy 0ariablesH t)e 5ea2enin% o.
de!ocratic %o0ernance, t)e +oor and declinin% institutional -uality, and t)e increase in
+olitical instability, are 2ey deter!inants in e*+lainin% t)e +oor econo!ic +er.or!ance in t)e
+eriod under study, in +articular durin% t)e se0enteen years since 19A9. :0en t)ou%) t)e
initial .all in %ro5t) >in t)e ten years a.ter +er>ca+ita &7@ +ea2ed in 197A> can be !ainly
attributed to t)e dra!atic reduction in +er>ca+ita oil inco!e, t)e debt ac-uired durin% t)e oil
boo!, and t)e increasin% 0olatility o. oil +rices (Haus!ann and $i%ob#n, 2002O Manzano and
$i%ob#n, 2001O $odr%uez and ac)s, 1999)O institutional and +olitical 0ariables are crucial to
e*+lain 5)y ?enezuela )as not been able to return to a sustainable %ro5t) tra4ectory in t)e
last t5o decades.
;e clai! t)at t)e decline in institutions and de!ocratic %o0ernance in t)e last t5o decades
can be lar%ely attributed to .our .actorsH 1) oil ,epen,ence- 5)ic) !ay induce +oor
institutional -uality and creates si%ni.icant c)allen%es .or %o0ernanceO" 2) t)e dra!atic fall in
per+capita oil fiscal re)enues in t)e late ei%)ties and nineties, 5)ic) contributed to t)e decline
in t)e coo+erati0e +olitical e-uilibriu! t)at +re0ailed in t)e 19'A>19AA +eriodO 3) the political
reforms introduced in t)e late ei%)ties and early nineties, 5)ic) 5ea2ened and .ra%!ented t)e
+arty syste!, under!inin% +olitical coo+erationO and ") t)e institutional changes
i!+le!ented by @resident C)a0ez, 5)ic) )a0e dra!atically increased t)e sta2es o. +o5er,
+roducin% a co!+lete brea2do5n in +olitical coo+eration.
()e c)a+ter !ainly c)aracterizes t)e e..ects t)at institutional re.or!s )ad o0er de!ocratic
%o0ernance, but it also incor+orates t)e role o. oil de+endence and oil inco!e decline, 5it)out
5)ic) it is di..icult to understand t)e e*tent o. t)e decay in de!ocratic %o0ernance and
institutional -uality. 6n turn, t)e +a+er ar%ues t)at t)e decline in %o0ernance and t)e lo5
-uality o. institutions in ?enezuela )as translated into lo5 -uality +olicy!a2in%H i.e. )i%)
+olicy 0olatility, inca+acity to sustain interte!+oral co!!it!ents, di..iculty in i!+le!entin%
sustainable +olicy re.or!s, and early re0ersal o. re.or!s.
3or e*a!+le, ?enezuela )as been inca+able o. e..ecti0ely i!+le!entin% !acroecono!ic
stabilization !ec)anis!s and .iscal +olicies )a0e been si%ni.icantly +ro>cyclical. ()is is
+articularly +roble!atic .or an oil de+endent country, 5)ic) re-uires stron% institutions to
!ana%e t)e c)allen%es arisin% .ro! t)e resource curse= 1t)er e*+lanations .or ?enezuelaBs
econo!ic decline (ine..icient s+ecialization, !acroecono!ic 0olatility) are +uzzled by t)e
lac2 o. a co)erent econo!ic +olicy res+onse to t)e decline in oil inco!eO t)is +a+er o..ers a
+ossible institutional ori%in to e*+lain suc) +uzzle.
()e .all in oil inco!e o. t)e ei%)ties and nineties contributed to erode de!ocratic %o0ernance
by increasin% redistribute con.licts, +olarization, and t)e decline in su++ort .or +olitical
+arties. ()e interaction bet5een oil and institutions )a!+ered t)e ability o. +oliticians to
c)an%e and sustain +olicies conduci0e to econo!ic %ro5t). ()e structural 5ea2ness o.
institutions (+artly t)e result o. oil de+endence) and t)e i!+le!entation o. institutional
" ()e co!bination o. oil de+endence 5it) +oor institutional -uality )as +articularly ne%ati0e conse-uences .or
de0elo+!ent (ala>i>Martin and ubra!anian, 2003).
"
re.or!s .urt)er 5ea2ened t)e -uality o. de!ocratic %o0ernance, !a2in% it di..icult to
reestablis) econo!ic %ro5t) in t)e +eriod 19A9>200'. ()e deconsolidation o. t)e +olitical
syste! +roduced +olitical instability, re.lected in t)ree !ilitary cou+s, a si%ni.icant c)an%e o.
t)e constitutional rules, and t)e colla+se o. traditional +olitical +arties. ;e coincide, 5it)
ot)er aut)ors in t)is 0olu!e, on t)e relati0e si%ni.icance t)at oil )as +layed on ?enezuelaBs
econo!ic declineO our analysis atte!+ts to co!+le!ent t)e!, by s)o5in% t)e i!+act o.
institutional c)an%es in t)e +olicy!a2in% +rocess, and its i!+ortance in e*+lainin% 5)y
?enezuelan +oliticians 5ere unable to ado+t and sustain +olicies to resu!e %ro5t).
()e %o0ernance story o. ?enezuela is analyzed in t)ree di..erentiated +eriodsH 1) an initial
+eriod, 19'A>199A, 5)ic) be%an 5it) a +o5er s)arin% +act, creatin% an institutional
.ra!e5or2 5it) lo5 sta2es o. +o5er, c)aracterized by a relati0ely )i%) de%ree o. +olitical
coo+eration (19'A>19AA)O 2) a second +eriod, a.ter t)e .all in oil re0enues, in 5)ic)
si%ni.icant +olitical re.or!s (decentralization and electoral re.or!) 5ere i!+le!ented,
c)aracterized by a decline in +olitical coo+eration (19A9>199A)O and 3) a t)ird +eriod (1999>
+resent) in 5)ic) constitutional rules 5ere co!+letely res)a+ed, +roducin% a co!+lete
brea2do5n in coo+eration.
()e +a+er structure is as .ollo5sH ection 66 discusses t)e literature on oil, institutions,
%o0ernance and %ro5t) and +resents so!e rele0ant co!+arati0e !easures o. institutional
-ualityO ection 666 analyzes t)e +eriod o. de!ocratic consolidation under t)e Punto (i#o
PactO ection 6? analyzes t)e e..ects o. oil decline and +olitical re.or!s in inducin%
de!ocratic deconsolidation in t)e ninetiesO ection ? analyzes t)e recent institutional re.or!s
o. t)e C)a0ez ad!inistration and its e..ects o0er de!ocratic %o0ernanceO .inally ection ?6
o..ers so!e concludin% co!!ents, includin% a brie. discussion o. alternati0e e*+lanations to
t)e one +resented )ere.
&&! '&@E &<8T&T=T&'<8E A<D )'VER<A<CE
()ere is an e*tensi0e t)eoretical and e!+irical literature ar%uin% t)at institutions and
%o0ernance constitute 2ey deter!inants o. lon% run econo!ic %ro5t) (<au..!an and <ray,
2003). Ho5e0er, t)ere still e*ists so!e debate o0er t)e causality o. t)e +)eno!ena, 5it)
so!e aut)ors +ro+osin% t)at it !ay run in t)e o++osite direction.'
3ollo5in% 67/ (200'), t)is +a+er .ocuses on t)e role t)at +olitical institutions )a0e in
deli0erin% +olicies t)at )a0e +ositi0e %eneric attributes, suc) as stability, ada+tability,
co)erence, and sustainabilityO 5)ic) are necessary conditions .or lon%>run econo!ic %ro5t).
Ha0in% 5)at !i%)t be considered t)e nor!ati0ely Mri%)tN +olicies, 5it)out t)ese %eneric
attributes is unli2ely to yield %ood econo!ic +er.or!ance. ()e +a+er ta2es ad0anta%e o. t)e
analytical .ra!e5or2 de0elo+ed by +iller and (o!!asi (2003) to e*+lore t)e conditions in
5)ic) de!ocratic %o0ernance %enerates lon%>ter! coo+eration bet5een +olitical actors
ca+able o. sustainin% interte!+oral co!!it!ents. 6nstitutional en0iron!ents in 5)ic) t)ere
' ()e c)annels by 5)ic) %ood %o0ernance and )i%) -uality institutions translate into )i%)er %ro5t), 5)ic) )a0e
been +ro+osed by t)e literature, includeH t)e +rotection o. +ro+erty ri%)ts and its e..ect o0er t)e incenti0es .or
in0est!ent and )u!an ca+ital accu!ulation, t)e ca+acity to resol0e con.licts and !aintain +olitical stability
5)en !a4or +olicy c)an%es are re-uired, t)e +er0erse e..ect o. institutions desi%ned .or e*tracti0e +ur+oses, and
t)e ca+acity o. i!+le!entin% stable and co)erent +olicies.
'
are .e5 2ey +layers, re+eated interaction a!on% t)e!, and s!all discount rates, 5ould tend to
+roduce lon%>ter! +olitical coo+eration a!on% t)e 2ey +layers. 3irst>best +olicies 5ould tend
to be stable across ad!inistrations and only c)an%e si%ni.icantly in res+onse to econo!ic
s)oc2s. Accordin% suc) .ra!e5or2, coo+erati0e +olicy!a2in% +rocesses 5ould tend to
+roduce +olicies 5it) %ood .eatures suc) as stability, co)erence, and ada+tability. /y contrast,
institutional settin%s t)at induces a lar%er nu!ber o. +layers, .e5 re+eated interactions and
)i%) discount rates +ro!otes a +olicy !a2in% en0iron!ent t)at is less conduci0e to stable,
ada+table and co)erent +olicies (+iller and (o!!asi, 2003O 67/, 200').
6n addition, .ollo5in% @rze5ors2i (1991), t)e +a+er e0aluates )o5 +olitical institutions
deter!ine t)e Msta2es o. +o5er,N i.e. t)e 0alue t)at 2ey +olitical actors +lace on bein% in
+o5er as o++osed to bein% in t)e o++osition, and as result )o5 institutions c)an%e and a..ect
de!ocratic %o0ernance. ()is +oint is +articularly rele0ant in t)e case o. oil de+endent
econo!ies, es+ecially durin% boo! +eriods, in 5)ic) t)e state recei0es a si%ni.icant s)are o.
its .iscal re0enues directly .ro! t)e oil rents it controls, increasin% t)e sta2es o. +o5er.
7e!ocratic %o0ernance re-uires a li!itation o. t)e sta2es o. )oldin% +o5erO ot)er5ise,
+olitical instability, +olarization or aut)oritarianis! can arise.
Oil+ (nstitutions+ and ,emocratic -o'ernance
()ere e*ists also a %ro5in% e!+irical literature s)o5in% t)at oil (and !ineral) de+endence, as
5ell as t)e e*ternal 0olatility t)at co!es 5it) it, )a0e a ne%ati0e i!+act on institutional
-uality and on de!ocratic %o0ernance (ubra!anian and ala>i>Martin, 2003O 6s)a! et al.,
2003O $oss, 2001)., ()e +ro+osed c)annels by 5)ic) !ineral de+endence i!+acts institutions
includeH .iscal 0oracity (incenti0es to increase e*+enditures and +atrona%e durin% t)e boo!
t)at are di..icult to re0erse durin% t)e bust), rent see2in% (+roducin% !isallocation o.
resources), corru+tion, and ine-uality.
()e causal !ec)anis!s t)at +roduce t)e +ro+osed ne%ati0e e..ect o. resource de+endence on
de!ocratic %o0ernance are also still debated. o!e )y+ot)eses areH 1) t)e sta2es o. +o5er are
0ery )i%) in oil>de+endent societies, and control o. t)e oil re0enue %enerates a )i%) 0alue o.
)oldin% onto +o5er (i.e. increases t)e sta2es o. +o5er)O 2) oil de+endence allo5s .or lo5
le0els o. non>oil ta*ation, 5)ic) leads to a lac2 o. accountability in t)e use o. .iscal re0enue
and 5ea2ens t)e stateBs ad!inistrati0e ca+acityO 3) oil rents can be s+ent on +atrona%e,
5ea2enin% t)e o++osition and t)e rise o. de!ocratic +ressures, ") oil rents can be used .or
re+ressionO ') since t)e state controls !ost resources, ci0il society and +ri0ate entre+reneurs
are less autono!ous .ro! t)e %o0ern!entO and ,) oil rents %enerate a tendency to5ard )i%)
le0els o. corru+tion t)at under!ines de!ocratic institutions (<arl, 1997O $oss, 2001O
7unnin%, 200,).
6n contrast, 7unnin% (200,) +resents a t)eoretical !odel and e!+irical cross sectional results
s)o5in% t)at, e0en t)ou%) !ineral re0enues %enerally )a0e an aut)oritarian e..ectO in .act, in
, 6n .act, +art o. t)is literature %oes a ste+ .urt)er by clai!in% t)at t)e resource curse, t)e +ro+osition t)at !ineral
de+endence causes slo5er econo!ic %ro5t), actually 5or2s t)rou%) t)e ne%ati0e e..ect o. resource de+endence
on institutional -uality, 5)ic) in turn )urts %ro5t). As 5as t)e case 5it) t)e institutions and %ro5t) literature,
t)is literature )as so!e critics, 5)ic) ar%ue t)at resource de+endence (as o++osed to abundance) is also
endo%enous to institutions and as result causality cannot be +ro+erly assessed. 6n addition, so!e aut)ors ar%ue
t)at it is t)e interaction o. resource de+endence 5it) lo5 -uality institutions, 5)ic) causes +oor %ro5t)
+er.or!ance. ()is literature )as also )i%)li%)ted t)at countries 5it) stron% institutions )a0e been able to !ana%e
t)e resource boo!s !ini!izin% t)e +er0erse econo!ic e..ects o. resource rents (e.%. C)ile, =or5ay, and
/ots5ana).
,
)i%)ly une-ual societies, !ineral re0enues !ay contribute to de!ocratic %o0ernance by
reducin% t)e +ressures .or non>oil inco!e redistribution and t)ere.ore t)e +otential .or social
con.lict or elite obstructionUsub0ersion o. de!ocracy. His !odel .its 5ell 5it) t)e literature
on ?enezuelaBs de!ocracy, 5)ic) )as %enerally ar%ued t)at oil re0enues )el+ed to establis)
de!ocratic %o0ernance by easin% +olitical con.lict, 5)ile t)e re%ion 5as %enerally
aut)oritarian ($ey, 19A9O <arl, 1997). ()is +a+er concurs 5it) 7unnin% in ar%uin% t)at t)e
dra!atic decline in oil re0enues )as been a 2ey deter!inant o. t)e deconsolidation o. t)e
?enezuelan +arty syste! and t)e 5ea2enin% o. de!ocratic %o0ernanceO )o5e0er it +ro+oses
t)at +olitical institutions )a0e a crucial role in lo5erin% or increasin% t)e ne%ati0e e..ects o.
oil de+endence o0er de!ocratic %o0ernance.
.easurin/ (nstitutions and -o'ernance
@ut si!+ly, M%oodN %o0ernance in0ol0es t)e ca+acity to desi%n and i!+le!ent e..ecti0e
+ublic +olicies, 5)ic) are socially and institutionally le%iti!ate, in a stable +olitical
en0iron!ent. ()e institutional .ra!e5or2 in +lace, in turn, si%ni.icantly in.luences t)e -uality
o. %o0ernance. ()e institutional .ra!e5or2 enco!+asses t)e .or!al and in.or!al rules t)at
%o0ern econo!ic, +olitical, and social be)a0ior.7 3or e*a!+leH t)e constitution, t)e la5s, t)e
+ro+erty ri%)ts, as 5ell as in.or!al cultural +ractices.
()e incenti0es %enerated by +olitical institutions )a0e a si%ni.icant i!+act on t)e stability,
le%iti!acy, and e..iciency o. de!ocracy. @olitical institutions suc) asH re%i!e ty+e (e.%.
+residential +o5ers), electoral syste! (e.%. +ro+ortionality), +arty structure, bud%et
+rocedures, .ederal structures, a!on% ot)ersO are critical deter!inants o. t)e de%ree o.
+olitical coo+eration, %o0ern!ent co!!it!ent, +olicy stability, and e..ecti0eness, i.e. 2ey
.eatures o. %ood %o0ernance (Ha%%ard and McCubbins, 2001O +iller and (o!!asi, 2003).
()ere are si%ni.icant di..iculties in !easurin% institutions. 6n +articular !ost o. t)e recently
de0elo+ed !easures o. institutional -uality are !ore +recisely !easures o. t)e outco!es o.
institutions, includin% t)e -uality o. %o0ernance, rat)er t)an t)e root +er!anent .eatures or
constraints o. t)e institutional .ra!e5or2. 6n addition, !ost !easures are based on
+erce+tions rat)er t)an ob4ecti0e 0ariables. Here, t)e sub4ecti0e !easures o. institutional
-uality de0elo+ed by !ultilateral a%encies suc) as t)e ;orld /an2 are s)o5n as e0idence t)at
t)e +olitical .ra!e5or2 o. ?enezuela )as been %eneratin% lo5 -uality %o0ernance and +oor
+ublic +olicies, at least in t)e last decade.
()e ;orld /an2 6nstitute (;/6) de.ines go)ernance as Mt)e e*ercise o. aut)ority t)rou%)
.or!al and in.or!al traditions and institutions .or t)e co!!on %ood, t)us enco!+assin%H 1)
t)e +rocess o. selectin%, !onitorin%, and re+lacin% %o0ern!entsO
2) t)e ca+acity to .or!ulate and i!+le!ent sound +olicies and deli0er +ublic ser0icesO and 3)
t)e res+ect o. citizens and t)e state .or t)e institutions t)at %o0ern econo!ic and social
interactions a!on% t)e!N (<au.!an, 2003, +.'). 3or !easure!ent and analysis t)e ;/6 )as
translated t)ese t)ree di!ensions into si* conce+ts 5it) t)eir corres+ondin% !easure.A
7 6nstitutions )a0e been %enerally analyzed as constraints or as e-uilibriu! outco!es.
A 1) ?oice and Accountability, includes indicators related to +olitical +artici+ation and ci0il liberties. 2) @olitical
tability re.ers to indicators !easurin% t)e +erce+tion t)at a %o0ern!ent !i%)t be o0ert)ro5n and t)e relati0e
+re0alence o. +olitical 0iolence and terroris!. 3) &o0ern!ent :..ecti0eness, co0ers indicators related to t)e
-uality o. bureaucracy, +olitical inde+endence o. t)e ci0il ser0ice, and credibility o. t)e %o0ern!entBs
co!!it!ent to +ublic +olicies (includin% t)e ability to +ass le%islation and stay in o..ice). ") $e%ulatory Ruality
re.ers to indicators o. t)e -uality o. t)e +ublic +olicies t)e!sel0es (e*cessi0e re%ulation, un+redictability, etc). ')
$ule o. 8a5, !easures t)e e*tent to 5)ic) a%ents )a0e con.idence and abide by t)e rules. ()e de%ree o.
7
As can be seen in 3i%ure 1, ?enezuela .ares e*tre!ely +oorly in all o. t)e ;/6 inde*es.9 6n
200", t)e country 5as 5ell belo5 t)e 8atin A!erican a0era%e in all si* indicators and, e*ce+t
.or Voice an, Accounta8ility- 5as ran2ed bet5een t)e lo5est 10t) and t)e 1,t) +ercentile
a!on% all t)e countries in t)e 5orld. 6n contrast, t)e 8atin A!erican a0era%e .or t)e si*
indicators is %enerally bet5een t)e "0t) +ercentile and t)e 5orldBs !edian. ?enezuela is
a!on% t)e last t5o countries in .i0e indicators, and a!on% t)e last t)ree in t)e ot)er. 9sin%
t)e a0era%e o. t)e si* indicators, ?enezuela is also t)e last in t)e re%ion. Moreo0er,
?enezuela .ares e0en 5orse i. co!+ared 5it) t)e a0era%e o. countries in t)e sa!e le0el o.
inco!e +er>ca+ita, 5)ic) )a0e +ercentile ran2s o. around ,'t), t)is is +articularly si%ni.icant
%i0en t)at t)ere is a 0ery )i%) correlation bet5een inco!e +er>ca+ita and %o0ernance
indicators.
6n +articular is i!+ortant to notice t)at ?enezuela is in t)e 1"t) +ercentile in ter!s o.
Political 'ta8ility and second to last in 8atin A!erica. ()is re+resents a dra!atic contrast
5it) t)e 19'A>19AA +eriod 5)en ?enezuela 5as considered a!on% t)e !ost stable
de!ocracies in t)e re%ion. ()e +ercentile ran2 o. ?enezuela )as declined in t)e last ei%)t
years (t)ese inde*es 5ere .irst calculated in 199,). Co!+are t)e ?enezuelan ratin%s (199,>
200") 5it) t)e ones .or countries suc) as Costa $ica (A"C) or 9ru%uay (79.1C), 5)ic) 5ere
alon% 5it) ?enezuela considered t)e !ost stable countries in t)e re%ion in +re0ious decades,
and t)e ne5 reality o. ?enezuela loo2s e0en !ore dra!atic. ()ree !ilitary cou+s (t5o in
1992 and one in 2002), a !a4or nation>5ide riot in 19A9, and a dra!atic increase in t)e
nu!ber and size o. +olitical +rotests, attest to t)e ob4ecti0e decline in +olitical stability
(Monaldi, 2003).
1t)er 0ariables t)at )a0e been s)o5n to be %ood +redictors o. econo!ic %ro5t) are %ule of
Law and Control of Corruption= ?enezuela .ares 0ery +oorly in bot), bein% second to last in
t)e re%ion 5it) +ercentile ran2s o. 12.,C and 1".3C res+ecti0ely. i!ilarly, in t)e
Perception of Corruption inde* o. (rans+arency 6nternational (200') ?enezuela is second to
last in t)e re%ion, only abo0e @ara%uay.10 6. one acce+ts t)ese indicators as 0alid, t)e
di..erences in institutional -uality bet5een ?enezuela and t)e !edian in 8atin A!erica,
5ould e*+lain a lar%e +ortion o. t)e econo!ic under+er.or!ance o. ?enezuela 5it) res+ect to
t)e re%ional !edian.
6t is i!+ortant to notice t)at alt)ou%) ?enezuelaBs indicators )a0e declined since t)e
be%innin% o. @resident C)a0ez ad!inistration in 1999, t)e le0els o. !ost indicators be.ore
C)a0ez (5it) t)e e*ce+tion o. Voice an, Accounta8ility) 5ere also 5ell belo5 t)e re%ional
a0era%e. ()is !eans t)at t)e lo5 le0els o. de!ocratic %o0ernance and institutional -uality can
only be +artially attributed to C)a0ez. ()is is consistent 5it) t)is +a+er ar%u!ent t)at
%o0ernance started to decline in t)e late ei%)ties a.ter t)e dra!atic rise and decline in oil
re0enues.
+rotection o. +ro+erty ri%)ts, 4udicial inde+endence, and cri!e are so!e o. t)e ele!ents included. ,) Control o.
Corru+tion, !easures +erce+tions o. t)e +re0alence o. corru+tion (<au.!ann et al., 2003).
9 3i%ures are s)o5n in +ercentile ran2, t)e )i%)est scores bein% in t)e 100t) +ercentile.
10 Accordin% to t)is inde*, ?enezuela does +er.or! better t)an ot)er oil ric) countries suc) as 6ndonesia, 6ra-
and =i%eria but 5orse t)an ot)er oil econo!ies suc) as $usia, <aza2)stan, 6ran, audi Arabia, <u5ait and
9nited Arab :!irates.
A
()e 6nter A!erican 7e0elo+!ent /an2 (67/, 200') de0elo+ed a set o. inde*es to !easure
t)e %eneric -ualities (.eatures) o. +ublic +olicies in t)e re%ion.11 As can be seen in 3i%ure 2, in
t)ese inde*es, ?enezuela .ares also 0ery +oorly. 6n t)e 1n,e$ of Policy 'ta8ility ?enezuela is
t)e last in t)e re%ion.12 As additional e0idence o. lac2 o. stability, ?enezuela )as also one o.
t)e !ost 0olatile 0alues .or 8oraBs 6nde* o. tructural $e.or!. 6n addition, ?enezuela )as )ad
one t)e +oorest +er.or!ances in t)e re%ion in ter!s o. t)e ad0ance!ent o. !ar2et re.or!s,
bein% belo5 t)e 8atin A!erican a0era%e durin% t)e +eriod 19A'>2002 (?illas!il et al., 2007).
As can be seen in 3i%ure ', t)ere )as been also a si%ni.icant decline in Cabinet stability in t)e
last t5o decades. 6n t)e 19'A>19AA +eriod cabinet !e!bers lasted an a0era%e o. 2.13 years in
t)eir +ositions (in a .i0e>year ter!). :-ui0alently, t)ere 5ere 2.3 !inisters +er Cabinet
+osition +er ter!. 6n contrast, .ro! 19A9 to 1993, !inisters lasted only 1." years, increasin%
to 1.A years .ro! 199">1999, and declinin% a%ain to 1.3 years in t)e 1999>200" +eriod. ()at
dra!atic c)an%e in Cabinet stability re.lects +olitical instability and induces 0olatile +olicies
(Monaldi et al., 200').
6n t)e 1n,e$ of A,apta8ility, ?enezuela is a!on% t)e last t)ree countries, re.lectin% t)e
+erce+tion a!on% +olicy e*+erts t)at ?enezuela does not ada+t -uic2ly to si%ni.icant c)an%es
in econo!ic conditions. 6n t)e case o. t)e 1n,e$ of Policy Coor,ination an, Coherence,
?enezuela is a%ain in t)e last +osition o. t)e re%ion. 8ac2 o. coordination and co)erence o.ten
also re.lects lac2 o. coo+eration. 6n t)e 1n,e$ of .nforcement an, 1mplementation based on
&C$ and C -uestions ?enezuela is a%ain belo5 t)e re%ional a0era%e.13 3inally, in t)e
.fficiency 1n,e$- ?enezuela is a%ain t)e last in t)e re%ion, 5)ic) is also t)e case .or t)e
10erall @olicy 6nde*. ()ese lo5 indicators .or +olicy -uality are consistent, under t)e +iller
and (o!!asi (2003) and 67/ (200') .ra!e5or2s, 5it) lo5 le0els o. +olitical coo+eration in
?enezuela.
&&&! THE C'<8'@&DAT&'< '# DE.'CRAT&C )'VER<A<CE &<
VE<EM=E@A: %0231%033
()is section analyzes t)e institutional .oundations o. %o0ernance and t)e 2ey c)aracteristics
o. t)e +olicy !a2in% +rocess durin% t)e +eriod o. de!ocratic consolidation bet5een 19'A and
19AA. ()e transition to de!ocracy in 19'A>19,1 5as consolidated under a set o. institutional
arran%e!ents based on a !ulti+arty elite a%ree!ent called t)e @act o. Punto (i#o.1" ()e +act
11 ()ese inde*es use also sub4ecti0e !easures .ro! a 0ariety o. sources but !ostly .ro! t5o sourcesH t)e
a0era%e, .or all years a0ailable 199,>200', o. so!e co!bination o. +erce+tion 0ariables .ro! t)e &lobal
Co!+etiti0eness $e+ort (&C$) and a tate Ca+abilities ur0ey (C) o. +olicy e*+erts !ade by t)e 67/.
12 ()is inde* a%%re%ates di..erent !easures includin% t)e standard de0iation o. t)e detrended 3raser 6nde* o.
:cono!ic 3reedo! and a 0ariety o. &C$ sur0ey -uestions (67/, 200'). Ha0in% stability does not !ean t)at
+olicies do not c)an%e, but t)at t)e c)an%es res+ond !ostly to c)an%in% econo!ic conditions and not to +olitical
c)an%es. ?enezuela, in t)e +eriod 19AA>200' )ad )i%) +olicy 0olatility in !ost cases ori%inatin% in +olitical
c)an%es (elections, cou+s, i!+eac)!ent o. a +resident, re%ional elections). ()is instability re.lects lo5 le0els o.
+olitical coo+eration a!on% 2ey +olitical actors.
13 ()is re.lects t)e +ercei0ed le0els o. en.orce!ent o. ta*es, !ini!u! 5a%e, and en0iron!ental le%islation.
1" ()e +act 5as a%reed u+on by t)e leaders o. t)e t)ree !ain +olitical +arties, $#!ulo /etancourt o. t)e
socialde!ocratic
A7, $a.ael Caldera o. t)e C)ristian>de!ocratic C1@:6, and I#0ito ?illalba o. t)e center>le.tnationalist
9$7. ()e contents o. t)e +act included arran%e!ents .or +o5er s)arin%, suc) as t)e distribution o.
Cabinet +ositions a!on% co!+etin% +arties, and t)e i!+le!entation o. basic co!!on social and econo!ic
+olicies re%ardless o. t)e +residential and le%islati0e electoral outco!es. 6n addition, t)e +act sti+ulated t)e need
to create cor+oratist !ec)anis!s t)at %uaranteed t)at labor unions and business interests, t)rou%) u!brella
or%anizations suc) as C(? and 3edeca!aras, res+ecti0ely, 5ould be consulted and incor+orated into t)e
9
)ad an endurin% i!+act on t)e ty+e o. +residential syste! ado+ted by t)e 19,1 Constitution,
5)ic) 5as ai!ed at li!itin% +residential +o5ers, di!inis)in% +olitical +olarization, restrictin%
electoral co!+etition, and creatin% +olitical institutions t)at 5ould .oster consensus .or
con.lict resolution ($ey, 1972). ()e learnin% e*+erience .ro! t)e brea2do5n o. ?enezuelaBs
de!ocracy in 19"A allo5ed +olitical +arties to understand t)e i!+ortance o. desi%nin%
institutions to li!it t)e sta2es o. )oldin% +o5er ($ey, 19A9). ()e rules, re.lected .or!ally in
t)e 19,1 Constitution, 5ere basically ai!ed at creatin% trust a!on% t)e di..erent +olitical
actors so t)at e0en in t)e case o. a uni.ied %o0ern!ent in 5)ic) a +olitical +arty )ad control
o. bot) t)e +residency and Con%ress, .or!al +olitical institutions 5ould not allo5
%o0ern!ents to +ursue one>sided +olicies based on t)is do!inant +osition.1'
e0eral s+eci.ic .eatures o. ?enezuelaBs +residential syste! )el+ed to lo5er t)e sta2es o.
+o5er and to induce coo+erati0e be)a0ior a!on% co!+etin% +oliticians. o!e 2ey
institutional .eatures stren%t)ened +arties o0er +residentsH 1) a constitutionally 5ea2
+residency, 5it) li!ited le%islati0e +rero%ati0esO1, 2) t)e ban on i!!ediate +residential
reelection,
.orcin% incu!bents to 5ait ten years be.ore bein% able to run .or reelectionO17 3) t)e
absence o. ter! li!its .or le%islators, allo5in% lon%>ter! careers .or +arty leaders in
Con%ressO ") settin% .ully concurrent elections bet5een +residents and t)e 8e%islature
inducin% coo+eration bet5een +residents and t)eir +artisan ran2s and reducin% +arty
+olicy!a2in% +rocess. ()e Cat)olic C)urc) also su++orted t)e +act by si%nin% an ecclesiastic a%ree!ent 5it)
t)e tate in 5)ic) it co!!itted itsel. to )el+ !oderate con.licts and 5as %uaranteed +ublic .inancin%. Accordin%
to @en.old (2001), +olitical leaders e*+licitly cra.ted t)e +act as an institutional arran%e!ent to !odi.y t)e
+ayo.. structure o. t)e %a!e to induce coo+eration (<arl, 19A,O Corrales, 2003O Monaldi et al., 200').
1' ()e nature and conse-uences o. t)e t5o de!ocratic constitutional !o!ents, o. 19"7 and 19,1, re0eal t)e
di..erent correlation o. .orces t)at +re0ailed, and t)e learnin% +rocess t)at occurred bet5een t)e! (Corrales,
2003). 6n 19"7, t)e A7 too2 ad0anta%e o. its o0er5)el!in% +o+ular !a4ority to call .or an elected Constitutional
Asse!bly. 6t recei0ed 7A +ercent o. t)e 0ote and A, +ercent o. t)e seats and used its absolute do!inance to
i!+ose a constitution 0ery close to its +re.erences, alienatin% !any rele0ant actors. /ut by 19'A, A7Bs
do!inance )ad declined. /etancourt (A7) 5on t)e +residency, but t)is ti!e t)e +arty recei0ed "9.' +ercent o.
t)e 0otes and '' +ercent o. t)e seats in Con%ress (c)a!ber o. de+uties). /ased on t)e s+irit o. +act !a2in%, t)e
19,1 Constitution 5as cra.ted by a s+ecial con%ressional co!!ittee co>c)aired by $aul 8eoni (A7) and $a.ael
Caldera (C1@:6). @arty leaders decided t)at re%ardless o. t)e electoral outco!e o. t)e con%ressional elections,
t)e co!!ittee 5ould be balanced. 6t included ei%)t re+resentati0es .ro! t)e A7 (3,." +ercent), .our .ro! t)e
C1@:6, .our .ro! t)e 9$7, t)ree .ro! t)e Co!!unist @arty (@C?) and t)ree inde+endents (<ornblit), 1991).
A7 leaders a%reed t)at t)e co!+osition o. t)e constitutional co!!ittee 5ould o0er>re+resent t)e o++osition. As
Corrales (2003) )as recently ar%ued, t)e result o. t)is decision 5as Ma constitution desi%ned to +re0ent sin%le
+arty )e%e!ony.N
1, ()e literature classi.ies t)e constitutional +o5ers into le%islati0e +o5ers (la5>!a2in% aut)ority, reacti0e and
+roacti0e) and non>le%islati0e +o5ers (+o5er to a++oint and re!o0e Cabinet and ot)er o..icials) ()u%art and
Carey, 1992O @ayne et al., 2002). 9nder t)e Constitution o. 19,1 (dero%ated in 1999), t)e ?enezuelan +resident
)ad 0ery li!ited le%islati0e +o5ers, es+ecially i. co!+ared 5it) t)e 8atin A!erican re%ion (5)ic) in a0era%e
)ad stron%er +o5ers t)an t)e ot)er +residential syste!s in t)e 5orld). ?enezuela )ad t)e lo5est 0alue in t)e
inde* o. le%islati0e +o5ers de0elo+ed by )u%art and Carey (1992). ()is inde* is calculated usin% t)e si!+le
addition o. a +oint 0alue ran%in% .ro! zero (lo5) to .our ()i%)) assi%ned in si* cate%ories o. le%islati0e +o5er.
()e ?enezuelan +resident )ad t)e 5ea2est le0el o. +o5er o. any 8atin A!erican country in all si* cate%ories
(zero +oints in all). ()e 8atin A!erican re%ional +oint a0era%e in t)e +eriod 19'A>19AA 5as ".,. ()e out)
A!erican a0era%e e*cludin% ?enezuela 5as '." +oints. 6n 8atin A!erica, only @eru (be.ore 3u4i!ori) )ad a
+resident 5it) as li!ited le%islati0e +o5ers as ?enezuelaBs (Monaldi et al., 200').
17 9ntil 1999, ?enezuelan +residents )ad non>i!!ediate re>election (could run a%ain only 5)en t5o +residential
+eriods )ad ela+sed, a.ter t)e end o. t)eir +residency). Co++ed%e (199") %i0es a +ro!inent role to t)is
institutional .eature. He ar%ues t)at it !ade all +residents Mla!e duc2s,N at t)e sa!e ti!e +ro!otin% +arty
.actionalis! by !aintainin% .or!er +residents as +o5er.ul actors t)at could e0entually beco!e +residents a
second ti!e (as did Caldera 19,9>197" and 199">1999O and @Erez 197">1979 and 19A9>1993). ()e lac2 o.
i!!ediate +residential re>election co!bined 5it) t)e absence o. ter! li!its .or le%islators +ro0ided an
ad0anta%e .or +arty leaders (Monaldi et al., 200').
10
.ra%!entationO1A ') and establis)in% a +ro+ortional re+resentation syste! to elect t)e
8e%islature.19 All o. t)ese rules, alon% 5it) t)e e*istence o. centralized and disci+lined
+olitical +arties, suc) as A7 and C1@:6, )el+ed consolidate ?enezuelaBs +arty syste!
t)rou%)out t)e 19,0s and 1970s.20 ()e e*istence o. centralized and disci+lined +olitical
+arties 5as to a lar%e e*tent t)e direct result o. a +ro+ortional electoral syste! 5it) closed
lists.21 ()is syste! %ranted +arty leaders e*tre!e +o5ers to control and disci+line t)eir +arty
ran2s. ()ese .eatures o. ?enezuelaBs de!ocracy led so!e aut)ors to ty+i.y it as a partyarchy-
%i0en t)at +arty leaders )ad su+re!e co!!and o0er all +arty and +ublic a..airs (Co++ed%e,
199").
3inally, t)e Constitution li!ited electoral co!+etition by te!+orarily restrictin% t)e direct
election o. %o0ernors and !ayors. ()e ob4ecti0e o. li!itin% ?enezuelaBs .ederalis!d
+ro0isionally, since t)e 19,1 Constitution establis)ed t)at a la5 (enacted by t5o>t)irds o.
Con%ress) could acti0ate ?enezuelaBs .ederalis!, as later occurred in 19A9d5as to reduce
electoral co!+etition by restrictin% t)e nu!ber o. arenas o+en to contestation. ()e do!inant
+olitical +arties belie0ed t)at increasin% electoral co!+etition at a !o!ent o. de!ocratic
transition 5ould intensi.y +olitical +olarization and .ra%!entation, and reduce coo+eration
a!on% +olitical actors (@en.old, 2001).
1A @residents 5ere elected by +lurality .or .i0e>year ter!s in direct elections concurrent 5it) t)e le%islati0e
elections (.or all seats). 9ntil 1993, t)e 0oter )ad 4ust one ballot (tar4et#n) to 0ote .or bot) t)e +resident and t)e
8e%islature. 1ne card 5it) t)e color and sy!bol o. t)e +arty (and since t)e 1970s t)e +)oto o. t)e +residential
candidate) )ad to be !ar2ed to 0ote .or t)e +resident, and ne*t to it a s!aller identical card )ad to be !ar2ed to
0ote .or bot) c)a!bers o. t)e 8e%islature. ?oters could not s+lit t)eir 0ote bet5een c)a!bers. ()e co!bination
o. +lurality (as o++osed to runo..) 5it) concurrency, and t)e structure o. t)e ballot !a*i!ized +residential
coattails. ()e +residential election J due to its 5inner>ta2es>all nature J tends to +roduce a strate%ically
concentrated 0ote, and co!bined 5it) )i%) coattails, +roduces )i%) +arty concentration. An additional ele!ent
+ro!otin% concentration 5as t)e ine*istence o. re%ional elections. ()e e0idence see!s to +oint to t)e
si%ni.icance o. coattails and 0ote concentration. ()e di..erence bet5een t)e 0ote .or t)e to+ t5o +residential
candidates and t)e 0ote .or t)eir +arties (in t)e +eriod 19'A>19AA) 5as al5ays belo5 10 +ercenta%e +oints, 5it)
t)e e*ce+tion o. t)e 19AA election, 5)en dissatis.action 5it) t)e A7 and C1@:6 started to increase (Monaldi et
al., 200').
19 ()is .eature %uaranteed t)at !inority +arties 5ould %ain access to seats in Con%ress. /et5een 19'A and 19AA,
le%islati0e elections 5ere done usin% a +ure +ro+ortional re+resentation (@$) syste! 5it) sin%le closed and
bloc2ed lists, a++lyin% t)e 7BHondt electoral .or!ula. ()ere 5ere 23 districts e-ui0alent to t)e states. ()e
a0era%e district !a%nitude 5as ,.1, 5)ic) 5as !ediu! sized co!+ared to t)e 8atin A!erican re%ion. 3i0e
countries in t)e re%ion )a0e lar%er a0era%e district !a%nitude and 10 countries )a0e lo5er a0era%e district
!a%nitude (@ayne et al., 2002). (o !a2e it e0en !ore +ro+ortional, so!e additional de+uties 5ere allocated to
re.lect t)e national +arty s)are o. t)e 0ote (u+ to a !a*i!u! o. .i0e). ()e ballot 5as structured so t)at t)ere 5as
only one 0ote .or all le%islati0e bodies (Monaldi et al., 200').
20 @residents en4oyed relati0ely )i%) +artisan +o5ers in t)is +eriod. ()ey ne0er .aced a !a4ority o++osition and
)ad 0ery stron% disci+lined +arties bac2in% t)e!. /et5een 19'A and 19AA, t)ree o. t)e si* +residents ('0
+ercent) )ad a +artisan !a4ority in t)e lo5er )ouse. 3our out o. si* (,7 +ercent) )ad !a4orities in coalition 5it)
ot)er +arties. 6n contrast, o. t)e .our ad!inistrations in t)e second +eriod (19AA>2003), none )ad a sin%le +arty
!a4ority in t)e lo5er )ouse, and only one (2' +ercent) >C)[0ez 2000>200'> )as )ad a !a4ority in coalition 5it)
ot)er +arties. ()e 8atin A!erican re%ional a0era%e, .or t)e +eriod 197A>2002, 5as 30.2 +ercent (o. ti!e t)e
+residential ad!inistration )ad a +residential +arty !a4ority in t)e lo5er )ouse) and '".1 +ercent (!a4ority
coalition) (Monaldi et al., 200').
21 ()e sin%le closed and bloc2ed list electoral syste! constituted a +o5er.ul disci+linarian tool in t)e )ands o.
t)e +arty leaders)i+. ()e ?enezuelan syste! allo5ed t)e +arty leaders)i+ to control t)e no!inations (5)o %ets
in t)e list) and t)e order o. election (5)o %ets elected .irst), +ool t)e 0otes o. +arty candidates (no intra>+arty
ri0alry), and li!it internal co!+etition. )u%art and CareyBs (1992) inde* o. +arty leaders)i+ stren%t) due to t)e
electoral syste! %i0es ?enezuela a 0alue o. A, abo0e t)e re%ional a0era%e o. ,. 1nly t)ree countries in t)e re%ion
)a0e a )i%)er inde* (Monaldi et al., 200').
11
As di..erent aut)ors )a0e noted, alt)ou%) t)e .eatures li!itin% co!+etition in t)e 19,1
Constitution contributed to t)e consolidation o. de!ocracy in t)e s)ort>ter!, t)ey +ro0ed in
t)e !ediu! and lon% run to )a0e ne%ati0e conse-uences .ro! bot) t)e +olitical and social
+oints o. 0ie5 (<arl, 19A,O 7e la Cruz, 199A).22 /y li!itin% +olitical co!+etition, t)e @act o.
Punto (i#o and t)e Constitution +lanted t)e roots o. a de!ocracy c)aracterized by its
centralization and e*clusion. 6t 5as only in t)e 1990s t)at ?enezuelaBs .ederalis! 5as
acti0ated, contributin% to t)e decline o. t)e traditional +arty structure (@en.old, 2001).
6n addition to institutional desi%n, +arty leaders used t)e distribution o. oil .iscal resources as
a 2ey ele!ent .or inducin% +olitical coo+eration. ?arious aut)ors )a0e discussed t)e
relations)i+ bet5een oil re0enue and its e..ect on t)e +arty syste! (<arl, 19A,O $ey, 19A9O
@en.old, 2001O Monaldi, 2003O 7unni%, 200,). 3or e*a!+le, <arl (19A,) ar%ued t)at oil 5as
t)e 2ey econo!ic .actor )el+in% to create t)e !odern social conditions .or t)e .or!ation o. a
co)esi0e +arty syste!, and )el+in% e*+lain t)e continued su++ort .or t)e +act t)at solidi.ied
t)e de!ocratic transition. Accordin% to t)is ar%u!ent, 5it)out oil t)ere 5ould )a0e been little
c)ance .or de!ocracy in ?enezuela at t)e ti!e. 1t)er 5or2s )a0e %i0en relati0ely less
i!+ortance to oil re0enue, e!+)asizin% t)e institutional as+ects o. ?enezuelaBs de!ocratic
+rocess ($ey, 19A9). 1il re0enue alone can not e*+lain t)e ori%in o. institutional
arran%e!ents suc) as t)e Punto (i#o +act. 6nstead, +olitical leaders strate%ically used oil
inco!e distribution as a utilitarian !ec)anis! to obtain su++ort .or t)e de!ocratic syste!.
Accordin% to bot) 0ie5+oints, it s)ould not be a sur+rise t)at t)e decline o. t)e Punto (i#o
+arty syste! coincided 5it) a %eneral decline in oil .iscal inco!e durin% t)e 19A0s and 1990s
(@en.old, 2001O Monaldi, 2003).
$olicyma0in/ $rocess in the $unto *i1o ,emocracy
()e .irst +eriod can be %enerally c)aracterized as )a0in% conditions )i%)ly conduci0e to
+olitical coo+erationH a s!all nu!ber o. 2ey +olitical actors, re+eated +lay, and lo5 sta2es o.
+o5er (+iller and (o!!asi, 2003). ()ese c)aracteristics 5ere lar%ely t)e direct result o. t)e
institutional .ra!e5or2 set u+ by t)e @act o. @unto 3i4o and t)e 19,1 Constitution.
()e +olicy!a2in% +rocess included relati0ely .e5 2ey +layers, +ri!arilyH t)e +resident, t)e
national leaders o. t)e t5o !a4or +arties (t)e A7 and C1@:6), and t)e leaders o. t)e t5o +ea2
cor+oratist interest %rou+s (t)e C(? and 3edeca!aras). ()e e*istence o. a )i%)ly centralized,
disci+lined, and non>.ra%!ented +arty syste!, and t)e .act t)at t)e concerns o. interest %rou+s
5ere c)anneled t)rou%) cor+oratist arran%e!ents 5it) t)e +ea2 labor and business
associations, allo5ed t)e +resident to conduct +olicy consultation 5it) a 0ery li!ited nu!ber
o. actors.23 @olicy a%ree!ents 5ere usually ne%otiated bet5een t)e +residents, t)e national
22 ()e @unto 3i4o +act 5as also desi%ned as a !eans o. e*cludin% certain +olitical actors, suc) as t)e Co!!unist
@arty (@C?), .ro! )a0in% a si%ni.icant role in +olicy!a2in%. ()e +act si%natories belie0ed it 5as necessary to
e*clude t)e co!!unists in order to +ro0ide t)e 9nited tates and t)e +ri0ate sector 5it) su..icient %uarantees
t)at ?enezuela 5as clearly ali%ned 5it) a ca+italist syste! in t)e conte*t o. t)e Cold ;ar. ()is situation induced
t)e @C?, as 5ell as t)e !ore radical !e!bers o. A7, to .or! a %uerilla !o0e!ent, 5)ic) 5as si%ni.icant durin%
t)e 19,0s and ca!e to an end in t)e early 1970s, 5it) t)e +aci.ication +rocess and t)e re>entry o. t)e le.t into t)e
electoral arena. 7urin% /etancourtBs +residency, in addition to t)e le.tist %uerrillas, t)e e!er%in% de!ocracy also
.aced t5o !ilitary cou+ atte!+ts, one +residential assassination atte!+t, and ot)er less si%ni.icant attac2s. ()ese
t)reats to de!ocracy )el+ed to stren%t)en t)e coo+eration bet5een t)e +artici+ants in t)e +act. 1nce t)e e*ternal
t)reat 0anis)ed in t)e early 1970s, de0iations .ro! coo+eration 5ere !ore co!!on (Monaldi et al., 200').
23 6n ter!s o. t)e +artici+ation o. interest %rou+s in t)e +olicy!a2in% +rocess, 0ery .e5 de!ocracies in t)e
re%ion )ad so .e5 (and stable) +layers +artici+atin%. 6n ?enezuela, t)ere e*isted sin%le +ea2 do!inant
associations o. labor and business, 5)ic) 5ere incor+orated .or!ally into t)e +olicy +rocess. Accordin% to Cris+
12
+arty leaders (t)e cogollos in ?enezuelan +o+ular 4ar%on) and t)e +ea2 cor+oratist %rou+s, and
t)en, i. re-uired, t)ey 5ere ru88er+stampe, into la5 by t)e disci+lined +arty dele%ations in
t)e le%islature.2"
()e si* +residential ad!inistrations in t)is 30>year +eriod 5ere re+resented by only t5o
+artiesH A7 (.our ti!es) and C1@:6 (t5o ti!es). ()e sa!e +arties %enerally controlled t)e
leaders)i+ o. Con%ress. ;it) a .e5 e*ce+tions, t)e t5o +arties controlled or )ea0ily
in.luenced t)e leadin% cor+oratist %rou+s. @arties 5ere ty+ically %o0erned by a +resident, a
secretary %eneral, and a national co!!ittee. @arty leaders 5ere 0ery stable. 6n A7, si*
.unda!ental leaders, .our o. 5)o! beca!e +residents, led t)e +arty .ro! 19'A>19AA. 6n t)e
C1@:6, t)ree .unda!ental leaders, t5o o. 5)o! beca!e +residents, led t)e +arty. =ational
+arty leaders )ad relati0ely lon% tenures and al!ost all 5ere !e!bers o. Con%ress 5it) lon%
le%islati0e careers. =ational +arty leaders decided )o5 t)e +arty 0oted in Con%ress and t)e
con%ressional dele%ation duti.ully 0oted accordin% to t)e +arty line. i!ilarly, national +arty
leaders )ad si%ni.icant control o0er con%ressional no!inations.
6nter>te!+oral lin2a%es a!on% 2ey +olitical actors 5ere stron%. 6t 5as a re+eated %a!e 5it)
stable actors. 6t 5as 0ery costly .or an indi0idual +olitician to de0iate .ro! t)e coo+erati0e
e-uilibriu! o. t)e t5o>+arty rule.2' As can be seen in 3i%ure 3, t)e +arty syste! )ad relati0ely
lo5 .ra%!entation co!+ared to t)e deconsolidation +eriod o. t)e nineties. 3ra%!entation 5as
also lo5 by re%ional standards.2, 6n addition, in t)is +eriod, as can be seen in 3i%ure ", t)e
0olatility o. t)e +arty s)are o. seats (and 0otes) 5as also relati0ely lo5 and declinin%,
+articularly i. co!+ared t)e +eriod o. deconsolidation. i!ilarly, 0olatility 5as belo5 t)e
re%ional a0era%e.27 ()e rate o. turno0er o. le%islators also tended to decline o0er t)is +eriod,
and 5as on a0era%e belo5 t)e re%ional !ean (Monaldi, et al. 200').2A
(2000), only C)ile and Me*ico )ad si!ilar sin%le +ea2 associations, and only in Me*ico 5ere t)ey .or!ally
incor+orated as o.ten as in ?enezuela.
2" @arty disci+line 5as e*tre!ely )i%) in t)is +eriod. ?irtually all 0otes 5ere counted 5it) raised )andsO since
+er.ect disci+line 5as assu!ed (roll calls 5ere al!ost ne0er used). 6n t)e .e5 instances in 5)ic) a +arty !e!ber
did not 5ant to .ollo5 t)e +arty line, )is alternate !e!ber re+laced )i! and 0oted accordin% to t)e +arty line.
2' Minority +arties suc) as t)e MA did not )a0e a !a4or +olicy!a2in% role but 5ere %uaranteed access to s!all
+rero%ati0es in order to 2ee+ t)e! MinsideN t)e syste! (e.%., lar%e autono!ous bud%ets .or uni0ersities and
cultural +ro4ects controlled by t)e le.t) (Monaldi et al., 200').
2, 6n t)e .irst elections o. 19'A, t)e e..ecti0e nu!ber o. +arties (:=@) re+resented in t)e c)a!ber o. de+uties 5as
2.'7. 6n t)e ne*t t5o elections t)e :=@ rose si%ni.icantly (to an a0era%e ".',), !ostly due to t5o si%ni.icant
s+lits in t)e A7 (t)e lar%est +arty). Ho5e0er, t)e syste! consolidated a%ain into a t5o>+arty syste! in t)e ne*t
.our elections .ro! 1973 to 19AA. ()e :=@ in t)at +eriod 5as on a0era%e 2.,'. 6n t)e elections o. 19A3, t)e :=@
%ot to a lo5 +oint o. 2."2. 6n t)is +eriod, ?enezuelaBs +arty .ra%!entation 5as sli%)tly belo5 t)e 8atin A!erican
a0era%e. ()e 8atin A!erican re%ional :=@ a0era%e 5as 2.A", 5)ile t)e ?enezuelan a0era%e 5as 2.,3 (Monaldi
et al. 200'). 3or t)e years .or 5)ic) 5e )a0e co!+arati0e dataH 197A>19A9. $e%ional a0era%es 5ere calculated
usin% data by @ayne et al. (2002).
27 6n t)e C)a!ber o. 7e+uties t)e ?olatility 6nde*, !easurin% t)e c)an%e in +arty s)are, 5as 1A.9 +ercent in t)e
+eriod 19'A>19AA, belo5 t)e 8atin A!erican a0era%e o. 22.1 +ercent. Moreo0er, 0olatility tended to decline
until 19AA (to 13.A +ercent). ()e a0era%e 0olatility increased dra!atically in t)e +eriod 19A9>2000 to an a0era%e
o. 3A.1 +ercent, co!+ared to a re%ional a0era%e o. 23 +ercent. ?olatility in t)e +residential 0ote 5as e0en lo5er
in t)e @unto 3i4o +eriod (13.9 +ercent), al!ost )al. t)e re%ional a0era%e o. 23.9 +ercent. 6t increased dra!atically
a.ter5ards ('2 +ercent) co!+ared to a re%ional a0era%e o. 2A +ercent. A.ter 19A9, ?enezuela )as )ad t)e lar%est
+residential 0ote 0olatility in t)e re%ion (Monaldi et al., 200').
2A ()e +ercenta%e o. ne5 le%islators (turno0er) tended to decline in t)e .irst +eriod. 6n t)e .irst t)ree ter!s .ro!
19,3>1973, it 5as on a0era%e 71 +ercent, 5)ereas in 19,3>1973 it declined si%ni.icantly to '' +ercent as t)e
t5o>+arty syste! consolidated. 6n t)e second +eriod, t)e +ercenta%e o. ne5 le%islators rises a%ain to an a0era%e
o. 7A +ercent (A2 +ercent in t)e current le%islature). Co!+ared to ot)er +residential countries .or 5)ic) t)ere is
data .or turno0er, t)e .i%ure .or t)e .irst +eriod (,3 +ercent) is not e*tre!ely )i%). 6n Ar%entina about A0 +ercent
o. t)e le%islators are not re>elected. 6n /razil t)e .i%ure is '7 +ercent, in :cuador 73 +ercent, in C)ile "1 +ercent
13
:0en t)ou%) in e-uilibriu! t)e ?enezuelan +resident see!ed +o5er.ul, )a0in% t)e leadin%
+olicy role, )is +o5ers 5ere in .act si%ni.icantly restricted by t)e 19,1 Constitution. ()e
.ra!ers, 5)o 5ere t)e leaders o. t)e +arties, set t)ose restrictions deliberately to li!it
+otential de0iations. (o a lar%e e*tent, t)e be)a0ioral a++earance o. +o5er 5as t)e result o.
t)e +artial dele%ation by t)e national +arty leaders o. stron% and disci+lined +arties in a
coo+erati0e en0iron!ent. As 5ill be e*+lained belo5, in t)e 1990s, once t)e +residentBs
+artisan +o5ers (stron% +arty bac2in%) and ot)er .or!al (a++oint!ent o. %o0ernors) and
in.or!al +o5ers (discretionary use o. lar%e oil rents) declined, t)e +resident be%an to loo2
relati0ely 5ea2. :0entually, t)e 1999 Constitution increased t)e +residential +o5ers
dra!atically, c)an%in% t)e +olicy!a2in% +rocess and increasin% t)e sta2es o. +o5er.
()e lo5>sta2es institutional .ra!e5or2 de0elo+ed by t)e Pact of Punto (i#o allo5ed t)e
country to a0oid t)e aut)oritarian .ate o. !ost ot)er oil e*+orters by inducin% coo+eration
a!on% +oliticians. 1il inco!e 5as distributed to 2ey +olitical actors re%ardless o. 5)o 5as in
control o. t)e +residency. 6n addition, risin% oil inco!e allo5ed .or increasin% s+endin% on
+ublic %oods t)at +ro!oted %ro5t) and reduced t)e redistributi0e +ressures t)at %enerated t)e
brea2do5n o. ot)er de!ocracies in t)e re%ion.
&V! The Deconoli,ation of the Venezuelan Political 8ytemE %0301%003
()is section analyzes t)e +olitical re.or!s i!+le!ented in t)e late ei%)ties and early nineties
and t)e i!+act t)ey )ad o0er +olicy!a2in%. 6n contrast to t)e +re0ious +eriod, t)is +eriod 5as
c)aracterized by !ulti+le actors, )i%) electoral 0olatility, and institutional instability.
()e dra!atic econo!ic decline su..ered by t)e country durin% t)e +re0ious decade, lar%ely
attributable to oil inco!e decline, set t)e sta%e .or an increase in redistributi0e con.licts and a
reali%n!ent o. electoral +re.erences a5ay .ro! traditional +arties. ()e riots o. 19A9, t)e t5o
!ilitary cou+s o. 1992, and t)e dra!atic rise in social and +olitical +rotests are sy!+to!atic
o. t)e conte*t in 5)ic) +olitical re.or!s 5ere i!+le!ented.
()e !ost si%ni.icant institutional c)an%es t)at occurred at t)e be%innin% o. t)is +eriod 5ereH
a) ()e introduction o. direct elections .or %o0ernors and !ayors in 19A9O29 and b) ()e
!odi.ication o. t)e le%islatureBs electoral syste! .ro! +ure +ro+ortional re+resentation to a
!i*ed>!e!ber syste! 5it) +ersonalized +ro+ortional re+resentation.30 As 5ill be ar%ued,
t)ese c)an%es )el+ed to si%ni.icantly 5ea2en t)e +o5er o. traditional +arties and national
+arty leaders. Also, in t)e conte*t o. a c)an%e in electoral +re.erences, a5ay .ro! traditional
+arties, t)ese institutional trans.or!ations contributed to increased +arty .ra%!entation,
0olatility, and le%islator turno0er.
On the Ori/ins of $olitical 2eforms
and in t)e 9.. 17 +ercent. 6n contrast, in t)e second +eriod, turno0er reac)ed Ar%entinean le0els (7A +ercent)
(Monaldi et al., 200').
29 3or t)ree>year ter!s, 5it) one i!!ediate re>election.
30 10erall, t)e electoral syste! continued bein% %lobally +ro+ortional, )o5e0er +ortion o. t)e le%islators be%an
to be elected by +lurality, establis)in% a +ersonal electoral connection, and increasin% t)e syste!Bs
dis+ro+ortionality (Monaldi et al., 200').
1"
()e continued econo!ic decay %enerated si%ni.icant +olitical disenc)ant!ent and a decline in
t)e satis.action 5it) de!ocracy. 6n ei%)ties, se0eral social actors, !inority +arties,
intellectuals, business %rou+s, and =&1s de!anded to dee+en de!ocratization as a !eans o.
increasin% accountability and i!+ro0in% %o0ern!ent +er.or!ance. ()ese de!ands 5ere a
natural reaction to a re%i!e in 5)ic) +olitical +arties )ad +er0asi0ely controlled !ost s+)eres
o. social li.e.31
@resident 8usinc)i (19A">19A9) reco%nized t)e need to introduce a series o. institutional
re.or!s to )el+ sol0e ?enezuelaBs +olitical accountability +roble!s. He created a @residential
Co!!ission .or t)e $e.or! o. t)e tate (C1@$:) consistin% o. +ro.essionals lin2ed to t)e
+olitical +arties as 5ell as a %rou+ o. non>+artisan acade!ics. ()e C1@$: +ro+osed a
si%ni.icant set o. +olitical re.or!s, includin% t)e direct election o. %o0ernors and !ayors,
electoral re.or! to elect a +ortion o. t)e le%islators by +lurality, and t)e de!ocratization o.
+arty structures. ()ese +ro+ositions !et 5it) i!!ediate resistance .ro! A7 (t)e +residentBs
+arty), 5)ic) )ad an absolute !a4ority in t)e le%islature. 6t t)ou%)t t)at t)e C1@$:
reco!!endations 5ere too radical.32 A7 5as not 5illin% to 5it)dra5 its control o0er t)e
+atrona%e net5or2 t)at re%ional and local bureaucracies o..ered t)e +arty. A7Bs national +arty
leaders +ercei0ed t)e C1@$: +ro+ositions to be directly ai!ed at under!inin% t)eir +olitical
+o5er. As a result, t)e re.or!s 5ere not e0en discussed in Con%ress (@en.old, 2001, 200"a
and 200"b).
6t 5as only durin% t)e 19AA +residential ca!+ai%n t)at A7Bs national +arty leaders 5ere
.orced to +ass so!e o. t)ese re.or!s due to t)e attention t)at t)e candidates :duardo
3ern[ndez o. C1@:6 and Carlos AndrEs @Erez o. A7 +aid to t)ese issues. @Erez )ad 5on t)e
+arty no!ination a%ainst t)e .ierce o++osition o. A7Bs national +arty leaders, and )e 5anted
to 5ea2en t)eir centralized control o. t)e +arty. 3ern[ndez used t)e re.or!s as a ca!+ai%n
tool a%ainst A7, 5)ic) )ad been +ublicly o++osed to any o+enin% o. t)e +olitical +rocess,
+ossibly e*+ectin% t)at A7 5ould continue bloc2in% t)e re.or!s. @ErezBs ca!+ai%n in .a0or
o. t)e re.or!s .orced A7 to a++ro0e so!e o. t)e! in Con%ressH t)e election o. !ayors and
t)e electoral re.or! to be i!+le!ented in 1993. /ut t)e election o. %o0ernors, 5)ic) A7
.eared t)e !ost, did not +ass (@en.old, 200"a).
:0entually, A7 5as +ro!+ted to su++ort t)e election o. %o0ernors as a conse-uence o.
!assi0e riots t)at occurred one !ont) a.ter @erezBs inau%uration. ()e outburst too2 +lace in
ei%)t !a4or cities and be%an as s+ontaneous +rotests a%ainst an increase in +ublic
trans+ortation .ares, 5)ic) 5ere brou%)t about by a )i2e in t)e +rice o. %asoline ($odr%uez,
199,). ()e country 5as le.t in absolute des+air a.ter t)is social co!!otion. Alt)ou%) !ost o.
t)e bla!e 5as +laced on @ErezBs ad4ust!ent +ro%ra!, +oliticians realized t)at citizens )ad
increasin%ly beco!e alienated .ro! t)e de!ocratic re%i!e and t)is 5as 0iolently e*+ressed in
t)e streets (@en.old, 2001 and 200"a).
The Acti'ation of *ederalism
31 As e*+lained, national +arty leaders )ad a !ono+oly on t)e no!inations o. candidates to t)e national
8e%islature as 5ell as to t)e state and !unici+al asse!bliesO t)ey a++ointed 4ud%es accordin% to +arty loyaltyO
and t)ey e*ercised stron% disci+line o0er t)eir !e!bers (Co++ed%e, 199"). More i!+ortantly, until 19A9,
re%ional and local +olitics )ad been absent. @residents )ad t)e ri%)t to a++oint %o0ernors and t)e !ayoral
+osition did not +re0iously e*ist. &o0ernors)i+s 5ere assi%ned to !e!bers o. t)e +olitical +arty in +o5er and
5ere used as instru!ents to .oster +atrona%e (@en.old, 200"a and 200"bO Monaldi et al., 200').
32 &onzalo /arrios, A7Bs +resident, +ublicly re4ected t)e re.or!s, +articularly t)e direct election o. %o0ernors,
Mbecause t)e country is not )istorically +re+ared .or t)is ty+e o. re.or!.N (@en.old, 200"a)
1'
Alt)ou%) ?enezuela 5as .or!ally .ederal .or !ore t)an a century, it 5as only in 19A9, a.ter
t)e initiation o. t)e direct elections o. %o0ernors and !ayors, t)at t)e dor!ant .ederal syste!
5as acti0ated. ()ere are t5o 2ey institutional ele!ents o. ?enezuelaBs .ederalis! t)at
trans.or!ed its +arty +oliticsH t)e increasin% co!+etition and )i%)er nu!ber o. electoral
arenas at t)e sub>national le0el, and t)e +ossibility o. re>election .or %o0ernors and !ayors, as
5ell as t)e non>concurrency bet5een re%ional and +residential elections. ()ese institutional
.eatures +ro0ided ne5 re%ional +olitical actors 5it) an o++ortunity to %ain inde+endence 0is`>
0is t)e national aut)orities.
7urin% t)e 19'A>19AA +eriod entry barriers 5ere relati0ely )i%) since +residential and
con%ressional elections 5ere )eld concurrently, !a*i!izin% +residential coattails. Moreo0er,
entry into Con%ress 5as decided by national +arty leaders, 5)o )ad control o0er t)e
no!inations. 6nstead, 5it) t)e introduction o. t)e direct election o. %o0ernors and !ayors,
traditional +olitical +arties c)aracterized by )ierarc)ical and in.le*ible or%anizations )ad to
+resent indi0idual candidates in !ore t)an 20 states and !ore t)an 300 !unici+alities. ()is
!eant t)at +arty leaders )ad to %radually loosen centralized control o0er t)e no!ination o.
candidates in order to e..ecti0ely co!+ete in t)ese contests. 6ncreasin% t)e nu!ber o.
electoral arenas also i!+lied reducin% t)e entry barriers to co!+etition. Minority +arties
atte!+tin% to 5in elections at t)e national le0el could no5 co!+ete !ore e..ecti0ely at t)e
re%ional and local le0els. ()ese +arties could build t)eir or%anization at t)e national le0el
based on t)eir success at t)e re%ional le0el.
7urin% t)is +eriod, se0eral ne5 +olitical +arties, suc) as 8a Causa $, @royecto ?enezuela,
Con0er%encia>8A@6, @atria +ara (odos, and @ri!ero Iusticia used .ederalis! as a s+rin%board
to enter into t)e +olitical syste! and build a national +arty or%anization. 6n t)e .irst election
.or %o0ernors in 19A9, A7 and C1@:6 lar%ely do!inated t)e electoral !ar2et (90 +ercent o.
t)e %o0ernors)i+s). Ho5e0er, durin% t)e .ollo5in% elections t)eir do!inance 5aned as ne5
+olitical or%anizations e!er%ed and decentralized +arties suc) as MA obtained si%ni.icant
+o5er .or t)e .irst ti!e. /y 199A, A7 do!inated only 3".7 +ercent o. t)e %o0ernors)i+s,
C1@:6 21.7 +ercent, MA 13 +ercent, M?$ 17.7 +ercent and re%ional +arties 12.9 +ercent
(@en.old, 200"a and 200"bO Monaldi et al., 200').33
()e !ulti+lication o. electoral arenas not only +ro0ided an incenti0e .or so!e +olitical +arties
to +ursue an electoral strate%y ali%ned 5it) re%ional interests, it also .orced national +arties to
use alliances 5it) ot)er +olitical or%anizations to co!+ete e..ecti0ely in t)ese di..erent
arenas. =ational +olitical +arties beca!e increasin%ly de+endent on +arty alliances bet5een
19A9 and 199A.3" 1ne i!+ortant conse-uence o. t)e e!er%ence o. t)ese alliances is t)at
33 1ne illustrati0e e*a!+le o. )o5 +olitical careers 5ere built in t)is +eriod is t)e rise o. AndrEs ?el[s-uez and
)is +arty, Causa $, 5)ic) )ad been a !ar%inal +arty in t)e +re0ious +eriod. He 5as able to build t)e +arty
startin% 5it) )is 0ictory as %o0ernor o. t)e state o. /oli0ar in 19A9. His e..ecti0e +er.or!ance allo5ed
?el[s-uez to co!+ete in t)e +residential elections o. 1993 and recei0e 22 +ercent o. t)e 0ote. Causa $ continued
its success by later 5innin% t)e !ayoralty o. Caracas in 1992 and t)e %o0ernors)i+ o. Zulia in 199,. Anot)er
e*a!+le is Henri-ue alas $e!er, t)e %o0ernor o. Carabobo, ?enezuelaBs lar%est industrial stateH He .irst 5on
t)e %o0ernors)i+ 5it) t)e su++ort o. t)e C1@:6 in 19A9. He later abandoned t)e +arty due to internal dis+utes
5it) its national leaders)i+ and created a re%ional +arty in 199' called @royecto Carabobo, 5)ic) 5as later
relabeled @royecto ?enezuela 5)en )e decided to run .or t)e +residency in 199A. @ri!ero Iusticia entered t)e
+olitical scene by 5innin% in t)e 5ell>o.. !unici+alities o. eastern Caracas (@en.old, 200"a and 200"b).
3" A7 establis)ed alliances 5it) an a0era%e o. 2.2 +arties in t)e re%ions 5)ere it 5as able to 5in in t)e 19A9
%ubernatorial elections (and 5on '' +ercent o. t)e total). /y t)e year 2000, A7 )ad to establis) alliances 5it) an
a0era%e o. , +arties to 5in 4ust 12.' +ercent o. t)e %o0ernors)i+s. Ho5e0er, A7Bs reliance on t)ese alliances, in
ter!s o. t)e a0era%e +ercenta%e o. 0otes t)at t)ese +arties added to t)eir candidates, 5as relati0ely lo5. 6n
contrast, C1@:6 5as 0ery de+endent on t)ese alliances to 5in. ()e a0era%e +ercenta%e o. 0otes contributed by
1,
incu!bent %o0ernors could s)i.t +artners !ore easily to assure re>election. As t)e i!+ortance
o. t)e alliances increased, t)e inde+endence o. incu!bent %o0ernors also increased, allo5in%
t)e! to brea2 5it) t)e +arty t)at initially su++orted t)e! or to ne%otiate in !ore .a0orable
ter!s 5it) national +arty leaders (@en.old, 200"a and 200"b).
()e i!!ediate re>election o. %o0ernors and !ayors in contests t)at 5ere or%anized se+arately
.ro! national elections also increased t)e inde+endence o. t)ese +olitical actors. &o0ernors
and !ayors runnin% .or re>election )ad %reater o++ortunity to distance t)e!sel0es .ro!
national +arty leaders and e0en disassociate t)e!sel0es .ro! t)e +arty structure. ()e .act t)at
t)eir re>election de+ended to a %reat e*tent on t)eir +er.or!ancedand not on coattails .ro!
+residential candidates bac2ed by centralized +artiesdcreated incenti0es .or %o0ernors to
be)a0e !ore inde+endently. 6n .act, %o0ernors -uic2ly used t)eir .iscal and ad!inistrati0e
resources to control and e*+and e*istin% local +arty !ac)inery (@en.old, 200"a and 200"b).3'
6n su!, t)e introduction o. re>election .or %o0ernors and !ayors and t)e .act t)at t)ey 5ere
elected on a se+arate basis .ro! t)eir national counter+arts created incenti0es .or t)ese ne5
+olitical actors to %ain inde+endence and c)allen%e t)eir +arty bosses. ()e .ederalization o.
?enezuelan +olitics also i!+lied t)at t)ese %o0ernors, in t)e conte*t o. a decayin% +arty
syste! and t)e dee+enin% o. t)e decentralization +rocess, could build t)eir o5n +olitical
or%anizations to su++ort t)eir careers. ()e re>election rule also .ostered internal con.licts
bet5een +arty aut)orities at t)e national le0el and ne5 +arty leaders at t)e re%ional and local
le0els. ()ese tensions re!ained unresol0ed and on occasion .orced re%ional +layers to
se+arate t)e!sel0es .ro! t)eir +arties. 6n t)is sense, .ederalis! enacted a dual dyna!icH t)e
.or!ation o. ne5 re%ional +olitical +arties and t)e s+lit>o.. .ro! )ierarc)ical +olitical +arties
suc) as t)e A7, C1@:6 and M?$ (@en.old, 200"a and 200"b).3,
6n addition, t)e ne5 !i*ed electoral syste! di!inis)ed t)e +residential coattails >+ro!otin%
.ra%!entationJ and 5ea2ened t)e +arty disci+line. An increasin% +ro+ortion o. le%islators
be%an to be elected by +lurality instead o. +ro+ortional re+resentation. Moreo0er, t)e +re0ious
ballot syste! t)at !a*i!ized t)e connection bet5een t)e +residential 0ote and a sin%le +arty
0ote .or all le%islati0e +ositions 5as c)an%ed .or a one 5it) se+arate 0otes includin% so!e
+ersonalized 0otes to elect t)e le%islators (Monaldi et al., 200').
$olicyma0in/ in a ,econsolidatin/ $olitical &ystem
ot)er +arties su++ortin% t)e C1@:6Bs %ubernatorial candidates increased .ro! 7.1 +ercent in 19A9 to "0.3 +ercent
in 2000 (@en.old, 200"a and 200"bO Monaldi et al., 200').
3' 7urin% t)e 1992 %ubernatorial contests, 1A incu!bents ran .or re>election and ei%)t !ana%ed to 5in. 6n 199',
only t)ree %o0ernors could run as incu!bents and t5o o. t)e! 5ere re>elected. 6n 199A, 17 incu!bents out o. 21
%o0ernors 5ere re>elected. 6n 2000, 1' %o0ernors 5ere u+ .or re>election and .i0e o. t)e! obtained it. 6ntra>+arty
+olitics in t)is +eriod re0ol0ed around t)e con.lict bet5een t)e ne5 re%ional leaders and t)e old +arty leaders)i+.
6n 1993, re%ional leaders 5ere able to 5in t)e +residential no!inations in t)e A7 (Claudio 3er!n, !ayor o.
Caracas) and t)e C1@:6 (1s5aldo Al0arez @az, %o0ernor o. Zulia), in con.rontation 5it) t)e traditional
leaders)i+. A%ain in 199A, 6rene aEz, t)e inde+endent !ayor o. C)acao, 5on t)e C1@:6Bs no!ination (@en.old,
200"a and 200"bO Monaldi et al., 200').
3, 7urin% t)e 1992 %ubernatorial contests, 1A incu!bents ran .or re>election and ei%)t !ana%ed to 5in. 6n 199',
only t)ree %o0ernors could run as incu!bents and t5o o. t)e! 5ere re>elected. 6n 199A, 17 incu!bents out o. 21
%o0ernors 5ere re>elected. 6n 2000, 1' %o0ernors 5ere u+ .or re>election and .i0e o. t)e! obtained it. 6ntra>+arty
+olitics in t)is +eriod re0ol0ed around t)e con.lict bet5een t)e ne5 re%ional leaders and t)e old +arty leaders)i+.
6n 1993, re%ional leaders 5ere able to 5in t)e +residential no!inations in t)e A7 (Claudio 3er!n, !ayor o.
Caracas) and t)e C1@:6 (1s5aldo Al0arez @az, %o0ernor o. Zulia), in con.rontation 5it) t)e traditional
leaders)i+. A%ain in 199A, 6rene aEz, t)e inde+endent !ayor o. C)acao, 5on t)e C1@:6Bs no!ination (@en.old,
200"a and 200"bO Monaldi et al., 200').
17
6n %eneral, t)e +olicy!a2in% +rocess in t)is +eriod 5as c)aracterized by se0eral +ro!inent
.actors. 3irst, it 5as c)aracterized by t)e e*istence o. !any and 0olatile 2ey +layers.37
econd, t)e 8e%islature and t)e Iudiciary beca!e relati0ely !ore rele0ant +olicy arenas, as a
result o. t)e declinin% role o. +arties and t)e 5ea2enin% o. +residents. ()e le%islati0e a%enda
be%an to be in.luenced and ne%otiated 5it) re%ional aut)orities 5)o 5ere also increasin%ly
able to in.luence t)e le%islatorsB careers. 3inally, in t)is +eriod t)ere 5as a decline in
in.luence o. cor+oratist %rou+s and an increased +olitical role o. t)e !ilitary.
()e trans.or!ation o. t)e +olicy!a2in% +rocess, alon% 5it) t)e !ulti+lication o. rele0ant
+olicy actors at t)e national and re%ional le0els, i!+lied t)at transaction costs increased
substantially, !a2in% it !ore di..icult .or +olitical +layers to credibly co!!it. 9nli2e t)e .irst
+eriod, in 5)ic) +olitical e*c)an%es 5ere conducted at lo5 transaction costs in s!all %rou+s,
in t)is +eriod transactions 5ere ne%otiated a!on% a lar%er nu!ber o. +layers in !ore o+en
and con.licti0e arenas. @arado*ically, as a result o. t)e decline o. +arty elite a%ree!ents, t)e
le%islature +layed a !uc) !ore si%ni.icant role. =ational +arty leaders could not easily bro2er
deals outside o. Con%ress, as 5as done be.ore.3A
/et5een 19A9 and 199A, le%islators beca!e less disci+lined and !ore s+ecialized.39 3actions
5it)in +arties and indi0idual re+resentati0es 5ere able to under!ine t)e +o5er o. +arty
barons on s+eci.ic +olicy issues. <ey le%islation a++ro0ed at t)e national le0el (eit)er by
Con%ress or by e*ecuti0e decree), )ad to be ne%otiated 5it) re%ional actors. @ro+onents o.
le%islation )ad to introduce re%ional considerations to %ain t)e su++ort o. %o0ernors and
!ayors. 3or e*a!+le, le%islators 5ere able to +us) re.or!s to dee+en .iscal trans.ers to t)e
re%ions des+ite t)e o++osition .ro! national +arty aut)orities and t)e national e*ecuti0e.
$e%ional leaders )a0e +o5er.ul incenti0es to e*tract !ore resources .ro! t)e center,
es+ecially since ?enezuela )as t)e lar%est 0ertical .iscal i!balance in 8atin A!erica and t)e
rules o. t)e distribution o. .iscal resources )a0e beco!e !ore discretionary. ()e indisci+line
o. le%islators 5as not only e*+ressed in t)e increasin% inde+endence on +olicy issues 0is>`>0is
t)e +arty leader, but also by s+littin% o.. .ro! t)e +arties t)at )ad no!inated t)e!. 3actions
5it)in consolidated +olitical +arties suc) as t)e A7, C1@:6, and MA s+lit>o.., creatin% t)eir
o5n inde+endent le%islati0e %rou+s.
37 ()e e..ecti0e nu!ber o. +arties (:=@) in t)e c)a!ber o. de+uties increased dra!atically. 6n t)e +re0ious
+eriod o. t5o>+arty do!inance (1973>19AA), t)e :=@ 5as on a0era%e 4ust 2.,. As s)o5n in 3i%ure 3, it sur%ed to
".7 in 1993, and in 199A it rose a%ain to a !a*i!u! ,.1. ()e a0era%e :=@ o. t)e second +eriod (".7") is
si%ni.icantly )i%)er t)an t)e re%ional a0era%e in t)e +eriod (3.'). ?enezuela 5ent .ro! bein% one o. t)e least
.ra%!ented +arty syste!s to t)e t)ird !ost .ra%!ented in 8atin A!erica. ?olatility )as also dra!atically
increased in t)e second +eriod. 6n ter!s o. lo5er c)a!ber seats, t)e a0era%e 0olatility in 1990>2000 5as 3A.12
+ercent, 5ay abo0e t)e 8atin A!erican a0era%e o. 23 +ercent. ?enezuela a%ain !o0ed .ro! bein% one o. t)e
least 0olatile countries in t)e re%ion to t)e second !ost 0olatile. Co!+ared to t)e .irst +eriod, a0era%e 0olatility
!ore t)an doubled (see 3i%ure "). 6n ter!s o. 0olatility in +residential +arty 0ote, t)e increase is e0en !ore
dra!atic. 6t reac)ed '2.A +ercent and '9.' +ercent in t)e 1993 and 199A elections, res+ecti0ely. 1n a0era%e,
?enezuela )as )ad t)e )i%)est 0olatility in +residential 0otin% in t)e re%ion in t)e last 10 years. 6n ter!s o.
.ra%!entation and 0olatility, ?enezuela beca!e increasin%ly si!ilar to countries suc) as :cuador and @eru
(Monaldi et al., 200').
3A ;)ile in t)e .irst +eriod le%islators initiated on a0era%e 4ust 13 +ercent o. all t)e la5s a++ro0ed, in t)e second
+eriod t)e .i%ure doubled to 2, +ercent. 6n t)e case o. ordinary la5s, t)e c)an%e 5as also dra!atic, increasin%
.ro! an a0era%e o. 3" +ercent in t)e .irst +eriod to ,2 +ercent in t)e second (Monaldi et al., 200').
39 @ara0isini (199A) and Cris+ (2001) .ound so!e e0idence o. t)e increased s+ecialization o. le%islatorsdin
issues rele0ant to t)eir constituents J as a result o. t)e closer electoral connection +ro0ided by t)e election in
+lurality districts o. a si%ni.icant +ro+ortion o. t)e 8e%islature.
1A
6nstitutional instability created 5ea2er inter>te!+oral lin2a%es a!on% +oliticians and
+olicy!a2ers.
()ese lin2a%es 5ere also debilitated by continuous c)an%es in t)e institutional rules
as 5ell as by t)e increased +olitical uncertainty due to t)e ris2 o. brea2do5n o. t)e
de!ocratic re%i!e. ()e rules o. t)e +olitical %a!e )a0e been in +er!anent .lu* since 19A9.
A.ter decades 5it)out si%ni.icant !odi.ications, electoral rules 5ere c)an%ed t)ree ti!es,
considerably !odi.yin% t)e incenti0es o. +olitical actorsO in .act, di..erent 0ersions o. a !i*ed
electoral syste! 5ere used .or t)e le%islati0e elections o. 1993, 199A, 2000 and 200' (and t)e
Constitutional Asse!bly o. 1999).
()e electoral re.or!s contributed to t)e erosion o. t)e strict control t)at +arty leaders
e*ercised o0er no!ination +rocedures. ()is in turn 5ea2ened +arty disci+line in t)e
8e%islature. 6n addition, t)e lac2 o. a stable electoral syste! did not )el+ to consolidate
electoral incenti0es, increasin% t)e le0els o. uncertainty t)at +oliticians .aced 5)en buildin%
t)eir careers.
6n 19A9>199A, +residents 5ere 5ea2er t)an in t)e +ast. 6n 19A9, +residential +o5ers 5ere
substantially reduced 5it) t)e introduction o. t)e direct election o. %o0ernors and !ayors.
@residents lost control o0er +art o. t)e bud%et (t)e constitutional allot!ent to t)e re%ions) and
o0er t)e discretionary a++oint!ent and dis!issal o. %o0ernors, 5)ic) )ad been a +otent
ne%otiation tool. 6n addition, t)e decline in oil .iscal inco!e and t)e !ar2et>oriented re.or!s,
5)ic) li!ited discretionary subsidies and reduced rent>see2in% o++ortunities, also reduced t)e
+olitical currency o. +residents (?illas!il et al., 2007). 7ue to t)e decline in +residential
+o5er, t)e e*ecuti0e branc) in t)e 1990s )ad less in.luence in t)e le%islati0e +rocess. 6n t)e
.irst +eriod, close to A0 +ercent o. ordinary le%islation 5as initiated by t)e e*ecuti0e. 6n
contrast, in t)e second +eriod, t)is .i%ure declined to 3A +ercent.
3inally, c)an%es in t)e +arty syste!, +articularly t)e .ra%!entation and e!er%ence o. less
co)esi0e and disci+lined +arties, under!ined t)e +artisan +o5ers o. t)e +resident. 6n t)e .irst
+eriod, t)ree o. t)e si* +residents ('0 +ercent) )ad a +artisan !a4ority in t)e lo5er )ouse.
3our out o. si* )ad !a4orities in coalition 5it) ot)er +arties. 6n contrast, in 19AA>199A,
+residents did not )a0e a !a4ority in t)e le%islature. ()is situation increased t)e
con.rontations bet5een t)e 8e%islature and t)e :*ecuti0e branc).
6n 199A, Con%ress .or t)e .irst ti!e a++ro0ed t)e se+aration o. le%islati0e and +residential
elections, 5it) elections to be )eld t)at year."0 As a result, t)ese le%islati0e elections
%enerated t)e lar%est +olitical .ra%!entation in ?enezuelaBs )istory (!ore t)an si* e..ecti0e
+arties)."1
V! The Cha(ita Re(olution: The Areak,o*n of CooperationE %0001+;;2
"0 Con%ressional elections 5ere set to coincide instead 5it) re%ional and local elections, )eld a .e5 5ee2s be.ore
t)e +residential elections. ()is !odi.ication 5as desi%ned by t)e traditional +arties to reduce t)e coattail e..ects
t)at a +otential landslide>0ictory by C)[0ez !i%)t +roduce on t)e le%islature. 6nstead, t)e +arties +lanned to
build t)eir su++ort in Con%ress based on t)e stren%t) o. t)eir re%ional %o0ern!ents (and t)e re%ional aut)oritiesB
coattails).
"1 ()e se+aration o. le%islati0e and +residential elections 5ill be t)e nor! in t)e .uture, since t)e 1999
Constitution set a .i0e>year le%islati0e ter! and a si*>year +residential ter!.
19
6n 199A, Hu%o C)a0ez 5as elected @resident o. ?enezuela as an outsider, under an electoral
+lat.or! to radically dis!antle 5)at 5as +ercei0ed to be a corru+t and dys.unctional +olitical
syste!."2 6n t)e 199A +residential election, C)a0ez constantly accused t)e old de!ocratic
re%i!e as one t)at )ad used oil inco!e to .a0or t)e +olitical and econo!ic elite and e*cluded
t)e lar%est and +oorest sectors o. t)e +o+ulation. C)a0ez t)eoretical solution to t)is +roble!
5as to create a !ore +artici+atory and socially inclusi0e de!ocratic syste! t)rou%) t)e
acti0ation o. a Constitutional Asse!bly 5it) .ull +o5ers to trans.or! institutional
arran%e!ents in ?enezuela.
6n 1999, a.ter bein% elected as @resident, C)a0ez 5it) t)e su++ort o. t)e u+re!e Court
success.ully su!!oned a Constitutional Asse!bly to cra.t a ne5 constitution."3 ;it) ',C o.
t)e 0ote, t)e cha)istas obtained 9'C o. t)e seats (@en.old, 2002O Monaldi, 2003). ()ese
dis+ro+ortional results 5ere t)e result o. t)e ado+tion o. a !a4oritarian syste!, contrary to
5)at 5as establis)ed by t)e +re0ailin% Constitution o. 19,1 (re-uirin% a +ro+ortional
syste!).""
()e Constitutional Asse!bly created t)e +olitical conditions .or C)a0ez to !odi.y 2ey
institutional rules and substantially increase )is +residential +o5ers (@en.old 2002O Monaldi,
2003O Monaldi et al., 200'). A!on% t)e !ost i!+ortant constitutional c)an%es 5ereH 3irst, t)e
+residential ter! 5as e*+anded .ro! .i0e to si* years 5it) one i!!ediate reelection. econd,
t)e +resident 5as +ro0ided co!+lete control o0er t)e +ro!otions 5it)in t)e Ar!ed 3orces
5it)out needed a++ro0als .ro! t)e national le%islature."' ()ird, t)e ne5 constitution
eli!inated t)e enate and t)ere.ore t)e e-ual re+resentation o. t)e states 5it)in t)e
le%islature. 3ourt), accordin% to t)e ne5 constitution t)e +resident could acti0ate any 2ind o.
re.erendu! (includin% one to su!!on a Constitutional Asse!bly 5it) .ull +o5ers) 5it)out
any su++ort .ro! t)e le%islature. 3i.t), t)e constitution eli!inated any +ublic .inancin% .or
+olitical +arties. 3inally, t)e constitution introduced t)e +ossibility o. recallin% t)e !andate
.or !ayors, %o0ernors or t)e +resident contin%ent u+on t)e a++ro0al o. a strin%ent set o.
conditions.
As a result o. t)e Constitutional $e.or!s +residentialis! 5as rein.orced and .ederalis!
5ea2ened.", ()e +olitical re%i!e t)at e!er%ed 5as drastically di..erent .ro! t)e Punto (i#o
syste! and also di..erent .ro! t)e one +re0ailin% in 19A9>199A. ;)ereas in t)e @unto 3i4o
+eriod t)e center o. t)e de!ocratic syste! re0ol0ed around t)e +olitical +artiesO in t)e
cha)ista era, t)e center o. %ra0ity o. t)e syste! is t)e @resident. &i0en t)e constitutional
+o5ers +ro0ided to t)e @resident under t)e 1999 Constitution !ost +olitical actors )a0e no
c)oice but to be subordinate t)eir +olitical careers to t)e e*ecuti0e branc).
"2 6n t)e early 1990s, 8ieutenant Colonel C)a0ez !ana%ed to ca+ture t)e electorateBs attention and e!er%e in t)e
+olitical scene as a .ailed cou+ +lotter bla!in% corru+tion and !ar2et re.or!s as t)e causes .or increasin%
+o0erty rates in ?enezuela.
"3 ()e +re0ailin% Constitution did not conte!+late t)is !ec)anis!. (o re.or! t)e constitution a su+er !a4ority
in Con%ress, t)at @resident C)a0ez did not )a0e, 5as re-uired. Ho5e0er, t)e u+re!e Court allo5ed t)e
Constituent Asse!bly to %o .or5ard.
"" ()e electoral syste! 5as ori%inally de0ised by t)e @residential Co!!ittee .or t)e Constitutional Asse!bly
and +arado*ically su++orted by a si%ni.icant sector o. ci0il society 5)ic) sou%)t to +ro!ote a co!+lete
+ersonalization o. t)e 0ote and t)ereby reduce t)e in.luence o. +olitical +arties.
"' 3or a !ore detailed e*a!ination o. )o5 ci0ilian control o0er t)e ar! .orces )as been rela*ed in ?enezuela see
(rin2unas (2002).
", 9sin% t)e )u%art and Carey inde* t)e ?enezuelan +resident )as no5 le%islati0e +o5ers close to t)e re%ional
a0era%e (@ayne et al., 2002), co!+ared to t)e lo5est in t)e re%ion be.ore 1999. till ot)er .actors not ca+tured in
t)e inde* !a2e t)e ?enezuela +resident .or!ally t)e !ost +o5er.ul in t)e re%ion.
20
()e eli!ination o. +ublic .inancin% .or +olitical +arties and t)e lac2 o. re%ulation o. t)e
electoral use o. t)e :*ecuti0e )a0e 5ea2ened t)e ability o. o++osition !o0e!ents to co!+ete
on an e-ual .ootin% 5it) a +resident see2in% reelection. 6n addition, t)e +residentBs control
o0er t)e 8e%islature allo5ed t)e e*ecuti0e to +ac2 t)e u+re!e Court 5it) su++orters and
a++oint t)e attorney %eneral and co!+troller. Moreo0er, control o0er t)e 8e%islature and t)e
Court enabled t)e @resident to also obtain control o0er t)e :lectoral Council (<ornblit),
200'). ()e concentration o. +o5er t)at )as resulted dra!atically increased t)e sta2es o.
+o5er.
Alt)ou%) t)e 1999 Constitution also o+ened so!e a0enues .or +olitical +artici+ation,
includin% t)e recall re.erendu!, 5)ic) 5as later used by t)e o++osition in 200" to try to
re0o2e t)e +residentBs !andateO t)e stron% %ras+ o. t)e de!ocratic institutions e*ercised by
t)e cha)ismo )as si%ni.icantly increased t)e costs o. +artici+ation .or t)e o++osition
(<ornblit) 200').
()e +olitical re%i!e t)at )as been e!er%in% is a )e%e!onic syste!, in 5)ic) t)e +resident
(and )is +arty) e*erts +olitical control o0er all .or!al institutions. 6n t)e 2000 election .or t)e
ne5 unica!eral =ational Asse!bly le%islature t)e cha)ismo obtained a !a4ority o. t)e seats
.or t)e .irst ti!e (in t)e elections o. 199A be.ore t)e Constitutional Asse!bly it )ad a
!inority). 6n 200', a.ter t)e o++osition !o0e!ent decided to 5it)dra5 .ro! t)e elections,
clai!in% t)e lac2 o. .air conditions, t)e cha)ismo 5as able to control all o. t)e seats in
Con%ress, .urt)er increasin% t)e sta2es o. +o5er. More %enerally, t)e increasin%
dis+ro+ortionality o. t)e electoral syste! )as raised t)e sta2es."7
o .ar t)e )e%e!onic rule is not %enerally +racticed in a traditional aut)oritarian !anner (i.e.
restrictin% .reedo! o. +ress), but it is certainly e*ercised in order to di!inis) t)e +artici+ation
o. o++osition %rou+s in +ublic a..airs. 6t )as +ro!oted a +rocess o. +olitical and social
+olarization."A ()e +rocess o. +olitical +olarization )as also led to t)ree %eneral stri2es,
includin% one t)at ended in a s)ort>li0ed cou+ a%ainst @resident C)a0ez in A+ril 2002.
ince t)e recall re.erendu!, t)e do!inance o. t)e cha)ismo o0er le%islati0e and 4udicial
a..airs continues to erode 5)at 5as already a 0ery 5ea2 rule o. la5. 7urin% t)e @unto 3i4o
+eriod, t)e u+re!e Court 5as )ea0ily in.luenced by +artisan considerations. ()e 4udicial
syste! 5as not seen by in0estors or citizens as an inde+endent. ()is situation )as not c)an%ed
but actually 5orsened in t)e last .e5 years. Accordin% to t)e ;orld /an2Bs %ule of Law
indicator, ?enezuela in 200" occu+ied t)e lo5est ran2 in t)e 8atin A!erican re%ion (in .act
only 13C o. t)e countries in t)e 5orld +er.or!ed 5orst t)an ?enezuela. ee 3i%ure 1). 3or
?enezuela t)is +oor +er.or!ance in 200" also indicates a dra!atic deterioration co!+ared to
199, 5)en it 5as abo0e t)e 2' +ercentile.
()e lac2 o. di0ision o. +o5ers )as enabled t)e e*ecuti0e branc) to s+end oil inco!e 5it) .ull
discretion. 7ue to t)e lac2 o. institutional constraints .ro! t)e le%islati0e and 4udicial
"7 ()e electoral rules a++ro0ed by t)e :lectoral Council, do not en.orce t)e +ro+ortionality +rinci+le
incor+orated a%ain in t)e 1999 Constitution, by allo5in% !a4ority +arties to ta2e all t)e +lurality seats +lus an
additional +ro+ortional s)are o. t)e +ro+ortional seats. ()is 0iolates t)e lo%ic o. t)e !i*ed !e!ber electoral
syste!. As a result, 5it) a ',>,0C +ro4ected 0ote t)e cha)ismo 5ould )a0e %otten o0er A0C o. t)e Asse!bly
seats.
"A 6n .act, t)e concentration o. +o5er )as been abused as a +olitical instru!ent to i!+le!ent tar%eted +olitical
+rosecutions a%ainst =&1s or +oliticians t)at )a0e been outs+o2enly critical o. t)e %o0ern!ent or to
disen.ranc)ise citizens .ro! +ublic bene.its (sc)olars)i+s, 4obs, etc.) i. t)ey are belie0ed to )a0e su++orted t)e
o++osition, +articularly in t)eir e..ort to acti0ate t)e 200" recall re.erendu! a%ainst t)e @resident.
21
branc)es, t)e e*ecuti0e )as been able to set>u+ a set o. ad!inistrati0e +rocedures to by+ass
.or!al bud%et institutions and s+end 5it)out any ty+e o. o0ersi%)t. ()e %o0ern!ent )as
created a series o. s+ecial s+endin% .unds 5)ic) 5ea2en trans+arency and +ro!otes o..bud%et
s+endin%."9 As o. today, it is i!+ossible to accurately esti!ate t)e a!ount o. resources
t)at are bein% s+ent outside t)e .or!al bud%et and t)rou%) t)ese s+ecial 0e)icles. ()ese
outco!es are .easible t)an2s to t)e direct control t)at t)e +residency e*ercises o0er t)e oil
inco!e controlled by ?enezuelaBs oil co!+any (@7?A), since t)e 2003 oil stri2e.'0 ()is
un+recedented discretionary control o. oil re0enues, in an oil de+endent country, dra!atically
stren%t)ens t)e e..ect o. t)e )i%) sta2es o. +o5er t)at e*ist in all oil de+endent nations.
9nder C)a0ez, ?enezuela )as e*+erienced yet anot)er trans.or!ation o. its +olicy!a2in%
+rocess. 6n t)is era t)ere are 0ery .e5 2ey actors, a declinin% role o. +olitical +arties, a !ore
+re0alent +resence o. t)e ar!ed .orces, and a si%ni.icant do!inance o. t)e @resident o0er t)e
+olicy!a2in% +rocess. ()e de%ree o. +olitical +olarization and con.lict in t)e country bet5een
t)e cha)ismo and t)e o++osition is so dee+ t)at discount rates are )i%) and +olicies are rarely
ne%otiated in institutionalized arenas. @olicies are usually cra.ted as an atte!+t to !a*i!ize
+olitical +o5er rat)er t)an on e..iciency considerations. Coo+eration )as co!+letely bro2en
do5n.
As e*+lained be.ore, t)is c)an%e in t)e +olicy!a2in% +rocess, 5)ic) )as !ade t)e +resident
t)e )e%e!onic actor o. t)e syste!, is to a lar%e e*tent a direct conse-uence o. t)e 1999
Constitution 5)ic) si%ni.icantly increased +residential +o5ers. Most si%ni.icantly, t)e
+resident 5as %i0en t)e +o5er to call .or +o+ular re.erenda to a++ro0e or eli!inate la5s,
a++ro0e constitutional re.or!s, or call .or a Constitutional Asse!bly 5it) +leni+otentiary
+o5ers, all o. 5)ic) si%ni.icantly stren%t)ened t)e e*ecuti0eBs bar%ainin% +o5er. As a by+roduct,
t)e Constitution is no5 e*tre!ely easy to c)an%e i. t)e e*ecuti0e is 5illin% to do so
and )as t)e necessary +o+ular su++ort. 6n addition, t)e +residential ter! 5as increased to si*
years (.ro! .i0e) and re>election 5as +er!itted (.or one consecuti0e ter!). As a result, a
?enezuelan +resident !ay rule .or a lon%er continuous +eriod (12 years) t)an any ot)er 8atin
A!erican +resident (t)e re%ional !edian is .i0e years) (Monaldi, 2003).
Constitutional c)an%es )a0e certainly increased t)e sta2es o. +o5er and t)ere.ore )a0e
+ro!oted a less stable de!ocracy. ()e consolidation o. de!ocracy re-uires t)e
institutionalization o. uncertainty 5)ic) is better induced by institutional arran%e!ents t)at
+ro!ote lo5 sta2es o. +o5er (@rze5ors2i, 19AA and 1991). 6n ?enezuela, t)e o++osition
!o0e!ent, albeit .ra%!ented, clai!s t)at t)ere are .e5 bene.its .ro! +artici+atin% and
+ercei0e electoral outco!es as biased and not institutionalized. As a result, a si%ni.icant +art
o. t)e o++osition )as )ad incenti0es .ro! e*cludin% itsel. .ro! t)e re%ular de!ocratic
+olitical +rocess and instead to in0est resources in tryin% to o0erturn t)e re%i!e by
nonde!ocratic
!eans (as obser0ed in t)e A+ril 2002 cou+ and t)e 2002>2003 oil stri2e). ()is )as
led to a +rocess o. radical +olitical +olarization as 5ell as a +olitization o. t)e Ar!ed 3orces.
()e M5inner ta2es allN dyna!ic e!bedded in t)e 1999 Constitution, co!bined 5it) t)e )i%)
+ersonal su++ort o. @resident C)a0ez durin% !ost o. )is +residency, can )el+ to e*+lain 5)y
"9 3or e*a!+le, instead o. t)e e*+enditure in education bein% centralized in t)e !inistry o. t)e sector, it is
dis+ersed bet5een t)e central %o0ern!ent, t)e =ational 7e0elo+!ent /an2 (/A=7:) and t)e s+ecial .unds
(31=7:@A and 31=7:=). 6n 200, an esti!ated 10C o. &7@ 5ill be s+ent usin% o..>bud%et !ec)anis!s.
'0 ()is is in si%ni.icant contrast to t)e +eriod 197,>199A 5)en t)e =ational 1il Co!+any, @7?A, 5as
.inancially and o+erationally autono!ous. ()is radically c)an%ed a.ter t)e oil stri2e o. 2002>2003, 5)en t)e
%o0ern!ent .ired close to t5enty t)ousand 5or2ers o. t)e oil co!+any and eli!inated its autono!y.
22
?enezuela )as e*+erienced in t)e last .i0e years !ore t)an t)ree %eneral stri2es, a .ailed cou+,
and !assi0e street +rotests. ()e di..erences 5it) t)e +re0ious t5o +eriods are 0ery
si%ni.icant. Alt)ou%) t)e .ederalist arran%e!ent )as not been .ully !uted (%o0ernors and
!ayors are still elected) decentralization )as been +artially re0ersed. 6n addition, t)e
eli!ination o. t)e enate )as i!+lied t)at states )a0e lost so!e re+resentation in t)e national
le%islature. @olicies are no5 rarely ne%otiated 5it) %o0ernors and !ayorsO instead, t)ese
actors tend to a++roac) t)e +residency on a loyalty basis to %ain access to needed resources.
6n t)is ne5 syste! t)e +olicy!a2in% +rocess is t)us centered on a sin%le arena, t)e
+residency, and t)e +residential +o5er does not arise .ro! li!ited dele%ation by +olitical
+arties, as 5as t)e case in t)e @unto 3i4o era, but rat)er it is t)e direct conse-uence o. t)e
constitutional desi%n.'1
V&! Conclu,in$ Remark
()e colla+se in +er>ca+ita oil inco!e durin% t)e 19A0s and 1990s 5as so si%ni.icant t)at it can
lar%ely e*+lain t)e crisis .aced by ?enezuelaBs +olitical syste!. /ut 5)y +oliticians )a0e not
been able to reestablis) an institutional .ra!e5or2 t)at +ro0ides t)e de!ocratic %o0ernance
necessary to sustain +olicies t)at could restore %ro5t) once t)e colla+se )ad ta2en +laceP
()is +a+er +ro0ides a stylized story o. %o0ernance to e*+lain )o5 t)e dra!atic decline in oil
inco!e interacted 5it) institutional 0ariables 5)ic) in turn a..ected t)e ability o. +oliticians
to i!+le!ent and sustain +olicies ca+able o. re>establis)in% econo!ic %ro5t). ()e initial
institutional arran%e!ents ado+ted by t)e Pact of Punto (i#o in t)e early 19,0s %enerated lo5
sta2es o. +o5er, induced a %enerally coo+erati0e +olicy!a2in% +rocess and relati0ely %ood
+olicy .eatures. ()e syste! +ri0ile%ed stability o0er .le*ibility or e..iciency. ()e distribution
o. oil re0enues 5as a 2ey ele!ent to sustain t)ese institutional settin%. Ho5e0er, t)e syste!
e0ol0ed into a cartel>li2e +olitical arran%e!ent, 5it) )i%) barriers to entry. :cono!ic
+er.or!ance 5as %ood, in +art due to t)e !ildly .a0orable e*ternal en0iron!ent (stability,
+ro%ressi0ely increasin% oil re0enue). 7es+ite t)ese initial conditions, in 1973>19A2, t)e oil
boo!s created si%ni.icant distortions in t)e +olitical syste! and t)e econo!y. Abundance
'1 A %ood e*a!+le to illustrate t)e conse-uences o. t)ese institutional c)an%es is t)e bud%et>!a2in% +rocess. 6n
?enezuela, t)e @resident )as t)e constitutional +rero%ati0e to .or!ulate and introduce t)e bud%et to t)e
le%islature. ()e !acroecono!ic +ro4ections t)at under+in t)e bud%et +ro+osal, includin% t)e esti!ation o. oil
+rices, are elaborated by t)e e*ecuti0e branc) under t)e coordination o. t)e @lannin% Ministry, t)e Ministry o.
3inance, t)e /ud%etary 1..ice (1=A@$:) and t)e Central /an2. @rior to t)e 1999 Constitution, t)e e*ecuti0e
branc) used to consult and ne%otiate t)e bud%et 5it) +olitical +arties, unions, %o0ernors and !ayors be.ore
sub!ittin% it to Con%ress. Currently, t)ese ne%otiations are absent and decisions are basically ta2en by t)e
@resident in direct coordination 5it) t)e !inisters in0ol0ed in t)e bud%et>!a2in% +rocess. 1nce introduced to
t)e le%islature, +oliticians in t)eory can a!end t)e co!+osition o. t)e bud%et but t)ey cannot add ite!s to t)e
bud%et. ()is +rocess is usually controlled by t)e 3inance Co!!ittee. (raditionally, le%islators in ?enezuela
used to introduce substantial a!end!ents to t)e bud%et bill. Ho5e0er, in t)e last .e5 years t)ese a!end!ents
)a0e declined substantially reac)in% si!ilar le0els to t)e ones obser0ed in t)e !id se0enties 5)en @resident
@erez (197">197A) controlled t)e le%islature in t)e !iddle o. a lar%e oil 5ind.all. 3or e*a!+le, in t)e +residential
+eriod o. $a.ael Caldera 199">1999, +oliticians in Con%ress introduced c)an%es t)at on a0era%e a!ounted to
about 2'C o. t)e bud%et bill. 7urin% t)e C)a0ez +eriod (1999 until 200"), t)is a0era%e )as declined to belo5
10C (@uente et al., 200,)). 3urt)er!ore, in 200" t)e bud%et 5as a++ro0ed 5it)out any c)an%es introduced by
t)e le%islati0e branc). ()is trend s)o5s )o5 t)e le%islature )as been loosin% in.luence in s)a+in% bud%etary
outco!es t)an2s to t)e stron% %ri+ t)at t)e e*ecuti0e branc) )as o0er le%islati0e a..airs. 6n addition, t)an2s to t)e
lac2 o. institutional constraints .ro! t)e le%islati0e, t)e e*ecuti0e branc) )as been able to set>u+ a co!+le* set o.
ad!inistrati0e +rocedures to by+ass .or!al bud%et institutions and s+end 5it)out any ty+e o. o0ersi%)t.
23
increased incenti0es .or ine..iciency, +atrona%e, and corru+tion. Coo+eration declined and t)e
-uality o. +olicy su..ered.
()e dra!atic oil +rice .all in t)e 19A0s induced ra+id econo!ic deterioration, redistributi0e
con.licts, and +o+ular dissatis.action. @olitical re.or!s 5ere t)us initiated in 19A9 as a result
o. t)ese outco!es. Co!bined 5it) t)e +o+ular disillusion!ent %enerated by t)e oil inco!e
.all, t)ese re.or!s resulted in t)e deconsolidation o. t)e +olitical syste!. @olitical
.ra%!entation and 0olatility beca!e t)e nor!. @olicy!a2in% beca!e non>coo+erati0e and
+oliticians did not )a0e t)e incenti0e to sustain +olicy c)an%es. ()e outer .eatures o. +ublic
+olicy .urt)er eroded and instability decreased t)e li2eli)ood o. establis)in% a ne5
coo+erati0e arran%e!ent.
3inally, t)e C)a0ez $e0olution +ro!+ted t)e total deconsolidation o. t)e +arty syste! and
+olitical coo+eration bro2e do5n co!+letely. ()e ne5 institutions increased t)e sta2es o.
+o5er and !ade coo+eration 0ery costlyO )el+in% t)e -uality o. +olicy!a2in% to continue its
.urt)er deterioration.
(o clari.y t)e ar%u!ent +resented in t)is article, it )el+s to address a series o. -uestions. Ho5
is t)e ?enezuelan case di..erent .ro! ot)er 8atin A!erican countries in 5)ic) t)e +olitical
syste! also deconsolidated, e.%. Colo!bia and @eruP ;)y does oil de+endency +lay a 2ey
role in t)e decline o. t)e +olitical syste! i. it is not +re0alent in ot)er cases 5it) si!ilar
e0olutionP 3irst, it is i!+ortant to establis) t)e e*tent o. t)e decline o. ?enezuelaBs +olitical
syste! and econo!y. ?enezuela )ad a!on% t)e stron%est, !ore stable, and institutionalized
+arties in t)e re%ion and is one o. t)e .e5 de!ocracies t)at sur0i0ed durin% t)e si*ties and
se0enties. 6t no5 )as one o. t)e !ost 0olatile and deinstitutionalized +arty syste!s and t)e
5orst le0els o. de!ocratic %o0ernance in t)e re%ion. ()ere is no ot)er e*a!+le in t)e re%ion
o. suc) dra!atic decline.
6n !any ot)er countries t)ere )as not been a consolidated +arty syste! .or a si%ni.icant +eriod
o. ti!e. @eru ne0er )ad a +arty syste! li2e ?enezuelaBs. 6n t)e countries 5ere t)ere )as been
a consolidated +arty syste!, suc) as ?enezuelaBs, t)e decline )as not been as si%ni.icant (e.%.
Costa $ica, 9ru%uay). Colo!bian +arties )a0e not deteriorated as noticeably and 5ere ne0er
as stron% and disci+lined as ?enezuelan +arties. i!ilarly, t)e de%ree o. econo!ic decline o.
?enezuela durin% t)e last -uarter o. a century is only ri0aled in t)e re%ion by =icara%uaBs.
()e oil de+endence and oil inco!e decline 0ariable see!s critical to understand t)e e*tent o.
t)e deterioration o. de!ocratic %o0ernance.
;)y t)en, a story tracin% institutional decay only to oil inco!e .all, is not su..icientP Are
institutional re.or!s really rele0antP 1il inco!e decline )el+s to e*+lain t)e increasin%
redistributi0e con.licts and t)e loss in su++ort o. t)e traditional +arties. /ut, 5)y t)e result
5as not si!+ly t)e rise o. ne5 +olitical actors under t)e sa!e %o0ernance .ra!e5or2P ;)y
5ere A7 and C1@:6 inca+able o. sustainin% +olicy re.or!s a.ter obtainin% !ore t)an ei%)ty
+ercent o. t)e 0ote in 19AAP ;)y did .ra%!entation and 0olatility increase so dra!atically
a.ter t)e +olitical re.or!s o. 19A9P ;)y a ne5 de!ocratic coo+erati0e e-uilibriu! did not
ariseP ;)y did coo+eration brea2do5n co!+letely a.ter @resident C)a0ez institutional
re.or!sP ()e institutional re.or!s are crucial to understand 5)y t)e +olitical syste!
deconsolidated so ra+idly and dra!atically and 5)y e..ecti0e de!ocratic %o0ernance )as not
been reestablis)ed. ()e initial +olitical re.or!s induced a decline in coo+eration by increasin%
.ra%!entation and 0olatility, and 5ea2enin% disci+line. ()e C)a0ez institutional re.or!s
.urt)er 5ea2ened de!ocratic %o0ernance by noticeably increasin% t)e sta2es o. +o5er.
2"
;)y did +olitical decentralization )a0e a deconsolidatin% e..ectP 6s t)is true in ot)er
countriesP ()e ar%u!ent +resented )ere is t)at t)e co!bination o. t)e loss in su++ort .or
traditional +olitical +arties, +roduced by oil>induced econo!ic decay, 5it) ra+id +olitical
decentralization )ad t)is e..ect. 6n case decentralization )ad been introduced +ro%ressi0ely in
a situation o. .a0orable econo!ic conditions t)e e..ects o. .ra%!entation and 0olatility 5ould
)a0e been +robably -uite li!ited.
6n Ar%entina and /razil, t)e t5o traditional .ederal countries in t)e re%ion, +olitical
decentralization )as +roduced +arty syste!s t)at are less co)esi0e and coo+erati0e t)an
?enezuelaBs in t)e +ast. 6n .act t)e role o. re%ional +oliticians )as been si%ni.icant in creatin%
%o0ernance and econo!ic di..iculties in t)ose t5o countries. ()ere is an e*tensi0e literature
s)o5in% t)e +otential ne%ati0e e..ects o. decentralization, under certain conte*ts, o0er
de!ocratic %o0ernance (+iller and (o!!asi, 2003O Monaldi, 200').'2 Me*ico, t)e ot)er
.ederal country in 8atin A!erica, 5)ic) acti0ated .ederalis! recently, as ?enezuela, )as not
)ad a si%ni.icant increase in .ra%!entation, t)e sur%e o. re%ional +arties, or 0olatility.'3 ()is
can be attributed to t)e .act t)at t)e @$6 5as able to re.or! t)e econo!y and obtain %ood
econo!ic +er.or!ance be.ore t)e o++osition +arties (@A= and @$7) obtained re%ional
o..ices, and t)e transition to co!+etiti0e de!ocracy occurred. 6n t)at sense it )as been ar%ued
t)at t)e se-uence o. re.or!, .irst t)e econo!y, t)en t)e +olitical syste! 5as done in Me*ico
and C)ina, in an e..ecti0e order. ;)ereas in ?enezuela and $ussia, t)e re0erse order o.
re.or!s )ad destabilizin% e..ects.
6t is i!+ortant to e!+)asize t)at t)e ar%u!ent +resented )ere is not a%ainst +olitical
decentralization. 7ecentralization )as contributed to i!+ro0e t)e +ro0ision o. +ublic %oods in
?enezuela and ot)er countries o. t)e re%ion. Moreo0er, +olitical decentralization )as !any
ad0anta%es in ter!s o. de!ocratic re+resentati0eness. 6n .act, durin% t)e atte!+ts at +o5er
%rab e*+erienced by ?enezuela, t)e e*istence o. decentralization +ro0ided a source o.
de!ocratic le%iti!acy, unrelated to t)e national e*ecuti0e, 5)ic) )as been a li!it to t)e rise
o. aut)oritarianis!. Ho5e0er, +olitical decentralization in t)e conte*t t)at it 5as done
contributed to t)e deconsolidation o. t)e +olitical syste! and t)e 5ea2enin% in coo+eration
and de!ocratic %o0ernance (see .ootnote belo5).
6. oil decline e*+lains institutional decline, 5)y does t)e recent oil +rice increase does not
translate into stron%er de!ocratic %o0ernanceP ()e +otential decline in redistributi0e con.licts
can be a +otential en)ancer o. de!ocratic %o0ernance (7unnin%, 200'). Ho5e0er, as )as been
e*+lained, t)e institutional .ra!e5or2 is a 2ey interacti0e .actor. 6. t)e institutional
.ra!e5or2 increases t)e sta2es o. +o5er and in)ibits +olitical coo+eration, oil inco!e
increases 5ill not necessarily en)ance de!ocratic %o0ernance. Moreo0er, t)e accu!ulated
institutional decline re.lected in t)e indicators discussed in t)is article, attributable to oil
de+endence, oil decline, and t)e institutional re.or!s, !a2es it +articularly di..icult to )a0e a
+ro+er !ana%e!ent o. t)e oil boo!. 6n .act, t)e current oil boo! see!s to be %eneratin%, in
!ost res+ects, a !ore e*tre!e 0ersion o. 5)at 5e 5itnessed in t)e se0enties. ()e 5ea2ened
'2 ()e case o. $ussia )as been also studied as an e*a!+le 5ere +olitical decentralization re+resented a c)allen%e
.or de!ocratic deconsolidation e0en t)ou%) it 5as one o. t)e .e5 li!its to t)e sur%e in aut)oritarianis!.
'3 Countries suc) as C)ile, Costa $ica, and 9ru%uay 5it) !ore institutionalized +olitical syste!s )a0e )ad
li!ited +olitical decentralization. :0en t)ou%) t)is does not i!+ly causality, it is interestin% to notice t)at
+oliticians )a0e deliberati0ely a0oided +olitical decentralization in order to !aintain stron% national +olitical
+arties (Monaldi, 200').
2'
institutional .ra!e5or2 +ro0ides .e5er li!its to t)e 5orst +olitical and econo!ic e..ects o.
t)e resource curse.
2,
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&onz[lez, $.A. 2002. M7ia%n#stico 6nstitucional del iste!a de er0icio Ci0il en ?enezuela.N
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:diciones 6:A.
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@a+er A390. Ca!brid%e, 9nited tatesH =ational /ureau o. :cono!ic $esearc).
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?enezuelaH ?adell Her!anos.
Molina, I., and C. @Erez. 199,. M8os +rocesos electorales y la e0oluci#n del siste!a de
+artidos en ?enezuela.N 6nH A. fl0arez, editor. .l 'istema Pol/tico Venezolano: Crisis
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?enezuela :*+erience.N Ca!brid%e, 9nited tatesH Har0ard 9ni0ersity, 7e+art!ent
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$odr%uez, 3., and I. ac)s. 1999. M;)y 7o $esource>$ic) :cono!ies Ha0e lo5er &ro5t)
$atesP A =e5 :*+lanation and an A++lication to ?enezuela.N :ournal of .conomic
7rowth "(3).
29
$oss, M. 2001. M7oes 1il Hinder 7e!ocracyPN <orl, Politics- '3.
ala>i>Martin, V. and A. ubra!anian. 2003. MAddressin% t)e =atural $esource CurseH An
6llustration .ro! =i%eria.N =/:$ ;or2in% @a+er =o 9A0".
)u%art, M. and I. Carey. 1992. Presi,ents an, Assem8lies: Constitutional &esign an,
.lectoral &ynamics. Ca!brid%e, 9nited tatesH Ca!brid%e 9ni0ersity @ress.
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(ransaction A++roac) 5it) A++lication to Ar%entina,W :ournal of Law- .conomics-
an, Organization= ?ol. 19, =o. 2.
+iller, @., :. tein, and M. (o!!asi. 2003. M@olitical 6nstitutions, @olicy!a2in% @rocesses,
and @olicy 1utco!esH An 6nterte!+oral (ransactions 3ra!e5or2.N ;as)in%ton, 7C,
9nited tatesH 6nter>A!erican 7e0elo+!ent /an2. Mi!eo%ra+)ed docu!ent.
(rin2unas, H. 2002. M()e Crisis 6n ?enezuelan Ci0il>Military $elationsH 3ro! @unto 3i4o (o
()e 3i.t) $e+ublicN. Latin American %esearch %e)iew, +rin%.
?illas!il, $., 3. Monaldi, &. $ios, and M. &onz[lez. 2007. M()e 7i..iculties o. $e.or!in%
and 1il 7e+endent :cono!yN in I. 3anelli (ed.) Un,erstan,ing ;arket %eforms in
Latin America= =e5 Kor2H @al%ra0e McMillan.
;orld /an2 6nstitute. 200". &o0ernance 7ata. 555.5orldban2.or%U5biU%o0ernance.
30
3i%ure1
$orl0 Ban3 %o-ernance #n0icators7 200(
,8ercentile Ran3.
35
14
16
10
13
14
51
40
42
47
38
44
65
68
62
63
64
63
0 25 50 75 100
4oi"e and a""o&n$abili$-
Aoli$i"al S$abili$-
Bo'e%nmen$ 211e"$i'eness
ReE&la$o%- S&ali$-
R&le o1 La=
+on$%ol o1 +o%%&($ion
4ene5&ela La$in Ame%i"an A'E. Hedi&m In"ome +o&n$%ies
3i%ure 2
#DB 8ublic 8olicies #n0icators ,200:.
1,92
1,64
1,85
1,22
1,21
1,66
2,36
2,44
2,05
2,01
1,81
2,13
0 1 2 3
Ada($abili$-
S$abili$-
2n1o%"emen$ and Im(lemen$a$ion
+oo%dina$ion and +o,e%en"e
211i"ien"-
<'e%all Aoli"-
4ene5&ela La$in Ame%i"an A'E.
31
3i%ure 3
!ffectie /u$ber of Parties
)seats in t>e loDer c>a$ber-
2,57
4,28
4,84
2,72 2,65 2,42
2,83
4,74
6,05
3,44
1,74
,
&
.
2
7
*
=
7
&9*8 &9=2 &9=8 &972 &978 &982 &988 &992 &998 .,,, .,,*
Source: Consejo Nacional Electoral and ow n calculations
3i%ure "
:olatility in t>e nu$ber of seats in t>e loDer c>a$ber )@-
27
18
25
13
17
14
38
40
35
42
,
*
&,
&*
.,
.*
2,
2*
7,
7*
*,
&9=2 &9=8 &972 &978 &982 &988 &992 &998 .,,, .,,*
@ :olatility
Source: Consejo Nacional Electoral and ow n calculations
32
3i%ure '
%erage Tenure of 9inisters
,,,
,,*
&,,
&,*
.,,
.,*
2,,
1etancourt <eoni #aldera I Pere; I Eerrera <uisinc>i Pere; II #aldera II #>ae;
%erage /u$ber of (ears
Source: Gacetas Oficiales de la Repblica de Venezuela, 1958-2004.
1
CHAPTER %+:
The Political Economy of &n,utrial Policy in Venezuela
Fonathan Di Fohn
=ni(erity of @on,on
()is +a+er e*a!ines t)e +olitical econo!y o. industrial +olicy and econo!ic %ro5t) in
?enezuela in
t)e +eriod 1920>2003. oon a.ter t)e disco0ery o. oil in ?enezuela durin% t)e 1920Bs, t)e idea o.
Mso5in% t)e oilN, t)at is, di0ersi.yin% t)e +roduction and e*+ort structure 5as an i!+ortant
or%anizin% conce+t a!on% econo!ic and +olitical elites (/a+tista and Mo!!er, 19A7). ince t)e
early 19'0Bs, t)e industrialization +rocess beca!e increasin%ly state>led. ()e role o. t)e state 5as
!ar2ed by a +ur+ose.ul +olicy o. i!+ort>substitution t)at coincided 5it) t)e transition to
de!ocracy
in 19'A. Moreo0er, +olitical leaders set ?enezuela on a +at) o. a !ore +ronounced state>led, Wbi%
+us)W natural>resource>based )ea0y industrialization t)at .ocused on t)e de0elo+!ent o. state>
o5ned
enter+rises in steel, alu!inu!, +etroc)e!icals and )ydro>electric +o5er. ()e ?enezuelan state>
led
Wbi% +us)W )ea0y industrialization +olicy 5as not dissi!ilar in intent, a!bition and sco+e .ro!
stateled
industrial strate%ies in out) <orea, (ai5an, Malaysia and /razil, as 5ell as so!e ot)er
oile*+ortin%
de0elo+in% econo!ies.
()ere are se0eral +er+le*in% c)aracteristics o. ?enezuelaBs %ro5t) trends. ?enezuela 5as a!on%
t)e .astest %ro5in% econo!ies in 8atin A!erica in t)e +eriod 1920>19A0 and its !anu.acturin%
%ro5t) rate 5as a!on% t)e !ost ra+id until t)e !id>1970Bs. Ho5e0er, in t)e +eriod 19A0>199A,
nonoil
and !anu.acturin% %ro5t) rates e*+erienced lon%>run sta%nationO in t)e +eriod 199A>2003,
!anu.acturin% %ro5t) colla+sed1. (able 1 traces ?enezuelaBs non>oil and !anu.acturin% %ro5t)
trendsH
1 ()e i!+ortance o. +resentin% non>oil %ro5t) data cannot be o0er>stated in t)e ?enezuelan case. /y +resentin% non>
oil
%ro5t) data, it is +ossible to identi.y t)at t)e slo5do5n in ?enezuelan %ro5t) 5as an econo!y>5ide +)eno!enon
and
not isolated to 5ell>2no5n sta%nation in oil +roduction and in0est!ent in t)e +ost>19,' +eriod. 6n t)e +eriod 19'7>
1970,
oil +roduction steadily increased and reac)ed a +ea2 o. 3." !illion barrels +er day in 1970. /y 197', as a result o.
sustained !ultinational disin0est!ent in t)e +eriod 19'7>1970, +roduction declined dra!atically to 2." !illion
barrels
+er day des+ite +rice increases (:s+inasa and Mo!!er, 1992H 112). A.ter 197', +roduction 5as restricted since
?enezuela, a .oundin% !e!ber o. 1@:C, ad)eres to t)e cartelBs +olicy o. li!itin% oil e*+ort 0olu!es and
+roduction.
1il +roduction sta%nated in t)e +eriod 197'>199', t)ou%) in0est!ent in e*+loration increased a.ter nationalization
in
197,.
2
Table % )ro*th Tren, in the Venezuelan
EconomyE %0+;1+;;3
(a0era%e annual %ro5t) ratesD, C)
<on1oil )DP .anufacturin$
%0+;13; 10.2 n.a
%03;1-; 2.7 n.a
%0-;12; 9., ,.,
%02;127 9.1 1'.0
%02717; 7.1 7.7
%07;13; '.7 9.7
%03;10; 1.1 2.A
%00;103 2.7 1.2
%0031;3 >3.' >'.1
=otesH D all out+ut series in 19A" boli0ares
ourceH /a+tista, (1997) .or +eriod 1920>19'7O Central
/an2 o. ?enezuela, Annual %eports, 0arious years .or
+eriod 19'7>2003.
6n contrast to t)e literature t)at studies crises in aut)oritarian rule, and in transitions to
de!ocracy,
t)e ?enezuelan case +ro0ides an o++ortunity to e*a!ine t)e tensions and +rocesses o. late
,e)elopment 5it)in a long+stan,ing de!ocracy.
()e dra!atic slo5do5n in %ro5t) 5as +arado*ical since ?enezuela see!ed to be a li2ely
candidate to !aintain its ra+id %ro5t). 3irstly, in t)e +eriod 197">19A', ?enezuela recei0ed an
enor!ous increase in resource a0ailability as a result o. oil 5ind.alls. Moreo0er, ?enezuela
!aintained relati)ely )i%) le0els o. +)ysical and )u!an ca+ital in0est!ent in t)e conte*t o. a
relati)ely accountable lon%>standin% de!ocratic +olity. 6n t)e 8atin A!erican conte*t, ?enezuela
)as also !aintained a!on% t)e least ine-uitable distributions o. inco!e. 6n su!, ?enezuela
a++eared to +ossess !any .a0ourable Minitial conditionsN and Msocial ca+abilitiesN (Abra!o5itz,
19A,) .or ra+id catc)>u+ (see 7i Io)n, 200"H 17>23 .or e0idence o. ?enezuelaBs relati0ely
.a0ourable initial conditions in t)e 1970Bs). ;as t)e .ailure due to +olicy errors or ina++ro+riate
institutions, or did oil 5ind.alls t)e!sel0es beco!e a YcurseB by cro5din% out t)e de0elo+!ent
o.
non>oil sectors suc) as !anu.acturin%, or 5ere t)ere ot)er .actors t)at e*+lain t)e slo5do5n in
%ro5t)P
ection 1 critically e*a!ines di..erent economic 0ersions o. t)e Mresource +arado*N ar%u!ents,
notably !odels o. M7utc) 7isease !odels t)at .ocus t)e +otentially ne%ati0e e..ect oil boo! can
)a0e on t)e !anu.acturin% sector. ection 2 e*a!ines e*+lanations t)at +lace e!+)asis on t)e
.ailures in +olicy and institutional desi%n, +articularly ar%u!ents t)at e!+)asize t)e i!+ortance
o.
3
an o0erly centralized, inter0entionist state. 6t discusses t)e e*tent to 5)ic) t)at t)e slo5do5n
5as
due to e*cessi0e +ublic enter+rise in0est!ent andUor Yin5ard>loo2in%B +rotectionist +olicies
5)ic)
%enerated industrial concentration. 6 .ind t)at bot) 7utc) 7isease and +olicy .ailure ar%u!ents
are
+roble!atic in li%)t )istorical and co!+arati0e e0idence.
ection 3 +ro0ides an alternati0e .ra!e5or2 .or understandin% lon%>run cycles o. %ro5t) in
?enezuela, in order to e*+lain 5)y centralized rent de+loy!ent )as beco!e increasin%ly !ore
ine..icient o0er ti!e. =eit)er t)e de0elo+!ental state, nor t)e rentier state literature ta2e into
account t)e e*tent to 5)ic) de0elo+!ent strate%ies a..ect t)e nature o. +olitical con.licts. 6
su%%est
t)at t)e nature o. t)e tec)nolo%y t)at acco!+anies a de0elo+!ent strate%y re-uires di..erent
le0els
o. selecti)ity- or concentration of economic an, political power, to be initiated and consolidated.
()e +ossibility t)en arises t)at t)e )istorically s+eci.ic nature o. +olitical settle!ents !ay not be
co!+atible 5it) t)e success.ul i!+le!entation o. a %i0en de0elo+!ent strate%y. 3or t)e +ost>
19A0 +eriod, 6 ar%ue in ection " t)at industrial slo5do5n in ?enezuela 5as t)e result o. a
%ro5in% incompati8ility bet5een t)e Ybi% +us)B )ea0y industrialisation de0elo+!ent strate%y, on
t)e one )and, and +olitical strate%ies and contests on t)e ot)er. 6n t)is +eriod, t)e +olitical
science
literature establis)es t)at t)e ?enezuelan +olitical syste! beca!e increasin%ly +o+ulist,
clientelist
and .actionalised. ()e basic inco!+atibility 6 identi.y is t)at +olitics beca!e increasin%ly !ore
.actionalized and acco!!odatin% +recisely at a ti!e 5)en t)e de0elo+!ent strate%y re-uired a
!ore uni.ied and e*clusionary rentUsubsidy de+loy!ent +attern. ()e coordination .ailures o. t)e
bi% +us) industrialization strate%y 5ere !ani.ested in t)e lo5 !onitorin% o. state>created rents
and
subsidies, e*cessi0e entry o. +ri0ate sector .ir!s in +rotected sectors, !assi0e +roli.eration o.
+ublic sector e!+loy!ent and state>o5ned enter+rises in t)e decentralized +ublic sector.
%! Economic Explanation of the Reource Para,ox in Venezuela: A Critical Analyi
of the Dutch Dieae an, <eo1liberal Criti"ue of 8tate1le, &n,utrialization
()e relations)i+ bet5een natural resource 5ealt) and econo!ic de0elo+!ent )as been
t)e sub4ect o. intense debates o0er t)e +ast century.2 ()e !ain +ur+ose o. t)is section is to
critically e*a!ine t)e e*tent to 5)ic) t)e rei%nin% econo!ic e*+lanations o. t)e slo5do5n in
?enezuelan !anu.acturin% %ro5t) are de.ensible. 6 e*a!ine di..erent econo!ic 0ersions o. t)e
2 3indlay ^ 8unda)l (1999) .ind a %enerally %ro5t)>en)ancin% role o. natural resource ric) countries in t)e +eriod
1A70>191". ac)s ^ ;arner (199') .ind, in t)e +eriod 1971>19A9, t)at !ineral e*+orters, on a0era%e, %ro5 !ore
slo5ly t)an t)e a0era%e %ro5t) o. non>!ineral e*+orters.
"
Mresource +arado*N ar%u!ents, includin% t)e M7utc) 7iseaseN !odels, related o+en econo!y
!acro !odels .ocusin% on t)e e..ects o. )i%) oil>deter!ined 5a%es. A co!!on t)e!e in t)ese
!odels is t)at oil boo!s +roduce e*c)an%e rate re0aluations, 5)ic) su++osedly reduce t)e
incenti0es to in0est in !anu.acturin% and %enerally !a2es !anu.acturin% +roduction
unco!+etiti0e.
%! Economic Theorie of the Reource Para,ox: 5The Dutch Dieae .o,el6
6n t)e ?enezuelan conte*t, Mayorbe (19"") 5as one o. t)e earliest to ar%ue t)at an
e*+ensi0e e*c)an%e rate as a result o. t)e e*+andin% oil industry rendered nascent industries
unco!+etiti0e and retarded industrialization in ?enezuela (see also $an%el, 19,AO Haus!ann,
1990H 23>'"). ()e co!!on t)e!e in t)ese ar%u!ents is t)at natural resource boo!s )a0e
ad0erse e..ects on t)e econo!ic structure o. t)e econo!y.
()e lo%ic o. t)e si!+le W7utc) 7iseaseW t)eories can be described as .ollo5s. 6n an
econo!y in .ull e!+loy!ent e-uilibriu!, a +er!anent increase in t)e in.lo5 o. e*ternal .unds
results in a c)an%e in relati0e +rices in .a0our o. non>traded %oods (ser0ices and construction)
and a%ainst non>oil traded %oods (!anu.acturin% and a%riculture) leadin% to t)e cro5din% out
o. t)e non>oil tradables by non>tradables. ()at is, an a++reciation o. t)e e*c)an%e rate leads to
a decline in t)e co!+etiti0eness and )ence +roduction and e!+loy!ent o. t)e traded %oods
sector. ()e !ec)anis! t)rou%) 5)ic) t)is c)an%e ta2es +lace .ollo5s directly .ro! t)e
assu!+tions o. .ull e!+loy!ent e-uilibriu! and static tec)nolo%y. ;it) t)ese assu!+tions, t)e
e*ternal .unds (.ro! an oil boo!) can be translated into real do!estic e*+enditure only i. t)e
.lo5 o. i!+orts increases. Ho5e0er, since non>traded %oods cannot be i!+orted easily (or only
at +ro)ibiti0e costs), a relati0e contraction o. t)e traded %oods sector is ine0itable, ot)er5ise
t)e resources needed to en)ance t)e %ro5t) o. t)e non>traded sector 5ould not be a0ailable.
()us, t)e !odel +redicts t)at de>industrialization is t)e ine0itable structural c)an%e t)at occurs
as a result o. oil boo!s.3 6t is i!+ortant to note t)at, e0en 5it)out t)e restricti0e assu!+tions o.
.ull e!+loy!entO oil boo!s can induce !ore in0est!ent in o. non>traded in0est!ents and t)us
discoura%es !anu.acturin% in0est!ent, si!+ly because non>traded %oods +rices rise relati0e to
non>oil traded %oods as a result o. e*c)an%e rate a++reciation. A second !ec)anis! t)rou%)
5)ic) !anu.acturin% can beco!e less co!+etiti0e in t)is !odel is t)rou%) t)e increase in
3 W7utc) 7iseaseW !odels are su!!arized in Corden ^ =eary (19A2) and =eary ^ 0an ;i4nber%en (19A,).
'
!anu.acturin% 5a%e rates t)at result .ro! increases in a%%re%ate de!and .or labour t)at t)e oil
boo!s can %enerate. 6n t)e s)ort>run, 5)en +roducti0ity le0els are .i*ed, unit labour costs in
!anu.acturin% rise, 5)ic) can, in t)e absence o. co!+ensatin% +olicies, lead to a loss in
!anu.acturin% co!+etiti0eness.
()e association o. Mde>industrializationN as a MdiseaseN ste!s .ro! t)e uni-ue %ro5t)en)ancin%
c)aracteristics t)e !anu.acturin% sector can +otentially e!body. @ri!ary +roducts
(as 5ell as ser0ices) 5ere not belie0ed to +ossess t)e We*ternal dyna!ic econo!iesW (Koun%,
192A) obser0ed in !anu.acturin% industry 5)ere .aster %ro5t) a++arently led to increasin%
+roducti0ity !ani.ested ulti!ately in t)e dyna!ic s+ecialization o. e!+loy!ent (?erdoorn,
19"9O <aldor, 19,,).
()e +otential .or dyna!ic e*ternalities o. !anu.acturin% to de0elo+ o+ens u+ an
i!+ortant role .or +olicy in a..ectin% t)e %ro5t) outco!es o. oil boo!s. ince a latede0elo+in%
country .aces a tec)nolo%ical %a+, additional e*+ort re0enues, i. c)annelled by an
a++ro+riate industrial +olicy, can +lay an i!+ortant +art since t)e additional .orei%n e*c)an%e
can accelerate t)e +rocess o. i!+ortin% ad0anced tec)nolo%y and t)e !ac)ines t)at e!body
t)e!. Additionally, i. t)e industrial strate%y +ro!otes Wlearnin%W, t)e additional re0enues can
t)eoretically accelerate t)e %ro5t) +rocess. 3or instance, durin% t)e boo!, t)e %o0ern!ent
could +ro!ote industry by c)annellin% resources to to5ard t)at sector t)rou%), say, +rotection,
subsidies or .inancial incenti0es. ()is can ser0e to !odernize t)e !anu.acturin% ca+ital stoc2,
5)ic), in turn, can i!+ro0e +roducti0ity. ()is !eans t)at t)e structural c)an%e a%ainst non>oil
tradables, suc) as !anu.acturin%, is not ine0itableO rat)er t)e outco!es resource boo!s de+end
on t)e state +olicy res+onses (=eary ^ 0an ;i4nber%en, 19A,O &elb, 19AA).
Can W7utc) 7iseaseW !odels contribute to an ade-uate e*+lanation o. t)e slo5do5n o.
!anu.acturin% %ro5t) in ?enezuelaP 6n ter!s o. in0est!ent, t)ere is also no e0idence t)at oil
boo!s in ?enezuela )a0e been associated 5it) ,eclines in in0est!ent in !anu.acturin%. 6n .act,
t)e e*+erience o. ?enezuela s)o5s t)at ra+id %ro5t) o. oil re0enues is nor!ally associated
5it) )i%) in0est!ent in econo!ic acti0ity in t)e traded %oods, and in +articular, !anu.acturin%
sector, and +arado*ically t)e +eriods o. do5nturn in oil re0enues is associated 5it) slo5er
%ro5t) and in0est!ent in industry. 6n t)e ?enezuelan case, i. 5e co!+are !anu.acturin%
in0est!ent rates in C)art 2 5it) t)e e0olution o. oil e*+ort re0enues in C)art 1, 5e see t)ere is
,
a broadly positi)e correlation bet5een oil e*+ort re0enues and !anu.acturin% in0est!ent o0er
t)e +eriod 19,0>199A.
Chart %
Venezuela: Real 'il ExportE %09;1%003
(real retained e*+orts, 3>yr. !o0in% a0era%e)
',000
10,000
1',000
20,000
2',000
30,000
19,0
19,2
19,"
19,,
19,A
1970
1972
197"
197,
197A
19A0
19A2
19A"
19A,
19AA
1990
1992
199"
199,
199A
million +;;; =8 ,ollar
=oteH see (able 3.1 .or de.inition o. real retained e*+orts
ourcesH &o0ern!ent o. ?enezuela, Ministry o. Mines and Hydrocarbons, Oil
an, Other 'tatistics- 0arious yearsO Central /an2 o. ?enezuela, 'tatistical
'eries, 0arious yearsO 6M3, 1nternational (inancial 'tatistics, 0arious years.
Chart +
Real .anufacturin$ &n(etment in VenezuelaE %09;1%003
(3>year !o0in% a0era%e)
0
'000
10000
1'000
20000
2'000
19,0
19,2
19,"
19,,
19,A
1970
1972
197"
197,
197A
19A0
19A2
19A"
19A,
19AA
1990
1992
199"
199,
199A
million %03- boli(are
ourceH 1C:6, 1n,ustrial 'ur)eys, 0arious yearsO Central /an2 o. ?enezuela,
'tatistical 'eries, 0arious years
7
()e role o. state +olicy )ad a decisi0e i!+act on t)e use o. oil 5ind.alls. 6n t)e case o.
!anu.acturin% in0est!ent, +ublic sector !anu.acturin% in0est!ent in natural resource>based
industries (+etroc)e!icals, steel, and alu!iniu!) 5as i!+ortant in !aintainin% t)e )i%) le0els
o. total !anu.acturin% in0est!ent durin% t)e oil boo!s o. t)e 1970Bs.
()e +roble! o. an Mo0er0aluedN andUor Me*+ensi0eN e*c)an%e rate s)ould !ani.est itsel.
in )i%)er t)an a0era%e 5a%e costs in ?enezuela t)an else5)ere. 6s it t)en case t)at co!+arati0e
!anu.acturin% 5a%e costs andUor an e*cessi0e 5a%e s)are (and )ence lo5 +ro.itability)
e*+lains t)e co!+arati0e +er.or!ance o. t)e ?enezuelan !anu.acturin% sectorP
()e cross>country and )istorical e0idence, )o5e0er, su%%ests t)at t)e core +roble!s o.
t)e ?enezuelan !anu.acturin% sector lies not necessarily in e*cessi0ely )i%) 5a%es or
relati0ely lo5 +ro.itabilityO rat)er in t)e inability o. t)ese sectors to catc)>u+ 5it) t)e ad0anced
econo!ies by sustainin% ra+id pro,ucti)ity %ro5t) (see 7i Io)n, 200"H 3A>'3, an, the
Appen,ix ). 10er t)e +eriod 197'>199,, all !anu.acturin% sectors in ?enezuela e*+erienced
substantial declines in %ro5t) rates (see (able 3).
Table 3: )ro*th Rate in 8electe, Venezuelan
.anufacturin$ 8ector %07-1%003
(a0era%e annual %ro5t) in %ross out+ut, C)
%07-1%033 %0331%003
All manufacturin$ 2!%: 1%!3:
@abour1&nteni(e 8ector
(e*tiles 1.7 >0."
Clot)in% "., >A."
3oot5ear 9.1 0.3
&nterme,iate Capital1
&nteni(e 8ector
=on>electric !ac)inery '.' >".1
:lectrical !ac)inery A.' >'."
(rans+ort e-ui+!ent 2.' 2."
Capital1&nteni(e 8ector
6ndustrial c)e!icals 10., 3.2
6ron and steel ".0 >".,
=on>.errous !etals A., 1.A
ourceH 1C:6, 1n,ustrial 'ur)ey, 0arious yearsO /anco Central
de ?enezuela, 'tatistical 'eries, 0arious years.
Ho5e0er, t)ese declines in %ro5t) rates and acco!+anyin% declines in +roducti0ity
occur in t)e conte*t o. a wage collapse in all t)ese sectors in t)e +eriod 19A'>199, (ibid.).
Moreo0er, so!e !ore success.ul late de0elo+ers, bot) resource>ric) (Malaysia and C)ile)
A
an, resource>+oor (out) <orea) e*+erienced increases in +roducti0ity %ro5t) across a ran%e
o. !anu.acturin% sectors 0is>`>0is t)e 9nited tates des+ite t)e .act t)at 5a%es relati0e to t)e
9 5a%e le0el increase, in all o. t)ese econo!ies (ibid.). ta%nant and declinin%
?enezuelan industrial +er.or!ance does not see! to be only or necessarily due to lo5
in0est!ent in (and Wcro5din% outW o.) t)e industrial sector durin% and .ollo5in% oil boo!
+eriods but )a0e rat)er !ore to due 5it) t)e ty+e and +roducti0ity o. industrial in)estment,
5)ic) )as been relati0ely +oor. ()is, in turn, is closely related to ine..icient econo!ic
!ana%e!ent o. t)e state, +articularly t)e industrial strate%y, state>o5ned enter+rise +olicy
and !acroecono!ic !ana%e!ent.
+! Criti"ue of 8tate &nter(ention in Venezuela: &nefficient Public &n(etment an,
Protectionit Policie a Caue of 8lo*,o*n?
()ere are a series o. analysts 5)o atte!+t to locate t)e +roble! o. allocation o.
in0est!ent as t)e result o. Me*cessi0eN pu8lic in)estment, on t)e one )and, and e*cessi0e
in,ustrial concentration as a result o. state>led industrial +olicies. ()is section critically
e*a!ines t)ese ar%u!ents.
o!e analysts )a0e attributed t)e slo5do5n in !anu.acturin% %ro5t) to increases in
t)e scale and sco+e o. +ublic enter+rise !anu.acturin% in0est!ent and t)e ine..iciencies
surroundin% suc) in0est!ent in t)e +eriod 197">1AAA. 6ndeed, t)ere 5as a considerable
increase in +ublic !anu.acturin% in0est!ent and +roduction in t)is +eriod. 6n 1970, stateo5ned
enter+rises accounted .or 'C o. !anu.acturin% 0alue>added (e*cludin% oil re.inin%).
()is s)are rises to AC in 19A0 reac)es 1AC by 19A,.
;)ile t)ere is substantial e0idence o. %ro5in% ine..iciencies in +ublic !anu.acturin%
enter+rises, t)e !ain issue is 5)y t)ese ine..iciencies +ersist. :0en i. +ublic enter+rise
+er.or!ance 5as +oor, t)e colla+se in %ro5t) in ?enezuela is +ri!arily a result o. a
colla+se in +ri0ate in0est!ent (Haus!ann, 2003) 5)ic) i!+lies t)at t)e %ro5t) o. an
ine..icient +ublic enter+rise sector cannot +lausibly e*+lain t)e %ro5t) colla+se. Moreo0er,
t)e sectors 5)ere t)e +ublic sector do!inates (non>.errous !etals, +etroc)e!icals, and steel)
5ere t)e sectors 5)ere lon%>run +roducti0ity +er.or!ance 5as relati0ely 8etter t)an ot)er
sectors, 5)ic) 5ere +redo!inately +ri0ately>o5ned sectors (se 7i Io)n, 200"H 3A>'3 .or
e0idence).
9
A second assertion is t)at state +rotectionis! and e*cessi0e re%ulation sti.le t)e
e!er%ence o. a co!+etiti0e +ri0ate sector. Many analyses ar%ues t)at centralized,
inter0entionist and discretionary industrial +olicies )a0e led to corru+tion and cronyis!,
5)ic) )as, in turn, )indered %ro5t)>en)ancin% co!+etition (=a!, 1993O =a! ^ 3rances,
199'). ()ese analyses +osit t)at +rotectionis! %enerated e*cessi0e industrial concentration
and t)at suc) concentration 5as associated 5it) t)e decline in co!+etiti0e +ressure .acin%
oli%o+olistic andUor !ono+olistic .ir!s. =a! (1993) ar%ues t)at, in ?enezuela, M+ro.ound
structural c)an%es 5ere ur%ently needed to alle0iate +roble!s caused by t)e highly
concentrate,- oligopolistic in,ustrial structure, lo5 o0erall +roducti0ity %ro5t) and
si%ni.icant obstacles to non>oil e*+orts t)at )ad been culti0ated o0er !any years o.
%o0ern!ent !is!ana%e!ent.N (+."1, e!+)asis added). ;)ile t)ere is clear e0idence o.
%ro5in% concentration in +roduction in ?enezuela o0er ti!e, t)e co!+arati0e and
)istorical e0idence and con0entional econo!ic t)eory +oint to se0eral +roble!s 5it) t)e
clai! t)at +rotectionist +olicy causes dyna!ic ine..iciency by creatin% a concentrated
industrial sector. ()e co!+arati0e e0idence ((able 2) su%%ests t)at t)e ?enezuelan
!anu.acturin% sector is not unusually concentrated co!+ared to countries 5it) !uc) .aster
rates o. industrial %ro5t).
Table +! Concentration Ratio in .anufacturin$:
Venezuela Compare,
(s)are o. +roduction by to+ .ir!s, +ercenta%e)
:cono!y )are (C)
Three1firm concentration ratio
Ia+an, 19A0 ',C
out) <orea, 19A1 ,2
(ai5an, C)ina, 19A1 "9
#our1firm concentration ratio
Ar%entina, 19A" "3
/razil, 19A0 '1
C)ile, 1979 '0
Colo!bia, 19A" ,2
VenezuelaE %03% /%0334 2- /2+4
3rance, 19,9 2A
9nited tates, 1972 "0
ourceH A!sden (19A9, (able 7.1, +.1,2))O ;orld /an2 (1990, (able
3.A, +.')O ;orld /an2 (1993, (able 2.1, +. 93)
10
Models o. oli%o+oly are indeter!inate in ter!s o. t)e dyna!ic e..iciency o. t)e .ir!s. ()is
is because t)e re%ulatory structure o. an industry (e.%. anti>trust la5s) +lays an i!+ortant
role in deter!inin% t)e co!+etiti0e +ressures .acin% .ir! o5ners. econd, a %reater nu!ber
o. .ir!s do not necessarily assure a %reater intensity o. co!+etiti0e e..ort (7e!setz, 1997H
137>1"2). 6n aeros+ace, .or e*a!+le, t)e co!+etition bet5een 4ust t5o .ir!s, /oein% and
Airbus, )as not )indered ra+id inno0ation and intense co!+etition. 6n t)e +resence o.
increasin% returns, industrial concentration !ay be crucial to ac)ie0in% t)e scale econo!ies
to co!+ete 5it) Mbest +racticeN .ir!s (;orld /an2, 1993H 92>102O C)andler ^ Hi2ino,
1997H 29>3"). Moreo0er, industrial concentration !ay +lay t)e .unctional role o. creatin%
learnin% rents t)at co!+ensate .or t)e ris2 and uncertainty o. underta2in% in0est!ent in t)e
conte*t o. i!+er.ect ca+ital !ar2ets and t)e c)allen%es o. late de0elo+!ent !ore %enerally
(A!sden ^ Hi2ino, 199"). ()e +roble! o. industrial co!+etiti0eness in lateco!ers is not
too )i%) a concentration le0el, but an o0er>di0ersi.ied con%lo!erate structure and belo5
!ini!u! e..icient +lant size." 6. t)e success.ul late de0elo+ers are a use.ul re.erence, t)en
co!+etiti0eness 5ill !ore li2ely be i!+ro0ed in ?enezuelan !anu.acturin% t)rou%) a
+ur+ose.ul industrial strate%y t)at ensures !ini!u! +lant e..icient +lant size and ensures
t)at .ir!s recei0in% subsidization and +rotection are sub4ect to e*+licit +er.or!ance criteria.
()e identi.ication o. industrial concentration per se does not ta2e us .ar in e*+lainin% +oor
econo!ic +er.or!ance.
()is section )as .ound t)at t)e rei%nin% econo!ic e*+lanations o. slo5do5n in
?enezuela )a0e i!+ortant t)eoretical and e!+irical s)ortco!in%s. =eit)er oil 5ind.alls nor
t)e le0el o. state inter0ention can e*+lain, in isolation, t)e ?enezuelan %ro5t) slo5do5n in
li%)t o. t)e )istorical and co!+arati0e e0idence. 1ne co!!on lacuna in t)e e*+lanations
discussed is t)e .ailure to e*+lain why +olicy .ailures in !ana%in% in0est!ent .unds )a0e
+ersisted in ?enezuela in t)e +eriod 1973>2003.
3! The Compatibility of De(elopment 8trate$y an, Politic .atter
" Accordin% to a ;orld /an2 study o. t)e ?enezuelan industrial sector, .ra%!entation o. +roduction is
0ie5ed as a !ore serious +roble! t)an concentration. 6n t)e auto!oti0e sector, .or e*a!+le, as o. 19A9, t)ere
5ere 1' asse!blers in t)e !ar2et, 5)ic) .ell .ro! 1,3,000 units in 19A2 to 2,,000 units in 19A9 (;orld
/an2, 1990H '2). 6nternational standards o. e..iciency nor!ally re-uire a !ini!u! o. 100,000 units +er +lant,
5)ic) indicates t)e de%ree to 5)ic) ?enezuelan auto +lants are sub>o+ti!al in size. 1t)er 5or2s by =ai!
(19A9O =ai! ^ 3rancEs, 199') do in .act identi.y t)e +roble! o. o0er>di0ersi.ication and .ir! size as an
i!+ortant +roble! .or t)e co!+etiti0eness o. t)e ?enezuelan industrial sector.
11
()e de0elo+!ental state t)eorists )a0e +ointed to t)e bene.its t)at industrial +olicy
can )a0e in inducin% learnin% and tec)nolo%y ac-uisition (A!sden, 19A9, 2001O C)an%,
199"O Ao2i et al. 1997). ()is literature )as +ro0ided an i!+ortant contribution o. t)e
salience o. tar%eted subsidization, or rent>creation in t)e dri0in% t)e late industrialization
+rocess. ;)ile t)e +urely econo!ic ar%u!ents .or t)e bene.its o. state inter0ention !ay be
acce+ted, little attention is +aid to 5)ere t)e +o5er to i!+le!ent +olicies and 5)ere t)e
+olicy %oals co!e .ro! in t)e .irst +lace. As a result, t)e de0elo+!ental state analysis does
not e*+lain 5)y si!ilar ty+es o. industrial +olicy fail in !any conte*ts. &i0en t)e
contingent nature o. +olitical institutions and contests, t)ere is no reason to e*+ect t)at t)e
a++ro+riate institutional structure and +olitics 5ill e!er%e to acco!!odate a countryBs
sta%e o. de0elo+!ent and c)an%in% tec)nolo%ical c)allen%es.
()e )istorio%ra+)y o. econo!ic analyses on ?enezuela )as identi.ied c)an%es
in sta%es o. de0elo+!ent and de0elo+!ent strate%ies. :cono!ic )istories (Haus!ann, 19A1O
/a+tista, 199') )a0e +ointed to t)e change in ,e)elopment strategy .ro! a s!aller>scale
i!+ort>substitutin% industrialization to5ard a !ore lar%e>scale, ca+ital>intensi0e industrial
strate%y t)at be%an tentati0ely in t)e late 19'0Bs but beca!e a central .ocus o. +olicy a.ter
1973. 6n t)is +rocess, t)e stateBs role as a +roducer increased si%ni.icantly. ()e 0alue o.
t)ese analyses is t)at t)ere is an identi.ication o. a perio,isation o. de0elo+!ent strate%ies
as a +rocess t)at is not homogenous in its technological or structural characteristics.
Ho5e0er, t)ese analyses )a0e not e*+lored 5)at a +olicy>induced s5itc) in t)e
tec)nolo%ical nature o. de0elo+!ent strate%y i!+lies in ter!s o. t)e +olitical econo!y o.
+ro+erty ri%)ts allocation and le%iti!acy.
M/i% +us)N natural>resource>based industrialization strate%ies co!!it lar%e su!s o.
state resources to lon%>%estatin%, tec)nolo%ically de!andin% .in0est!ent +ro4ects, 5)ic)
re-uire co!+le!entary in0est!ent and state>business con%lo!erate coordination (A!sden,
19A9, 2001O Ao2i et. al, 1997O C)andler, A!atori ^ Hi2ino, 1997). ()is strate%y also
re-uires Me*tensi0e %o0ern!ent su++ort and -uality co!+etition 5it) .orei%n su++liersN
(3itz%erald, 2000H ,"). 3inally, t)e +ro!otion and nurturin% o. large firms 5as crucial to
co!+etiti0eness and learnin% in late de0elo+ers %i0en t)e centrality of scale economies in
inter!ediate tec)nolo%y sectors (A!sden 2001H 19">199).
12
Y/i% +us)B strate%ies in0ol0e a )i%) de%ree o. ris2 in ac-uirin% tec)nolo%y and
ca+turin% ne5 !ar2ets, includin%, !ost i!+ortantly, e*+ort !ar2ets. ()us state>led
initiati0es to socialize ris2 need to be underta2en by tar%etin% .ir!s and sectors to +ersuade
ne5 industrialists to in0est in and Uor u+%rade in ne5 tec)nolo%y and i!+ro0e +roducti0ity.
()e 3ourt) and 3i.t) @lan o. t)e =ation enca+sulated t)e intention to trans.or! t)e
industrial structure o. ?enezuela t)rou%) a Mbi% +us)N industrial strate%y. ()e e!+)asis t)e
?enezuelan %o0ern!ent +laced on c)e!icals and basic !etals as leadin% sectors 5ere
indeed si!ilar to t)e industries tar%eted in all success.ul late de0elo+ers (A!sden, 2001H
13A>9). As it turned out, t)e Ac)illes Heel o. ?enezuelan industrialization strate%y 5as to
be a %ro5in% ine..iciency in t)e i!+le!entation o. Ybi% +us)B strate%ies.
()e %reater learnin% costs and %estation +eriods o. suc) Ybi% +us)B in0est!ents brin%
%reater econo!ic and +olitical c)allen%es and ris2s t)at distin%uis) t)is ty+e o. econo!ic
strate%y .ro! t)e s!all>scale and si!+le tec)nolo%y o. t)e easy 66 sta%e. ()ere re!ains
considerable debate as to 5)et)er ?enezuela !o0ed too -uic2ly to5ard t)e de0elo+!ent o.
)ea0y industrial sectors. ;)ile t)e !o0e to t)e !ore co!+licated sta%e 5as not ob0iously
necessary or desirable in 197", t)e c)allen%es o. e*ecutin% suc) a strate%y certainly
increased 0is>`>0is t)e easier sta%e o. 66. ()e institutional c)allen%es centre on t)e need
.or t)e state to !aintain continuity o. centralized in0est!ent coor,ination, e..ecti0e
monitoring o. +ublic enter+rises, selecti)ity in subsidizin% in0est!ent t)rou%) rent creation,
,iscipline o. rent reci+ients, and collecti)e action capacities o. business associations. 6 5ill
consider eac) o. t)ese .actors.
()e t)eoretical 4usti.ication .or centralized in0est!ent +lannin% is 5ell 2no5n. ()e
Wbi% +us)W or Wbalanced %ro5t)W !odels ($osenstein>$odan, 19"3O 2ito0s2y, 19'")
stressed t)e de!and co!+le!entarity bet5een di..erent industries, 5)ic) needed e*>ante
in0est!ent coordination by t)e state.' 6n t)e conte*t o. underde0elo+ed ca+ital !ar2ets and
a s!all internal !ar2et de!and, s+ontaneous co>ordination o. decentralized !ar2et actors
is unli2ely since an in0estor in a sector c)aracterized by increasin% returns to scale (.or
e*a!+le, in steel) !ay not 4ud%e t)e in0est!ent +ro.itable on t)e assu!+tion t)at de!and
5ill not increase si%ni.icantly else5)ere in t)e econo!y. ()is 5ill be t)e case e0en i. t)e
' 3or a recent e*+osition o. t)e Wbi% +us)W ar%u!ent, see Mur+)y, )lei.er ^ ?is)ny (19A9). ee $odri2
(199') .or an analysis o. )o5 s+eci.ic state +olicies suc) as control o0er credit allocation, ta* incenti0es,
trade +olicy and Yad!inistrati0e %uidanceB )el+ed to sol0e coordination .ailures in out) <orea and (ai5an in
t)e si*ties and se0enties.
13
in0estor )as access to su..icient le0els o. s2illed 5or2ers. ()e reason is t)at, because o.
scale econo!ies, only a lar%e>scale and si!ultaneous !o0e!ent is %uaranteed to be
+ro.itable. ()e creation o. de!and su..icient to !a2e lar%e>scale in0est!ents in +oor
countries +ro.itable is t)e cru* o. t)e coordination +roble!.
()e coordination +roble! in lar%e>scale late !anu.acturin% de0elo+!ent is one o.
t)e !ain .actors be)ind t)e %reater use o. +ublic enter+rises in t)e ad0anced sta%e o. 66.
@ublic enter+rises, .or e*a!+le, 5ere +articularly i!+ortant in t)e )ea0y industrial sectors
durin% t)e critical Yta2e>o..B years o. t)e 19,0Bs in bot) (ai5an and out) <orea ($odri2,
199'). Iones and a2on% (19A0) e*a!ined t)e de0elo+!ent o. +ublic enter+rises in out)
<orea in t)e si*ties and se0enties and .ound t)at t)e <orean +olicy>!a2ers )ad de0elo+ed
a co)erent set o. +re.erences 5it) res+ect to 5)ere +ublic enter+rises s)ould be establis)ed.
()ey su!!arize t)eir results as .ollo5sH Mt)e industries c)osen .or t)e +ublic enter+rise
sector a5ereb c)aracterized by )i%) .or5ard lin2a%es, )i%) ca+ital intensity, lar%e size,
out+ut>!ar2et concentration, and +roduction o. non>tradables or i!+ort>substitutes rat)er
t)an e*+orts.N (-uoted in $odri2, 199', +.90). ()ese are +recisely t)e c)aracteristics
associated 5it) t)e coordination .ailure t)at occurs durin% Ybi% +us)B industrialization
e..orts.
()e %reater +resence o. +ublic enter+rises does, )o5e0er, increase t)e ad!inistrati0e
and +olitical c)allen%es t)at t)e central %o0ern!ent .aces in coordinatin% and !onitorin%
+ublic sector in0est!ent. ()e %reater t)e le0el o. +ublic sector in0est!ent i!+lies t)at t)e
.ailure o. t)e central %o0ern!ent to i!+ose Y)ard bud%et constraintsB on +ublic sector
!ana%ers 5ill %enerate loss>!a2in% +ublic enter+rises. ()is, in turn, can %enerate .iscal
drains and reduce t)e +roducti0ity o. in0est!ents o0er ti!e in t)e Ybi% +us)B +)ase.
/ecause Mbi% +us)N industrialization dri0es %enerate a lar%e Yin0est!ent )un%erB, t)e
!acroecono!ic c)allen%es o. industrial +olicy are .or!idable. ()e dan%ers o.
o0ere*+ansion in a Mbi% +us)N strate%y are ty+ically t)e build u+ o. unsustainable and
destabilizin% e*ternal debt +ositions t)at 5ould occur i. t)e in0est!ent does not lead to
+roducti0ity i!+ro0e!ents, increasin% co!+etiti0eness and e*+ort earnin%s. As A!sden
(2001) notesH M()at conditions o. YlatenessB are in)erently conduci0e to o0ere*+ansion is
su%%ested by t)e .act t)at 5)en a debt crisis occurs, it al!ost al5ays occurs in a lateco!er
country.N ()is is becausegdi0ersi.ication in t)e +resence o. already 5ell>establis)ed
1"
%lobal industries in0ol0es !o0in% .ro! labour>intensi0e to ca+ital>intensi0e sectors
c)aracterized by econo!ies o. scale.N (+. 2'2). ()e scale o. Mbi% +us)N in0est!ents 5ere,
indeed, instru!ental in t)e debt crises in 8atin A!erica in 19A2 and in :ast Asia in 1997 as
bot) 5ere +receded by a surge in in)estment (ibid. +. 2'3).,
()e e*i%encies o. Mbi% +us)N industrial strate%ies also +resent si%ni.icant +olitical
and econo!ic c)allen%es to state>business relations. /i% +us) in0est!ent +ro%ra!s entail
co!+le!entary in0est!ents t)at )a0e si%ni.icant s+ill o0er e..ects in +ecuniary and
+roduction ter!s (e.%. steel and electricity). &i0en t)e lar%er size o. suc) co!+le!entary
in0est!ents in Ybi% +us)B strate%ies, t)e failure o. t)e state and business associations to
coor,inate in0est!ents !ay result in lar%er costs t)an in t)e earlier sta%e o. 66 5)ere t)e
scale o. in0est!ents are %enerally lo5er. 3or e*a!+le, t)e costs o. .ailure to coordinate
in0est!ents can lead to se0ere s+are ca+acity, 5)ic) )as lar%e ne%ati0e e..ects on
in0est!ent returns. :0en 5)en abstractin% .ro! t)e +roble! o. coordinatin% in0est!ents,
t)e .ailure o. t)e state or business associations to e..ecti0ely !onitor in0est!ents in a
sin%le lar%e>scale !anu.acturin% sector can be costly. 3or instance, t)e inability o. t)e state
to i!+ose conditional rentsUsubsidies or +er!ittin% e$cessi)e entry (e.%.>.i.teen car
asse!blers in ?enezuela since t)e !id>1970Bs) are !ore costly .or industries e*)ibitin%
increasin% returns to scale co!+ared to s!all>scale !anu.acturin% o+erations= Moreo0er,
e*cessi0e entry !ay lead to t)e de0elo+!ent o. .ir!s 5it) too s!all an a0era%e +lant size
to co!+ete 5it) i!+orts or in e*+ort !ar2ets, es+ecially in t)e industries c)aracterized by
increasin% returns. ;)ere +ro+rietary 2no5led%e and +roduct de0elo+!ent and )ence
researc) and de0elo+!ent ($^7) is i!+ortant to co!+etiti0e success, lar%e nu!bers o.
s!all, ine..icient +roducers constrains t)e ca+acity to co!+ete .or lateco!er industries.
()is is because s!all .ir!s do not %enerate t)e turno0er to direct su..icient a!ounts o.
resources to $^7 (<i! and Ma, 1997H 122>123O A!sden, 2001H 277>2A1).
3or lar%e>scale resource>based and ot)er )ea0y industrialization, selecti)ity in t)e
subsidization +rocess is one o. t)e salient c)aracteristics o. industrial +olicies (8indbec2,
19A1). ()is is es+ecially t)e case 5)ere increasin% returns to scale are rele0ant. ()e .ailure
o. t)e state to be selecti0e 5ill ne%ati0ely a..ect +roducti0ity +er.or!ance.
, 1. course, t)e ,uration o. a crisis 5ill de+end on t)e ca+acity o. t)e state to e..ecti0ely c)an%e institutions
so as to re0i0e in0est!ent, %ro5t), co!+etiti0eness and e*+orts. 6n t)is res+ect, :ast Asian de0elo+!ental
states 5ere !ore success.ul t)an t)eir 8atin A!erica counter+arts (A!sden, 2001H 2'3).
1'
electi0ity needs to be co!+le!ented 5it) state ca+acity to ,iscipline rent reci+ients.
()e scale o. t)e subsidization i!+lies t)at bi%>+us) strate%ies re-uire states to !a2e rents
conditional on +er.or!ance criteria (<i! and Ma, 1997). Hence, t)ere )as been si%ni.icant
e!+)asis on state ,iscipline o. +roducers as one 2ey to t)e e..iciency o. industrial +olicy
(A!sden, 19A9).
()e co!+le!entary nature o. bi%>+us) strate%ies !eans t)at decision>!a2in% and
actions are inter>de+endent. ()e %reater t)e inter>de+endence o. in0est!ents, t)e !ore t)at
an institutional desi%n t)at assures relia8ilityVpre,icta8ility an, ,iscipline is re-uired
(7e!setz, 1997H30>3"). ()is %enerally !eans t)at a le%iti!ate and +o5er.ul centralized
aut)ority is re-uired. An outstandin% e*a!+le o. t)e i!+ortance o. reliability and disci+line
t)at centralized aut)ority +ro0ides is a !ilitary unit durin% 5ar. 6n t)is +ers+ecti0e, it is not
sur+risin% t)at states t)at )a0e .aced internal and e*ternal threats )a0e used suc)
e*i%encies to increase bar%ainin% +o5er 0is>`>0is business %rou+s, to !obilise resources, to
con0ince andUor .orce industrial +roducers to .orsa2e s)ort>run +ro.its and to !a2e
subsidies conditional on +er.or!ance criteria. 3or instance, t)e 5illin%ness o. business
%rou+s to coo+erate 5it) state initiati0es occurs because +ercei0ed and real t)reat raises t)e
+rice o. .ailure (?artianen, 1999H 22").
3inally, t)e %reat ris2s entailed in Mbi% +us)N or Msecond sta%eN industrialization
strate%ies tend to necessitate a %reater de%ree o. coo+eration and collecti0e action among
8usiness associations an, conglomerates. :..ecti0e collecti0e action can )el+ socialize t)e
ris2s o. de0elo+in% e*+ort !ar2ets, ac-uirin% tec)nolo%y, !ana%in% .ir! entry and e*it,
and ne%otiatin% 5it) t)e state to +ro0ide ser0ices t)at are in t)e collecti0e interests o. a
%i0en sector (see ;ade, 1990O :0ans, 199'O Ma*.ield and c)neider, 1997O Ha%%ard,
Ma*.ield and c)neider, 1997). ()ere.ore, fragmentation o. business associations can also
lead to !ore costly coordination .ailures as t)e scale and sco+e o. in0est!ents increase.
()is is because .ra%!entation can lead to particularistic de!ands and bar%ainin% t)at
)inders t)e co!+etiti0eness o. sector as a 5)ole 5)en .or e*a!+le, t)ere is a le0el o.
bar%ainin% 5it) t)e state .or .ir! entry t)at leads to t)e creation o. too !any .ir!s at substandard
scale.
6n li%)t o. t)e e*i%encies o. lar%e>scale subsidization and inter>de+endence, it is not
sur+risin% t)at Mbi% +us)N de0elo+!ent strate%ies )a0e en4oyed success only in a 0ery .e5
1,
late de0elo+in% countries suc) as Ia+an, (ai5an, out) <orea, in%a+ore, /razil and
Malaysia. Moreo0er, t)ese late de0elo+ers )a0e been c)aracterized by a relati0ely
le%iti!ate, secure centralize, state bot) in ter!s o. +olitical and econo!ic or%anization
(;oo>Cu!!in%s, 1999). $elati0ely centralized business associations and state>bi%
business lin2s tended to acco!+any !ore co!+le* and ris2y industrial strate%ies (Ma*.ield
and c)neider, 1997). ()is i!+lies t)at .ra%!ented or )i%)ly .actionalized +olitical
contestation !ay lead to si%ni.icant coordination .ailures in bot) industrial +olicy and
!acroecono!ic instability.
=eit)er t)e neo>liberal or de0elo+!ental state t)eorists syste!atically consider t)e
di..erent +olitical c)allen%es t)at +articular de0elo+!ent strate%ies %enerate, nor do t)ey
e*a!ine t)e interaction o. econo!ic and +olitics in any !ore %eneral !anner. ()e .ailure
o. do!inant +aradi%!s on state inter0ention to consider t)e c)an%in% nature o. +olitical
con.lict t)at di..erent de0elo+!ent strate%ies %enerate i!+lies t)at suc) !odels 5ill .ail to
!a+ t)e e*tent to 5)ic) contin%ent +olitical settle!ents are co!+atible 5it) di..erent
econo!ic c)allen%es o. catc)in%>u+ o0er ti!e.
3!%! Perio,iation of &n,utrialiation 8ta$e an, 8trate$ie in Venezuela
()is section atte!+ts to +eriodise t)e c)an%in% nature o. t)e de0elo+!ent strate%ies
and t)e nature o. scale econo!ies and tec)nolo%ical co!+le*ity in t)e ?enezuelan
!anu.acturin% sector. 6t is not !y intention to .ocus on t)e details o. econo!ic +olicy!a2in%
since t)ere is already a substantial literature on !acroecono!ic and industrial
+olicy>!a2in% (Haus!ann, 199'O Astor%a, 2001O $odr%uez, 2002).
6n t)e econo!ic )istory analyses o. ?enezuelan industrialization, it %enerally a%reed
t)at t)ere 5as an i!+ortant increase in t)e ca+ital>intensity and scale econo!ies o.
industrial out+ut and co!+osition be%innin% in t)e early >T@4Es (Haus!ann, 19A1O /a+tista,
199'O Astor%a, 2000). ()e de0elo+!ent o. t)e state steel !ill, 671$ in 19,2 and t)e
state>led atte!+t to +ro!ote t)e !etal>trans.or!in% and trans+ort sectors, +articularly t)e
auto!obile and auto +arts sectors .ro! t)e early 19,0Bs on5ards 5ere notable e*a!+les.
()e ca+ital>intensity and scale econo!y o. !any leadin% industrial sectors increase .urt)er
5it) t)e 3i.t) :cono!ic @lan outlined belo5. 6n t)e +eriod 1973>19A2 t)e industrial
strate%y s5itc)es to a natural resource>based Mbi% +us)N strate%y. As 5ell, traditional 66
17
be%ins to de0elo+ +rotectionis! .or !ore tec)nolo%ically c)allen%in% sectors suc) as autos.
o!e additional e!+irical e0idence to su++ort t)is clai! is as .ollo5s.
6t is +ossible to identi.y transitions in de0elo+!ent strate%y by e*a!inin% t)e
structure o. !anu.acturin%. (able 3 includes in.or!ation about t)e structure o. out+ut,
e!+loy!ent and ca+ital assets in !anu.acturin%, e*cludin% oil re.inin%> 5)ere indeed
si%ni.icant de0elo+!ent )ad ta2en +lace (see <arlsson, 197'H 71>11' on t)e de0elo+!ent
o. t)e oil re.inin% industry). 6n out+ut ter!s, traditional industries o. .ood and te*tile
co!+rised o0er ,3 +ercent o. !anu.acturin% out+ut. /y 1971, t)e s)are o. traditional
industries declines to a++ro*i!ately "0 +ercent, a s)are t)at is !aintained t)rou%) 199,.
()e decline in t)e s)are o. traditional industries in ca+ital assets is also notable. ;)ile t)e
traditional industries co!+rised res+ecti0ely '2.A +ercent and ,2 +ercent o. all
!anu.acturin% assets in 193, and 19'3, t)eir s)are declines to 37.3 +ercent and 21.,
+ercent in 19,1and 199, res+ecti0ely. ()e traditional industries also s)o5 a steady t)ou%)
!ore %radual decline in t)e s)are o. e!+loy!ent o0er t)e 5)ole +eriod.
1A
Table 3! Venezuela: 8hare of electe, 8ector in .anufacturin$ Value1A,,e,
/exclu,in$ oil refinin$4 %0391%003
(+ercenta%es)
#EA NT Textile Paper Chemical <on!1 Aa! .et!1
met! met! Tran!
'utput 193, '2.3 10., 0.1 ".' 3.A 0.3 2."
19'3 "1., A.1 1.2 A.' 9.7 0." 3.7
19,1 "1.0 1'., 3.3 A.3 ,.' 0.9 11.1
1971 29.2 12.1 ".3 10.2 ,.7 ,.0 17.7
19A1 27.2 A.1 3.9 10.A ,.A 7.0 19.,
19AA 32.2 ".7 3.' 10.0 ".' 10.3 1A.,
199A 3,.0 '.2 2.3 9.A '.2 10." 1A.0
@abour 193, '9.3 11.9 0.2 2.' ".9 0.2 1.9
19'3 "A.9 A." 1.0 ".1 ,.A 0.3 3.A
19,1 27.2 23.0 2.A '.0 ,., 1.2 1".A
1971 2".7 1'." 3." 7.' ,.9 "., 1,.A
19A1 1A.1 11.2 2.9 7., ,., 7.2 1A."
19AA 2'., 7.3 0.A 7.9 ,., 9.A 13.7
199A 22.A ".9 0.7 9.1 7." ,.7 12.1
Capital 193, "3.2 9., 1.3 > > > >
19'3 '3.0 9.0 1." '.9 12.7 0.' 2.3
19,1 2A.2 9.1 3.2 10., 7.' 2,.' ,.'
1971 23.7 9." ".A 7.9 9.' 23.3 10.A
19A1 1A.A 3.A 2.A ,.0 10." 3".7 13.9
19AA 1,., 3.9 2.2 A.0 A.1 "'.7 13.,
199A 1A.2 3." 3." 17.7 9.7 31.0 10.3
=otesH 1ut+ut_ 0alue addedO 8abour_ nu!ber o. e!+loyeesO Ca+ital _ .i*ed assets.
()e brac2ets in t)e .ollo5in% are t)e corres+ondin% nu!bers o. t)e 6nternational tandard 6ndustrial
Classi.ication (66C). 3,/^(H .ood, be0era%es and tobacco (311>31")O te*tiles and clot)in% (321)O @a+erH
+a+er and +a+er +roducts (3"1)O C)e!icalsH c)e!ical industry (3'1)O =on>!etH non>!etallic !inerals
(3,1, 3,2, 3,9)O /as. Met.H basic !etals (371, 372)O Met. (ransH !etal>trans.or!in% industries (3A1>3A").
()e .i%ures used to obtain t)e +ercenta%es o. ca+ital and 0alue>added in 193, and 19'3 are in current
boli0ares (/s.), t)erea.ter are in /s. at 19,A +rices.
'ourceH Astor%a (2000H 21", (able A.1)O 1C:6, 1n,ustrial 'ur)ey, 19AA, 199AOCentral /an2 o. ?enezuela,
'tatistical 'eries, 0arious years.
;)ile t)e traditional industries 5ere declinin% in t)eir s)are o. out+ut, ca+ital and
e!+loy!ent, 5e see a !ar2ed increase in t)e s)ares o. )ea0ier, lar%e>scale industrial
sectors (c)e!icals, non>!etallic !inerals, basic !etals, and !etal>trans.or!in% industries)
o0er ti!e. 6t is tellin% t)at t)e relati0e increase o. t)ese industries is seen !ost in ter!s o.
t)e increase o. t)eir s)are o. total !anu.acturin% ca+ital assets. ()is is due to co!bination
o. t)e increased ca+ital>intensity and scale o. t)ese industries and t)eir relati0ely
disa++ointin% %ro5t) +er.or!ance. ()e s)are o. .i*ed assets o. t)e basic !etals sectors (as
a +ro+ortion o. all !anu.acturin% .i*ed assets) increased .ro! 0.' +ercent in 19'3 to 2,.'
+ercent in 19,1O and t)en increased as dra!atically to reac) a +ea2 s)are o. "'.7 +ercent in
19
19AA. ()e increase in t)e relati0e s)are o. .i*ed ca+ital assets o. t)e basic !etals sector 5as
t)e !ost +ronounced o. any sector in t)e +eriod 19,1>19AA. ()e relati0e s)are o. t)e !etal
trans.or!in% sector (5)ic) include ca+ital %oods, and trans+ort) increased si%ni.icantly
.ro! 2.3 +ercent in 19'3 to ,.' +ercent in 19,1 and reac)ed a +ea2 s)are o. 13.9 +ercent in
19A1. 6n a%%re%ate ter!s, t)e s)are in total assets o. t)e .our sectors increased .ro! 20.9 in
19'3 to '1.1 in 19,1, to '"., in 1971, to ,'.0 in 19A1, and .inally reac)in% a +ea2 o. 7'."
in 19AA. &i0en t)at t)e lar%est increase in t)e a%%re%ate s)are o. ca+ital assets o. t)e )ea0y
industrial sectors occurred bet5een 19'3 and 19,1, t)e +eriod 19,'>73 can +lausibly be
seen as !ar2in% a +eriod o. transition o. de0elo+!ent strate%y. An i!+ortant ca0eat 5ould
be to note t)e dra!atic increase in 19A1 o. t)e s)are o. basic !etals, 5)ic) o5ed to t)e
state>led Mbi% +us)N +ro%ra! in steel and alu!iniu!.
()e %eneral econo!ic )istory o. ?enezuela corroborates t)e trans.or!ation in t)e
de0elo+!ent strate%y bet5een 19,' and 1973. ;)ile t)e +eriod 1920>19'A 5as
c)aracterized by relati0ely liberal trade +olicy (7i Io)n, 200"H 1,9>17A), t)e role o. statecreated
rents increases si%ni.icantly .ro! 19,0 on5ards. ()e !ost i!+ortant !ec)anis! o.
+ro!otin% industrialization t)rou%) state>created rents 5as t)e syste! o. +rotectionis!
t)rou%) tari..s and non>tari.. barriers. 7A di..erentiated tari.. re%i!e 5as set u+ to !a2e
so!e i!+orts !ore e*+ensi0e t)an ot)ers. 7i..erentiated tari..s allo5 t)e %o0ern!ent to
raise t)e i!+ort +rices o. %oods, 5)ic) can be +roduced at )o!e. ()is discoura%es
do!estic consu!ers .ro! i!+ortin% t)ese %oods and at t)e sa!e ti!e encoura%es t)e! to
buy do!estic +roducts 5)ose )i%)er +rices or lo5er -uality !ay )a0e +re0ented t)e! .ro!
co!+etin% 5it) .orei%n +roducts at t)e early sta%e o. industrialisation. 3ro! t)e !id
19,0Bs to t)e late 19A9, a0era%e tari..s in !anu.acturin% industry 5ere ,0 +ercent .or
consu!er %oods, 30 +ercent .or inter!ediate %oods and 27 +ercent .or ca+ital %oods
(;orld /an2, 1990H 1,>1A). ()e a0era%e le0el o. tari.. +rotection and e..ecti0e rates o.
+rotection as 5ell as t)e tari.. dis+ersion 5as broadly si!ilar to !any 8atin A!erican
countries (:d5ards, 199'H 19A>203).
A second co!+onent o. t)e +rotection +olicy 5as t)e use 0arious .or!s o. non>tari..
+rotection suc) as i!+ort licenses and .orei%n e*c)an%e rationin%, t)e latter used !ost
e*tensi0ely in t)e era o. !ulti+le e*c)an%e rates (19A3>19AA). 6n t)e +eriod 19,A>19A9, t)e
7 6t is i!+ortant to note t)at +rotectionis! beco!es !ore +ronounced 5it) t)e eli!ination o. t)e (rade
A%ree!ent 5it) t)e 9nited tates in 1972. ()is (reaty +ro)ibited tari..s on i!+orts .ro! t)e 9.
20
a0era%e s)are o. !anu.actured %oods sub4ect to non>tari.. barrier co0era%e, t)at is, i!+ort
licenses and +ro)ibitions, oscillated bet5een "0 and '0 +ercent (;orld /an2, 1990H 1,).A
Co!+arati0e data .or 8atin A!erica in t)e 19A0Bs indicates t)at ?enezuelaBs s)are o. nontari..
barrier co0era%e 5ere si!ilar to t)e re%ional a0era%e (:d5ards, 199'H 200).
A+art .ro! state>led +ro!otion o. +ri0ate industry, t)e @Erez ad!inistration (197">79)
en0isioned a national +ro4ect called La 7ran Venezuela. ()e cornerstone o. t)is W0isionW
5as t)e )eralded 3i.t) =ational @lan (197,>19A0), 5)ic) 5as to set ?enezuela on a +at) o.
a !ore +ronounced state>o5ned enter+rise>led, natural resource>based Wbi% +us)W )ea0y
industrialization +olicy. 6n addition to t)e nationalization o. t)e oil and iron ore industries
in 197,, nu!erous +ublic enter+rises 5ere e*+anded in )ea0y industries (steel, iron ore,
alu!iniu!, bau*ite, +etroc)e!icals, oil re.inin%, and )ydroelectric +o5er) to +ro0ide
in+uts .or do!estic industry in an atte!+t to 0ertically inte%rate t)e i!+ort substitution
+rocess and to accelerate t)e tec)nolo%ical ca+acity and di0ersi.ication o. t)e industrial and
e*+ort structure (<arl, 19A2H 19">20A). ()e industrial state )oldin%, CorporaciBn
Venezuelona ,e 7uyana PCV7) 5as res+onsible .or !ana%in% natural>resource>based
industrialization and t)e national oil co!+any PetrBleos ,e Venezuela (@7?A) 5as
res+onsible .or t)e e*+ansion and !odernization o. oil re.inin%.
()e Mbi% +us)N natural>resource>based industrialization (=$/6) +ro4ect !ar2ed a
+ur+ose.ul e..ort to e*+and t)e role o. t)e state in direct +roduction. 9 ;it) t)e
nationalization o. oil in 197, and t)e de0elo+!ent o. non>oil state>o5ned enter+rises, t)e
state beca!e t)e !ain +roducer in t)e econo!y, t)e lar%est %enerator o. .orei%n e*c)an%e
and t)e lar%est e!+loyer. ()e !ain ob4ecti0e o. t)e =$/6 5as to di0ersi.y t)e e*+ort
structure o. t)e econo!y and to Ydee+enB t)e !anu.acturin% sector by increasin% t)e s)are
o. inter!ediate and ca+ital %oods +roduction.
A 6!+ort licenses 5ere used !ost )ea0ily .or +rocessed .ood, consu!er %oods, and trans+ort e-ui+!ent.
6!+ort !ono+oly licenses 5ere also instru!ental in establis)in% state>o5ned enter+rises in steel, alu!iniu!,
and +etroc)e!icals (;orld /an2, 1990H 1').
9 6n 1970, state>o5ned enter+rises accounted .or 'C o. !anu.acturin% 0alue>added (e*cludin% oil re.inin%).
()is s)are rises to AC in 19A0 reac)es 1AC by 19A,. ;)en oil re.inin% is included, t)e corres+ondin% .i%ures
are "C, 3,C and "2C corres+ondin%ly. 6n 19A7, +ublic .ir!s 5ere concentrated in non>.errous !etals
(lar%ely alu!iniu!) 5)ere t)e state sector accounted .or 91 +ercent o. +roductionO iron and steel, 5)ere it
accounted .or ,1 +ercent and c)e!icals and +etroc)e!icals +roducts 5)ere it accounts .or "' +ercent (;orld
/an2, 1990H 30). 6n in0est!ent, +ublic !anu.acturin% in0est!ent s)are (e*cludin% oil re.inin%) accounted .or
2" +ercent o. total !anu.acturin% in0est!ent in t)e +eriod 19,A>1971. 6n t)e +eriod 1972>19A0, t)e +ublic
s)are rises to "1C (calculations based on data .ro! Central /an2, tatistical eries, 0arious yearsO and 1C:6,
1n,ustrial 'ur)ey, 0arious years).
21
()e ot)er i!+ortant trend to note o0er t)is +eriod is t)e do!inance o. t)e +ublic
sector as t)e !ain e*+orter. ;)ile t)e nationalization o. oil and iron ore )ad +laced t)e
state as t)e !ain e*+orter in t)e econo!y in 197,, state>o5ned enter+rises 5ere also
si%ni.icant in t)e %eneration o. alu!iniu!, steel and, c)e!ical e*+orts (state>o5ned
enter+rises accounted .or 9' +ercent o. alu!iniu! e*+orts, "' +ercent o. steel e*+orts, and
20 +ercent o. c)e!ical e*+orts). /y t)e +eriod 1993>199', t)e +ublic sector 5as
res+onsible .or A3 +ercent o. total e*+orts and 3, +ercent o. non>oil e*+orts. ()us, t)e
%radual s)i.t to5ard lar%e>scale, )i%)>0alue added tec)nolo%y 5as also one t)at beca!e
!ore state>o5ned!
6n su!, t)e e0idence broadly su++orts t)e notion t)at a Ybi% +us)B de0elo+!ent
strate%y %at)ers +ace occurred o0er t)e +eriod 19,'>1973. Continued %ro5t) beca!e !ore
c)allen%in% in t)at t)e industries 5it) i!+ort substitution +ossibilities, na!ely inter!ediate
and ca+ital %oods, are c)aracterised by increasin% scale econo!ies. 3urt)er
industrialization in0ol0ed %reater ris2s and re-uired !ore selecti0e tar%etin% o. ca+ital .or
lon%er +eriods as ne5 e*+ertise )ad to be ac-uired and ne5 !ar2ets ca+tured. ()is 5ould
be es+ecially true .or t)e traditional industries. Con-uerin% e*+ort !ar2ets in consu!er
%oods is a ris2y and lon%>%estatin% +ro4ect t)at re-uires !ar2etin%, and in0est!ent in
distribution c)annels and increases in scale econo!ies. ()e declinin% i!+ort coe..icients in
traditional industries !eant t)at .urt)er %ro5t) t)ere 5ould re-uire e*+ort>led %ro5t). At
t)e sa!e ti!e, t)is section )as also establis)ed t)at t)e relati0e s)are o. lar%e>scale )ea0y
industrial in0est!ents do!inated t)e industrial strate%y .ro! 1973 on5ards.
-! A Re(iionit Political Economy of .anufacturin$ Performance in VenezuelaE
%0231+;;3
()e )istorio%ra+)y o. econo!ic analyses on ?enezuela )as identi.ied c)an%es in
de0elo+!ent strate%ies in t)e +eriod 19,'>1973. Ho5e0er, so!e o. t)ese analyses
assu!e t)at t)e %ro5in% centralization o. t)e state and t)e de0elo+!ent state>led Mbi%
+us)N strate%ies necessarily +roduce, on t)e )and, dys.unctional rent>see2in%, cronyis!
and corru+tionO and, on t)e ot)er )and, an increase in dyna!ic ine..iciency o. t)e
econo!y. ?enezuelan +olicy>!a2ers in t)e 1970Bs can be accused o. s5itc)in%
de0elo+!ent strate%ies too early by ado+tin% an unrealistically co!+licated and
a!bitious industrial strate%y in t)e conte*t o. a relati0ely underde0elo+ed !anu.acturin%
22
sector in 1970. ;)ile t)is !ay e*+lain t)e increases in ca+ital>intensity and increases in
t)e ine..iciency o. in0est!ent .or at !ost a decade, it does not e*+lain 5)y ?enezuelaBs
%ro5t) rate continued to decline .or more than two ,eca,es after t)e early 19A0Bs 5)en
t)e Mbi% +us)N in0est!ents )ad been lar%ely co!+leted. ()e coincidence o. a c)an%e in
de0elo+!ent strate%y 5it) a decline in %ro5t) is t)us not ine0itable, but a historically
specific .eature o. t)e ?enezuelan +olitical econo!y in t)e +eriod 19A0>2003.
Con0incin% e*+lanations o. relati0e +er.or!ance )a0e to identi.y 5)ic) .eatures
,istinguish ?enezuela .ro! !ore ra+id %ro5in% lateco!ers 5it) si!ilar institutional
inter0entions andUor si!ilar or %reater le0els o. corru+tionO and 5)y ra+id %ro5t) in t)e
+eriod 1920>19A0 in ?enezuela e0ol0ed into slo5er %ro5t), and +rolon%ed sta%nation
o0er !ost o. t)e +eriod 19A0>2003. ;)at distin%uis)es ?enezuela .ro! !ore success.ul
cases o. bi%>+us) industrialization in t)e +eriod 19A0>2003 is not +rinci+ally t)e de%ree or
scale o. corru+tion or industrial concentration, but t)e nature o. +olitical strate%ies and
settle!ents t)at under+inned t)e transition and consolidation o. its de!ocratic re%i!e.
()e ric) +olitical science literature on ?enezuela e!+)asizes t)at t)e ?enezuelan +arty
syste! .or!ed t)e .ocal +oint o. de!ocratic transition and consolidation in t)e +eriod
19'A>199A. 6t is 5ell 2no5n t)at t)is +arty syste! !obilized su++ort t)rou%) +ur+ose.ul
pacts an, clientelist patronage t)at !obilized and acco!!odated a %ro5in% ur8an
populist alliance (8e0ine, 1973O <arl, 19A,).
6 su%%est an alternati0e e*+lanation to t)e rei%nin% a++roac)es 5)ic) incor+orates
t)e economic conse-uences o. t)e %ro5in% and increasin%ly factionalize, political
contests 8etween an, within +olitical +arties atte!+tin% to build +olitical clienteles and
acco!!odate !iddle class %rou+s, e!er%in% and establis)ed .a!ily>run con%lo!erates,
and labour unions co!+etin% .or access to centrally allocated state resources. 6n
+articular, 6 ar%ue t)at t)e slo5do5n in %ro5t) and +roducti0ity )as been caused by t)e
incompati8ility of populist clientelist accommo,ation with the re*uisites of the Othe 8ig
pushA ,e)elopment strategy= !he nature of the incompati8ility was a growing political
fragmentation an, ,iscontinuity in coalitions un,erpinning the state at precisely the time
when the ,e)elopment strategy calle, for more centralize, state control an, continuity in
policy orientation= ;)ile t)ere is no doubt t)at t)e suddenness 5it) 5)ic) ?enezuela
s5itc)ed strate%ies in 1973 contributed to +ressure +laced on state and +ri0ate sector
ca+acities t)e prolonge, sta%nation o. t)e ?enezuelan econo!y still re-uires e*+lanation.
23
@o+ulist and clientelist acco!!odation )as been !ani.ested in ?enezuela t)rou%)
5ell>2no5n +atterns o. e*cessi0e entry into industry, e*cessi0e 5)ite>collar e!+loy!ent
+atrona%e in state enter+rises, contradictory and ra+id c)an%es in re%ulations, 0olatile and
(+olitically) a%%ressi0e co!+etition a!on% .actions o. ca+ital allied to di..erent +olitical
+atrons. ()e +olitical rationale o. !aintainin% +o+ulist su++ort ne%ati0ely a..ected t)e
ability o. t)e state to be selecti0e in t)e disburse!ent o. rents and to disci+line rent
reci+ients. Massi0e le0els o. ca+ital .li%)t in t)e 1970Bs and 19A0Bs and t)e +roli.eration
o. un0iable and contradictory subsidies and +rice controls 5ere an i!+ortant
!ani.estation o. t)e +olitical .ailure o. t)e +arty syste! to contain con.licts.
-!% Perio,iation of Political 8ettlement an, the De(elopment of Populit
Clientelim in Venezuela
()e nature o. t)e +olitical settle!ent c)an%es dra!atically in t)e +ost>19'A
+eriod. ()e !ost i!+ortant c)an%e t)at occurs is t)e transition and consolidation o.
de!ocracy. ()e +ur+ose o. t)is section is to su%%est )o5 t)e +olitical nature o. t)e
de!ocratization +rocess 5as to a..ect t)e e..iciency o. rent de+loy!ent +rocess and
!acroecono!ic !ana%e!ent. ;)ile centralized rent de+loy!ent is !aintained durin% t)e
de!ocratic +eriod, t)e !oti0ations o. t)e leaders)i+ c)an%es dra!atically as t)e social
su++ort base o. t)e state and t)e %rounds .or 5)at beco!es a le%iti!ate distribution o.
rents c)an%ed. ()e c)an%in% nature o. t)e state 5ill co!e to a..ect ne%ati0ely t)e ability
o. state leaders to !ana%e t)e rent de+loy!ent +rocess in line 5it) t)e econo!ic
c)allen%es t)at co!e 5it) t)e s5itc) to5ard Ybi% +us)B natural resource>based industries.
6n +articular, t)e nature and lo%ic o. t)e ?enezuelan +olity as it e0ol0ed disru+ted t)e
ability o. t)e state to !aintain selecti)ity in industrial +ro!otion and !ade ,isciplining
rent reci+ients (+articularly ca+italists in t)e +ri0ate !anu.acturin% sector, +ublic
enter+rise !ana%ers and +ublic sector labour unions) di..icult. Moreo0er, t)e increasin%
intensity o. electoral ri0alry .urt)er da!a%ed continuity in +olicy and i!+le!entation t)at
)ad de0astatin% conse-uences .or econo!ic e..iciency. 1ne o. t)e +rinci+al +rocesses
acco!+anyin% electoral ri0alry 5as a %ro5in% .actionalis! 5it)in and bet5een t)e !ain
t5o +olitical +arties. As result, bot) state>business relations assu!ed a %ro5in%
.actionalis! and cronyis! t)at under!ined collecti0e e..orts at industrial restructurin%.
2"
Accordin% to t)e 0ast +olitical science literature, t)e ?enezuelan +arty syste! and
t)e ty+es o. broad state>society relations t)at de0elo+ed in relation to t)e +olitical +arties
.all into .our distinct +eriods. ()e .irst is t)e +eriod 192A>19"A 5)ic) sa5 t)e
de0elo+!ent o. a radical +o+ulist !obilization o. +easant lea%ues, labour unions and
!iddle class %rou+s c)allen%in% t)e do!inant !ilitary, landed and co!!ercial elites. ()e
second +eriod re.ers to t)e era o. +acted de!ocracy in t)e +eriod 19'A>1973 5)en t)e
syste! o. radical +o+ulist !obilization e0ol0es into a !ore conciliatory and consensusbased
syste! or 5)at $ey (1991) re.ers to as t)e syste! o. elite conciliation. 6n t)e
+eriod, 1973>1993, t)e syste! o. +acted de!ocracy brea2s do5n as ri%)t>5in% and le.t5in%
t)reats to de!ocratic re%i!e .ades and is re+laced by a syste!s o. t5o>+arty
+o+ulist electoral ri0alry 5)ere .actionalis! and +articularistic clientelis! beco!e t)e
do!inant .or!s o. +olitical co!+etition. ()e +eriod 1993>199A 5itnesses t)e decline and
le%iti!acy o. t)e t5o leadin% +olitical +arties, A7 and C1@:6, and is t)us c)aracterized
by t)e increase in !ulti+le +arty electoral ri0alries. ()e e!er%ence o. !ulti>+arty
coalitions su++ortin% candidates inde+endent o. t)e t5o +re0iously )e%e!onic +arties
c)aracterize t)is +eriod, 5)ic) results in t)e election o. Hu%o C)[0ez in 199A. ()e +eriod
1999>2003 !ar2s t)e rise o. anti>+arty +olitics, +olarization o. +olitical contestation, and
colla+se in state>business coo+eration.
()e ori%in o. t)e Msyste! o. +o+ulist !obilization and conciliationN ($ey, 1991)
t)at brou%)t to +o5er a brie. radical de!ocratic 4unta in t)e +eriod 19"'>"A and .or!ed
t)e !ulti>class +o+ulist basis o. de!ocratic transition 5as a lon% %estatin% )istorical
+rocess. ()e battle cries o. t)e ?enezuelan +o+ulist !obilization 5ere de!ocratization,
econo!ic nationalis!, and social 4ustice (@o5ell, 1971H 2AO 8e0ine, 1973, 197AO <arl,
19A,O :llner, 1999), 5)ic) %enerated si%ni.icant o. populist political inclusion not
unco!!on in 8atin A!erica (7i (ella, 1970O Cardoso ^ 3aletto, a19,9b 1979).10
Acc/on &emocr0tica (A7) 5as t)e !ost success.ul +olitical +arty leadin% t)e
!obilization o. t)e +o+ulist clientelis!. A7Bs de.ined itsel. as a multiclass nationalist
coalition 5)ose !ission 5as to unite t)e Y!assesB a%ainst t)e landed oli%arc)y and t)e
.orei%n oil co!+anies. ()e or%anisational stren%t) o. A7 and ot)er +olitical +arties
.orced t)e creation o. a !ilitary>ci0ilian 4unta in 19"' t)at introduced electoral +olitics to
10 ee 7i Io)n (200"H 179>1A3) .or an analysis o. t)e +olitical econo!y +rocesses be)ind t)e construction
o. +o+ulist !obilisation in ?enezuela in t)e +eriod 193,>19"A.
2'
?enezuela. ()e ensuin% t)ree>year +eriod, 2no5n as t)e trienio, !ar2ed t)e decisi0e
introduction o. !ass +olitics into national li.e. ()e trienio +eriod brou%)t lon%>lastin%
c)an%es. u..ra%e 5as si%ni.icantly e*+anded .ro! ' +ercent o. t)e +o+ulation to 3,
+ercent in 19"' (<ornblit) and 8e0ine, 199'H "2). :lections in 19", brou%)t A7 to
+o5er 5it) a landslide electoral 0ictory. 6n t)ree years, A7 raised t)e nu!ber o.
or%anized +easant !e!bers .ro! 3.9'9 to "3,302 5)ile increasin% t)e nu!ber o. labour
unions .ro! 2'2 to 1,01" (@o5ell, 1971H 79). A7 le%islated 5a%es raises and subsidies
.or consu!er %oods. $eal 5a%es (in 19'7 boli0ares) increased .ro! 7.1' boli0ares in
19"" to 11.71 boli0ares in 19"A (Haus!ann, 19A1H 323). 8abour union !obilization
increased as 5itnessed in t)e increase in t)e nu!ber o. labour dis+ute +etitions and
stri2es, 5)ic) increased .ro! 1' and " res+ecti0ely in t)e +eriod 193,>19"' to 203 and
70 res+ecti0ely in t)e +eriod 19"'>19"Ah tate s+endin% in education, )ealt), 5ater and
co!!unications 5ere e*tended .or t)e .irst ti!e to +oor, socially e*cluded %rou+s and
re%ions (Haus!ann, ibidH 313>',).
()e %reatest le%acy o. t)e trienio +eriod, )o5e0er, 5as t)e bitter con.licts t)at
ensued o0er t)e radical re.or!s atte!+ted by A7. As 8e0ine (19A9) notesH M6t is )ard to
o0erstate t)e de+t) o. t)e c)an%es trienio +olitics brou%)tN (+. 2'2). $adical labour
re.or!s and e*tensi0e +ro%ra! o. a%rarian re.or! 5ere introduced by an A7 elite 5)o
did not +ercei0e t)e need, %i0en its electoral do!inance, to consult ot)er or%anized
%rou+s in t)eir +lans. :cono!ic and social elites be%an to .ear t)at t)e radical +olitics
introduced 5ould entirely destroy lon%>standin% +ri0ile%es and t)e +re0ious social order.
1++osition %at)ered on t)e ri%)t, re+resented by t)e Cat)olic C)urc), by t)e ne5
C)ristian 7e!ocratic @arty C1@:6, conser0ati0e ele!ents in t)e !ilitary, 9 oil
co!+anies and do!estic business %rou+s and t)e 9 e!bassy (<arl, 19A,H 20'>,O
<ornblit) and 8e0ine, 199'H "2>"3).
()e t)ree>year e*+eri!ent 5it) de!ocracy %a0e 5ay to a decade o. re+ressi0e
aut)oritarian rule. 9nder t)e leaders)i+ o. &eneral Marcos @erez Ii!enez, A7 5as
banned. 8abour, a%rarian and educational re.or!s 5ere re0o2ed, labour unions 5ere
re+ressed, and !ore concession>.riendly +olicies to5ard oil co!+anies 5ere instituted.
@olitical o++osition in t)e +eriod 19"A>19'7 5as crus)ed 0iolently (<ornblit) and
8e0ine, 199'H "3>""). ()e e*+erience o. t)e trienio 5as to )a0e a +ro.ound e..ect on t)e
2,
nature o. +olitical strate%y in t)e +ost>19'A era o. de!ocratic transition and
consolidation.
-!%!a The Era of Pacte, Democracy /%0231%0934
()e .ocal +oint o. de!ocratic transition 5as t)e 19'A @act o. @unto 3i4o, 5)ic)
+ro0ided t)e institutional !ec)anis!s o. consensus buildin% and coo+eration bet5een t)e
do!inant +olitical +arty, Accon 7e!ocr[tica (A7) and t)e leadin% o++osition +arty, t)e
C)ristian 7e!ocratic C1@:6 (Co!!ittee .or t)e @olitical 1r%anization and 6nde+endent
:lection). ()e success at +olitical +arty or%anization and t)e do!inance t)at t)e t5o
leadin% +olitical +arties !aintained in econo!ic, social and cultural as+ects o.
?enezuelan society in t)e de!ocratic era )a0e led so!e to c)aracterize t)e ?enezuelan
+olity as a Mparti,ocraciaN, t)at is, M+artyarc)yN, or M+arty syste!N (Co++ed%e, 199"O
<ornblit) and 8e0ine, 199'H 37>3A).
()e transition to a consolidated de!ocratic syste! in 19'A 5as acco!+anied by
si%ni.icant c)an%es in t)e nature o. t)e +olitical settle!ents and econo!ic +olicy>!a2in%
in ?enezuela. @olitical c)an%e in 19'A 5as dri0en by t)e lessons t)at +olitical actors
+ercei0ed .ro! t)e .ailed atte!+t at de!ocracy durin% t)e trienio. ()e !ain lesson !ost
o. t)e leaders o. A7, C1@:6 and 9$7 dre5 .ro! t)e trienio 5as t)at +olarization, acting
without 8uil,ing consensus, and t)e alienation o. +o5er.ul !inorities 5ould lead to t)e
return o. aut)oritarian rule. Acco!+anyin% t)e 5illin%ness o. A7 to reac) co!+ro!ise,
t)ere 5as substantial +ublic +ressure a!on% +o5er.ul interest %rou+s to limit the power of
A& in t)e li2ely e0ent o. ne5 elections.
()e preser)ation of ,emocratic rule beca!e t)e primary political o8#ecti)e o.
+olitical +arty leaders. ()e +erce+tion a!on% +arty cadres, unions and business %rou+s
t)at t)ere 5as a need to secure the fragile alliance .or de!ocracy +ro.oundly s)a+ed t)e
actions o. +olitical leaders. ()e reco%nition t)at t)e ar!y, t)e oil co!+anies, and
traditional do!inant business %rou+s 5ere ca+able o. unra0ellin% de!ocracy +roduced
5)at $ey (19A,) )as called t)eir Mobsessi0e +reoccu+ationN 5it) a++ease!ent and
acco!!odation. ()is concern 5it) .ra%ility 5as !et t)rou%) .or!al and in.or!ally
ne%otiated co!+ro!ises.
@olitical science and )istorical studies on ?enezuela )a0e e!+)asized t)at t)e
de!ocratic re%i!e )as been !aintained by a series o. +olitical pacts and clientelist lin2s
27
t)at 5ere an i!+ortant +art o. buildin% a !ulti>class and (lar%ely) ur8an populist alliances
(<arl, 19A,O 8e0ine, 1973O $ey, 1991). A7 e!er%ed as t)e .unda!ental +arty.11 ()is
+arty syste! !ay be c)aracterized as a +olity 5)ere +rocesses o. contestation, con.lict
resolution and corru+tion )a0e been acco!!odated t)rou%) populist clientelism=
()e 0iability o. t)e +o+ulist and clientelist +act de+ended on balancin% coo+tation
and acco!!odation o. !iddle and 5or2in% class de!ands. A tellin% indication
o. t)e c)an%e in balance o. +olitical +o5er t)at t)e +acts sustained can be seen in t)e
+atterns o. social s+endin% in t)e t)ree decades .ollo5in% 19'A. 1ne o. t)e 2ey strate%ies
o. t)e +olitical +arties to 8uil, mi,,le an, working class clientele 5as to increase t)e
sco+e o. social s+endin%. ()e increase in social s+endin% beca!e one o. t)e !ain areas
.or deli0erin% 4obs and ser0ices to t)e !iddle and lo5er inco!e %rou+s, and 5as
i!+ortant .or +re>e!+tin% !ore radical de!ands .or distribution. ()e s)i.ts in t)e
co!+osition o. +ublic s+endin% are dra!atic 5)en co!+ared 5it) t)e era o. aut)oritarian
rule in t)e t5entiet) century. As <ornblit) and Mai%non (19A'H 20') de!onstrate, social
s+endin% (5)ic) includes )ealt), education, 5ater and sanitation, and )ousin%) as a
+ercenta%e o. total state s+endin% %re5 .ro! an annual a0era%e o. 11." +ercent under
@Erez Ii!Enez to 2A.1 +ercent in t)e +eriod 19'A to 1973. /et5een 19,9 and 1973, t)e
years i!!ediately +recedin% t)e oil boo! o. t)e 1973, it a0era%ed 5as 31." +ercent o.
total s+endin%.
()e !ain le%acy o. t)e @act 5as to institutionalize a centralized .or! o. +olitical
clientelis! 5)ere t)e +olitical +arties 5ere t)e !ain c)annels o. +atrona%e. 6n ter!s o.
rent de+loy!ent, t)e @act re>en.orced t)e central role o. t)e e*ecuti0e in a%enda>settin%,
+olicy>!a2in% and i!+le!entation. A 2ey co!+onent o. t)e +act t)at de0elo+ed t)at
re%ardless o. 5)o 5on t)e elections, eac) +arty 5as %uaranteed so!e access to state 4obs
and contracts, a +artitionin% o. t)e !inistries, and a co!+licated s+oils syste!s t)at
5ould ensure t)e +olitical and econo!ic sur0i0al o. all si%natories, 5)ic) included t)e
!ain labour unions .ederations (C(?) and t)e !ain u!brella business association
(3:7:CAM:$A).12
11 A .unda!ental +arty (a ter! coined by &utiErrez ann, 2003) can be 0ie5ed as t)e natural %o0ernin%
+arty (in ter!s o. electoral success) as 5ell as t)e +arty 5)ose !obilisations and strate%ies 5ere central to
re%i!e .oundin%. ()e 4usti.ication .or re.errin% to Accon 7e!ocr[tica as a .unda!ental +arty in t)e +eriod
19'A>1993 is based on t)e .ollo5in%H a) A7 ne0er yielded its +osition in t)is +eriod as t)e sin%le bi%%est
+arty in t)e eit)er t)e House o. $e+resentati0es or enateO and b) A7 5on ' o. t)e 7 +residential elections.
12 8e0ine (1973) and <arl (19A,) discuss t)e @act in detail. @act !a2in% 5as indeed a .eature o. !any
Andean countries in t)e 19'0Bs and 19,0Bs.
2A
6n e..ect, t)e decision to di0ide u+ !inisterial +osts and de+loy resources to !eet
political criteria lai, the see,s of politicising the pu8lic a,ministration an, allocating
rents on the 8asis of political rather than economic criteria= ()e consolidation o. +o+ulist
su++ort 5as to de+end on tan%ible +atrona%e, 5)ic) A7 (and e0entually C1@:6, its !ain
ri0al a.ter 19'A) 5as to +ro0ide. 3or t)is reason, clienetelis! in t)e .or! o. !aterial
bene.its +ro0ided by a +olitical +atron in e*c)an%e .or +olitical su++ort and loyalty on t)e
+art o. a client, 5)ere suc) su++ort can ta2e t)e .or! o. ca!+ai%n .inancin%,
ca!+ai%nin% but !ore usually, 0otin% .or t)e +arty t)e +atron re+resents. ()e +atrona%e
)as ta2en !any .or!s, bot) le%al and corru+t. ()ese include c)ea+ in0est!ent credit,
tari.. +rotections, i!+ort licenses, e!+loy!ent o++ortunities in t)e +ublic sector, )ousin%
and !ort%a%e credits, +rice controls on basic consu!er %oods, and so on.
()e era o. +acted de!ocracy did not eli!inate re%i!e fragility. Many le.t>5in%
%rou+s, includin% t)e Co!!unist +arty, and radical ele!ents 5it)in A7 5ere de!andin%
a radical social +ro%ra!. 6deolo%ical dis+utes o0er t)e Ye*clusionaryB nature o. t)e +acts
)ad t5o !a4or +olitical costs. 1ne 5as t)at A7 su..ered t)ree da!a%in% s+lits in 19,0,
19,2 and 19,7 5)ic) cut dee+ly into its electoral stren%t) (Co++ed%e, 199"H '">',O 9A>
103) and 5as to underlie t)e .actionalis! and di0isions t)at 5ere to +la%ue A7 in t)e
t)ree decades a.ter 19'A (:llner, 1999H 10"). econd, t)e le.t turned to ar!ed insur%ency
+olitical in t)e +eriod 19,0>19,7. ;)ile t)e e*clusion o. t)e le.t re>assured business and
t)e !ilitary, Mgt)e success o. t)e @acto de @unto 3i4o cost ?enezuela t)e lar%est %uerrilla
!o0e!ent in 8atin A!ericaN (@rze5ors2i, 1991H 91).
;)ile t)e basis o. +olitical clientelis! and t)e do!inance o. political criteria in
distributin% rent de+loy!ent 5ere laid 5it) +act>!a2in%, t)e t)reats .ro! ri%)t>5in% and
+articularly le.t>5in% %rou+s re>en.orced, in t)e .irst decade a.ter 19'A, t)e need to use
resource rents to build +olitical clientele t)rou%) centralize, an, ,iscipline, an,
centralize, party structures. ()e threats to regime sur)i)al 5ere, accordin% to +olitical
analysts, t)e !ain .actor be)ind t)e a0oidance o. .actionalis! and tension in)erent in t)e
alliance o. +o+ulist clientelis! and t)e +roli.eration o. subsidies and rules t)at 5ere to
+la%ue t)e +olity in t)e +ost>19,A era (<arl, 19A,O 8e0ine and <ornblit), 199'). As
8e0ine (197A) +oints outH MMore t)an any ot)er sin%le .actor, t)e de0elo+!ent o. a le.tist
strate%y o. insurrection in t)e early 19,0Bs consolidated de!ocracy by uni.yin% centre
29
and ri%)t around A7 in res+onse to a co!!on t)reatN (+.9A). ()e !aintenance o. stable
!acroecono!ic rules (e.%. stable .i*ed e*c)an%e rates, lo5 in.lation, and .iscal balance)
and %enerally ra+id (t)ou%) slo5in%) econo!ic %ro5t) 5as a !ani.estation o. t)e stable,
and le%iti!ate central +ublic aut)ority in t)is +eriod.
-!%!b! #actionalim an, Electoral Ri(alry /%0731%0034
()e nature o. +o+ulist clientelis! c)an%es %radually a.ter 1973. ()e pactismo o.
t)e .irst decade %a0e 5ay to electoral +arty ri0alry and .actionalis! bet5een and 5it)in
+arties. e0eral +olitical obser0ers note t)at t)e 0ery consolidation o. t)e re%i!e, t)e
de.eat o. t)e %uerrilla !o0e!ent and t)us t)e decline in t)reats to t)e re%i!e reduced t)e
ur%ency .or reac)in% consensus in t)e +act>!a2in% +rocess ($ey, 1991H ''7>',7O 8e0ine
and <ornblit), 199'H "A>'AO 8e0ine and Cris+, 199'H 227>232). ()e %ro5in% i!+ortance
o. .actions and .actionalis! bet5een and 5it)in +olitical +arties is 5ell docu!ented in
?enezuela in t)e +eriod 19,A until t)e !id>1990Bs ($ey, o+ cit.O Co++ed%e, 199").
()ere 5ere se0eral distributi0e con.licts t)at acco!+anied t)e %ro5in%
.actionalis! o. t)e +acted de!ocracy. ()e .irst concerned increases in labour con.licts.
()e A7>do!inated Con%ress initiated !ore radical labour la5s and encoura%ed a !ore
co!bati0e labour !o0e!ent. As a result, bot) C1@:6 ad!inistrations (19,9>197" and
1979>19A") 5ere +la%ued by lar%e>scale labour con.lict, 5)ic) increased t)e +olarization
and +olitical instability in t)e country (&elb and associates, 19AAH 2A9>32'O Co++ed%e,
199"H 3").
()e second i!+ortant distributi0e con.licts occurred 5it)in business
con%lo!erate %rou+s tied to di..erent +olitical .actions. ()e nature o. t)e A7 s+lits in t)e
1970Bs 5ere based on t)e %ro5in% ri.t bet5een t)e old %uard o. A7 led by its .ounder
$#!ulo /etancourt, 5)o .a0oured lin2s 5it) t)e traditional .a!ily con%lo!erates and a
!ore li!ited state role in +roduction and Carlos Andres @Erez led a .action de!andin% a
!ore radical state +ro%ra! based on !ore +ublic enter+rise +roduction, and !ost
i!+ortantly, t)e .inancin% o. an e!er%in% set o. s!aller scale entre+reneurs to c)allen%e
t)e econo!ic do!inance o. t)e !ore establis)ed .a!ily con%lo!erates. ()ese ri.ts 5it)in
A7 can indeed be traced bac2 to so!e o. t)e sa!e %rou+s t)at led s+lit .ro! A7 in t)e
early 19,0Bs (:llner, 1999).
30
$a+id c)an%es in +atrona%e and +olicy and contestations to t)ose c)an%es 5ere
!ost e0ident in t)e .irst ad!inistration o. Carlos Andres @Erez (197">1979). 6n t)is
+eriod, %ro5in% .actionalis! 5it)in A7 bet5een t)e old %uard )eaded by .or!er
+resident /etancourt and t)e ne5 %uard )eaded by @Erez ca!e to t)e .ore as @Erez used
t)e !assi0e state resources to +ro0ide subsidies to and +rocure!ent +ro4ects .or an
e!er%in% set o. .a!ily %rou+s 5)o 5ere 5ell 2no5n ca!+ai%n contributors to t)e
@resident. (Co++ed%e, 2000). ()e econo!ic %rou+s close to t)e @erez ad!inistration
5ere +o+ularly 2no5n as t)e M(5el0e A+ostlesN, !any o. 5)o! ca!e, li2e @Erez .ro!
t)e Andean re%ion.
()e ties bet5een @Erez and t)e A+ostles 5ere .or%ed lar%ely durin% )is
acri!onious +o5er stru%%le to assu!e t)e A7 +residential candidacy, 5)en @ErezBs o5n
isolation in A7 and lac2 o. control o0er t)e +arty )ierarc)y con0inced )i! o. t)e
necessity o. establis)in% a +o5er and .inancial base outside t)e +arty !ac)inery. 3or
@Erez and )is .action o. A7, t)e A+ostles re+resented an atte!+t to de!ocratize ca+ital
by brea2in% t)e )e%e!ony o. traditional lar%e .a!ily business %rou+s.
()e t)ird dra!atic con.lict t)at c)aracterised t)e +ost>19,A era concerned t)e
increasin% re4ection .ro! i!+ortant .actions o. t)e bi% business co!!unity and t)e ri0al
+olitical +arty, C1@:6, o0er %ro5in% role o. state +roduction in t)e econo!y. As noted
else5)ere, t)e @erez ad!inistration sou%)t to !a2e state>o5ned enter+rises t)e .ocal
+oint o. t)e bi% +us) natural resource>based industrialization strate%y. ()e increased role
o. t)e state in t)e so>called Mstrate%icN sectors o. t)e econo!y (oil, iron ore, steel,
+etroc)e!icals, )ydroelectric +o5er, bau*ite, alu!iniu!) re+resented an i!+ortant
disru+tion one o. t)e !ain +olitical rules o. t)e %a!e 5)ic), s+eci.ied t)at t)e state
s)ould .acilitate +ri0ate sector in0est!ent in industry t)rou%) tari.. +rotection and
subsidized lon%>run credit. ()e +ost>1973 era sa5 t)e e!er%ence o. t)e state c)allen%in%
t)e +ri0ate sector in industrial +roduction (Arau4o, 197').
10erall, .actionalis! led to an increased contestation o0er +atrona%e, 5)ic) in
turn, .uelled a %reater de%ree o. +oliticization and +olitical +olarization in t)e era o. t5o+arty
electoral ri0alry. 6. t)e @Erez .action o. A7 )as 5anted to redress t)e do!inance o.
t)e old oli%arc)y, !any ot)er .actions 5it)in A7 and C1@:6 and 5it)in t)e business
31
associations c)allen%ed t)e rise o. ne5 oli%arc)ies in t)e +ri0ate sector (t)e 12 A+ostles)
and t)e rise o. t)e state enter+rise oli%arc)y 5it)in t)e state. As suc), it is not sur+risin%
to .ind t)at :llner (19A'H 3A>,,) .inds a brea2do5n o. inter>+arty a%ree!ent in t)e +eriod
197,>19A0 co!+ared 5it) t)e +eriod 19,7>1971. Moreo0er, ot)er +olitical analysts )a0e
ar%ued t)e increase in +olitical .actionalis! 5as acco!+anied by an increase in 5)istleblo5in%
and t)e use o. t)e corru+tion scandal in t)e 19A0Bs and 1990Bs as a 5ea+on o.
+olitical co!+etition (Ca+riles, 1991O @Erez @erdo!o,199'O <arl, 1997H 13A>1A').
6t is 5ort) notin% t)at t)e coinci,ence o. oil nationalisation in 197, and t)e 0ery
lar%e increase in .iscal resources due to t)e oil boo!s undoubtedly u+set t)e +olitical
balance in t)e country. 6n +articular, it could be ar%ued t)at t)is coincidence u+set t)e
balance o. inter>+arty relations, and t)us .uelled increasin% .actionalis!, as co!+etin%
interest %rou+s 0ied to ca+ture +o5er in an increasin%ly state>centred econo!y. ()e
+olitical +acts 5ere .or!ed and consolidated in t)e 19,0Bs a +eriod o. relati0ely stable
(and e0en declinin%) oil e*+ort earnin%s. As a result, t)e state 5as !ore de+endent on t)e
+ri0ate sector in0est!ent (includin% .orei%n) to ac)ie0e econo!ic %ro5t). ()e oil
nationalisation li2ely lessened t)e counter5ei%)ts (t)at is, c)ec2s and balances) to t)e
state, and t)us +er)a+s lessened t)e Ysense o. li!itsB as to use o. discretionary centralised
aut)ority. ()e reduction in t)e Ysense o. li!itsB +robably increased t)e abuse o. +o5er
and !ade corru+tion less +redictable and !ore contentious as a result.
3inally, t)e di0isi0e !anner in 5)ic) econo!ic liberalisation 5as
introduced in 19A9 .urt)er .uelled .actionalis! 5it)in A7 and bet5een A7 and ot)er
+arties (see 7i Io)n, 200'). ()e decline in econo!ic %ro5t) and increase in +o0erty led
to a .urt)er decline in t)e le%iti!acy o. +olitical +arties and t)e e!er%ence o. YoutsiderB
+oliticians runnin% on anti> establis)ed +olitical +arty +lat.or!s. ()is led to t)e .or!ation
o. unstable !ulti>+arty coalitions in t)e +eriod 1993>199A t)at led to a .urt)er decline in
t)e continuity o. +olicy>!a2in%.
6n su!, t)is section brie.ly docu!ents t)e c)an%in% nature o. t)e
?enezuelan +olity in t)e +eriod 1973>199A. @olitical +acts and co!+ro!ises 5ere
do!inant in t)e +eriod 19'A>19,A t)ou%) t)e +o+ulist and clientelist nature o. t)ese +acts
5ere underlined. ()e %ro5in% .actionalis! in t)e ?enezuelan +olity in t)e +eriod 1973>
199A 5as also e*a!ined. ()e .adin% t)reats to de!ocratic re%i!e sur0i0al in t)e late
32
19,0Bs 5ere identi.ied as crucial to t)e trans.or!ation o. t)e +olity .ro! a M+actedN
centralized +o+ulist clientelis! into a competiti)e t5o>+arty +o+ulist clientelis!.
-!%!c The emer$ency of multi1party electoral contetation
()e sub>+eriod +eriod 1993>199A re+resents a decline in t)e t5o>+arty
)e%e!ony as econo!ic decline and t)e di0isi0eness o. econo!ic liberalisation lead to
dissatis.action 5it) t)e t5o !ain +arties. e0eral .actors led to t)is. ()e .irst (and
+er)a+s !ost i!+ortant) .actor 5as t)e decisions o. t)e t5o !ost +o+ular and in.luential
leaders o. ?enezuelaBs t5o !ain +arties, Carlos Andres @erez (A7) in 19A9, and $a.ael
Caldera (C1@:6) in 1993, to distance t)e!sel0es .ro! t)eir +arties. /ot) leaders seized
u+on crisis situations to re>in0ent t)e!sel0es as +olitical outsiders. ()ey did so 5it)
+olitical !essa%es and +lat.or!s t)at 5ere t)e o++osite o. 5)at t)ey and t)eir res+ecti0e
+arties )ad establis)ed o0er t)e +re0ious .orty years. 7ra!atic +olicy s5itc)es )a0e been
s)o5n to be a de>stabilisin% e0ent .or .ra%ile de!ocracies (to2es, 1999). ()e decision o.
@erez, leader o. A7, to i!+le!ent neo>liberal re.or!s t)rou%) t)e use o. non>+arty
tec)nocrats 5as detri!ental in t5o 5ays. 3irst, @erezBs +arty>ne%lectin% strate%y
(Corrales, 2002) accentuated .actionalis! 5it)in A7, and !ade i!+le!entin% re.or!s
+olitically contentious. Many A7 +arty !e!bers bloc2ed re.or!s in Con%ress and
ulti!ately su++orted t)e i!+eac)!ent o. @erez. Many A7 !e!bers o. Con%ress and o.
t)e Central :lectoral Co!!ittee o. A7 considered @erezBs actions a betrayal on t5o
.rontsH one .or i!+le!entin% neo>liberal +olicies, and t5o .or na!in% 0ery .e5 A7 +arty
!e!bers to t)e Cabinet. econdly, t)e launc)in% o. a neo>liberal econo!ic 5ent a%ainst
t)e set o. +olicies and sy!bols t)at de.ined A7Bs le%iti!acy .or decades. A7 beca!e t)e
.unda!ental +arty as a c)a!+ion o. t)e 5or2in% class and +easants and built its
re+utation ()o5e0er tarnis)ed it )ad beco!e) by ad0ocatin% and i!+le!entin% state>led
de0elo+!entalis!, t)e anti>i!+erialist stru%%les, and econo!ic nationalis!. =eo>liberal
re.or!s launc)ed by A7Bs !ost establis)ed +olitician di0ided 5)at A7 stood .or in t)e
!inds o. t)eir !ilitants and sy!+at)isers. ()e loss o. A7Bs +arty identity !ost li2ely
contributed to t)e si%ni.icant decline in +arty identi.ication t)rou%) t)e 1990Bs.
$a.ael Caldera lost t)e no!ination o. t)e +arty )e .ounded, C1@:6, in 1993,
to 1s5aldo Al0arez @az, one o. t)e e!er%in% re%ional +oliticians t)at decentralisation
and direct state elections (le%islated in 19A9) created. Caldera runs and 5ins 5it) a loose
33
coalition o. s!all le.t>5in% +arties under t)e u!brella o. t)e ne5 M+artyN Caldera .ounds,
Con)ergencia. Con0er%enciaBs !ain ally in %o0ern!ent 5ould be t)e Mo0i!iento al
ocialis!o (MA), 5)ic) 5as an establis)ed, but s!all le.t>5in% +arty.
()e s)ort rise o. Con)ergencia )ad serious conse-uences .or t)e co)esion
and le%iti!acy o. t)e +arty syste!, )it)erto controlled by A7 and C1@:6. 3irst,
CalderaBs 0ictory )as an i!+ortant signalling effectH t)e +residency can be obtained by
runnin% outside traditional +arty a..iliation. econdly, Caldera s+lit t)e C1@:6 0ote, and
t)us di0ided 5)at 5as a solid centre+right organise, alternati)e to A7 and ci0il society.
C1@:6 did sur0i0e t)is .racture o. its !iddle class and business su++ort. ()irdly, t)is
+eriod sees a %ro5in% +roli.eration o. +olitical +arties co!+etin% .or t)e +residency and
Con%ress. ;it) t)e rise o. Con0er%encia and t)e Causa $ (a labour union alternati0e to
A7), re+resentation o. t)e centre>le.t 0ote beco!es di0ided bet5een t)ese t5o Y+artiesB,
A7 and MA at bot) t)e national and re%ional elections. 6n t)e +eriod 1973>19AA, t)e
nu!ber o. e..ecti0e +arties a0era%ed 2.' .or t)e +residency and 3.3 .or t)e Con%ress. 6n
1993, t)e nu!ber o. e..ecti0e +arties co!+etin% .or t)e +residency rises to '., and t)e
nu!ber o. e..ecti0e +arties in Con%ress rises to '., t)ou%) A7 and C1@:6 re!ain t)e
t5o lar%est +arties in bot) c)a!bers.
()e 0ery ne%ati0e and disa++ointin% e*+erience o. %o0ern!ent in t)e
Caldera ad!inistration (199">199A) .urt)er under!ined t)e le%iti!acy o. t)e +arty
syste!. Caldera, was a.ter all, trying to go)ern with political party input (includin% a
ra++roc)e!ent 5it) A7), as o++osed to @erez, 5)o 5as con0inced t)at A7, and t)e +arty
syste! 5as %enerally !oribund 3irstly, Caldera in)erited one o. t)e 5orst ban2in% crises
in 199" (see 7i Io)n, 200") and e*acerbated t)e situation by s)uttin% do5n t)e lar%est
ban2, /anco 8atino, 5)ic) 5as o5ned by an econo!ic %rou+ close to t)e +re0ious @erez
ad!inistration (see $odri%uez, 2002). econdly, t)ere 5as a %ro5in% inco)erence in state
!inistries as Caldera tried to acco!!odate t)e .ractious coalition. ()ere 5as no clear and
co)erent econo!ic strate%y. ()ere 5ere four econo!ic +lans initiated in CalderaBs
%o0ern!ent and t)ere 5as a lar%e rotation o. !inisters de <ri0oy, 2002).
econdly, introduction o. +olitical decentralization and .iscal .ederalis! in
t)e early 1990Bs also contributed to t)e .ra%!entation and loss o. +arty disci+line in t)e
t5o !ain +arties in t)e de!ocratic +act, A7 and C1@:6. Accordin% to @en.old>/ecerra
3"
(2002), t)e +ost>19A9 re.or!s t)at initiated direct election o. !ayors and %o0ernors and
led to t)e de0olution o. state s+endin% to states and !unici+alities lo5ered t)e barrier to
entry o. !ar%inal and e!er%in% +arties and encoura%ed +oliticians 5it)in t)e t5o !ain
+arties, A7 and C1@:6, to de0elo+ local alliances and assert autono!y .ro! national
+arty bosses. 7ecentralisation, in t)e conte*t o. ra+id econo!ic re.or!s and econo!ic
crisis, alon% 5it) relentless !edia co0era%e o. corru+tion scandals concernin% t)e state
and +olitical +arties +ro0ided o++ortunities .or !ar%inal but stron% +arties suc) as MA,
(but !ore i!+ortantly) e!bryonic and structurally 5ea2 +olitical Y+arties suc) as Causa
$ and Proyecto Venezuela, and later M/$>200 to co!+ete electorally at t)e state le0el.
()e e!er%ence o. .ederalis! drastically c)an%es t)e alliance strate%ies
.ollo5ed by +olitical +arties. A7, C1@:6 and MA all de0elo+ed alliance>bloc syste!s
5it) as a strate%y to +rotect t)eir re%ional leaders)i+s (@en.old>/ecerra, o+. cit.) 6n 19A9,
A7 establis)ed alliances 5it) an a0era%e o. 2.1A +arties +er state .or t)e 22 %ubernatorial
elections. /y 199A, A7 allied 5it) an a0era%e o. 7.' +arties +er state. 6n 19A9, C1@:6
establis)ed an a0era%e o. '.'7 alliances 5it) +arties and 9 by 199A. ()e electoral
+re!iu! C1@:6 obtained .or! t)ese alliances rose .ro! an a0era%e o. 7 +ercent in 19A9
to 20., +ercent in 199A. 6n 199A, C)a0ezBs +arty, Mo0i!iento Ruinta $e+ublica (M?$)
M/$>200, 5as %ainin% stren%t) at t)e re%ional le0el and by 199A, on t)e coat tails o.
C)a0ezBs 0ictory, 5on 17.7 (") +ercent o. t)e %o0ernors)i+s. ;)at is tellin% about t)ese
re%ionally>based +arties is t)at, t)eir %ro5t) ne0er e*+anded to t)e national le0el in ter!s
o. +arty or%anisation! 6n su!, t)is +eriod is c)aracterised by a %ro5t) o. !ulti>+arty
co!+letion and t)e .ra%!entation o. t)e +arty syste!, 5)ic) reduced t)e +ossibility o.
e..ecti0e coordination o. %o0ern!ent +olicies
-!%!, The rie of anti1party politic an, )ro*in$ Polarization of Politic: %0001+;;3
()e .ailure o. t)e +olitical +arties to !eet econo!ic c)allen%es alon% 5it) t)e
%ro5in% +olarization t)at neo>liberal re.or!s unleas)ed o+ened t)e s+ace .or t)e e!er%ence
o. a +olitical outsider. 7urin% t)e electoral ca!+ai%n o. 199A, Hu%o C)[0ez and t)e M?$
ca!+ai%ned on an anti>corru+tion, anti>neo>liberal, anti>+olitical establis)!ent discourse
t)at called .or t)e trans.or!ation o. t)e +olitical syste! and t)e Constitution. ()e +ro!ise
.or a Constituent Asse!bly +ro0ided t)e .ocal +oint o. C)a0ezBs electoral +led%e. &ro5in%
le0els o. +o0erty and t)e +olicy s5itc) to a neo>liberal a%enda (in t)e .or! o. t)e A%enda
3'
?enezuela) durin% t)e Caldera ad!inistration se0erely reduced t)e +o+ularity and
le%iti!acy o. t)e traditional +olitical +arties. ()e M?$ re.used to !a2e any alliances 5it)
traditional +artiesO instead t)e M?$ constructed a broad alliance 5it) ne5 and alternati0e
!o0e!ents, 5)ic) to%et)er beca!e 2no5n as t)e @olo @atri#tica (@@, @atriotic @ole). ()e
M?$ (t)e 3i.t) $e+ublic Mo0e!ent), t)e electoral or%anisation o. t)e M/$>200 5as
desi%ned to +rotect t)e .ra%ile structure o. t)e M/$>200 .ro! t)e un+redictability o. t)e
electoral +rocess (8#+ez Maya, 2003). M/$>200 leaders did not 5ant t)eir ideolo%ical
orientation co!+ro!ised by t)e real +olitics o. constructin% electoral alliances. ()e
.ra%ility o. anti>+olitics ori%inates )ere in t)e di0orce o. econo!ic and +olitical +ro%ra!s
.ro! econo!ic and +olitical or%anisations.
()e rise o. C)a0ez o5es !uc) to t)e e..ecti0eness o. )is radical anti>+olitical +arty,
anti>corru+tion and anti>oli%arc)y discourse. ()e rise o. t)is radical anti>+arty +olitics )as
%enerated se0eral i!+ortant tendencies t)at )a0e 5ea2ened t)e ca+acity o. t)e state to
re0i0e econo!ic %ro5t). 3irst, t)e radical nature o. t)e +olitical discourse )as led to a
%ro5in% +olarization o. +olitics. ()e +eriod 2002>2003 sa5 nu!erous !assi0e street
de!onstrations bot) su++ortin% and resistin% t)e C)a0ez ad!inistration, )i%)li%)ted by a
t5o>!ont) national stri2e, 5)ic) included t)e nearly co!+lete s)utdo5n o. t)e oil
industry. $elations bet5een t)e state and bi% business )a0e been !ore anta%onistic t)an in
any ti!e in t)e de!ocratic era. econd, t)ere )as been a de>institutionalization o. +olitical
or%anizations. ()e 1999 Constitution banned .inancin% o. +olitical +arties, 5)ic) li!its t)e
or%anisational stren%t) o. t)e o++osition. Moreo0er, t)e ad!inistration )as li!ited t)e
or%anisational de0elo+!ent o. its o5n +arty, 5)ic) is itsel. sub4ect to intense
.actionalisation. ()ese .actors lessen t)e +ossibility o. consensus>buildin% and coo+eration
(Monaldi et al. 200").13 ()ird, t)ere )as been a +ur+ose.ul strate%y to circu!0ent state
institutions in t)e deli0ery o. social ser0ices.1" ()e ad!inistration )as set u+ se0eral
%o0ern!ent !issions to i!+ro0e education, )ealt) and )ousin% in s)antyto5ns. Ho5e0er,
t)ese !issions, .unded by resources .ro! t)e state oil co!+any, are e*ecuti0e>led and
by+ass state !inistries in t)eir +lannin% and i!+le!entation +)ases. ()is )as created a
dual state structure t)at )as .urt)er led to t)e .ra%!entation o. t)e state des+ite an increase
13 ()e .actionaliszation o. C)a0ezBs o5n su++ort base can be seen in t)e )i%) de%ree o. cabinet instability. 6n
t)e +eriod 19'A>19AA, cabinet !e!bers lasted an a0era%e o. 2.13 years in t)eir +osition (in a .i0e year ter!).
6n 19A9>1993, !inisters lasted only 1." years, in 199">1999, it increased to 1.A years, and in 1999>200", it
declined to 1.3 years (Monaldi et al. 200"H 3")
1" Moreo0er, t)e C)[0ez ad!inistration does not dra5 on bureaucratic +ersonnel associated 5it) A7 and
C1@:6 and t)us lose out on so!e talented +ools o. labour.
3,
in t)e centralisation o. +o5er. 3ourt), t)ere is a lac2 o. any co)erent +roduction or e*+ort
strate%y. Muc) o. t)is )as to do 5it) t)e anta%onistic relations)i+ C)a0ez )as !aintained
0is>`>0is !any bi% business %rou+s (t)ou%) relations )a0e i!+ro0ed as C)a0ez )as
consolidated +o5er a.ter t)e 200" re.erendu!) Ho5e0er, anot)er i!+ortant .actor is t)e
ideolo%y o. c)a0is!o, 5)ic) is .ocused on su++ortin% s!all>scale businesses and
coo+erati0es t)rou%) !icro credit sc)e!es and, !ost i!+ortantly, t)e e!+)asis on social
+ro%ra!!es as t)e cornerstone o. %o0ern!ent +olicy. ()is strate%y !a2es ?enezuela !ore
de+endent on oil. ()e ne*t section e*a!ines t)e econo!ic e..ects o. t)e c)an%es in
+olitical settle!ents and strate%ies in t)e +eriod 19'A>2003.
-!+ The Economic Effect of Populit Clientelit Pact an, #actionalim in the Context
of Ai$ Puh De(elopment 8trate$ie: %0731+;;3
()e i!+lications o. t)ese )istorical +atterns o. state>society relations c)aracterized
by t)e +o+ulist clientelis!, +act>!a2in% and increasin%ly, .actionalis! and +olitical
+olarization )a0e been +ro.ound. ()e +riority o. +reser0in% de!ocracy !eant t)at +olitical
+arty and state leaders needed to acco!!odate t)e %ro5in% .actions o. t)e +o+ulist
coalition in t)e +acted de!ocratic era. ()e 0iability and lon%>run 5ea2ness o. t)e +olitical
+acts 5ere t)at t)ey +ro0ide econo!ic rents to t)ose %rou+s in return .or +olitical su++ort.
;)ile +acts are o..ered to +rotect e!bryonic de!ocratic institutions .ro! +ressures 5)ic)
t)ey !ay not res+ond, t)e .easibility o. +acts de+end on +artners e*tractin% +ri0ate bene.its,
or rents .ro! de!ocracy (@rze5ors2i, 1991H A7>9"). 6n e..ect, +acts 5ere to %enerate
!ono+oly +ri0ile%es on t)e reci+ients o. rents. :*tensi0e rents 5ere a5arded to t)e .a!ily
con%lo!erate ca+italists in t)e .or! o. subsidies and +rotection (=a! and 3rances, 199').
()e strate%y o. Ye*cessi0e a0oidance o. con.lictB and t)e need to 2ee+ t)e YinsiderB %rou+s
-uiescent !eant t)at selecti)ity in rent de+loy!ent and t)e ,iscipline o. rent reci+ients
,ecline, si%ni.icantly.
()e .irst e..ect o. clientelist and +o+ulist s+endin% can be seen in t)e dra!atic
increase in state e!+loy!ent. ()e ca+ital>intensi0e nature o. industrialization in ?enezuela
!eant t)at, in t)e conte*t or ra+id urbanization, )i%) urban une!+loy!ent could be destabilisin%
.or t)e re%i!e. ()e nu!ber o. non>.inancial +ublic enter+rises %re5 .ro! less
t)an 30 in 19'A to %reater t)an "00 by 19A' (e%arra, 19A'H 132). As indicated in (able ",
37
since 19"1, 5)en t)e +olitical +arties be%an to establis) t)eir +o5er, t)e use o. e!+loy!ent
+atrona%e beco!es an i!+ortant 0e)icle .or buildin% +olitical clienteleH
Table -! )ro*th an, 8hare of 8alarie, Employment in VenezuelaE %0-%1%00-
(nu!ber o. +ositions in t)ousandsO s)are as +ercent o. total)
Total Pri(ate 8hare /:4 Public 8hare/:4
19"1 'A7.1 '"'." 92.9 "1.7 7.1
1971 1,7A9.' 1,233.2 ,A.9 '',.3 31.1
19A1 2,7A'., 1,,9"., ,0.A 1,091.0 39.2
19AA 3,7,9.7 2,,2".7 ,9., 1,1"'.0 30."
199" 3,,,3.2 2,"91.9 ,A.0 1,171.3 32.0
=oteH salaried e!+loy!ent re.ers to !anual 5or2ers, +ro.essionals, tec)nicians, clerical and
ad!inistrati0e sta... ;or2ers in t)e in.or!al sector, o5n>account +ro.essionals and o5ners e*cluded
ourceH /anco Central de ?enezuela, 1993H ocio>8abour tatistics o. ?enezuela, 193,>1990
((ables 66>1, 66>"O 66>')O /etancourt et. al, 199' ((able A.2>a, +.93>9").
()e %ro5t) o. state salaried e!+loyees increases in absolute ter!s t)rou%)out t)e +eriod
19"1>199". As 5ell, t)e s)are o. state salaried e!+loyees in total salaried e!+loy!ent
increases .ro! 4ust 7.1 +ercent in 19"1 to 31.1 +ercent in 1971 and +ea2s at 39.2 +ercent in
19A1. ()e stren%t) o. t)e clientelist +atterns o. +atrona%e are also e0ident in t)e .irst .our
years o. t)e econo!ic liberalization +eriod (19A9>199") 5)en retrenc)!ent o. a bloated
state bureaucracy 5as one o. t)e %oals o. t)e econo!ic re.or!s. ()is +eriod does not see
any retrenc)!ent at all, rat)er t)ere is an increase in t)e absolute nu!ber o. state
e!+loyees .ro! 1.1" !illion in 199A to 1.17 !illion in 199" and t)e s)are o. state salaried
e!+loyees increases .ro! 30." +ercent to 32.0 in 199".
()e de0elo+!ent o. +atrona%e net5or2s to build !iddle class clientele can also be
seen in t)e si%ni.icant increase in real current +ublic s+endin%. As indicated in (able ', t)e
s)are o. +ublic in0est!ent in total %o0ern!ent s+endin% declines steadily in t)e +eriod
19'0>199A.
3A
Table 2! )ro*th an, Compoition of Real Public
8pen,in$ in Venezuela %02;1%003
(otal $eal @ublic +endin% Co!+osition o. @ublic +endin%
(annual a0era%e, (in0est!ent as s)are o. total, C)
19A" /s, billions)
%02;127 22.7 ",.ACD
%023173 '".' 3".'
%07-133 113.' 21.3
%033103 119.' 17.7
ourceH Central /ud%et 1..ice (1C:@$:)O Annual (iscal "u,get, 0arious yearsO /anco
Central de ?enezuela Annual %eport, 0arious years
()e decline in t)e s)are o. +ublic in0est!ent in total +ublic s+endin% .ro! a +ea2 o. ",.A
+ercent in t)e +eriod 19'0>19'7 to a lo5 o. 17.7 +ercent in t)e +eriod 19A9>199A o5es
+rinci+ally to t)e %ro5t) in +ersonnel e*+enditure in state enter+rises (<arl, 1997H 10") and
to interest +ay!ents on t)e e*ternal debt. 6n t)e +eriod 19'A>1973, t)e s)are o. interest
+ay!ents a0era%ed less t)an one +ercent o. total current s+endin%. 6n t)e +eriod 197">
19AA, t)at s)are increased to nearly 20 +ercent, and rose to an a0era%e o. 2' +ercent in t)e
+eriod 1999>199A. ()e !ain ne%ati0e econo!ic conse-uence o. t)e increase in current
s+endin% is t)at t)e +ublic in0est!ent rate could )a0e been !uc) )i%)er %i0en t)e increase
in real +ublic s+endin% o0er t)e +eriod 19'0>199A.1'
A second i!+ortant econo!ic e..ect o. +o+ulist clientelist +olitics on industrial
+er.or!ance 5as t)e lac2 o. state disci+linin% o. +ri0ate or +ublic sector rent reci+ients in
t)e +ost>19'A +eriod. 7es+ite t)e centralisin% and le%iti!atin% e..ect t)e t)reats to t)e
re%i!e +layed, t)e s+lits 5it)in A7 5ere to )a0e a lon%er lastin% ne%ati0e e..ect on t)e
ability o. t)e state to e..ecti0ely de+loy rents e..iciently. ()e s+linterin% o. A7 5ea2ened
t)e su++ort base o. t)e natural %o0ernin% +arty and its allies in t)e state. As a result, state
decision>!a2ers could not a..ord to anta%onize t)e core su++orters o. t)e re%i!e, 5)ic)
5ere t)e +olitical +arty cadres, t)e !ain business %rou+s, and t)e labour unions. 6t is t)us
not sur+risin% t)at t)ere 5as little e0idence selecti0ity and tar%etin% or disci+linin% in t)e
+rotection, or subsidization +rocess (;orld /an2, 1990O =a! and 3rances, 199'). 66 5as
as !uc) a +olitical +ro4ect o. buyin% in su++ort o. business %rou+s and e!+loy!ent
creation .or t)e urban !iddle class, as it 5as an econo!ic +ro4ect to di0ersi.y t)e
+roduction and e*+ort co!+osition o. t)e econo!y.
1' As a result, +ublic in0est!ent in in.rastructure declines .ro! 0."A +ercent o. &7@ in t)e +eriod 19A1>19A'
to 0.1 +ercent o. &7@ in t)e +eriod 199,>2000 ($odr%uez, 200,).
39
A t)ird e..ect o. t)e +o+ulist clientelis! 5as t)e lac2 o. selecti0ity in t)e de+loy!ent
o. rents to e!er%in% con%lo!erate %rou+s. ()e +roli.eration o. subsidies 5as a by>+roduct
o. t)e +olitics o. state>business relations. ()e di0ision o. business %rou+s alon% s)i.tin%
.actional lines 5as to c)aracterize t)e +olitics o. bi% business .ro! t)e early 1970Bs
on5ards (=a!, 19A9). ()is .actionalis! a..ected t)e dyna!ics o. state>business
relations)i+s in se0eral 5ays. 3irst, t)ere 5as a noticeable increase in t)e .ra%!entation o.
business associations, not only bet5een lar%e>scale and s!aller .ir!s but also bet5een t)e
lar%er .ir!s 5it)in t)e sa!e sector (Corrales and Cisneros, 1999O Co++ed%e, 2000). As a
result, industrial restructurin% and state>business consultati0e %rou+s 5ere ine..ecti0e in t)e
+ost>19,A era (=a! and 3rances, 199').1, A corollary result o. t)is .ra%!entation 5as a
%ro5t) in particularistic bar%ainin% bet5een business leaders and +olitical +arty leaders
and !inisters in c)ar%e o. dis+ensin% licenses and subsidies. 1ne o. t)e !ain c)annels o.
in.luencin% 5as t)rou%) ca!+ai%n .inancin%, 5)ic) beca!e decisi0e to electoral 0ictory as
?enezuelan elections in t)e era 1973>1993 5ere a!on% t)e !ost e*+ensi0e in t)e
de0elo+in% 5orld (Co++ed%e, 2000). ()e %ro5in% reliance on ca!+ai%n .inancin% and
+ersonal .a0ors in t)e conte*t o. .luid .actional c)an%es !eant t)at t)ere 5as little
collecti0e action a!on% business %rou+s, no +er.or!ance criteria i!+osed by t)e state, a
%ro5t) in t)e +roli.eration o. licenses and subsidies based on +olitical rat)er t)an econo!ic
criteria and a %ro5t) in t)e insecurity and ris2 in t)e business en0iron!ent. 6n an
en0iron!ent 5)ere t)ere 5as insecurity in t)e +olicy o. %o0ern!ent and 5it) little e*+ort
acti0ity, ra+id di0ersi.ication o. .actories and +roducts beca!e t)e !ost e..ecti0e !eans to
s+read ris2 a!on% con%lo!erates in order to endure lon%>run sur0i0al (=a!, 19A9). ()us
o)er+,i)ersification 5as %enerated .ro! bot) +olitical +arty strate%ies to build clientele and
.ro! business %rou+ de.ensi0e strate%ies to di0ersi.y ris2 in a ra+idly c)an%in% and
uncertain +olicy en0iron!ent.
o!e e0idence to indicate t)e lack of selecti)ity in industrial +olicy can be seen in t)e
le0el o. .ir! entry in t)e ?enezuelan !anu.acturin% sector. 7es+ite t)e 5ides+read
2no5led%e o. t)e %ro5in% relati0e saturation o. t)e internal !ar2et, t)e +eriod 19,1>199A
5itnesses a relati0ely )i%) le0el o. e*cessi0e entry into !anu.acturin% as indicated in
(ables , and 7H
1, @)ar!aceuticals, te*tiles and auto +arts are t)ree sectors re+resented t)ree cases 5)ere .actionalis!
)indered t)e de0elo+!ent o. co)erent +olicies (=a! and 3rances, 199'H 17A). ee Coronil (199AH 237>2A')
.or a detailed discussion o. .actionalis! in t)e auto +arts sector.
"0
Table 9! Tren, in <umber an, 8cale of #irm in Venezuelan
.anufacturin$E %09%1%003
(nu!ber o. establis)!ents)
total lar$e /%4 me,ium1lar$e /+4 me,ium1mall /34 mall /-4
%09% 7,'31 19, 170 9"9 ,,21,
%07% ,,"01 "'3 3A, 1,13A ""2"
%03+ 10,30" 7,0 ,"9 1,AA1 7,01"
%033 10,23A 9,1 ,12 1,A97 ,,7,A
%00+ 10,37" 9,1 '9' 1,9,9 ,,A"9
%003 11,19A ,93 "A, 1,A32 A,1A7
+;;+ ',930 'A" "33 1,093 3,A20
=oteH (1) re.ers to .ir!s 5it) !ore t)an 100 e!+loyeesO (2) re.ers to .ir!s 5it) '1>100
e!+loyeesO (3) re.ers to .ir!s 5it) 21>'0 e!+loyeesO (") re.ers to .ir!s 5it) '>20
e!+loyees
ourceH 1C:6- 1n,ustrial 'ur)ey, 0arious years
Table 7! )ro*th in <umber an, 8cale of #irm in Venezuelan .anufacturin$
%09%1+;;+
(+ercenta%e c)an%e in nu!ber o. .ir!s, C)
total lar$e /%4 me,ium1lar$e /+4 me,ium1mall /34 mall /-4
%09%17% >1'C 131C 127C 20C >29C
%07%13+ ,1 ,A ,A ,' ,9
%03+133 >1 2, >, 1 >"
%033103 9 >2A >21 >3 21
%0031;+ >"7 >1, >11 >"0 >'3
=otes and sources sa!e as +re0ious table
;it)out an e*+licit e*+ort +olicy, t)e increase in t)e %rantin% o. +rotection
licenses and subsidies led to o0er>di0ersi.ication o. +roducts, 5)ic) in turn, %enerated
subo+ti!al
scale econo!ies in +lants. =e0ert)eless, t)e nu!ber o. large+scale firms, 5)ic)
!ade u+ t)e 0ast !a4ority o. !anu.acturin% in0est!ent and assets, and 5)ic) a++ro+riated
!ost o. state credits, increased 131 +ercent .ro! 19,1>1971 and ,A +ercent .ro! 1971>A2h
More re!ar2ably, t)e nu!ber o. lar%e .ir!s increased 2, +ercent des+ite declines in
!ediu!>sized .ir!s. ()e nu!ber o. lar%e>scale .ir!s declined by 2A +ercent, t)e lar%est
dro+ o. any .ir! cate%ory in t)e liberalisation +eriod (19A9>9A), indicatin% t)e un0iable
nature o. !any o. t)ese enter+rises, 5)ic) in turn, suggeste, that cre,its an, licenses were
awar,e, more on political than economic criteria= ;)at is also notable is t)at t)e
increasin% +olarization and instability o. +olitics in t)e +eriod 1999>2003 )as led to a
si%ni.icant reduction in t)e nu!ber o. .ir!s o. all sizes, and +articularly s!all enter+rises.
"1
Anot)er indicator o. t)e lac2 o. selecti0ity can be seen in t)e +roli.eration o.
+rotectionist +olicies. Historically, i!+ort restrictions )a0e +layed a !ore i!+ortant role in
+rotectin% do!estic !anu.acturin% sectors in ?enezuela. ()ere is clear e0idence t)at t)ere
)as been a si%ni.icant +roli.eration o. i!+ort licenses 5it)in sub>sectors o0er ti!e.
/et5een 1939>19,0, 3' tari..s 5ere sub4ect to i!+ort licensin% (;orld /an2, 1973H 2").
/y 19,9, t)e nu!ber o. tari.. ite!s sub4ect to i!+ort licenses reac)ed '99 (ibid.). /y
19A9, t)e nu!ber o. tari.. ite!s sub4ect to i!+ort restrictions increased to ',7"9 (;orld
/an2, 1990H (able 2.'A, +.1,)h 6n )istorical +ers+ecti0e, t)e +eriod 1920>19'A is
c)aracterized by a !uc) !ore li!ited e*tent o. +rotectionis! in !anu.acturin% t)an in t)e
+eriod 19'A>19A9 (see 7i Io)n, 200', .or a discussion o. t)e +olitical econo!y .actors
be)ind !ore liberal trade +olicies in t)e +eriod 19"0>'7).
()e dro+ in t)e nu!ber o. lar%e>scale .ir!s in t)e era o. econo!ic liberalization
is indication in t)e ine..iciency o. state +olicies in t)e disburse!ent o. rents in t)e +eriod
1971>19AA, t)e 5ea2ness o. t)e +ri0ate sector to in0est +roducti0ely. i!+ly +ut, too !any
lar%e>scale .ir!s 5it) sub>o+ti!al scale and o0er>di0ersi.ication o. +roducts 5ere
subsidized. (able A traces t)e e0olution o. t)e decline in t)e nu!ber o. .ir!s as classi.ied
by .ir! size and industrial sector in t)e +eriod 19AA>199A.
Table 3! E(olution of <umber an, 8cale of #irm in 8electe, Venezuelan
.anufacturin$ 8ectorE %033103
(+ercenta%e c)an%e in nu!ber o. .ir!s, 19AA>9,)
#irm ize
total lar$e /%4 me,ium /+4 me,ium /34 mall /-4
8ector
All manufacturin$ 0!-: 1+3!%: 1+;!9: 13!-: +%!;:
&ron an, teel /37%4 3".9 >,.7 1".3 2'.0 ,3.2
<onferrou metal /37+4 >23.3 >1".3 '7.1 >'0.0 >2A.,
Printin$Lpublihin$ /3-+4 >11.1 >2'.7 >''.9 >".3 >A.3
Chemical pro,uct /32+4 12.' >2,.2 11.1 >12.' ,1.0
Platic /3294 >27.' >29.3 >1,.3 >2A.A >29.1
Tranport e"uipment /33-4 33.3 >3,.7 >33.3 >,3.1 92.1
.etal pro,uct /33%4 >1.' >"0.9 >32., >'., ".2
Textile/3+%4 17.1 >"".A 0.0 A.3 ,'.,
Electrical machinery /3334 1.7 >'2., >2'.A ,.1 ",.9
'ther manufacturin$ /30;4 >0., >',.3 0.0 >""." 2A.0
>earin$ an, Apparel /3++4 >19.0 >,".9 >"A., >33.A >,.'
>oo, pro,uct /33%4 ,,.0 >73.3 >,2.' >".' 102.A
=oteH (1) re.ers to .ir!s 5it) !ore t)an 100 e!+loyeesO (2) re.ers to .ir!s 5it) '1>100 e!+loyees
(3) re.ers to .ir!s 5it) 21>'0 e!+loyeesO (") re.ers to .ir!s 5it) '>20 e!+loyees
ourceH 1C:6, 1n,ustrial 'ur)ey, 0arious years
"2
6n t)e (able, t)e sectors are ordered accordin% to t)e +ercenta%e decline in nu!ber o.
large+scale firms in t)e +eriod be%innin% 5it) t)e sector 5)ere t)at +ercenta%e decline is
s!allest.
6n t)e +eriod 19AA>199,, t)e o0erall +ercenta%e .all in t)e nu!ber o. lar%e>scale .ir!s
5as 2A +ercent. ()e decline in t)e nu!ber o. .ir!s is least +ronounced a!on% t)e statecontrolled
ca+ital>intensi0e sectors (steel, alu!iniu!, industrial c)e!icals), 5)ic) are also
t)e sectors 5)ere +roducti0ity le0els dro++ed t)e least in t)e 1990Bs ((able 2."b). ()is
re.lects t)e )i%)er +olitical costs o. closin% do5n state>run .ir!s in a clientelist +olity but
also re.lects t)e %reater +otential 0iability o. t)ese sectors. Alu!iniu! and steel beca!e
t)e second and .ourt) lar%est e*+orts in t)e country in t)e 1990Bs. Ho5e0er, t)ere 5as a
!uc) lar%er dro+ in sectors controlled by t)e pri)ate o5ners, re.lectin% t)e 5ea2ness o.
+ri0ate sector +roducti0e ca+acity. ()e inter!ediate> ca+ital>intensity sectors (trans+ort
e-ui+!ent, !etal +roducts, and electrical !ac)inery) t)at 5ere !ore +ro!inently +ro!oted
in t)e Ybi% +us)B +)ase dro++ed 3,.7 +ercent, "0.9 +ercent, and '2., +ercent res+ecti0ely.
()e clot)in% sector, a labour>intensi0e acti0ity, 5)ic) )as e*+erienced a!on% t)e !ost
.ractious relations a!on% +roducers in t)e te*tile business association, also e*+erienced a
dra!atic decline o. ,".9 +ercent in t)e nu!ber o. .ir!s.
6t is +lausible to ar%ue t)at t)e decline in t)e nu!ber o. .ir!s could be due to ot)er
.actors beyond t)ose +osited in t)is section. ()e .act t)at !any lar%e .ir!s .ailed a.ter
liberalization can be sy!+to!atic o. e*cessi0e +rotection or si!+ly o. t)e .act t)at t)ey )ad
been set u+ under e*+ectations o. %ro5t) o. t)e econo!y t)at 5ere not realized. ()e latter
e*+lanation is rele0ant but not inconsistent 5it) !y analysis. ()e creation o. .ir!s under
0ery +rotectionist conditions in t)e +eriod 197">19AA 5as t)e result o. an e*+licit +olicy o.
+atrona%e. ()e nu!ber o. lar%e .ir!s actually increase, (.or reasons o. +olitical
+atrona%e) in t)e 19A0Bs ,espite t)e slo5do5n in !anu.acturin% %ro5t) in t)e 19A0Bs
co!+ared to t)e 1970Bs. econd, t)e non>oil %ro5t) rate o. t)e econo!y in t)e +eriod
1990>9A is actually greater t)an in t)e 19A0Bs (see (able 1) so t)e dra!atic reduction in t)e
nu!ber o. lar%e .ir!s can not necessarily be attributed to declines in %ro5t) rates alone.
;)at is true is t)at t)e reduction in tari.. and non>tari.. +rotection in t)e 1990Bs (a +olicy
t)at c)allen%ed +atrona%e +atterns) 5eeded out !any o. t)ese un0iable .ir!s t)ou%) )i%)
real interest rates and t)e ban2in% crisis o. 199" clearly a..ected t)e ability o. !any lar%e
.ir!s to sur0i0e, +articularly in t)e conte*t o. less +rotection.
"3
()e decline in t)e nu!ber o. lar%e .ir!s is also consistent 5it) t)e )y+ot)esis
ad0anced by /ello and /er!]dez (in t)is 0olu!e) t)at labor le%islation beca!e
si%ni.icantly biased a%ainst lar%e .ir!s. ()is e*+lanation is not inconsistent 5it) t)e
analysis +resented. ;)ile econo!ic liberalization c)allen%ed traditional clietnetelist
+atrona%e +atterns, not all o. t)e in.luencin% o. t)e state 5as eli!inated in t)e 1990Bs. 6t is
5ell>2no5n t)at t)e ban2in% sector 5as still in.luential in +re0entin% .inancial dere%ulation
(7e <ri0oy, 2002). i!ilarly, labour unions and t)eir allies (+articularly in A7
and in Con0er%encia) re!ained su..iciently in.luential to enact labour le%islation t)at
increased t)e labour costs o. .ir!s. 6t is no accident t)at t)ese la5s a..ected t)e lar%e .ir!s
!ore in t)e 1990Bs because t)e bul2 o. t)e .or!al sector .acin% increased international
co!+etition resided in lar%e .ir!s. ()is resulted, as /er!udez and /ello ar%ue in bot)
do5nsizin% and closure o. +lants. ;)at is not e*+lained (and re!ains and interestin%
researc) to+ic) is 5)y o5ners o. industrial assets 5ere unable to +re0ent t)is un.a0orable
le%islation, or !ore %enerally, 5)y t)e .inancial sector see!ed to be able to +rotect its
interests to a %reater de%ree t)an t)e lar%e>scale !anu.acturin% sector. ()is is a trend t)at
)as e*tended 5ell into t)e C)[0ez +eriod.
1ne o. t)e !ore da!a%in% e..ects o. t)e +roli.eration o. un0iable .ir!s is t)e 0ery
)i%) and increasin% le0els o. e*cess ca+acity in industry !aintained t)rou%)out t)e +ost>
19,A +eriod, as indicated in (able 9.
""
Table 0! Capacity =tiliationB: Venezuelan .anufacturin$ ince the mi,1%09;O
(actual out+ut as +ercenta%e o. !a*i!u! +ossible out+ut, +ercenta%e)
8ize of firm
@ar$e1cale /%4 .e,ium an, mall1cale /+4
8ector %099 %032133 %030 %00;10% %099 %032133 %030 %00;10%
All manufacturin$ /excl! oil refinin$4 97 9; -- 22 -3 -2 3- 33
#oo, /3%%4 ,0 '0 ," "A ", "'
Textile/3+%4 A7 70 ,, ,0 '0 ,1
>earin$ an, Apparel /3++4 '7 '0 "' '1 3, 3,
>oo, pro,uct /33%4 71 "' '1 7" 70 ,A
Printin$Lpublihin$ /3-+4 7' '0 '' '7 37 3'
Chemical /32%4 77 ,0 71 ,' ", "7
Chemical pro,uct /32+4 "" 3, "9 '3 32 3,
'il Refinin$ /3234 A1 ,0 AA ', ", '"
Rubber pro,uct /3224 7, 7" 73 "2 "1 "3
Platic /3294 ,2 '3 '2 "A 39 "'
&ron an, teel /37%4 71 ,2 ,7 3' 1A 3'
<onferrou metal /37+4 71 70 ,9 "A '' ",
.etal pro,uct /33%4 '1 "1 31 3' 22 32
<on1electrical machinery /33+4 39 3' 3A 2, 22 2'
Electrical machinery /3334 '" 3A '0 3' 3A 27
Tranport e"uipment /33-4 3A 12 22 27 2, 32
'ther manufacturin$ /30;4 "7 "' 'A '3 33 22
=oteH !a*i!u! ca+acity re.ers to out+ut +ossible %i0en current 5or2in% le0els o.
)u!an and +)ysical ca+italO calculations based on yearly sur0eys 5it) +lant !ana%ers
=oteH (1) re.ers to .ir!s 5it) !ore t)an 100 e!+loyeesO (2) re.ers to .ir!s 5it) bet5een ' and 99 e!+loyees
ourceH ourceH 1C:6, 1n,ustrial 'ur)ey, 0arious years
ustained le0els o. e*cess ca+acity re+resent dyna!ic ine..iciencies in ca+ital
allocation and use. 3or t)e years 5)en e*cess ca+acity data is a0ailable, t)ere )as been a
noticeable decline in a%%re%ate ca+acity utilisation .ro! ,7 +ercent in 19,, to ,0 +ercent in
t)e +eriod 19A'>AA, reac)in% a lo5 o. "" +ercent in 19AA and increasin% to '' +ercent in
1991, still 0ery lo5 considerin% t)at year sa5 t)e .astest %ro5t) rate in !anu.acturin%
%ro5t) (12.2 +ercent) o. any year in t)e +eriod 19A0>199A.
()e sectoral brea2do5n o. e*cess ca+acity in lar%e>scale .ir!s is also 0ery re0ealin%
o. t)e %reat costs o. t)e .ailure o. industrial +olicy under Mbi% +us)N industrial strate%ies.
Many o. t)e inter!ediate and ca+ital %oods sectors )ad )i%)er le0els o. e*cess ca+acity
t)an t)e o0erall le0el in !anu.acturin%. 3or instance, in t)e +eriod 19A'>19AA, a0era%e
!anu.acturin% ca+acity utilisation 5as ,0 +ercent 5)ereas !any )ea0y and industrial
sectors suc) as c)e!ical +roducts ("" +ercent), !etal +roducts ('1 +ercent), non>electoral
"'
!ac)inery (39 +ercent), electoral !ac)inery ('" +ercent), and trans+ort e-ui+!ent (3A
+ercent) 5ere considerably lo5er. 6n t)e liberalization +eriod, all o. t)ese sectors re!ained
belo5 o0erall ca+acity utilization rates 5it) trans+ort e-ui+!ent .allin% to 12 and 22
+ercent ca+acity utilization in 1990 and 1991. A%ain, t)e ca+acity utilization o. t)e
statedo!inated
sectors, iron and steel and alu!iniu!, 5)ile no5)ere near .ull ca+acity, are
better t)an t)e o0erall a0era%e. 6n 19A'>19AA, 1990 and 1991, ca+acity utilization in iron
and steel 5as 71, ,2, and ,7 +ercent res+ecti0ely 5)ile ca+acity utilization in alu!iniu!
5as 71, 70, and ,9 +ercent res+ecti0ely. A%ain, e*+ortin% in t)ese sectors )as been
instru!ental in 2ee+in% utilization rates )i%)er t)an t)e a0era%e .or t)e !anu.acturin%
sector.
()e ine..iciency o. o0er>di0ersi.ication can also be seen in t)e nu!ber o. un0iable
s!all and !ediu!>sized .ir!s t)at 5ere created in t)e +eriod 1971>19AA.17 ()e a0era%e
ca+acity utilization rates o. t)e s!aller and !ediu!>sized .ir!s 5ere lo5er t)an lar%e .ir!s
.or all t)e years under considerationH "A +ercent in 19,,, "' +ercent in 19A'>19AA, 3"
+ercent in 19A9 and 3A +ercent in 1990>1991. Ca+acity utilization rates 5it)in t)e !any o.
t)e )ea0y industrial sectors, suc) as iron and steel (3' +ercent), non>.errous !etals ("A
+ercent), !etal +roducts (3' +ercent), non>electoral !ac)inery (2, +ercent), electoral
!ac)inery (3'), and trans+ort e-ui+!ent (27 +ercent) 5ere eit)er near or .ar belo5 an
already lo5 s!all and !ediu!>size .ir! a0era%e. 6n t)e liberalization +eriod, all o. t)ese
sectors, e*ce+t .or non>.errous !etals, re!ained belo5 o0erall ca+acity utilization rates in
1990 and 1991.
3inally, t)e o0er>di0ersi.ication o. +roducts and t)e e*cessi0e entry o. .ir! into
sectors )a0e +layed an i!+ortant +art in t)e 5ea2ness o. tec)nolo%ical ca+acity o. .ir!s.
3or an in.ant industry c)aracterized by econo!ies o. scale, lar%e 0olu!es o. sales and
out+ut are necessary to s+read .i*ed costs and accu!ulate learnin% (<i! and Ma, 1997H
122). As a result, unrestricted or e*cessi0e entry leads to t)e de0elo+!ent o. too !any
.ir!s and too s!all a +lant size. 10er>di0ersi.ication beco!es a constraint on t)e
de0elo+!ent o. researc) and de0elo+!ent ($^7) acti0ities since sub>o+ti!al size results
in an annual turno0er +er .ir! too s!all to underta2e t)e ris2s and costs in0ol0ed in
17 ()e e*tent to 5)ic) an entre+reneur or sector is Yo0er>di0ersi.iedB is di..icult to identi.y e$+ante. 6 a!
de.inin% t)e ter! broadly to !ean a +ersistence o. a si%ni.icant +ortion o. +lants across !anu.acturin%
sectors, o+eratin% at sub>o+ti!al le0els o. scale econo!y durin% 8oth +eriods o. recession and .ull
e!+loy!ent. ()e 5ides+read occurrence o. s+are ca+acity across sectors, 5)ic) does occur in t)e conte*t o.
do5nturns in de!and (i.e. durin% recessions), does not -uali.y as Yo0er>di0ersi.ication.B
",
directin% resources to $^7. 3or ?enezuela, ?iana (199"H 12A>129) su%%ests t)at t)e +eriod
197'>1990 is !ar2ed by relati0ely lo5 le0els o. $^7 s+endin% in !anu.acturin% industry
in co!+arison 5it) ot)er 8atin A!erican econo!ies, 5)ic), on a0era%e, direct .e5er
resource to $^7 t)an late industrialisers in ot)er re%ions.1A 6n a sur0ey o. ,00 lar%e>scale
!anu.acturin% .ir!s (de.ined as 100 e!+loyees or !ore) conducted in 1992 and 1993, only
19 +ercent re+orted t)at t)ey dedicate any resources to Yinno0ati0e acti0ityB (5)ic) in t)e
sur0ey includes $^7 s+endin%, +roduction +rocess assess!ent, c)an%es in !ac)ine desi%n,
and +roduct inno0ation) in t)e +eriod 19A0>1992 co!+ared to t)e 8atin A!erican a0era%e
o. 27.9 o0er t)e sa!e +eriod (ibid.). ?iana also noted t)at t)e li!ited de%ree o. endo%enous
tec)nolo%ical ca+acity o5es !ainly to s!all size o. .ir!s, 5)ic) li!its t)e +ossibility o.
!ost .ir!s to assu!e t)e costs and ris2s o. $^7 s+endin% (ibid.H 17'). ()e e..ect o.
+olitical .ra%!entation and uncertainty also )as in)ibited t)e de0elo+!ent o. lon%>run
tec)nical coo+eration, or coo+eration in issues related to t)e Msu++ly c)ainN bet5een .ir!s
in t)e sa!e sector. As a result, t)ere is no e0idence o. si%ni.icant coo+eration bet5een
.ir!s and state>run tec)nolo%y institutes (ibid. 1,'>1,A).19
A .i.t) ne%ati0e e..ect o. .actionalis! is t)e increase in t)e +erce+tion o. ris2 o.
industrial in0estors. ()e increasin% ris2 t)at acco!+anied .actionalis! t)us sa5 a lon%>run
reduction 5it)in t)e +ri0ate ban2in% syste! o. co!!ercial loans to industry. Consider
(able 10.
Table %;! Venezuelan Commercial Aank @oan to &n,utryE
%0931%003
(a0era%e annual loans to industry as s)are o. total loans, C)
%093173 29.,C
%07-133 19.0
%030103 1,.A
ourceH Ministry o. 3inance, u+erintendence o. /an2s, &ata "ase, 0arious
years.
1A A!sden (2001H 277>2A0) identi.ies one o. t)e !ain +roble!s o. !anu.acturin% co!+etiti0eness in 8atin
A!erica in co!+arison to :ast Asian econo!ies and 6ndia o5es to relati0ely lo5 le0els o. scienti.ic researc)
and +atentin%, a relati0ely lo5 s)are o. %ross national +roduct accounted .or by science and tec)nolo%y and a
relati0ely lo5 s)are o. $^7 s+endin% by t)e +ri0ate sector and a relati0ely lo5 s)are o. $^7 s+endin%
accounted .or by t)e !anu.acturin% sectors.
19 1nly 10 out o. ,00 .ir!s re+orted t)at t)ey !aintained lon%>run relations 5it) state>run tec)nolo%y
institutes (?iana, o+. citH 1"9).
"7
()e s)are o. co!!ercial loans to industry as a +ercenta%e o. loans to all sectors declines
steadily o0er t)e +eriod 19,3>199A, and reac)es a lo5 o. 1,.A +ercent in t)e +eriod 19A9>
199A. ()e lon%er>%estation and t)us )i%)er ris2 o. industrial 0entures 5as beco!in% less
attracti0e o0er ti!e. ()is result is consistent 5it) t)e %eneral colla+se o. +ri0ate sector
in0est!ent in t)e non>oil econo!y in t)e +eriod 19A0>199A. Here a%ain, econo!ic
liberalization )as not arrested t)e lon%>run increase in .actionalis! and related distributi0e
con.licts.
()e !ain contention o. t)is section is t)at t)e .ailure o. t)e state to i!+ose
conditions and selecti0ity in rent de+loy!ent and coordinate in0est!ent e..orts 5ill be
!ore costly in t)e Mbi% +us)N and ad0anced sta%e o. 66. (able 11 su!!arizes t)e
+eriodisation o. +olitical strate%ies and econo!ic strate%ies in t)e +eriod 19'A>199A and
t)eir broad econo!ic e..ects.
"A
Table %%! An '(er(ie* of E(olution of Re$ime TypeE De(elopment Policie an, Economic
'utcome in VenezuelaE %0231%003
Perio, Re$ime typeL.ain
political tren,
an, ettlement
&n,utrial Policy
'rientation
8ta$e of
&8&LDominant
Technolo$ie
.ain economic
reult
19'A>
1973
@acted de!ocracyO
less radical .or! o.
+o+ulist clientelis!
2) +olitical +acts
be%in to brea2
do5n in 19,A
1) tate>led
industrializationH blan2et
+rotection o. industry
t)rou%) i!+ort -uotas
and tari..s and
substantial increase in
industrial credit.
2) Manu.acturin%
in0est!ent still
do!inated by +ri0ate
sector con%lo!erates
(ransition +eriod to
!ore ad0anced sta%e
o. 66 (19,0>1973)H
cale econo!ies and
e*+orts beco!e
decisi0e to
!anu.acturin%
+roducti0ity and
out+ut %ro5t).
1)$a+id, but slo5in%
%ro5t) in non>oil
and !anu.acturin%
%ro5t)
2) lo5 in.lation
1973>
1993
1)(5o>+arty
electoral ri0alry
5it)in de!ocratic
+act
2)&ro5t) in
.actionalis! and
.ra%!entation o.
+o+ulist clientelis!
1) Continued blan2et
+rotectionsO +roli.eration
o. subsidies.
2)@ublic enter+rises in
)ea0y natural>resourcebased
industry do!inate
!anu.acturin%
in0est!ents.
3) Multi+le e*c)an%e
rate syste! ($:CA76,
19A">19AA) %enerates
lar%e subsidies .or .ir!s
5it) +olitical contacts
andUor i!+ort licenses.
Ad0anced sta%e o.
66O Mbi% +us)N stateled
natural>resourcebased
industrialization
strate%y 197">19A'.
1)=on>oil and
!anu.acturin%
%ro5t) sta%natesO
2) +roli.eration o.
+ublic enter+risesO
3)e*cessi0e entry
into !anu.acturin%
sectorsO
") little disci+line o.
state or +ri0ate
subsidy reci+ientsO
') ca+ital .li%)t>cu!
debt crisis (197">A')
indication o. !assi0e
!acro co>ordination
.ailuresO
,) !oderate and
%ro5in% in.lation
1993>
199A
1)Multi>+arty
electoral ri0alryO 2)
decline o. A7 and
C1@:6O
3) rise o. +olitical
outsiders and
increase in anti+olitical
+arty
radical +o+ulis!
1)$adical trade and
.inancial liberalizationO
2) @artial +ri0atisation o.
steel and alu!iniu!
state>o5ned enter+rises.
Ad0anced sta%e o.
66 continuesO
ca+ital>intensi0e
natural resourcebased
industries
re!ain !ost
+roducti0e relati0e to
t)e 9A le0el.
1)!anu.acturin%
%ro5t), +roducti0ity
and in0est!ent
colla+seO
2) s)ar+ decrease in
nu!ber o. lar%escale
!anu.acturin%
.ir!sO
3) ban2in%
crisis(199")
'))i%) in.lationO
,) ca+ital .li%)t
1999>
2003
$ise in anti>+arty
+olitics,
centralization o.
e*ecuti0e +o5erO
+olarization o.
+olitics
1) 8ittle attention +aid to
industrial strate%yO
re0ersal o. oil o+enin%
+olicyO
2) introduction o. ca+ital
controlsO
3) data collection o.
industrial sur0ey
curtailed
Ad0anced sta%e o.
66 continuesO
ca+ital>intensi0e
natural resourcebased
industries
re!ain !ost
+roducti0e relati0e to
t)e 9A le0el.
1) colla+se in non>oil
and !anu.acturin%
%ro5t)O
2) increase in
une!+loy!ent
"9
()e ne%ati0e e..ect o. +o+ulist clientelis! on state e..iciency in rent
de+loy!ent is re.lected in t)e +roducti0ity +er.or!ance o. t)e !anu.acturin% sector o0er
ti!e. @roducti0ity %ro5t) lies at t)e )eart o. dyna!ic and co!+etiti0e %ro5t). ()e
incompati8ility o. t)e +o+ulist clientelis! 5it) !ore de!andin% de0elo+!ent strate%ies
ulti!ately 5ere re.lected in declines in !anu.acturin% %ro5t) .ro! 19A0 and 0aryin%
+ercenta%e declines in +roducti0ity le0els o. all ?enezuelan !anu.acturin% sectors
co!+ared 5it) t)e 9 and ot)er !ore success.ul late de0elo+ers .ro! t)e !id>19A0Bs (7i
Io)n, 200"H 3">'3).
6n su!, t)is section )as atte!+ted to s)o5 t)e econo!ic e..ects o. t)e
inco!+atibility bet5een t)e bi% +us) de0elo+!ent strate%ies, t)e second sta%e o. 66 in t)e
conte*t o. +o+ulist clientelist +olitical settle!ents t)at e*)ibit increasin% .actionalis!.
Mani.estations o. t)is inco!+atibility included declinin% le%iti!acy o. econo!ic +olicies,
leadin% to t)e !assi0e ca+ital .li%)t crisis in t)e +eriod 197">19A'. As 5ell, ine..icient rent
de+loy!ent 5as !ani.ested in a decline in selecti0ity in industrial subsidisation, a lac2 o.
disci+line o. rent reci+ients. ()e costliness o. ine..ecti0e rent de+loy!ent 5as !a%ni.ied in
t)e conte*t o. t)e second sta%e o. 66 and bi% +us) strate%ies. ()ese costs 5ere !ani.ested
t)rou%) si%ni.icant +roducti0ity and %ro5t) declines in !anu.acturin% durin% t)e 19A0Bs
and 1990Bs.
Concluion
()e ine..iciency o. centralized rent de+loy!ent in ?enezuela in t)e +eriod
19A0>2003 o5es less to natural resource abundance per se t)an to an inco!+atibility o.
econo!ic and +olitical strate%ies. ()e ar%u!ent does not deny t)at sudden and lar%e
in.lo5s o. oil re0enues in t)e 1970Bs )ad a ne%ati0e e..ect on econo!ic !ana%e!ent in
?enezuelaO rat)er it clai!s t)at a lon%er>run 0ie5 o. ?enezuelan econo!ic )istory su%%ests
t)at oil abundance )as been co!+atible 5it) cycles o. %ro5t) an, sta%nation.
7ue to t)e abundance o. oil, ?enezuela 5as lon% considered an Me*ce+tionalN
case in t)e conte*t o. t5entiet) century 8atin A!erican de0elo+!ent. ()is +a+er re0ises
t)at conclusion. 3irstly, 5)ile ?enezuela did not !ana%e t)e sudden in.lo5s e..iciently in
t)e 1970Bs, no 8atin A!erican econo!y )as been able to !ana%e sudden ca+ital in.lo5s
5it)out under%oin% substantial !acroecono!ic destabilisation (@al!a, 199A). ()e
'0
slo5do5n in ?enezuelaBs !anu.acturin% %ro5t) in t)e +eriod 19A0>2003 is +art o. a 5ider
slo5do5n in %ro5t) t)rou%)out 8atin A!erica in t)e sa!e +eriod. ()e 5ider 8atin
A!erican e*+erience, as 5ell as t)e .act t)at a )ery small set of latecomers ha)e actually
sustaine, catch+up, su%%ests t)at +atterns o. .ailure in ?enezuela !ay not be so
Me*ce+tionalN a.ter all.
:*+lainin% t)e %ro5t) slo5do5n as a !is!atc) o. econo!ic strate%y and
)istorically s+eci.ic +olitical strate%ies i!+ro0es u+on e*istin% e*+lanations t)at do
e!+)asize +olitical institutions andUor distributi0e stru%%les as t)e source o. ?enezuelaBs
+oor econo!ic +er.or!ance. ()e +olitical science literature .ocuses on t)e e*tent to 5)ic)
?enezuelaBs +olitical +arty syste! and state institutions beca!e !ore .actionalised,
e*clusionary, ri%id and corru+t o0er ti!e. Ho5e0er, t)e .ocus on +olitical institutions is
unable to e*+lain 5)y so!e !ore aut)oritarianUe*clusionary (and si!ilarly corru+t)
re%i!es %re5 .aster t)an ?enezuela in t)e +eriod 19A0>2003. ()e .ocus +laced in t)e
?enezuelan +olitical science literature on t)e le0el o. +olitical co!+etition and t)e e*tent to
5)ic) de!ands are c)annelled t)rou%) de!ocratic +rocedures !ay be less i!+ortant issue
t)an who is capturing the state an, for what en,s.
()e +olitical analyses on t)e +arty syste! do not e*a!ine 5)et)er
!aintainin% le%iti!ate rule is a..ected by t)e c)an%in% nature o. t)e econo!ic de0elo+!ent
strate%y. 6. di..erent strate%ies re-uire di..erent le0els o. selecti0ity and concentration o.
econo!ic and +olitical +o5er to be initiated and consolidated, t)en t)e +roble! o.
le%iti!acy and inclusi0eness cannot be ade-uately e*a!ined as isolated .ro! econo!ic
strate%y. 6. econo!ists o.ten .ail to incor+orate +olitics 5)en e*a!inin% t)e state
inter0ention, t)en +olitical scientists o.ten .ail to e*a!ine t)e +olitical c)allen%es t)at
di..erent tec)nolo%ies and sta%es o. de0elo+!ent %enerate. ()e %ro5in% .actionalis! o. t)e
?enezuelan +olity, 6 ar%ued, 5as +articularly costly in ter!s o. t)e e..iciency o. in0est!ent
8ecause it occurred in t)e conte*t o. t)e !ore ad0anced sta%e o. de0elo+!ent, 5)ic)
re-uires a %reater centralisation and coordination o. in0est!ent. ()e %ro5in% +roli.eration
o. subsidies and licenses to ?enezuelan .ir!s in t)e +eriod 19,'>199A also su%%ested t)at
t)e ?enezuelan state, .ar .ro! bein% e*clusionary, 5as too inclusionary an, unselecti)e in
its +atrona%e +atterns .or it to +roduce an e..ecti0e industrial strate%y in t)e !ore ad0anced
sta%e o. 66. ;it)out e*a!inin% t)e !ec)anis!s t)rou%) 5)ic) con.lict e!er%es, t)ere is
little sco+e .or identi.yin% 5)ic) c)an%es in eit)er econo!ic strate%y or +olitical
'1
settle!ents are needed to brin% t)e +olity closer to a less con.lict>ridden bar%ainin%
outco!e a!on%st rele0ant +olitical actors.
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$odr%uez, 3. 200,. @lenty o. $oo!P 3iscal +ace in a $esource>Abundant :cono!y, +a+er
+resented to 9=7@ +ro4ect on 3iscal +ace in 8ess 7e0elo+ed Countries, 7a2ar, ene%al.
',
$odr%uez, M.A. 2002. .l 1mpacto ,e la Pol/tica .conBmica en el Proceso ,e &esearollo
Venezolano. CaracasH 9ni0ersidad anta Maria.
$odri2, 7. 199'. &ettin% 6nter0entions $i%)tH Ho5 out) <orea and (ai5an &re5 $ic),
.conomic Policy, 20.
$osenstein>$odan, @. 19"3. @roble!s o. 6ndustrialization in :astern and out)>:astern :uro+e,
.conomic :ournal, '3.
ac)s, I. and ;arner, A. 199'. =atural $esource Abundance and :cono!ic &ro5t). =/:$
;or2in% @a+er '39A. Ca!brid%e MAH =ational /ureau o. :cono!ic $esearc).
e%arra, =. 19A'. Co!o e0aluar la %esti#n de la e!+resas +]blicas 0enezolanas, in <elly de
:scobar, I. (ed.) .mpresas ,el .sta,o en AmUrica Latina. CaracasH :diciones 6:A.
2ito0s2y, (. 19'". (5o Conce+ts o. :*ternal :cono!ies, :ournal of Political .conomy, ,2.
to2es, . 1999. ;)at do +olicy s5itc)es tell us about de!ocracyP, in A. @rze5ors2i, . to2es,
and /. Manin (eds.) &emocracy- Accounta8ility an, %epresentation, Ca!brid%eH
Ca!brid%e 9ni0ersity @ress.
9=671 (0arious issues). Can,8ook of 1n,ustrial 'tatistics. ?iennaH 9nited =ations 6ndustrial
1r%anization.
9=671 (0arious issues). 1nternational Year8ook of 1n,ustrial 'tatistics. ?iennaH 9nited =ations
6ndustrial 1r%anization.
?artianen, I. 1999. ()e :cono!ics o. uccess.ul tate 6nter0ention in 6ndustrial (rans.or!ation,
in M.;oo>Cu!in%s (ed.) 1999. !he &e)elopmental 'tate. 6t)acaH Cornell 9ni0ersity @ress.
?erdoorn, @.I. 19"9. 3attori c)e $e%olano lo 0ilu++o della @rodutti0a de 8a0oro, LE1n,ustria,
=o 1. :n%lis) translation in 8. @asinetti (ed.) 1talian .conomic Papers Vol 11 (1*.ordH
1*.ord 9ni0ersity @ress).
?iana, H. 199". .stu,io ,e La Capaci,a, !ecnologica ,e la 1n,ustria ;anufacturera
Venezolana. CaracasH :diciones 6:A.
;ade, $. 1990. 7o)erning the ;arket. @rincetonH @rinceton 9ni0ersity @ress.
;oo>Cu!!in%s, M. 1999. 6ntroduction, in M.;oo>Cu!in%s (ed.) 1999. !he &e)elopmental
'tate. 6t)acaH Cornell 9ni0ersity @ress.
;orld /an2 1993. !he .ast Asian ;iracle, =e5 Kor2H 1*.ord 9ni0ersity @ress.
;orld /an2, 1990. ?enezuelaH 6ndustrial ector $e+ort. ;as)in%ton, 7.C. ;orld /an2.
;orld /an2 1973. Current :cono!ic @osition and @ros+ects o. ?enezuela. ;as)in%ton, 7.C.H
;orld /an2.
'7
Koun%, A. 192A. 6ncreasin% $eturns and :cono!ic @ro%ress, .conomic :ournal, 7ece!ber.
CHAPTER 13:
Explaining Chavismo:
The ;nexpected )lliance of :adical Leftists and the /ilitar'
in <eneuela since the late 199=s
b' Ja"ier +orrales
)ssociate ,rofessor of ,olitical >cience
)mherst +olle!e
)mherst& /) =1==?
5corrales@amherst(edu
6ecember ?==A
AbstractB >ociolo!ical explanations for the rise of Cu!o +hD"e in <eneuela #hich
emphasie the population3s unaddressed economic needs and #idespread desire for chan!e
in the 199=s& are insuEicient to understand the political coalition built b' +hD"e( )t best&
these theories account for onl' the demand side& not the suppl' sideB the' cannot
explain easil' the a"ailabilit' of such a lar!e pool of radical leftist ci"ilians and nationalist
militar' #illin! to collaborate to form a !o"ernment since 1999( 8lse#here in Latin
)merica at the time& the radical left #as neither as lar!e nor as #illin! to side #ith the
militar'( >ociolo!ical explanations cannot account either for the rise of polaried
politics&!ro#in! corruption& and political discrimination under +hD"e( This paper 4rst
re"ie#s some of these sociolo!ical theories and then oEers an explanation for the suppl'
side of cha"ismo( :ather than positin! the hermetic aspects of the political institutions
prior to +hD"e& as much of the literature on <eneuela tends to do& this paper su!!ests
that the best #a' to explain the suppl' side of cha"ismo is to appreciate the de!ree of
openness of so man' political institutions in <eneuelan(
1
This paper addresses t#o Fuestions( 0irst& #hat explains the rise of a leftist-militar'
coalition in <eneuela in 1998& brin!in! Cu!o +hD"e to oEiceG >econd& ho# has this
coalition e"ol"ed in its 4rst ei!ht 'ears in oEiceG
>cholars #ho stud' <eneuelan politics disa!ree about the best label to describe the
Cu!o +hD"e administration (1999-present)B personalistic& popular& populist& pro-poor&
re"olutionar'& participator'& socialist& +astroite& fascist& competiti"e authoritarian&
softauthoritarian&
third-#orld oriented& h'brid& statist& polariin!& oil-addicted& ceasaristic& a sort
of Latin )merican /iloHe"iI& e"en political carni"our( 6espite this "ariet' of labels& there is
nonetheless a!reement that& at the "er' least& cha"ismo consists since its outset of a
political alliance of radical-leftist ci"ilians and the militar' (8llner ?==1B9)( +hD"e has
recei"ed most political ad"ice from& and staEed his !o"ernment #ith& indi"iduals #ho ha"e
an extreme-leftist past& a militar' past& or both( The +hD"e mo"ement is& if nothin! else& a
marria!e of radicals and oEicers(
1hat explains this marria!eG Leftist-militar' alliances are not ne# in Latin )merica
(:emmer 1991)& datin! bac- to +uba in the 193=s& #hen a 'oun! sar!eant& 0ul!encio
2atista& sou!ht to dominate +uban politics b' courtin! radical leftist ci"ilians (4rst& student
leaders& and then& +ommunists)( Co#e"er& since the 7mar Torri5os administration in
,anama (19*8-19A8)& no other ma5or episode of electorall' successful leftist-ci"ilianmilitar'
alliances occurred in Latin )merica until +hD"e( .f an'thin!& the tendenc' in the
re!ion #as for the militar' to distance itself from the political sphere (2ustamante 1998)&
and the left& from the militar'( )lthou!h +hD"e-st'le politicians ha"e emer!ed else#here
in Latin )merica in the ?===s (mostl' in 8cuador and 2oli"ia)& bac- in the late 199=s the
+hD"e model of unitin! leftist ci"ilians and militar' oEicials #as an odd occurrence in the
re!ion(
Comment [JC1]: $.8 Millet, in
Millett and &old>/iss 199, e0en describe
t)is as t)e Msu+eraci#nN del
+raetorianis!.
2
That +hD"e has succeeded in puttin! to!ether a leftist-militar' coalition does not
mean that this has been eas'( 0riction #ithin the coalition& both bet#een and #ithin the
poles& has al#a's existed( 2ut since 1999& +hD"e has al#a's been able to form cabinets in
#hich leftist ci"ilians and the militar' #or- side b' side( 1hile the non-leftist militar' (the
rebels of the ,laa de )ltamira& the participants of the ?==? coup& and the man' Jdados-
deba5aK)
as #ell as the non-authoritarian left (e(!(& the /)>) ha"e abandoned the
!o"ernment& this alliance has sur"i"ed to this da'(
To understand the rise of the leftist-ci"ilian militar' coalition that +hD"e cobbled
to!ether in 1998-99& one has to understand the stor' of incorporation of non-dominant
political !roups in <eneuelan politics startin! in the 19*=s( /ost of the scholarship
see-in! to explain cha"ismo ar!ues that the pre"ious re!ime& the so-called J0ourth
:epublic&K or the J,unto 0i5o :e!ime&K suEered from excessi"el' exclusionar' politicsB
political institutions became too ri!id to !i"e entr' to ne#& smaller& non-dominant political
forces& #hich led to accumulated resentment& inabilit' to implement necessar' reforms&
and
in the end& an abrupt radical chan!e b' unincorporated sectors( +hD"e #as& abo"e all& an
institutional barrier-brea-er& propelled b' a mushroomin! ci"il societ' that felt trapped b'
non-accommodatin! institutions( .n this paper& . see- to challen!e the "ie# of pre-existin!
institutional closure( :ather than a completel' foreclosed political en"ironment& these
nondominant
forces& #hich . #ill call Jsmall opposition forcesK (0O's)& en5o'ed access to
multiple institutions under the pre"ious re!ime( ;ntil the 199=s& the radical left #as not
!o"ernin! in <eneuela& but it #as not entirel' homeless& and man' of its institutional
homes pro"ided a propitious !ro#th en"ironment( These institutions #ere the uni"ersities
(startin! in the late 19*=s)& the militar' (startin! in the late 19A=s)& institutions of ci"il
societ' such as small leftist parties and nei!hborhood associations (startin! in the 198=s)&
and state institutions such as cabinet oEice& le!islati"e seats& !o"ernorships and
ma'oralties
(startin! in the 199=s)( .t #as this de!ree of institutional openin! that allo#ed 0O's to
3
!ro# in numbers& and more important& to be exempted from the need to e"ol"e
ideolo!icall'& #hich explains the pre"alence of radicalism on the left and leftism #ithin the
militar'( (
This chapter thus applies the ar!ument that . de"elop in +orrales (?==A) that the
rise of the left in Latin )merica in the ?===s is the result of both !ripes (i(e(& complaints
about the socioeconomic status Fuo)& as the old structuralists ar!ue& as #ell as mobiliin!
opportunities( . a!ree #ith scholars on <eneuela #ho "irtuall' unanimousl' ar!ue that
citiens b' the late 199=s had ample reasons to "ote for an anti-status Fuo option& but .
disa!ree #ith those #ho underpla' the pre"alence of #idespread institutional openin!s
durin! the ,unto 0i5o( The rise of a radical left in <eneuela #as the result of prior
institutional openin!& not closure(
The second Fuestion& ho# did the cha"ista coalition e"ol"e o"er time& reFuires
loo-in! at #hat scholars often call coalition-buildin! Jtool-its(K >peci4call'& presidential
coalitions depend on the s'stem of incenti"es and penalties that the state deplo's to
neutralie dissenters and coopt allies( .n -eepin! the alliance to!ether& +hD"e has had to
deal #ith t#o diEerent sources of tensions #ithin his initial coalitionB 1) the defection of
moderate leftists& and ?) di"isions #ithin the militar'( To deal #ith these crac-s& +hD"e
has deplo'ed both tan!ible and intan!ible political resources( /ost scholars understand
the
role that tan!ible state-based resources (e(!(& spendin!& !o"ernment 5obs& state contracts)
pla' in sealin! these crac-s( . instead #ant to focus on intan!ible political resourcesB
deliberate use of 1) polariation9 ?) corruption and impunit' for supporters9 and 3) 5ob
discrimination for opponents( These three political resources are the !lue that hold
+hD"e3s radical-militar' alliance in place( . #ill sho# #h' the cha"ista coalition has come
to necessitate these tan!ible and intan!ible resources to sta' in oEice(
This paper& therefore& #ishes to mo"e the debate about cha"ismo a#a' from
demand-side theories& #hich treat +hD"e3s radical policies as responses to #hat the
Comment [JC]: 6nsert t)eory.
Ada+tation _ en0iron!ental s)oc2,
internal or%anization, and e*+osure.
Also, discuss t)e radicalis! consists o.H
endo%enous de0, +ro concentration o.
+o5er, +ro t)e !ilitary.
6nsert notion o. institutional incubators.
"
ma5orities presumabl' #ant( .n"o-in! the demand side is insuEicientB it explains the desire
for a chan!e in 1999& but not #h' the chan!e supplied #as as radical& as militaristic& and as
reliant on polariation& corruption& and discrimination as cha"ismo has been(
.( ) loo- at the 6rst cha"istas
Co# should one stud' the composition of the cha"ista coalition& especiall' the
leadershipG 1hat circles of <eneuelan societ' does +hD"e dra# from in order to appoint
leadersG To ans#er these Fuestions& . decided to loo- at the socioeconomic pro4le of the
4rst set of leaders #ho ran under the /o"imiento Luinta :epMblica (/<:)& the part'
formed b' +hD"e to run for oEice in 1998( .n an inno"ati"e stud' of the ori!ins of
,eronism in )r!entina& )elo (?==$) follo#s exactl' this strate!'( Ce loo-s at the political
bac-!round of the 4rst set of candidates in the pro"ince of 2uenos )ires runnin! for the
!eneral elections of 19$* under the ,eronist banner( This exercise allo#s )elo to
determine the exact ori!in of )r!entina3s ne# 78lite dirigente+N#hether the' #ere mostl'
ne#comers& conser"ati"e& socialist& radicals& reno"ators& laborists& etc( Loo-in! at the
pro4le of the 4rst set of leaders in an election is a #indo# into both the !roups that
support a ne# leader and the sectors that the ne# leader dra#s allies from(
0ollo#in! )elo& Table 1 pro"ides the politicalOprofessional bac-!round of e"er'
dele!ate #ho participated in the 1999 +onstituent )ssembl'( 2ecause the +ha"ista
candidates #ere "er' carefull' and strate!icall' selected b' the incumbent part'& and more
speci4call'& the 8xecuti"e branch (,enfold 19999 Ca#-ins ?==39 Pornblith ?==3)& the
incumbent3s list re"eals the sectors that #ere supportin! +hD"e& and "ice "ersa( The table
re"eals& 4rst& that the three lar!est professions represented #ereB professional politicians
($*(A? percent)& militar' (1%(%A percent)& and uni"ersit' professors (19(*A percent)( .f one
includes the professional politicians #ho also tau!ht part-time at the uni"ersit'& the total
percenta!e for uni"ersit' professors is 3?(A8 percent( >econd& there #ere t#o careers that
'
#ere si!ni4cantl' underrepresentedB labor leaders and economists( .n fact& amon! the
cha"istas& there #ere more former !uerrillas (3) than economists (?)( The presence of so
man' uni"ersit' professors& militar' indi"iduals& and career politicians su!!ests that
+hD"e
is dra#in! from a pool of <eneuelan citiens that is not entirel' composed of ne#comers
(!i"en the lar!e number of career politicians) or non-elites (!i"en the lar!e number of
attorne's and hi!h-ran-in! soldiers)( 0urthermore& +hD"e is dra#in! si!ni4cantl' from
uni"ersit' intellectuals (!i"en the lar!e numbers of uni"ersit' professors)& but not exactl'
economists(
. #ill sho# that this particular poolNanti-status Fuo politicians& intellectuals& and
soldiersN#as lar!e in <eneuela b' the late 199=s( :ather than bein! mar!inalied and
excluded& these !roups #ere #ell protected b' -e' institutions from the ,unto 0i5o re!ime(
.n fact& these actors came from some of the most pri"ile!ed institutions of the ,unto 0i5o
:e!ime( 2ut before de"elopin! these points& . brieQ' re"ie# some of the alternati"e
theories that see- to explain the rise of cha"ismo(
..( :i"al 8xplanations1
)( >ocial .mmiseration
The simplest explanation for the rise of cha"ismo focuses on the pli!ht of the poor(
Rott (?===)& for example& spends man' pa!es documentin! the depth of po"ert' in
<eneuela prior to the rise +hD"e& impl'in! that the former led to the latter( Penneth
:oberts (?==3) does an e"en better 5ob at conceptualiin! the !ra"e social chan!es that
too- place in <eneuela since 198?B 1) economic immiseration& ?) !ro#in! ineFualit'& 3)
expansion of informalit' in labor mar-ets& and $) declinin! capacit' of labor unions to
1 ()is section dra5s .ro! Corrales (200').
,
represent #or-ers( 8conomic hardship combined #ith a labor representation crisis led to
protest politics& and thus& to the rise of a leftist replacement(
The problem #ith a strictl' structural-sociolo!ical account as an explanation for
cha"ismo& e"en supplemented #ith a focus on labor politics& is not that it is #ron!& but that
it is indeterminate( .t focuses mostl' on the demand side (#h' #ere citiens #illin! to "ote
for messianic politics)& but not on the suppl' side (#h' #as the solution deli"ered of the
leftist-militar' "ariet')( To be sure& a surplus of poor people explains the +hD"e election
in 1998& but also the election of (at least) the t#o pre"ious presidentsNeach ideolo!icall'
diEerent( >ince <eneuela has had surplus po"ert' since the 198=s& all presidents b'
necessit' must ha"e obtained much of the "ote of the poor to beat their ri"als( :oberts3
characteriation of <eneuela in 1998 could "er' #ell appl' to <eneuela ten 'ears before&
or for that matter& Latin )merica as a #hole in the late 198=s and earl' 199=s( Set& it #as
onl' in <eneuela in the late 199=s that there #as an electoral rise of a radical
leftistOmilitar' !o"ernment(
2( .nstitutional +losure
7ther scholars explain +ha"ismo b' loo-in! at the political institutions of the
precedin! re!ime and ar!ue that +hD"e mobilied !roups that felt unrepresented b'
existin! institutions( There is no Fuestion that the t#o most si!ni4cant political
institutions--parties and labor unionsN#ere suEerin! from a crisis of representation& losin!
"oters in lar!e numbers since the 198=s( ) -e' Fuestion to as- about institutions is& #h'
did the traditional parties cease bein! an option in the mid 199=s& #hereas the radical left
mana!ed to capture this "acuum b' 4rst ali!nin! itself #ith an old establishment 4!ure
such as :afael +aldera (199$-1999) and then #ith the militar' under +hD"eG
7
The ans#er in the literature !oes somethin! li-e this( <eneuela& li-e the rest of the
re!ion& experienced the t'pical collapse of its statist economic model in the earl' 198=s
(Taim and ,iUan!o 198$)( 2ecause the political parties #ere unable to rene# themsel"es
(+orrales ?==?9 8llner ?==39 /olina ?==$9 /'ers ?==$)& the' #ere unable to pro"ide
appropriate polic' responses to the economic crises (Pell' and ,alma ?==$) and to let !o
of their special pri"ile!es (Cellin!er ?==3)( <oters responded as the' ha"e responded
else#here in the re!ion #hen macroeconomic instabilit' remained unresol"edB the' blamed
the incumbents and existin! political institutions (see :emmer ?==3 for the re!ion9 Ril
Sepes ?==$ for <eneuela9 /'ers ?==A) defected to#ard smaller parties& #hich in
<eneuela& #ere all on the left (/olina ?==$)& and those #ho did not 4nd these parties
appealin! formed or 5oined institutions of ci"il societ' ((+anache ?==$9 >alamanca ?==$)&
/DrFue& RarcVa-Ruadilla)(
The rise of +hD"e is thus the result of t#o diEerent institutional de"elopmentsN
the rise of extreme& formerl' mar!inal parties at the expense of traditional parties and the
momentous rise of de4ant ci"ic or!aniations that #ere more antipartisan than
nonpartisan( 2' promisin! to carr' out this displacementNin collaboration #ith the
militar'N+hD"e #as able to #in the support of these t#o ne# societal bloc-s(
The Fuestion still remains as to #h' traditional parties failed to oEer appropriate
polic' responses to economic crises in the 199=s( 8lse#here . ha"e ar!ued that the lac- of
democratic& competiti"e primaries #ithin the traditional parties& especiall' )6& created
part' oli!archies that bloc-ed necessar' part' adaptation in the earl' 199=s (+orrales
?==?)(
,arties #ere unable to incorporate ne# -no#led!e and ne# blood( 1hat is harder to
ans#er is #h' the +aldera administration& #hich #as supported b' presumabl' more
internall' democratic parties such as the /)> also failed( The explanation could "er' #ell
be a diEerent "ariable alto!etherB the post-199? rise of part' fra!mentationNor more
broadl'& an expansion in the number of "eto pla'ers& as /onaldi et al( (?==%) #ell ar!ue(
A
1e -no# that part' fra!mentation and the multiplication of "eto pla'ers hinders economic
!o"ernance (1orld 2an- ?==?9 .62 ?==%)( ) more adept leader& perhaps one less tied to
<eneuela3s former bipartisanship& mi!ht ha"e been able to mana!e part' fra!mentation
better (6iJohn ?==$)( 2ut ,resident :afael +aldera (199$-1999)& #ho #or-ed all his life to
institutionalie bipartisan rule in <eneuela& #as clearl' not the ri!ht politician for
multipart' <eneuela(
)t this point& the ar!ument about institutional closure has chan!ed( )ccordin! to
this "ie#& the s'stem no lon!er appears as hermeticall' closed& but as institutionall' Quid
#ith !reater a"enues for inclusion( .t could "er' #ell be& as some theories ar!ue& that
political exclusion breeds radicalism and anti-status Fuo sentiments( 2ut it does not follo#
that political inclusion is necessaril' an antidote a!ainst radicalism( .n <eneuela& as #ill be
sho#n& political inclusion actuall' ser"ed as an incubator or radical political ideolo!ies and
acti"ists(
+( 8xtreme or )borted TeoliberalismG
)nother ar!ument about the rise of the left in <eneuela focuses on the rise of
neoliberalism in 199=s( )ccordin! to this "ie#& cha"ismo can be construed as the expected
bac-lash a!ainst the neoliberal policies and forces of the 199=s( 0orcefull' su!!ested b'
,re#ors-i (1991)& a !ood example of this ar!ument applied to <eneuela is perhaps
2uxton (?==3)( .n her account& <eneuela suEered the ra"a!es of orthodox neoliberal
ad5ustment& 4rst under +arlos )ndrWs ,Wre bet#een 1989 and 199? and then under :afael
+aldera bet#een 199* and 1998( >he echoes the t'pical "ie# on the left that mar-et
reforms a!!ra"ate po"ert'( The e"idence relies on the uncontested 4ndin!s that the 199=s
#as characteried b' de-industrialiation& #hich led to J!ro#in! fra!mentation and
informalisationK of labor mar-ets& #hich in turn& produced the breedin! !round for
JpopulistOoutsider strate!iesK (see 6iJohn ?==$)(
9
Set& the blame-neoliberalism ar!ument seems o"erstated( .n terms of 4scal
ad5ustment (i(e(& eEorts to reduce spendin! to restore macroeconomic balance)& there is no
Fuestion that the <eneuelan state had a!!ressi"e attempts& in at least three occasions
since
1981( 2ut in terms of actual implementation of mar-et-oriented structural reforms&
<eneuela is a non-achie"er( .n "irtuall' no serious index of neoliberalism does <eneuela
appear as an accomplished case( +ompared to the most s#eepin! liberaliers in the re!ion
()r!entina& +hile& 2oli"ia& ,eru& /exico)& <eneuela3s experience #ith mar-et reforms #as
modest& at best( The reforms #ere haphaard& incoherent& and incomplete( There #as
trade liberaliation& but not ban-in! liberaliation( There #ere some pri"atiations& but
onl' in a fe# sectors( There #ere no serious pension& labor& 4scal& and education reforms(
/an' old statist structures remained in unreformed(
/ore so than neoliberalism per se& it3s the JdeclineK of pri"ate sector in"estment
since its pea- in the earl' 198=s and the Jinstabilit' and ineEicienc'K of public sector
in"estment that has !enerated hi!h unemplo'ment& and thus po"ert' (0rei5e in /DrFue
and ,iUan!o ?==3B1A?)( )nd this decline #as probabl' the result of factors other than
neoliberalism (political instabilit' in 1989 and 199?-93& persistent inQation& ban-in! crisis
199$-9*& and the exo!enous shoc-s of 199A-99)( To be sure& ,Wre and +aldera achie"ed
trade openin! and some !rand pri"atiations& but the de!ree of statism& dependence on oil&
protectionism& mar-et ri!idities& 4scal "olatilit'& inQation and rent-see-in! remained hi!h
throu!h the 199=s( Telson 7rti (?==$) adds that& as a result of the 199$-199* ban-in!
crisis and the state-hea"' response to it& the <eneuelan pri"ate sector actuall' became
#ea-er and smaller( .f so& it is hard to ma-e the case& as does +hD"e& that <eneuela in
the 199=s became dominated b' neoliberal barons and forces( <eneuela3s political
econom' in the 199=s is best described as a case of lin!erin! statism& perplexin! polic'
incoherence& domestic 4nancial incoherence and inabilit' to stabilie oil income streams(
10
) diEerent "ersion of the blame-neoliberalism ar!ument is to stress precisel' the
ne!ati"e eEects of erratic (as opposed to full) implementation of mar-et reforms(
<eneuela bet#een 1983 and 1998 found itself in "icious c'cle of aborted mar-et reforms(
Ro"ernments #ould launch a relati"el' se"ere ad5ustment pac-a!e onl' to relax
implementation a fe# 'ears & sometimes months& later& culminatin! in 'et another economic
collapse and promptin! the subseFuent administration to start a!ain( . ha"e called this the
ax-relax-collapse c'cle (+orrales ?===)( .t started #ith Cerrera +ampVns& and #as repeated
b' e"er' administration since then( The result of erratic neoliberalism from 1983 to 1998
#as that <eneuela ended #ith the #orse of both #orldsB the ad5ustment periods
produced the ne!ati"e impact on lo#-income !roups that is t'pical of ad5ustment pro!rams
at 4rst (recessions& declines in social spendin!) and the subseFuent abandonin! of the
reforms precluded an' of the economic !ains that could ha"e helped lo#-income !roups
(return of sustained !ro#th& !reater pri"ate in"estment and thus pri"ate sector
emplo'ment& lo#er inQation and thus !reater purchasin! po#er for lo#-income !roups)(
0i!ure ? pro"ides some e"idence on behalf of the aborted-reforms ar!ument( The
4!ure sho#s& 4rst& "olatilit' of 4scal spendin! since the 198=s& #hich is consistent #ith the
notion of repeated c'cles of aborted reforms( >econd& the 4!ure sho#s ho# po"ert'
simpl' deteriorates (in the 198=s) and fails to impro"e (in the 199=s)& #hich is also
consistent #ith the ar!ument about obtainin! the #orse of both #orlds( The 4!ure
5usti4es as-in! the counterfactualN#hat #ould ha"e happened to po"ert' in <eneuela if
the pro!rams intended b' ,Wre (1989-91) and +aldera (199*-98) to stabilie and di"ersif'
the econom' #ould ha"e been !i"en enou!h time(
Set& blamin! neoliberalismNe"en if stated in terms of c'cles of aborted "ersus
completed reformsNonl' pro"ides a partial ans#er to the Fuestion of the ori!ins of
cha"ismoB it explains the demand side but not the suppl' side( .t can explain the
o"er#helmin! demand across sectors for a chan!e in politics& but it does not explain the
Comment [JC3]: 3ind data to s)o5
t)at ad4. in ?enezuela 5as lar%er t)an
else5)ere in t)e re%ion, because t)e
colla+se in oil 5as so si%ni.icant, but it
5as still insu..icient. 3rancisco
$odr%uez )as t)e 5ay to do t)is.
11
actual chan!e pro"ided( 1h' did the solution that emer!ed in 1999 come in the form of a
leftist-militar' alliance& as opposed to a social-mar-et leftist !o"ernment (X la +oncertaciYn
in +hile)& a moderate leftist-labor alliance (X la Lula in 2rail)& a center-ri!ht alliance (X la
<icente 0ox in /exico)& or a ri!ht-#in! militar' alliance (X la 0u5imori in ,eru)( 1e still
need an explanation for the stren!th of the suppl' of the radical left and its brid!es #ith
the militar' in <eneuela(
...( The incorporation of 0O' since the 19*=s
To understand the leftist-militar' alliance cobbled to!ether b' +hD"e& it is
necessar' to re"isit the stor' of ho# the <eneuelan radical left chan!ed from bein! an
insubordinate actor in the 19*=s to an inte!rated force #ithin the institutions of the ,unto
0i5o re!ime( This stor' of incorporation is #orth retellin! since recent scholarship on
<eneuela& #hich has focused on the suEocatin! eEects of part'arch'& has de"eloped some
amnesia about it(
.t3s #ell -no#n that the ,unto 0i5o re!ime foundin! documents (both the set of
pacts and the constitution of 19*1) did little to include the <eneuelan radical left( This
occurred for t#o reasons( 0irst& the radical left in the late 19%=s and earl' 19*=s #as tin'
(!atherin! less than $ percent of the electorate) and thus had no bar!ainin! le"era!e "is-
X"is
the three lar!er parties ()6& +opei and the ;:6) (+orrales ?==1)( >econd& at least one
of the most important demands of the radical left #as completel' ob5ectionable to all three
lar!e parties( )6 ob5ected to the radical left3s pro->o"ietO+uban forei!n polic'9 the
opposition parties& +opei and the ;:6& ob5ected to the radical left3s call for centraliation
po#er in the hands of the 8xecuti"e9 and all three parties ob5ected to the radical lefts3call
for bannin! the pri"ate sector( 2ecause the radical left #as excluded b' the ,unto 0i5o
12
re!ime foundin! institutions& sectors of the radical left turned to "iolence& plun!in!
<eneuela into an armed stru!!le that lasted until 19*8(
Co#e"er& the important stor' of the 0O's and the radical left since 19*8 is their
!radual transition from exclusion to incorporation( ;nli-e other Latin )merican countries&
#here the radical left #as repressed throu!h brutal coercion (includin! the imposition of
authoritarianism)& in <eneuela the democratic re!ime reached an accord #ith the radical
left in the late 19*=s( The re!ime opened up opportunities of incorporation for the radical
left in return for the left3s "o# to abandon the armed stru!!le(
There is no Fuestion that the top political oEices in <eneuela remained oE-limit
to the radical left (e(!(& the ,residenc'& mana!ement positions in state-o#ned enterprises&
leadership positions in labor federations& seats in ad"isor' boards to the president)( These
#ere reser"ed for the lar!e parties (+opped!e 199$)& and lar!e interest !roups (+risp
?===)(
2ut there #ere a number of secondar' institutions that became Fuite accessible& and #hich
in fact& the radical left made its home (e(!(& small parties& small unions& small nei!hborhood
associations& some media "enues& some re!ions& e"en the militar'& albeit not al#a's at the
hi!hest le"els) (8llner 1993)( Landmar-s in the political incorporation of the radical left
#ere the le!aliation of the +ommunist ,art' in 19*9& the le!aliation of /o"imiento de
.Fuierda :e"olucionaria in 19A3& and the foundin! of the /o"imiento al >ocialismo
(/)>) b' former !uerrilla leader Teodoro ,et-oE in 19A1 (a spinoE of the +ommunist
,art')( 8"en #ith the leadin! parties& leftist factions al#a's found homes( 2' 19A3& for
instance& +7,8. #as internall' di"ided bet#een a more centrist forces (the so-called
J)ra!uatos)& a left-leanin! faction (the J)"anadosK)& and an e"en more radical #in! (the
J)stronauts)( ,resident Luis Cerrera +ampVns came from the leftist )"anado faction of
+opei (8llner ?==AB111& 1?$)(
The combination of economic !ro#th and !o"ernment-sponsored institutional
openin!s after the 19*=s contributed to a chan!e of attitude b' the radical left in the
13
19A=sNfrom insurrection to inte!ration-see-in! (8llner 1993B1$=-1$3)( The /)>
de"eloped an oEicial polic' of Joccasional support for )6 and +opei&K intended to !ain
con"erts from those parties (8llner 198*B93)( 2oth the /)> and the ,+< supported
,Wre3s economic policies durin! his 4rst administration( Leaders of the radical left e"en
became pla'ers at the hi!hest le"els of politics in the ,unto 0i5o :epublicB the number of
presidential candidates doubled from 19*8 to19A3& mostl' #ith candidates from the left(
Their presence in +on!ress increased( 1hen +arlos )ndrWs ,ere faced char!es of
corruption in& important leftist le!islators (e(!(& JosW <icente :an!el& then from the ,+<
and e"entuall' +hD"e3s second hand) refused to "ote a!ainst ,Wre& ar!uin! that
accusations a!ainst ,Wre #ere ri!htist-inspired reprisals for pro!ressi"e policies (8llner
?==AB1?=)( The /)> #as the oEicial rulin! part' under +aldera3s second term& and t#o of
his closest economic oEicials& Teodoro ,et-oE and Luis :aMl /atos )Ycar #ere
selfproclaimed
Jhombres de iFuierda(K
)( ;ni"ersities
)nother crucial <eneuelan institution that 0O's #ere able to colonie #as the
uni"ersit' s'stem& #hich& under the ,unto 0i5o re!ime became one of the lar!est& most
resource-endo#ed& anti-status Fuo ?& and autonomous institutions in <eneuela( ) !ood
indicator of the importance of this institution is the le"el of resources de"oted to it( .n the
19A=s& <eneuela conducted one of the lar!est expansion in spendin! on hi!her education
in the re!ion (0i!ure $)( 2et#een 19*9 and 19A$& public uni"ersit' enrollment expanded b'
a phenomenal A? percent& compared to a 38 percent and a ?3 percent expansion in
2 3or an account o. le.tist (and ri%)t>5in%) intellectuals at ?enezuelan uni0ersities +ublis)in% attac2s o.
t)e @unto 3i4o re%i!e +rior to 1999, see Hill!an (200"). 8e.tists at national uni0ersities 5ere )ea0ily
di0ided bet5een t)ose 5)o su++orted t)e s!all radical le.t (i.e., t)e so>called Mor%anized le.tN) and
inde+endent le.tists (see :llner 19A,H9A).
Comment [ACPC!]: erial co!!a
inconsistency
1"
secondar' and primar' education ()lborno 19AA)( 8"en in the economicall'-depressed
mid 199=s& <eneuela still de"oted *(8 percent of its national bud!et to hi!her educationN
the hi!hest in Latin )merica& #hose a"era!e #as 3($ percent (de /oura +astro and Le"'
?===)( .n the 198=s and 199=s& uni"ersit' education absorbed 38 percent of the bud!et of
the /inistr' of 8ducation (1orld 2an- ?==1)(
)lthou!h total enrollment increased b' *= percent from 198* to 199* (ibid)& total
spendin! #as still hi!h relati"e to enrolment le"els (see 0i!ure %)( 2' the end of the 199=s&
there #ere 1$$ institutions of hi!her learnin!& of #hich $1 #ere uni"ersities( ) culture of
state subsidies set in to the point that e"er'one in the uni"ersit' s'stem expected e"er'
ser"ice to be free( )nd in fact& most ser"ices #ere free or hi!hl' subsidied(3
) number of uni"ersit'-based institutions permitted 0O's to enter and establish a
stron!hold on the uni"ersit'( 0irst& the uni"ersit' s'stem did not ha"e strict academic
reFuirements for facult' appointments( .n the earl' ?===s& onl' *(* percent of facult' had
,h(6(s& compared to 19 percent in 2rail( >econd& the pension s'stem ensured that older
professors could stic- around( )lthou!h facult' could retire after onl' ?% 'ears of ser"ice
at a 1== percent salar'& tax-free& man' of them are re-hired b' either their o#n institutions
or some other academic center( This allo#ed some JretiredK facult' to teach and collect
both a salar' and a pension( .n 1999& almost ?$ percent of the personnel at the uni"ersities
#as JretiredK ()lborno ?==3B1?%)( Third& at the student le"el& the uni"ersities did not
impose restrictions on times in residence& so political acti"ists could prolon! their sta' on
campus be'ond the a"era!e time it too- to complete a de!ree( 7f the students #ho
3 3ood, .or instance, is al!ost .reeO t)e cost o. t)ree !eals .or e0ery 5ee2day o. t)e acade!ic year 5as
less t)an a dollar. Many o. t)ese subsidies 5ere tar%eted to t)e !iddle classesH +ar2in% a car under a
co0ered lot costs 9S1 +er !ont), 5)ereas t)e a0era%e .or a si!ilar +ar2in% %ara%e else5)ere in Caracas
5as 9S1 .or t5o )ours (Albornoz, 2003H,7).
1'
enrolled at the uni"ersit' in 1989& onl' $=(% percent !raduated #ithin 4"e 'ears (1orld
2an- ?==1)($
<eneuela3s uni"ersities became lar!e& state-funded& relati"el' autonomous
JoEsprin!sK of the ,unto 0i5o re!ime that 0O's could capture& as in fact the' did(
<eneuelan 0O's& includin! former insur!ents& !ra"itated to#ard the uni"ersit' s'stem& as
either students or& more comfortabl'& as facult' en5o'in! !enerous li"in!-#a!es& #hich are
automaticall' increased e"er' 'ear( .n the ;+< since the 19A=s& the de!ree of
representation of the radical left (,+<& /.:& ;:6& /8,& 2andera :o5a) in the uni"ersit'
#as !reater than in the countr' at lar!e( La ;ni"ersidad del Zulia in /aracaibo and the
;ni"ersit' of 7riente& #ith campuses in ,uerto La +ru& +umanD& and +iudad 2olV"ar&
ori!inal bastions of )6& became dominated b' /)> and /arxist radicals (see Cillman
?==$B118-119)(
2( The /ilitar'
.n the mid 198=s& the militar' emer!ed as 'et another state-protected institution
that also ser"ed as a ha"en for the radical left( )fter successfull' demilitariin! <eneuela
and assertin! ci"ilian control o"er the militar' bet#een the 19*=s and the 19A=s& the ,unto
0i5o re!ime made a turnaround and became instead a protector of a "er' #ell-ta-en-care-of
militar' institution( The ,unto 0i5o re!ime be!an to !rant the militar'B an a!reeable
mission (containment and defense a!ainst +olombia)& autonom' on the conduct of defense
aEairs& health' militar' bud!ets& and opportunities for ad"ancement (Trin-unas ?==%)( The
contrast in militar' spendin! bet#een the 19*=s and the 198=s re"eals ho# #ell ta-en care
of the militar' #as( 0irst& there #as contractionsB bet#een 19*A and 198=& militar'
" Anot)er a0enue culture>based a0enue t)rou%) 5)ic) t)e le.t 5as subsidized 5as t)rou%) t)e arts.
&o0ern!ents durin% t)e @unto 3i4o re%i!e de0oted .ar !ore in0est!ents in t)e area MCulture, recreation
and reli%ionN (, +ercent o. total s+endin%) t)an t)e rest o. 8atin A!erica (less t)an 1 +ercent). 8#+ez
1bre%#n y $odr%uez). A si%ni.icant +ortion o. t)e culture bud%et 5ent to artists and art %rou+s
associated 5it) t)e le.t.
Comment [JC"]: 6n t)e early. 2000s,
,., +ercent o. .aculty in uni0ersities )ad
@)7 (2107 o. 32,1,7) 0ersus in /razil,
5)ere 19 +ercent )ad it.
Comment [JC#]: +endin% is
increasin%, but it is %oin% to to+ %enerals,
and 5ea+ons, but less to !iddle ran2
o..icers
1,
expenditures declined as a percenta!e of R6, (!oin! from abo"e to belo# the Latin
)merican a"era!e)& and as a percenta!e of central !o"ernment expenditure (0i!ures ? and
3)( This #as the period of demilitariation( 2ut then& this trend #as re"ersedB /ilitar'
expenditure& both as a percenta!e of R6, and as a percenta!e of central !o"ernment
expenditure& expanded bet#een 198= and 199A( The sie of the armed forces #ent from
$9&=== in 198% to %*&=== in 1998& a 1$-percent increase (..>> ?===)( The point is that #hile
other areas of !o"ernment spendin! #ere bein! cut& the militar' remained relati"el'
protected( )lthou!h <eneuela did not ha"e a lar!e militar' relati"e to its population (in
terms of militar' expenditures per capita in 199*& <eneuela ran-ed 9 or 1= amon! ?=
countries in the re!ion) ()rcenaux 1999)& 0i!ures % and * sho# that the militar' remained
a state-protected institution( Table $ also sho#s the relati"e stabilit' of <eneuela3s
militar' spendin! as percenta!e of central !o"ernment expenditures since the 19A=s( .n
the
three decades since 19A=& <eneuela3s militar' spendin! relati"e to +R8 did not Quctuate
much& on a"era!e( .n contrast& most Latin )merican countries (except +hile& +olombia&
/exico and 8cuador) experienced drastic Quctuations& mostl' in a do#n#ard direction(
The militar' institution thus became another re!ime-sponsored institutional ha"en
for 0O's #ith anti-establishment sentiment (Cellin!er ?==3)( 1e no# -no#& for instance&
that the militar' harbored !roups #ith ma5or !rie"ances a!ainst the status FuoB 1) those
#ho opposed promotions based on part' s'mpathies and ?) h'pernationalists( .n the
198=s& a ne# source of !rie"ance eruptedB 5unior oEicers a!ainst !enerals (Trin-unas
?==?)( 7ne reason for this had to do #ith the une"en distribution of resources #ithin the
militar'( .t seems that& most of the economic subsidies channeled to the militar' staE&
ended up in the hands of the upper echelons of the hierarch'( 1hereas lo# ran-in! staE
suEered declinin! relati"e #a!es and conditions& the upper echelons remained #ell
protected(
17
7ne #a' to !au!e this is to examine the proportion of the militar' bud!et de"oted
for #eapons acFuisition( The a"era!e "alue of arms imports as a percenta!e of militar'
expenditures expanded in the 198=s& from 11(1 percent bet#een 19*A and 19A9 to 38(%
percent bet#een 198= and 1989 (;(>( )rms +ontrol and 6isarmament )!enc'& "arious
'ears)( Co# much of this bud!et #as di"erted to corruption is a matter of speculation(
2ut it seems safe to assume that "er' little of this component of the bud!et #ent to 5unior
oEicer and non-ran-in! troops( .neFualit' bet#een the top oEicers and the rest #as thus
risin!& and breedin! disconent amon! 5unior ran-s(
There is no Fuestion that there #as no room at the top of the militar' for antiestablishment
sentiment( To become a hi!h-ran-in! oEicer& militar' indi"iduals needed to
be subser"ient to the lar!e parties& !i"en that promotions reFuired >enate appro"al( 2ut
throu!hout the rest of the militar'& soldiers en5o'ed broader political autonom'(
0urthermore& there are studies that sho# that the intelli!ence institutions of the militar'
#ere not terribl' repressi"e& neither across societ' nor #ithin the militar' (/'ers ?==3)&
#hich #ould explain the abilit' of anti-status Fuo !roups in the militar' to sur"i"e( This
Jcomplacenc'K seems to explain #h' +hD"e3s faction #ithin the militar'& the /2:-?==&
#as allo#ed to operate unemcumbered for almost 1= 'ear prior to the 199? coup (8llner
?==AB1$9)( <eneuela3s intelli!ence institutions #ere desi!ned in 19%8 to a"oid the abuses
of the ,Wre JimWne administration& and remained Jfra!mentedK lac-in! Jhoriontal
lin-a!es amon! its important institutions(K >8+7T>868 (created in 19A*)& the onl'
institution #ith the potential to coordinate ,unto 0i5o Tational .ntelli!ence& remained on
the sidelines (B88)( .n the 198=s& the focus on communist in4ltration !a"e #a' to focus on
terrorism and dru! enforcement( 0urthermore& there is e"idence of underuseB 6./ and
6.>., #arned +), of contacts bet#een radical ci"ilian political leaders based in +aracas
slums and alienated 5unior arm' oEicers9 but +), dismissed these reports( +aldera also
did not use the reports(
Comment [JC$]: 1$$(3O13[11(1
percent)(
(38%(3O1= [ 38(%3)(
1A
The paradox of state-militar' aEairs prior to +hD"e is that the s'stem #as breedin!
anti-status Fuo sentiment in the militar'& e"en thou!h that sector #as relati"el' #ell
treated
b' the state( )s most militar' anal'sts ar!ue& the discontent stemmed from both politics
and economics( The militar' came to share the "ie#s of all intellectuals in <eneuela in the
199=s that the problem #ith the countr' #as the stran!lehold of the part' s'stem( The
upper echelons resented part' based promotions( The rest resented also the risin!
economic ineFualit' #ithin the s'stem( The' also felt that the leaner 'ears of the 199=s
#ere aEectin! them far more than #as the case #ith top oEicers( The militar' thus became
simultaneousl' a protW!W and a "ictim of part'arach'( 2ecause it #as so #ell protected and
simultaneousl' abusedNthe militar' acted both as a spon!e and a breedin! !round of
radical anti-status Fuo sentiment(
+( >ubnational politics and "oluntar' or!aniations
)fter 1989& the other institutional arena that became open and hospitable to small
opposition forces of the left #as subnational political oEices (8llner 19939 ,enfold ?==?)(
) series of reforms #hich included the remar-able 1989 decentraliation reforms (#hich
decentralied spendin! and allo#ed for the direct election of !o"ernors and ma'ors)& the
shortenin! of municipal and con!ressional terms& and the institution of nominal elections
#as responsible for this institutional openin!( 2' the late 199=s& the <eneuelan state #as
de"otin! a lar!e portion (?3 percent of total spendin!& or % percent of R6,) to transfers to
the re!ions& far more than the a"era!e Latin )merican countr'9 most of this spendin! #as
earmar-ed for state emplo'ment at the le"el of states and municipalities (LYpe 7bre!Yn
and :odrV!ue n(d()( The index of decentraliation& #hich ran-s L)+ countries in terms of
the ratio of subnational expenditures to national expenditures& places <eneuela at the top
% of 1A countries( This combination of political and economic decentraliation represented
a form of JdiEusion of po#erK (8llner ?==3B1$) that Jlo#ered the cost of entr'K for ne#
Comment [JC%]: ClearyBs (200,)
ar%u!ent t)at le.t rises 5)en t)ere are
!ass>!obilizin% structures, to%et)er .or
sources o. discontent.
19
actors (Le"ine 1998B198 in +anache& see also +risp and Le"ine 1998B?A and 1999)&
Jcreatin!
ne# actors and mobiliin! ne# constituenciesK (Ta"arro ?===B?=1)( >ome "en referred to
decentraliation in the 199=s as a Jsemi-suicideK of traditional parties (Lalander ?==*)(
The response to institutional openness #as of course the rise to ne# a"enues of
political participation( 2' 199?& leaders of small opposition parties of the left held four
state !o"ernorship and multiple ma'oralties( 2' 1993& leftist parties achie"ed control of the
8xecuti"e branch (the +on"er!encia-/)> alliance) and the lo#er house( These small
opposition forces& no lon!er that small& remained intensel' di"ided on most polic' and
electoral issues& but united on one themeB their scorn for the adecope'anismo& a sentiment
no# shared not 5ust b' the urban poor (+anache ?==$)& but also b' economic elites& sectors
of the militar'& and the bul- of intellectuals (Cillman ?==$9 /or!an ?==A)( The mar!inal
left #as not !o"ernin!& but it #as not homeless( 2' 1998& onl' 13 or ?3 !o"ernorships
#ere in the hands of the traditional parties& )6 and +opei( ,enfold (?==?) thus conclude
that the increase in !ubernatorial electoral JopportunitiesK permitted both Jemer!in!
partiesK (L+:& ,<& and /2:-?==) and established leftist parties (/)>) to become
Jimportant pla'ersK in <eneuelan politics in the 199=s(
The other form of mobiliation #as the rise of ci"il societ'( >tudies tr'in! to
Fuantif' the rise of ci"ic associations su!!est that the total number #ent from
approximatel' 1=&=== in the earl' 199=s to as man' as ?$&*?8 or perhaps e"en %$&?** b'
the late ?===s (>alamanca ?==$B1==)( )s in the rest of Latin )merica (Cellman 199?)&
these !roups tended to o"errepresent the anti-part' left(
.n short& the political position of small opposition forces& includin! the radical left&
impro"ed& e"en thou!h (or perhaps because) the re!ime #as collapsin! economicall'( )s
the number of impo"erished lo#-income !roups and defectors from traditional parties
increased& the political opportunities for small opposition parties and radical left parties
increased( 2' 199?& this combination of economic shrin-in! and political openin! led to
Comment [JC&]: 7ne ma5or !roup to
pro4t from these opportunities #as La
+ausa :& a !rass-root political part' that
carried out a "i!orous campai!n amon! the
unions and poorer nei!hborhoods
(+anache ?==$)(
20
the decline of traditional parties& )6 and +opei& in fa"or of ne# or pre"iousl' bloc-ed
partiesB +on"er!encia& /)>& the ,+<& +ausa-: and later& in 1998& the /<:( .nstitutional
openin!& rather than deca'& is thus the most po#erful explanation for re!ime chan!e(
.<( The Ton-adaptation of ,arties& includin! the radical left
. ha"e tried to pro"ide an institutional explanation for the prosperin! of the left in
<eneuela& but #hat about the prosperin! of radicalism in <eneuelaG The left in
<eneuela #as lar!e& and not e"er'one in the left #as radical& but it seems that there #ere
man' radicals in <eneuela circa the 199=s( /ore precisel'& it seems that there #as a lar!e
section of the left that #as particularl' in fa"or of a set of ideas that ha"e been described
as
Jsetentistas&K e"en Jcincuentistas&K (e(!(& Jendo!enous de"elopment&K the cha"ista term of
import-substitution industrialiation& and tolerance for concentration of po#er in the hands
of the 8xecuti"e) ( /ost of the left in Latin )merica in the 198=s and 199=s mo"ed in the
direction of !reater acceptance of pri"ate mar-et forces and de4nite re5ection of
concentration of po#er in the hands of the 8xecuti"e or militar' institutions( 1hat
explains& therefore& the non-adaptation of so man' sectors of the <eneuelan left (see Pat
and /air 199$9 2ur!ess and Le"its-' ?==3)G%
.t must be noted that in this period of risin! small opposition forces and declinin!
traditional parties& neither force under#ent a deep process of Jadaptation(K .n the cases of
small opposition forces and the radical left& anti-liberal sentiments remained as stron! in
the 199=s& e"en as the left in Latin )merica became more moderate ()n!ell 199*&
+astaUeda 1993)( 0or instance& lar!e sections of the <eneuelan left continued to embrace
old-fashioned leftist "ie#s of democrac' that pri"ile!ed popular mobiliation and hea"'-
' 2ur!ess and Le"its-' (?==3B883)& follo#in! Pat and /air (199$)& de4ne part' adaptation as
Jchan!es in strate!' andOor structure& underta-en in response to chan!in! en"ironmental
conditions that impro"e a part'3s capacit' to !ain or maintain electoral oEice(K )n important
component of part' adaptation is chan!es in platforms& aEiliates& and coalition partners& to
reQect
ne# economic realities(
21
handed state policies o"er "ie#s of democrac' stressin! the need for accountabilit' of
oEice-holders& ci"ilian control of the militar'& and respect for minorit' opinions& etc( 8"en
in the most self-democratiin! part' of the left& /)>& there continued to be stron!
adherence to old doctrines #ithin the part' and hu!e conQicts #ith other leftist parties
(8llner 1993)( The <eneuelan left continued to romanticie re"olutionar' politicsNa
strate!' that in the 199=s !enerated problems for leftist parties else#here& either at the
moment of elections or at the moment of !o"ernin! (:oberts 1998)( )nd #hen the /)>
became a rulin! part'& it prett' much re5ected its "er' o#n plannin! minister& Teodoro
,et-oE& for Jsellin! his soul toK neoliberalism(
)( 7ne-1a' Rlobaliation
,art of the reason for the non-e"olution of <eneuela3s left is #hat . #ould
describe as Jone-#a' !lobaliation(K /ost Latin )merican leaders of the left abandoned
their countries in the 19*=s-A=s period& Qeein! ri!ht-#in! dictatorships( The ma5orit' of
them #ent to the ;nited >tates& +anada& and 8urope( This exodus contributed to the
ideolo!ical moderation of the Latin )merican left& in tandem #ith the moderation of the
left in the 1est( 8"en those Latin )merican leftists #ho sou!ht as'lum in communist
8astern 8urope became less enchanted #ith /arxism& at least in practice( .n the #ords of
Ca!opian (?==%B3?3)& exile Jtamed their passionsK for socialism( 1ith the return of
democrac' in the 198=s& man' of these indi"iduals returned to their countries& and the'
ser"ed as carriers of the ne#& more moderate left-#in! ideolo!' that the' adopted #hile
abroad( ) !ood example #as :icardo La!os& president of +hile from ?=== to ?==*( La!os
#as a hard-core& leftist supporter of >al"ador )llende3s !o"ernment in the 19A=s( Ce #as
about to con4rmed as +hile3s ambassador to the >o"iet ;nion #hen ,inochet carried out
his coup in 19A3( Ce sou!ht as'lum in )r!entina& and then in the ;nited >tates& #here he
tau!ht economics at the ;ni"ersit' of Torth +arolina( ;pon his return& La!os became a
main collaborator of the +oncertaciYn3s more moderate stands& ser"in! 4rst as education
Comment [JC1']: 6!+ortantH An%ell
in 199, boo2 by ;)ite)ead on
6nternational 7i!ensions o.
7e!ocratization, !entions )o5 C)ileBs
o++osition bene.itted .ro! t)e
trans.or!ati0e e*+erience o. e*ile.
22
minister and then as infrastructure minister (Ta"ia ?==*)(
<eneuelan leftists #ere completel' alien to the La!os phenomenon of ideolo!ical
e"olution because it ne"er had reasons to lea"e <eneuela in"oluntaril'( .nstitutional
comfort at home precluded exodus& #hich in turn& precluded international exposure& #hich
in part& precluded ideolo!ical adaptation( .f an'thin!& the <eneuelan radical left
interacted mostl' #ith its o#n -ind( )s Table * sho#s& <eneuela experienced a massi"e
inQo# of exiles from the >outhern +one bet#een 19*= and 1981( .n addition to the
;nited >tates& +anada and 8urope& >outh )merican leftist leaders in the 19*=s mi!rated to
<eneuela and /exico because these countries remained free of anti-communist
dictatorships( <eneuela in particular oEered !enerous opportunities for >outhern +one
refu!ees( 0or instance& startin! #ith ,resident +aldera in 19A3& and throu!hout the
duration of the ,inochet re!ime in +hile& the <eneuelan !o"ernment maintained an acti"e
eEort to pro"ide political as'lum to +hileans& includin! the settin! aside of a special funds
for refu!ees (SDUe ?==$)( +onseFuentl'& the combined population of )r!entine& +hilean
and ;ru!u'an nationals increased b' almost 8== percent bet#een 19*1 and 1981( )s
further proof that these >outhern +one exiles in <eneuela #ere on the left (lea"in! for
political rather than economic reason)& immi!ration from )r!entina and ;ru!ua' turned
ne!ati"e in the 198=-8$ precisel' #hen these dictatorhips "anFuished( There is also
e"idence that that these exiles became Fuite assimilated into <eneuelan societ'( /ost of
them #ere professional& and $?(% percent of them held 5obs& mostl' in professional 4elds(
2( The ,arties3 Technocratic 6e4cit
The traditional parties& not 5ust the radical left& also failed to under!o adaptation(
/ost of the lar!e Latin )merican populist parties of the post#ar period that became
electorall' successful in the 199=s (e(!(& the ,J in )r!entina& the ,:. in /exico& the
+oncertaciYn in +hile& the ,>62 in 2rail& the Liberals in +olombia and Conduras) did so
23
after under!oin! a process of internal reno"ation( 7ne crucial aspect of that reno"ation
#as the incorporation of tWcnicos #ithin their ran-s( These tWcnicos updated their part'3s
ideolo!ies& and more important& !a"e them polic' tools to deal #ith the crisis of the 198=s(
Co#e"er& both )6 and +7,8. remained fairl' closed to technical expertise(
The best stud' on the relationship bet#een <eneuelan parties and the tWcnicos&
!rouped under Jcole!iosK (or professional associations and boards) ar!ues that parties and
cole!ios al#a's had a stron! #or-in! relationship& #hich is not surprisin! for a democrac'&
especiall' one #ith a lar!e& rent-!rantin! public sector (/art and /'ers 199$9 see also
+risp ?===)( Co#e"er& e"en this stud' mentions that this relationship eroded o"er time(
;ntil the 19A=s& professionals felt that the' pla'ed an important part Jin creatin! and
consolidatin!K <eneuelan democrac' (/art and /'ers ?==$B?1)( 8ssentiall'& cole!ios felt
the' inQuenced politicians( 7"ertime& ho#e"er& the cole!ios started to feel that politicians
Jcustomaril' inQuence the cole!ios(K This chan!e led to resentment amon! professionals
o"er Jpoliticiation of the professionsK (ibid(B?1-??)(
/art and /'ers3s focus on #or-in! connections bet#een part' factions and
cole!ios is onl' one side of this Fuestion& not the #hole stor'( >een from another
perspecti"e& the !roups loo- far more estran!ed( 0or instance& if one loo-s at the #a's in
#hich tWcninos& or technical expertise for that matter& entered part' leadership& rather than
merel' #or-in! relationship& the disconnect bet#een the partisan and the technical realm
loo-s lar!er(
There are t#o #a's in #hich technical -no#led!e can penetrate parties( The 4rst is
throu!h the 8xecuti"e 2ranch& a model exempli4ed b' /exico under ,:. rule( /exican
presidents since the 19*=s appointed technical experts throu!hout the federal bureaucrac'&
and these tWcnicos 5oined the rulin! part' leadership& and e"en made it to the presidenc'(
.n <eneuela this process of tWcnico-incorporation #as ne"er all that stron!Ntop part'
positions remained in the hands of traditional politiciansNand it completel' collapsed
2"
under ,ere (1989-?==3)& #ith )63s famous campai!n a!ainst ,Wre3s technical cabinet
(+orrales ?==?)(
The other route for tWcnico penetration is throu!h specialied ser"ice in the
le!islature (Jones& >aie!h et al( ?==?)B the more time in the le!islature& the !reater
incenti"e
for specialiation( 2ut in <eneuela& the a"era!e tenure of le!islators #as "er' lo#B *$(*
percent of le!islators ser"ed onl' one term9 1%(3 percent ser"ed onl' t#o terms (see also
/onaldi& RonDle et al( ?==%)( The reelection rate #as one of the lo#est in the re!ion
(.62 ?==%B+hapter 3)( .n addition& the producti"it' of the le!islature (number of bills
appro"ed per 'ear) #as shoc-in!l' lo#( <eneuelan le!islators spent so little time in the
le!islature& and this le!islature #as so underutilied& that le!islators had minimal ncenti"e
to
acFuire expertise(
.n sum& <eneuelan traditional parties suEered from #hat Ca!opian (?==%B3%9)
considers to be the t#o ma5or causes of part' crisisB a representational de4cit (i(e(& a
disconnect bet#een part' leadership and ci"il societ') and a technical-expertise de4cit (a
disconnect #ith polic'-#on-s)( .n <eneuela& both the leadin! parties ()6 and +opei) and
the traditional left part' (the /)>) suEered from both crises( The representational de4cit
stemmed from the defection of part' aEiliates t'pical of countries under!oin! economic
contraction (see /olina ?===9 /'ers ?==A) ( /or!an (?==A) e"en ar!ues that the defectin!
"oters #ere those from the Jne# ri!htK and the Jne# left(K These "oters started to feel
unrepresented b' both the traditional parties ()6 and +7,8.) and the traditional parties
of the left (/)>)( The parties #ere not e"ol"in! ideolo!icall' in tandem #ith citiens( The
social-democratic part' and +hristian 6emocratic remained attached to the old
rentierpopulist
model& #hich #as increasin!l' unappealin! to the ne# ri!ht9 and the /)> #as too
attached to its anti-capitalism& #hich #as also increasin!l' unappealin! to the ne# left( .n
other #ords& the ne# left #as becomin! closer to the ne# ri!ht in its embrace of political
and economic liberalism& 'et none of <eneuelans parties e"ol"ed enou!h in this direction
2'
to accommodate these !roups(
.n addition to representational crisis& the parties suEered from the failure of
traditional parties to incorporate technical expertise( This #as perhaps a more serious
de4cit than the representational de4cit( . #ould e"en ar!ue that the technical expertise
de4cit probabl' helped cause the representational de4citB the failure to incorporate
technical expertise left the parties de"oid of ideas and coura!e to experiment #ith ne#
policies& leadin! to part' ineEecti"eness in the face of economic crisis& leadin! in turn to
"oter detachment(
.n sum& the paradox of cha"ismo is that it is a mo"ement of anti-status Fuo
politicians that #as possible& not because these forces #ere sub5ected to institutional
isolation& but on the contrar'& the' bene4ted from institutional protection( The notion that
the ,unto 0i5o re!ime became increasin!l' exclusionar' and collusi"e mi!ht be true mostl'
at the le"el of national-le"el political parties politics& but not else#here in societ'& and e"en
less so in in the 199=s #ith the rise of ne# opportunities for participation( The rise of
+hD"e in 1998 thus represents not the sudden triumph of historicall' excluded !roups& but
rather& the culmination of 'ears in #hich discontent !roups #ere able to use the
institutions
of democrac' to climb to the top(
Three !roups #ere tr'in! to rise a!ainst the rentier-model defended b' parties in
<eneuelaNthe radical left since the 19A=s& the ne# left and the ne# ri!ht in the 199=s(
2ut it seems that onl' the radical left en5o'ed !reater institutional opportunities for comin!
ahead( The' had a stran!lehold o"er the uni"ersit'& the militar'& social mo"ements& and
increasin!l'& the ne# political parties that #ere displacin! the traditional parties( 2ecause
of this institutional ad"anta!e& the radical left #as best positioned to ta-e ad"anta!e of the
Junra"elin!K of the ,unto 0i5o re!ime( 2' 1993& <eneuela faced an arra' of propitious
conditions for an assault a!ainst the traditional political actors of the re!imeB almost ?=
'ears of continuous economic decline& di"isions #ithin the traditional parties (#hich sta'ed
2,
impermeable to technical experts and pla!ued b' "oter detachment)& and nonmodernied
small opposition forces that #ere en5o'in! ne# allies and safe political spaces( Cu!o
+hD"e emer!ed as the leader of such an assault( Cis tas- #as to unite the radicals at the
uni"ersit'& the suEerin! lo#-income !roups& and the militar'(
<( <eneuela and Latin )merican +ountries +ompared
Table * summaries the -e' factors that& . ha"e ar!ued& led to the suppl' of a
stron!& radical left in ci"il societ' and #ithin the militar'( These factors includeB
1) feedin! mechanisms (e(!(& net inQo# of leftist immi!ration in the 19*=s and
19A=s& t#o decades of economic contraction and aborted reforms& ineFualitites bet#een
5unior and senior oEicers in the militar')& and
?) institutional shelters (the uni"ersit' and the militar'3s protected bud!et& lac- of
ri!ht-#in! pur!es)& mobiliational opportunities (decentraliation of political oEice and the
militar'3s openness)(
To!ether #ith the erosion of traditional parties in the 199=s& #hich further lo#ered
barriers
to entr' of ne# political !roups& these factors created conditions for the rise of radical
leftism in <eneuela b' the late 199=s(
Table * also sho#s that these conditions #ere not exactl' replicated to the same
extent else#here in the re!ion( /ost countries shared some of these conditions& but none
shared all of them( This explains #h' else#here in the re!ion& the radical left #as not as
lar!e& as radical& or as #illin! to accept militar' in"ol"ement in politics as it #as in
<eneuela( .f +hD"e had tried to build a coalition of radical leftists and left-leanin!
militar' oEicers in another Latin )merica countr' in the late 199=s& he #ould ha"e failed(
. can no# formulate some !eneraliations about the distribution of "oters and
leaders across the ideolo!ical spectrum in <eneuela relati"e to Latin )merica( )nal'sts
27
con"entionall' di"ide the political spectrum in most countries into four broad cate!oriesB
extreme left& center left& center ri!ht& and extreme ri!ht( <eneuela in the late 199=s #as
no
exception( The main diEerence bet#een <eneuela and other Latin )merican countries&
this paper ar!ued& #as the proportion of "oters and leaders #ithin each cate!or'(
>peci4call'B
1) The sie of the ri!ht #as not that lar!e in <eneuela( The t#o forces that fed
the ri!ht in Latin )merica #ere not stron! in <eneuela--1) a +old 1ar-inQuenced
militar' 4!htin! insur!enc' all the #a' throu!h the earl' 198=s9 and ?)
neoliberalism in the 199=s& #hich #ould ha"e !i"en rise to lar!e pro-mar-et
political forces( The best e"idence for the #ea-ness of the ri!ht #as the minimal
share of the "ote obtained b' the t#o candidates of the ri!ht in the 1998
presidential elections& /i!uel :odrV!ue and .rene >aWnB 3(1? percent(
?) 1ithin the <eneuelan left& the extreme left #as stron! and becomin! stron!er(
.nstitutions shelterin! and promotin! radical thou!ht #ere #ell protected from
ad5ustment and #ere expandin! as a result of decentraliation and the collapse of
traditional parties(
This distribution of "oters and leaders helps explain the second feature of cha"ismo
once it came to po#erB its increasin! tendenc' to#ard radicaliation& #hich is the topic of
the next section(
<.( +ha"ismo in 7Eice& ,art .B 8xplainin! :adicalism
7ther than its anti-part' stance& the +hD"e administration #as not all that radical
2A
at 4rst( )t the le"el of economics& +hD"e hardl' proposed an' ma5or polic' departure (at
least not more than +aldera durin! his hone'moon)( The best e"idence of economic
moderation is the decision to retain +aldera3s 4nance minister( 2ut startin! #ith the late
1999 decision to con"ert the +onstituent )ssembl' into an Jori!inatin! bod'K that
displaced the existin! +on!ress& +hD"e be!an to ta-e increasin!l' radical policies in
economics and politics( >ince then& the +hD"e re!ime has competed in each electoral
process (1999& ?===& ?==$& ?==%& ?==*& ?==A) on a platform and a record that #as far more
radical than in the pre"ious electoral contest(
There are t#o possible schools of thou!ht on the ori!in of polariation and
radicaliation( 7ne school of thou!ht su!!ests that radicaliation is an ine"itable response
to the intransi!ence of the status Fuo( >tates tr' to introduce modest reforms& usuall' in
the form of distributi"e politics& onl' to confront the intransi!ent resistance of certain
classes( This ar!ument is famousl' associated #ith Parl /arx3s& for #hom re"olution
(rather than reform) is the onl' realistic path to true chan!e& but it has also been accepted
b' contemporar' non-/arxists( 0or instance& 1illiam 8asterl' (?==1) ar!ues that\ and
)cemo!lu and :obinson (?==*B3?1-3??) ar!ue that de"elopment produces a stalemate
bet#een elites #ho fear redistribution and the masses #ho& mobilied b' democrac'&
demand redistribution( .n all these accounts& radicaliation is a conseFuence of unbendin!
structures(
)n alternati"e "ie# of polariation is to see it as a deliberate& and not necessaril'
ine"itable& polic' of the state( :adicaliaiton does not occur because chan!e necessitates it
but because it is state elites& rather than the masses& that pursue it (+ohen 199$9 2ermeo
?==3)& often because fabricatin! threats 'ields political !ains (Till' 198A)( .n this section& .
#ill sho# #h' pursuin! radicaliation rather than moderation has pro"en to be so
politicall' re#ardin! for +hD"e& at least unitl ?==A( To see this& it helps to bear in mind m'
contention about the distribution of "oters and leaders in <eneuela( 2ut 4rst& let3s specif'
29
the political conseFuences of moderation or radicaliation on the political lo'alities of each
!roup #ithin the ideolo!ical spectrum(
/oderation and radicaliation each has diEerent impacts on "oters dependin! on
their position in the ideolo!ical spectrum( 0or instance& let3s assume that a leftist
!o"ernment decides to pursue moderate policies (e(!(& establish cooperati"e relations #ith
the ;(>( and pro-business policies)( This #ould ha"e the follo#in! impact( The center-left
applauds and becomes supporti"e& but the extreme-left becomes disappointed& and most
li-el'& defects( The extreme ri!ht& naturall'& remains unimpressed& and thus& continues to
defect( The complications occur #ithin the center-ri!ht& #hich probabl' splits into three
!roupsB one small portion supports the !o"ernment (the result of pro-incumbent pull in
presidential politics)9 a second portion becomes ambi"alent& not exactl' sure ho# to
respond (s#in! "oters& or #hat in <eneuela are called the Jni9niK)9 and a third !roup
simpl' 5oins the opposition(
.f a leftist !o"ernment instead decides to radicalie (e(!(& pursue a hea"' dose of
statism and close collaboration #ith +uba)& the conseFuences across the political spectrum
are diEerent( 0irst& the extreme-left becomes lo'al( >econd& the extreme ri!ht panics and
becomes more extreme( This in turn has an impact on both the center left and the center
ri!ht (see +ohen 199$)( The center left splits& #ith the ma5orit' mo"in! further to the left
(in shoc- at the rise of a radical ri!ht) and a minorit' sta'in! in an ambi"alent position&
repulsed b' the extreme position of each camp( The center ri!ht suEers a similar split(
Table A tries to summarie these impacts( 0or the sa-e of the anal'sis& Table *
stipulates a series of h'pothetical rules based on #hat . 5ust ar!uedB moderation splits the
center-ri!ht three #a's (support& ambi"alence and defection)& and radicaliation splits both
the center-left (t#o thirds turns supporti"e9 one third turns ambi"alent) and splits the
center-ri!ht in a mirror ima!e (one third turns ambi"alent9 t#o-thirds turn to the extreme
ri!ht)(
30
.f one applies the h'pothetical rules in Table A to diEerent political settin!s& it
becomes clear that the political pa'oEs of moderation and radicaliation in terms of
resultin! lo'alties "ar' the more as'mmetrical the distribution of "oters( Table 8 pro"ides
three ma5or political settin!s #ith "arious de!rees of as'mmetr' (i(e( proportion of left to
ri!ht& and proportion of extreme left to center left)( The table also pro"ides the number of
supportin!& ambi"alent and opposin! forces that !i"en this settin!s& #ould result from
moderation "ersus radicaliation(
The 4rst settin! consists of a political spectrum in #hich moderate forces
dominate( 1hile the numbers used are 4ctitious& the' reQect the median "oter assumption&
namel'& that most "oters are concentrated in the middle of the spectrum( 1ithin this
context& Table 8 lists t#o contextsB extreme forces are tin' minorities (+ase ))& and
extreme forces are lar!er minorities (+ase 2)( )ppl'in! the rules from Table A to +ase )
sho#s that a strate!' of moderation is unambi!uousl' optimal for the incumbentB it
maximies the number of supporters (relati"e to a polic' of radicaliation) and minimies
the number of opponents( 0or +ase 2& moderation is less optimal but still appealin!B
#hile moderation increases sli!htl' the number of opponents& it si!ni4cantl' increases the
number of supporters relati"e to a polic' of radicaliation(
)s the sie of the left increases relati"e to the ri!ht& and #ith it& the proportion of
the extreme left& the political pa'oEs re"erse completel'( :o#s + and 6 sho# political
settin!s in #hich the median "oter assumption has been altered b' increasin! the o"erall
sie of the left relati"e to the ri!ht b' ?= points( .n case +& the moderate left is stron!er
relati"e to the extreme left9 in case 6& the re"erse is true( .n both cases& a strate!' of
polariation is more appealin! for the incumbentB it al#a's produces more supporters than
opponents( )lthou!h in case + radicaliation reduces the number of supporters relati"e to
moderation& it is still an appealin! strate!' because it diminishes si!ni4cantl' the number
of
defectors(
31
The 4nal set of cases relaxes the median "oter assumption furtherB the left is far
lar!er than the ri!ht (*% to 3%)( .n these circumstances& polariation is e"en more
preferableB it increases the number of supporters relati"e to defectors b' a si!ni4cant
de!ree(
)n important obser"ation from Table A is that it is not necessar' for a ma5orit' of
the electorate to be extreme left for a leftist !o"ernment to deri"e political pa'oEs from
radicaliin!( 8"en in situations #here the extreme left represents ?= percent of the
electorate (+ase +)& a leftist-!o"ernment can pro4t from radicaliation& pro"ided the left in
!eneral is lar!er than the ri!ht( This paper has ar!ued that <eneuela probabl' found itself
some#here amon! cases +& 6& 8B the left& and in particular the extreme left #as stron!
relati"e to the ri!ht& albeit not ma5oritarian( ;nder these conditions& radicaliation can be
politicall' re#ardin! for the incumbent( :adicaliation is thus more suppl'-side than
demand-side dri"en( .t is preferred b' the incumbent due to its political ad"anta!es& rather
than demanded b' a ma5orit' sentiment in the electorate(
<..( +ha"ismo in 7Eice& ,art ..B 1h' clientelism& impunit' and intimidation
,olitical re#ard does not mean absence of ris-( 1hile pursuin! radicaliation can
increase the number of supporters and reduce the number of opponents& #hich is optimal
for incumbents& it 'ields a ne# t'pe of ris-B the sie of ambi"alent !roups increases( These
!roups are ris-' for the !o"ernment( .nsofar as their lo'alties remain in Qux& ambi"alent
!roups can at an' point !ra"itate to#ard the opposition since& b' de4nition& ambi"alent
!roups ha"e non-4xed lo'alties(
/ost polls pro"ide e"idence of the rise of ambi"alent !roups soon after +hD"e
be!ins to radicalie in oEice( 2' Jul' ?==1& one reputable poll #as alread' be!innin! to
classif' some <eneuelan "oters as Jrepented cha"istasK (Ril Sepes ?==$)( The sie of
32
repented cha"istas s#elled from 8(9 percent in 0ebruar' ?==1 to 1$(A percent in Jul' ?==1
and 3?(8 percent in 6ecember ?==1 (ibid()( 2' June ?==?& these repented cha"istas turned
into Jli!ht cha"istas&K Jli!ht anti-cha"istas&K and Jhard anti-cha"istas&K con4rmin! the
h'pothesis that radicaliation ma-es the incumbent lose support from moderates& and that
these losses could easil' turn anti-incumbent( .n addition& defections in the militar' and in
the cabinet increased( 2' mid ?==?& the !o"ernment found itself confrontin! the lar!est
amount of opposition since comin! to oEice(
The -e' point is simpl' that e"en in situations of polariation& the sie of the s#in!
!roup !ro#s and is not tri"ial( The' are far more important than in situations of
moderation( )nd in cases + and 6 (Table A)& ambi"alent !roups can turn to the other side&
thereb' imperilin! the !o"ernment( Thus& e"en radical leftist !o"ernments pursuin!
polariation (and thus maximiin! supporters) need to de"elop strate!ies to deal #ith
ambi"alent !roups(
1hat has the +hD"e administration done to address ambi"alent !roupsG This is
#here the three other pillars of cha"ismo in oEice come into placeB clientelism& impunit'&
and 5ob discrimination (this section dra#s from +orrales and ,enfold (?==A))(
+lientelism refers to the distribution of material bene4ts from a stron! political
actor (in this case& the state) to a less po#erful actor (in this case& ordinar' citiens and
small ci"il societ' or!aniations)( .n the context of a radical-leftist !o"ernment& clientelism
is li-el' to #or- mostl' amon! the less ideolo!ical sectors of the populationB the extreme
left does not need clientelism to support a radical-leftist !o"ernment& the extreme ri!ht
#on3t be s#a'ed b' it either( The reason the +hD"e administration needs to court #ea-&
less ideolo!ied actors is that the' pro"ide "otes& #hich in an electoral process& is crucial&
and in a process of polariation& constitutes a lar!e bloc
The other strate!' that +hD"e has deplo'ed is corruption& #hich diEers from
clientelism in that bene4ts pass from stron! actors (in the case the state) to stron! actors
Comment [JC11]: Most +ublic
o+inion +olls tend to con.ir! t)at
?enezuela occu+ies eit)er one o. cases 7,
:, and 3. 3or e*a!+le, !any +ollsters
!easurin% +residential a++ro0al ratin%s
tend to di0ide res+ondents a!on%
di..erent cate%oriesH )ard c)a0istas,
!oderate c)a0istas, !oderate antc)a0istas
and )ard anti>c)a0istas.
;)ereas in 3ebruary 1999, accordin% to
one +ro!inent +ollster, al!ost 91 +ercent
o. t)e +ublic su++orted C)[0ez
(+ro0idin% e0idence o. t)e s!all size o.
t)e ri%)t), by 7ece!ber 21, attitudes
to5ard t)e incu!bents c)an%ed as
.ollo5sH
Hard c)a0ista 2A.'
Moderate c)a0istas 13.1
$e+ented c)a0istas (5)o 5ent on to
beco!e !oderate anti> or +ro>c)a0istas)H
1".7
Moderate anti>c)a0istas 2".7
Hard anti>c)a0istasH 19.0
in ?enezuela sur0ey +eo+leBs attitude
to5ard
33
(e(!(& the militar'& lar!e business !roups)( Li-e clientelism& corruption is a strate!'
desi!ned
for the non-ideolo!ied !roups( 2ecause stron! actors can act as ma5or "eto !roups& not
5ust of polic' but also of the administration tenure in oEice& it is important for
!o"ernments in unstable political settin!s to deplo' si!ni4cant resources to deal #ith
po#erful actors( 7ne of the -e' reasons that corruption is so rampant in the +hD"e
administration is precisel' because of the sie of the potential defections is lar!e(
0urthermore& in situations of radicaliation& the opposition is so !al"anied that it is "ital to
ha"e a mechanism for cooptin! elites (militar' and business !roups)& as a potential shield
a!ainst possible coups( +hD"e be!an to oEer corruption and impunit' to the militar'
almost since the 4rst da' in oEice and he started oEer corruption and impunit' to
cooperati"e business !roups in ?==3& #hen state re"enues be!an to s#ell(
The 4nal strate!' deplo'ed b' the +hD"e administration to deal #ith ambi"alent
!roups is 5ob discrimination( The +hD"e administration& in no uncertain terms& has
repeated that the lar!est bene4ts of his administration (!o"ernment 5obs& !o"ernment
contracts& !o"ernment subsidies& etc() are earmar-ed exclusi"el' for supporters& #hich the
!o"ernment in ?==* called the Jroo3 roitos(K .n addition& the !o"ernment does all it can to
publicie the notion that it -no#s people3s "otin! beha"ior (e(!(& the famous Lista TascYn
and Lista /aisanta)( The +hD"e administration thus li-es to portra' itself as a #atchful
!o"ernment that re#ards supporters and punishes opponents throu!h exclusion from
clientelism& corruption and !o"ernment 5obs( This is meant to con"e' that there are lar!e
!ains from sta'in! lo'al and lar!e losses from dissentin!( )!ain& this is a strate!' that
aEects mostl' the non-ideolo!ied& ambi"alent !roups( .t is a also a strate!' intended to
promote electoral absentionism on the part' of anti-cha"istas(
.n sum& the cha"ista coalition in its ei!hth 'ear in oEice has chan!ed enormousl'
since its inception( 2ac- in 1999& the mo"ement oEered a pro!ressi"e ideolo!' that
promised to free <eneuela of the stran!lehold of the old parties and repeated economic
3"
crises( This a!enda #as pro-chan!e& but not radical( .t attracted the "ast ma5orities( >ince
then& the a!enda has turned radical( This attracts the lo'alt' of the extreme left& but it also
creates polariation bet#een poles& but also a lar!e !roup of ambi"alent !roups( To -eep
this ambi"alent !roup from totall' defectin!& the administration has had to tar!et
clientelism& impunit'& and re"ese 5ob discrimination to this ambi"alent !roup( 2' tar!etin!
ambi"alent !roups #ith these strate!ies& +hD"e mana!ed to increase the number of
supporters be'ond that #hich the extreme left bloc pro"ides(
+onseFuentl'& the coalition of leaders and "oters #ho support +hD"e is diEerent
from #hat it #as in the be!innin!( .t is re"olutionar'& but also& conser"ati"e( +hD"e]s
supporters toda' include not 5ust extreme left and the losers in <eneuela& but also ne#
and old #innersB #elfare recipients& actors #ith ties to the state and those #ho pro4t from
corruption( )lthou!h these #inners come from diEerent income !roups (#elfare recipients
are mostl' poor& state emplo'ees come from the lo# middle classes& and corrupt fol-s are
#ealthier)& the' share the same electoral ob5ecti"eNpreser"e their !ains( These !ains are
access to social pro!rams& state 5obs and contracts& and impunit'( 1hat unites these !roups
is a fear that the opposition #ill ta-e a#a' their !ains(
1e can no# understand #h' the +hD"e administration relies on radicalism and
intense clientelismOimpunit'Odiscrimination( The former maximies the number of
supporters relati"e to defectors (due to the lar!e albeit not ma5oritarian status of the
extreme left)& but it also increases the number of ambi"alent !roups( The latter policies
tar!et ambi"alent !roups( +ombined& both sets of policies !i"e rise to #innin! coalitions
that& paradoxicall'& include an odd comboB committed re"olutionaries and less-ideolo!ied&
state-dependent actors& man' of #hom are social elites(
<...( +onclusion
3'
The cha"ismo phenomenon& both its rise and consolidation in po#er& must be
explained b' in"o-in! both demand- and suppl'-side explanations( ) focus on the demand
side (#hich stresses #idespread discontent in the late 199=s) can explain #h' a ma5orit' of
"oters #ould elect a leftist& anti-status Fuo alternati"e& but it cannot explain #h' the leftist
alternati"e pro"ed to be so radical& so compatible #ith the militar'& and so reliant on
clientelism& impunit'& and intimidation( .n decidin! to form a radical-militar' !o"ernment&
+hD"e could count on a lar!er pool of "oters and political leaders #illin! to construct this
pro5ect( <eneuela3s democratic institutionsNuni"ersities& the militar'& local !o"ernments&
and small partiesNser"ed to incubate and insulate these !roups( .ncubation helps explain
their phenomenal !ro#th since the 19A=s9 insulation explains their lac- of ideolo!ical
adaptation in tandem #ith the mainstream international democratic left(
This case stud' has addressed a number of -e' debates in comparati"e politicsB the
rise of the left in Latin )merica in the ?===s& the process of democratiation& the notion of
part' ideolo!ical adaptation& and 4nall'& the suppl'-side of extremism( This conclusion
summaries the main points this paper made #ithin each of these topics(
0irst& on the rise of the left in Latin )merica& this paper ar!ued that this
phenomenon is dri"en mostl' b' both !ripe as #ell as institutional opportunities& rather
than exclusion( This explains #h' <eneuela has produced the most radical turn to the left
in Latin )merica in the ?===s( The radical left in <eneuela& as else#here in Latin )merica&
had stron! !rie"ances a!ainst the status Fuo& and these !rie"ances intensi4ed as ineFualit'
rose in the 198=s and as mar-et reforms #ere attempted in the 199=s( 2ut unli-e the
radical left in man' other countries in Latin )merica& the <eneuelan radical left did not
suEer from intense institutional exclusion( 1hereas in the rest of the re!ion the radical left
#as se"erel' repressed& imprisoned or exiled& in <eneuela democratic institutions since
19*8 oEered protections& opportunities for inte!ration& shelter& and ultimatel'& access to
3,
state oEice in the 199=s( These institutions not onl' subsidied the left& but also insulated
them from exposures to !lobal forces that #ould ha"e tri!!ered ideolo!ical e"olution(
>econd& on the Fuestion of democratiation& this paper hi!hli!hted a process that
seems to def' )cemo!lu and :obinson3s (?==*) theor' that democratiation occurs #hen
non-elites maximie both their de ure and de facto po#er "is-a-"is the state( .n <eneuela&
the radical left obtained a substantial JreparationsK pac-a!e& not #hen it #as stron! and
threatenin!& but rather #hen it #as at its #ea-estNi(e(& #hen it #as politicall' and
militaril'
defeated in the late 19*=s(
Third& on the notion of part' adaptation& this paper emphasied the notion of one#a'
!lobaliationB the <eneuelan left #as far more exposed to the inQo# of li-e-minded
ideas abroad than it #as to o"erall !lobal trends& because immi!ration of similar cohorts
surpassed emi!ration rates( 8conomists are used to diEerentiatin! the eEects of in#ard
"ersus out#ard economic inQuences in a !i"en countr'( This paper emphasies that& in
terms of political ideas& it is also possible to spea- in terms of in#ard "ersus out#ard
exposures( The <eneuelan left3s one-#a' !lobaliation limited adaptation of lar!e parts of
the left( +ha"ismo #as possible not because of too much !lobaliation& but rather& because
in one particular domainNthe !lobaliation of the domestic radical leftNthe de!ree of
interaction #as limited(
)nother aspect that precluded part' adaptation #as the enormous barriers that
parties created to the incorporation of technical expertise& #hich this paper connected to
the stran!lehold of political elites on parties and the part'3s lo# le"els of in"estments in
le!islati"e aEairs(
)nd 4nall'& this paper oEered an explanation for radicalism in <eneulean politics
since 1999 that combines both the suppl' side #ith the inherent lo!ic of radicalism in
!eneratin! lo'alties based on as'mmetries in the distribution of "oters alon! the
ideolo!ical
spectrum( /a5orit' pressures per se did not necessaril' push +hD"e to turn radical once in
37
oEice( This desire to become more radical #as instead the result ofB the personal
preferences of +hD"e& the lar!e dominance of radical leaders #ho surrounded and
cheered
him& and the !ood suppl' of militar' oEicers #illin! to tolerate& e"en s'mpathie #ith this
pro5ect( This suppl'-side explanation for radicalism must also be supplemented #ith an
understandin! of the political lo!ic of pursuin! extremism in politics( :adicalism has a
clear political pa'oE in situations in #hich the radical left is lar!e& thou!h not necessaril'
ma5oritarian( .n these contexts& radicalism in oEice can produce more supporters than
detractors& #hich is the reason for its appeal for incumbents( 2ut polariation also carries a
hu!e ris-B the opposition turns potentiall' "irulent& and more important& the sie of
ambi"alent !roups increases& repulsed b' the extremism of each side( These ambi"alent
!roups can easil' determine the election& so deplo'in! alternati"e policies to coopt these
!roups is indispensable for incumbents( The +hD"e formula has been to combine radical
policies (#hich produce polariation) #ith reactionar' policies (clientelism& impunit' and
intimidation)9 the latter is aimed at pre"entin! ambi"alent !roups from defectin!(
Thus& to focus exclusi"el' on the demand side to explain the combination of
radical-militar' politics and corruptionOimpunit'Ointimidation is insuEicient( :adicalmilitar'
policies represent a brea- from the status Fuo9 corruptionOimpunit'Ointimidation
represents an accentuation of& rather than a brea- from& the pre-+hD"e staus Fuo( The
same demand force could not possibl' explain the rise of such dissimilar outcomes(
+ombinin! demand side ar!ument #ith suppl'-side explanations& and in"o-in! the lo!ic of
extremism& helps explain the odd combination of radicalism and conser"atism that is at the
core of cha"ismo(
Comment [JC1]: C)a0is!o and
8atin A!erican +o+ulis!H
C)[0ez )asH
1) t)e !ilitaris! o. @er#n
2) t)e ta2e +ersonal +etitions o. :0a
2) t)e anti>i!+erialis! o. Haya de la
(orre
3) t)e .erryin% o. su++orters o. t)e @$6
") t)e !o0ilization o. t)u%s o. troessner
') t)e +olarizin% nationalizations o.
Allende
,) t)e easy re.erences to Iesus C)rist o.
8iberation ()eolo%y
7) t)e no ti!e .or !arria%e o. C)e
&ue0ara, because )is li.e does not belon%
)i!.
A) t)e +aranoia o. assassination o.g
9) ()e tal2 o. %randeza o. /razilian
!ilitary leaders
10)
3A
(able 1H @ro.essional @ro.ile o. 7ele%ates to t)e 1999 Constituent Asse!bly
Pro- O Forces ndigenous
No. % No. % No. %
Political Activist (total) 57 46.72 4 66.67 2 66.67
Lawyer 10 8.20 2 33.33
Economist 0 0.00 1 16.67
Labor Leader 3 2.46
Misc 23 18.85 1 16.67 1 33.33
Professor 16 13.11
Teacher 1 0.82 1 33.33
Labor Leader 1 0.82
Former Guerrillas 3 2.46
Professors 24 19.67 1 16.67 0 0.00
Economics 1 0.82
Other 22 18.03 1 16.67
Chvez's brother 1 0.82
Civilian Professionals 21 17.21 1 16.67 1 33.33
Lawyers 2 1.64 1 33.33
Singers 1 0.82
Business 1 0.82
Economists 1 0.82
Medical Doctors 3 2.46
Sociologists 3 2.46
Others 9 7.38 1 16.67
Chvez's wife 1 0.82
Military 19 15.57 0 0.00 0 0.00
Military in the 1960s 1 0.82
Military in the 1990s 2 1.64
" /CPS 9 7.38
Active 5 4.10
Retired 2 1.64
NC 1 0.2
!otal 122 6 3
ourceH Aut)or based on on>line searc)es o. ?enezuelaBs dailies.
39
Table ?B /ilitar' 7Eicers (acti"e and retired) in ,ublic 7Eice& <eneuela
circa ?==%
Ro"ernors 9
6eputies 8
/inisters *
<iceministers 3
6irectorships #ithin ministries 1*
6irectorships of )utonomous .nstitutes 1%
>ourceB 8l TacionalO>Mmate(
Table 3B Rross 0ixed .n"estment :ates& <eneuela 19*=-1998
(annual a"era!e as percent of R6,)
Total ,ublic ,ri"ate
19*=-A= ?$(? 8($ 1%(8
19A=-8= 3$($ 1=(8 ?3(*
198=-9= ?1(3 1=(* 1=(A
199=-98 1%(8 9(9 *(9
>ourceB 6iJohn (?==$)(
"0
3i%ure 2
Priate Inest$ent as a 4>are of 'DP )percent-
7.2
8.3
14.7
13.1
16
11.2
13
6.5
10.6
9.8
11.6
16
9.6
18.2
21.1
3.6
12.2
12.8
10.7
10.9
22.3
19.4
14.4
19.8
18.3
4.7
13.7
13.2
15.2
18.2
9.9
19
16.5
18.3
17.9
16.1
0 5 10 15 20 25
Venezuela
Uruguay
Trinidad and Tobago
Peru
Paraguay
Nicaragua*
Mexico
Haiti
Guatemala
El Salvador
Ecuador
Costa Rica
Colombia
Chile
Brazil
Bolivia
Argentina
LAC
1998
1989
>ourceB 8"erhart and >umlins-i (?==1)(
"1
3i%ure 3
Poerty and Public 4pending
0,00
0,10
0,20
0,30
0,40
0,50
0,60
0,70
0,80
0,90
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
0
20000
40000
60000
80000
100000
120000
Poverty (% of Population) Central Government Spending
"2
#i$ure -
4pending on Eig>er !ducation
0 5 10 15 20 25 30 35 40 45
Argentina
Bolivia
Brazil
Chile
Colombia
Ecuador
Mexico
Peru
Uruguay
Venezuela
Percent of Total !ducation 4pending
Circa 1994
Circa 1985
Circa 1975
1965
ourceH 9=:C1 (0arious years).
"3
3i%ure 'H (ertiary +endin% and :nroll!ents, elected Countries
ourceH ;orld /an2 and 9=:C1.
34%
4P/
#E< %R'
9!M
:!/
1RN
0
20
"0
,0
A0
100
0 0.' 1 1.' 2
(ertiary education e*+enditure as C o. &7@
&ross enroll!ent rate
""
3i%ure '
9ilitary 4pending as a Percentage of '/P
0
0.5
1
1.5
2
2.5
3
1967 1975 1980 1985 1990 1995 1997
(ear
Percent
Venezuela
LA average
ourceH 9.. Ar!s Control and 7isar!a!ent A%ency (0arious years).
"'
3i%ure ,
9ilitary 4pending as a Percentage of #entral 'oern$ent !"penditure
0
2
4
6
8
10
12
14
16
18
1967 1975 1980 1985 1990 1995 1997
(ear
Percentage
Venezuela
LA avg.
ourceH 9.. Ar!s Control and 7isar!a!ent A%ency (0arious years).
",
Table 4: Military Expenditure as a Percentage of Central Government
Spending, annual averages by decades, 1970-1999
1970-1979
1980-
1989
1990-
1999
Latin America 12.8 7.6 6.5
Argentina 12.8 17 11.7
Bolivia 11.5 22.4 10.7
Brazil 14.5 3.4 4.1
Chile 12 12.9 14.8
Colombia 11.3 10.3 17.8
Ecuador 15.3 14 20.7
Mexico 5.1 2.2 3.9
Peru 23.2 33.3 11.5
Venezuela 7.6 7.1 6.6
ourceH 9.. Ar!s Control and 7isar!a!ent A%ency (0arious years).
"7
Table 5: mmigration to Venezuela, 1961-1981
Percent
ncrease
1961 1971 1981 1961-81
Total 541,563 596,455 1,074,629 198.43
Arg + Chi + Uru 5,531 8,086 43,748 790.96
Colombia 102,314 180,144 508,166 496.67
Europe 369,298 329,850 349,117 -5.46
Other 64,420 78,375 173,598 269.48
Source: Bidegain (1986)
"A
Figure 7: Total <egislatie Ter$s sered by <egislators, &9*80&998
0.645378151
0.152941176
0.121848739
0.049579832
0.015966387 0.006722689 0.005882353 0.001680672
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
1 2 3 4 5 6 7 8
/u$ber of Ter$s
Percent of Total
ourceH /ased on data +ublis)ed by &aceta 1.icial (0arious years).
"9
Table 6: Venezuela 1998 Compared
"en Ar# $ol $ra C%i Col &c' Me( Nic Per
!%e )tren#t% of t%e *a+ical ,eft
Net nflow of Leftist Dissidents (during the Cold War) Yes Yes Yes
Left welcomed at universities (i.e., purges rare) Yes Yes Yes Yes
Repeated Failures of First-Generation Reforms Yes Yes
Substantial Decentralization in the 1990s Yes Yes Yes Yes Yes Yes
Collapse of large, traditional parties in the 1990s Yes Yes
!%e )tren#t% of t%e ,eft in t%e Military
Relatively Stable Budgets (no drastic cuts since 1970s) Yes Yes Yes Yes
Military Expansion in the 1980s Yes Yes Yes Yes
Declining civilian oversight of the military Yes Yes Yes
Lack of Right-wing Purges in the Military Yes Yes
'0
Table AB /oderation or :adicaliationB C'pothetical +onseFuences )cross the ,olitical
>pectrum
<oters
Leftist Ro"ernment
,olicies
8xtreme
Left +enter Left +enter :i!ht 8xtreme :i!ht
/oderation 6efect >upport
>plitsB
1O3 support9
1O3
ambi"alent9
1O3 defect 6efects
:adicaliation >upport
>plitsB
?O3 support9
1O3
ambi"alent
>plitsB
1O$
ambi"alent9
3O$ defects
6efects
(Turns
8xtremist)
'1
Table AB .mpact of moderation and radicaliation on "oters3 political lo'alties to#ard
incumbents
Hypothetical
Voter Distribution Across
Political Spectrum Outcomes: Political Loyalties
EL CL CR ER Supportive Ambivalent Defectors
C&N!&* -.*C&) /.M0NA!&
%6 !"tre$ists are Dea8 $inority 10 40 40 10
Moderation 53.2 13.2 33.2
Radicalization 36.4 23.2 40
16 !"tre$ists are strong $inority 15 35 30 20
Moderation 44.9 9.9 46.55
Radicalization 38.1 19.05 42.5
,&-! 0) )!*.N1&* !2AN *012! (60340)
#6 #enter0< 4tronger t>an !"tre$e0< 20 40 30 10
Moderation 49.9 9.9 43.2
Radicalization 46.4 20.7 32.5
D6 !"tre$e0< as 4trong as #enter0< 30 30 25 15
Moderation 38.25 8.25 54.9
Radicalization 49.8 16.15 33.75
,&-! 0) /.M0NAN! (65335)
!6 Mo+erate ,eft is stron#er 30 35 25 10
Moderation 43.25 8.25 51.55
Radicalization 53.1 17.8 28.75
-. &(tre4e ,eft is +o4inant 35 30 25 10
Moderation 38.25 8.25 54.9
Radicalization 54.8 16.15 28.75
Notes:
EL = Extreme left; CL = Center-left; CR = Center-right; ER = Extreme right
Grey: Government's strategy that maximizes supporters relative to opponents
To determine supporters, ambivalent groups and defectors, the rules in Table 7 were applied to the values in the
"Hypothetical Voter Distribution Column.
1
m$H)$+7.-1#9
Ace!o%lu, 7aren and Ia!es A. $obinson. 200,. .conomic Origins of &ictatorship an,
&emocracy. (=e5 Kor2H Ca!brid%e 9ni0ersity @ress).
Aelo, 1scar H. 200". WA+o%eo y ocaso de un e-ui+o diri%enteH el +eronis!o en la
+ro0incial de /uenos Aires, 19"7>19'1.W &esarrollo .conBmico ""(173).
Albornoz, 1rlando. 2003. Cigher .,ucation 'trategies in Venezuela. (CaracasH
/ibliotec)nolo%y :diciones in Asscociation 5it) t)e 3acultad de Ciencias
:con#!icas y ociales, 9ni0ersidad Central de ?enezuela.).
Arcenau*, Crai% 8. (1999). ()e Military in 8atin A!ericaH de.inin% t)e road a)ead.
7e0elo+!ents in 8atin A!erican @olitical :cono!yH tates, Mar2ets and
Actors. I. /u*ton and =. @. @)illi+s. Manc)ester, Manc)ester 9ni0ersity @ress. .
/er!eo, =ancy. 2003. Or,inary People in .$traor,inary !imes: !he Citizenry an, the
"reak,own of &emocracy. (@rinceton, =IH @rinceton 9ni0ersity @ress).
/ur%ess, <atrina and te0e. 8e0its2y. 2003. W:*+lainin% @o+ulist @arty Ada+tation in
8atin A!ericaH :n0iron!ental and 1r%anizational 7eter!inants o. @arty
C)an%e in Ar%entina, Me*ico, @eru, and ?enezuela.W Comparati)e Political
'tu,ies 3,(A)H AA1>911.
/usta!ante, 3ernando (199A). 7e!ocracy, Ci0ilizational C)an%e, and t)e 8atin
A!erican Military. 3ault 8ines o. 7e!ocracy in @ost>(ransition 8atin A!erica.
3. A%uero and I. tar2. /oulder, C1, 8ynne $ienner @ublis)ers.
Canac)e, 7a!arys (200"). 9rban @oor and @olitical 1rder. ()e 9nra0elin% o.
$e+resentati0e 7e!ocracy in ?enezuela. I. 8. McCoy and 7. I. Myers.
/alti!ore, M7, Io)ns Ho+2ins 9ni0ersity @ress.
Co)en, Kousse.. 199". %a,icals- %eformers- an, %eactionaries: !he PrisonerJs
&ilemma an, the Collapse of &emocracy in Latin America. (C)ica%oH C)ica%o
9ni0ersity @ress).
Co++ed%e, Mic)ael. 199". 'trong Parties an, Lame &ucks: Presi,ential Patriarchy an,
(actionalism in Venezuela= (tan.ord, CAH tan.ord 9ni0ersity @ress).
Corrales, Ia0ier (2000). $e.or!>8a%%in% tates and t)e Ruestion o. 7e0aluationH
?enezuelaTs $es+onse to t)e :*o%enous )oc2s o. 1997>9A. :*c)an%e $ate
@olitics in 8atin A!erica. C. ;ise and $. $oett. ;as)in%ton, 7C, /roo2in%s
6nstitutution @ress.
Corrales, Ia0ier. 2001. Wtron% ocieties, ;ea2 @artiesH $e%i!e C)an%e in Cuba and
?enezuela in t)e 19'0s and (oday.W Latin American Politics an, 'ociety "3(2).
Corrales, Ia0ier. 2002. Presi,ents without Parties: the Politics of .conomic %eform in
Argentina an, Venezuela in the >TT4Es. (9ni0ersity @ar2, @AHH @enn tate
9ni0ersity @ress).
Corrales, Ia0ier (2007). ()e /ac2las) a%ainst Mar2et $e.or!s in 8atin A!erica.
Constructin% 7e!ocratic &o0ernance, 3rd :dition. I. 6. 7o!n%uez and M.
)i.ter. /alti!ore, MA, Io)ns Ho+2ins 9ni0ersity @ress.
Corrales, Ia0ier and Mic)ael @en.old. 2007. W?enezuelaH Cro5din% 1ut t)e
1++osition.W :ournal of &emocracy.
Cris+, /rian. 2000. &emocratic 1nstitutional &esign: !he Powers an, 1ncenti)es of
Venezuelan Politicians an, 1nterest 7roups. (tan.ord, CAH tan.ord 9ni0ersity
@ress).
Comment [JC13]: C+=='*,% ,+
0+))+6 /1 +*M
"3 K'=+%,.-. L/' ') -F/%,' '* 4'*
0/' 1.+0/*&+ '* (+=1-.-($* - DW<
1'.+ *+ )+ %/>($'*,' 1-.- (+=1'*%-.
)- (-&- &' )- .'*,- 1',.+)'.-3
J3 -9 /* (+=1+%$,$+* %#$0,3 W+%
%'(,+.'% L/' %+* =-% )-H+. $*,'*%$2'%
&') %'(,+. 1H)$(+ .'($H'* ='*+%
-F/%,' (/*$2'.%$&-& 9 =$)$,-.'% '% /*
'F'=1)+)< 1'.+ *+ '%,* 'X'*,+%3 p+/
(-*V, FCj; ,#'= %+ 9+/ 7', .$& +0 ,#'$.
+,#'. 1'.G%3
[3 k+*-)&$M ;%,/&$-. ') C8\DC<
L/' ,-=H$* +,+.7 %/H%$&$+%
(/),/.-)'% - )- $5L/$'.&-3
E3 -H)-. %+H.' )- &$2$%$* &' )-%
$5L/$'.&-% 1-.- (+* C#2'53 W'2$,%G9
#-H) &' L/' ,.-&$($+*-)='*,' )- $5L
9 ') 1+1/)$%=+ *+ %$'=1.' %' ))'2-*3
A3 C+=1-.-($* (+* P'. 9 kX$(+3
;* -=H+% (-%+%< )-% 2-.$-H)'% $*&'13
;%,* 1.'%'*,'% ,-=H$*3
Y3 K' L/ $=1+.,- ') %/11)93
:$'=1.' %' 1/'&'* '*(+*,.-.
/*$2'.%$,-.$+% &' $5L/$'.&- )+(+% L/'
L/$'.-* (++1'.-. (+* '%,+3
1
7iIo)n, Ionat)an (200"). ()e @olitical :cono!y o. :cono!ic 8iberalisation in
?enezuela. Crisis tates @ro%ra!!e ;or2in% @a+er eries =o. 1, 8ondon
c)ool o. :cono!ics.
:asterly, ;illia!. 2001. !he .lusi)e Nuest for 7rowth.
:llner, te0e (1993). ()e ?enezuelan 8e.tH 3ro! Kears o. @ros+erity to :cono!ic
Crisis. ()e 8atin A!erican 8e.tH 3ro! t)e 3all o. Allende to @erestroi2a. /.
Carr and . :llner. /oulder, C1, ;est0ie5 @ress.
:llner, te0e. 2001. W()e $adical @otential o. C)a0is!o.W Latin American Perspecti)es
2A(')H '>32.
:llner, te0e (2003). 6ntroductionH ()e earc) .or :*+lanations. ?enezuelan @olitics in
t)e C)[0ez :raH Class, @olarization, and Con.lict. . :llner and 7. Hellin%er.
/oulder, C1, 8ynne $ienner @ublis)ers, 6nc.: 7>2'.
:llner, te0e . 19A,. M. 19A,. W()e MA @arty in ?enezuela.W Latin American
Perspecti)es 13(2).
&il Ke+es, IosE Antonio (200"). @ublic 1+inion, @olitical ocialization, and $e%i!e
tabilization. ()e 9nra0elin% o. $e+resentati0e 7e!ocracy in ?enezuela. I. 8.
McCoy and 7. I. Myers. /alti!ore, M7, Io)ns Ho+2ins 9ni0ersity @ress.
&ott, $ic)ard. 2000. 1n the 'ha,ow of the Li8erator: Cugo Ch0)ez an, the
!ransformation of Venezuela= ew York: Verso= (=e5 Kor2H ?erso).
Ha%o+ian, 3rances (200'). ConclusionsH &o0ern!ent @er.or!ance, @olitical
$e+resentation, and @ublic @erce+tions o. Conte!+orary 7e!ocracy in 8atin
A!erica. ()e ()ird ;a0e o. 7e!ocratization in 8atin A!ericaH Ad0ances and
etbac2s. 3. Ha%o+ian and . @. Main5arin%. =e5 Kor2, Ca!brid%e 9ni0ersity
@ress.
Ha52ins, <ir2. 2003. W@o+ulis! in ?enezuelaH ()e $ise o. C)a0is!o.W !hir, <orl,
Nuarterly 2"(,)H 1137>11,0.
Hellin%er, 7aniel (2003). @olitical 10er0ie5H ()e /rea2do5n o. @unto.i4is!o and t)e
$ise o. C)a0is!o. ?enezuelan @olitics in t)e C)[0ez :raH Class, @olarization,
and Con.lict. . :llner and 7. Hellin%er. /oulder, C1, 8ynne $ienner
@ublis)ers, 6nc.
Hell!an, Iudit) Adler (1992). ()e tudy o. =e5 ocial Mo0e!ents in 8atin A!erica
and t)e Ruestion o. Autono!y. ()e Ma2in% o. ocial Mo0e!ents in 8atin
A!erica. A. :scobar and . :. Al0arez. /oulder, C1, ;est0ie5 @ress.
Hill!an, $ic)ard . (200"). 6ntellectualsH An :lite 7i0ided. ()e 9nra0elin% o.
$e+resentati0e 7e!ocracy in ?enezuela. I. 8. McCoy and 7. I. Myers.
/alti!ore, M7H ()e Io)ns Ho+2ins 9ni0ersity @ress, 200". , ()e Io)ns
Ho+2ins 9ni0ersity @ress. .
67/ (200'). ()e @olitics o. @oliciesH :cono!ic and ocial @ro%ress in 8atin A!erica,
200, $e+ort. ;as)in%ton, 7.C. and Ca!brid%e, MA, 6nter>A!erican
7e0elo+!ent /an2 and t)e $oc2e.eller Center .or 8atin A!erican tudies.
Iones, Mar2 @., ebastian aie%), et al. 2002. W@ro.essional @oliticians, A!ateur
8e%islaturesH ()e Conse-uences o. @arty>Centered :lectoral $ules in a 3ederal
yste!.W American :ournal of Political 'cience ",(3)H ,',>,,9.
<atz, $ic)ard . and @eter Mair Mair, :ds. (199"). Ho5 @arties 1r%anizeH C)an%e and
Ada+tation in @arty 1r%anizations in ;estern 7e!ocracies. 8ondon, a%e.
<elly, Ianet and @edro A. @al!a (200"). ()e yndro!e o. :cono!ic 7ecline and t)e
Ruest .or C)an%e. ()e 9nra0elin% o. $e+resentati0e 7e!ocracy in ?enezuela.
I. 8. McCoy and 7. I. Myers. /alti!ore, M7, Io)ns Ho+2ins 9ni0ersity @ress.
<ornblit), Miria! (2003). :n :sta ?enezuelaH $ealidades y =ue0os Ca!inos. @.
M[r-uez and $. @i\an%o. Caracas, 6:A.
2
8alander, $ic2ard 1. 200,. WHas ?enezuelan 7ecentralization ur0i0ed C)a0is!oPW
'tockholm %e)iew of Latin American 'tu,ies(1)H 29>"1.
8#+ez 1bre%#n, Clara and 3rancisco $odr%uez (n.d.). 8a +oltical .iscal 0enezolana
19"3>2001. Caracas, 1A:3.
Martz, Io)n 7. and 7a0id I. Myers. 199". W(ec)nolo%ical :lites and @olitical @artiesH
()e ?enezuelan @ro.essional Co!!unity.W Latin American %esearch %e)iew
29(1)H 7>27.
Molina, IosE. 2000. WCo!+orta!iento electoral en ?enezuela 199A>2000H ca!bio y
continuidad W %e)ista Venezolana ,e .conom/a y Ciencias 'ociales ,(3)H "'>,A.
Molina, IosE :. (200"). ()e 9nra0elin% o. ?enezuelaTs @arty yste!H 3ro! @arty $ule
to @ersonalistic @olicits and 7einstitutionalization. ()e 9nra0elin% o.
$e+resentati0e 7e!ocracy in ?enezuela. I. 8. McCoy and 7. I. Myers.
/alti!ore, M7, Io)ns Ho+2ins 9ni0ersity @ress.
Monaldi, 3rancisco, $osa A!elia &onz[lez, et al. (200'). @olitical 6nstitutions,
@olicy!a2in% +rocess, and @olicy 1utco!es in ?enezuela. ;as)in%ton, 7.C.,
6nter>A!erican 7e0elo+!ent /an2.
Mor%an, Iana. 2007. W@artisans)i+ 7urin% t)e Colla+se o. ?enezuelan @arty yste!.W
Latin American %esearch %e)iew "2(1).
Myers, 7a0id 7. (200"). ()e =or!alization o. @unto 3i4o 7e!ocracy. ()e 9nra0elin%
o. $e+resentati0e 7e!ocracy in ?enezuela. I. 8. McCoy and 7. 7. Myers.
/alti!ore, M7, Io)ns Ho+2ins 9ni0ersity @ress.
Myers, 7a0id I. 2003. W()e 6nstitutions o. 6ntelli%ence in ?enezuelaH 8essons .ro! "'
Kears o. 7e!ocracy.W or,ic :ournal of Latin American an, Cari88ean 'tu,ies
VVV666(1)H A'>9,.
Myers, 7a0id I. 2007. W3ro! ()a5 to 7elu%eH @arty yste! Colla+se in ?enezuela and
@eru.W Latin American Politics an, 'ociety 3ort)co!in%.
=ai!, MoisEs and $a!#n @i\an%o @i\an%o, :ds. (19A"). :l Caso ?enezuelaH 9na
6lusi#n de Ar!ona. . Caracas, 6:A.
=a0ia, @atricio. 200,. W8a iz-uierda de 8a%os 0s. la iz-uierda de C)[0ez.W (oreign
Affairs en espaSol.
1rtiz, =elson (200"). :ntre+reneursH @ro.its 5it)out @o5erP ()e 9nra0elin% o.
?enezuelan 7e!ocracy. I. 8. McCoy and 7. Myers. /alti!ore, M7, Io)ns
Ho+2ins 9ni0ersity @ress.
@en.old, Mic)ael (1999). Constituent Asse!bly in ?enezuelaH 3irst $e+ort. Atlanta,
&A, Carter Center.
@en.old, Mic)ael (2002). 3ederalis! and 6nstitutional C)an%e in ?enezuela. A@A
Meetin%. /oston.
@rze5ors2i, Ada!. 1991. &emocracy an, the market: political an, economic reforms in
.astern .urope an, Latin America. (=e5 Kor2, =KH Ca!brid%e 9ni0ersity
@ress).
$e!!er, <aren. 1991. ;ilitary %ule in Latin America. (/oulder, C1H ;est0ie5 @ress).
$e!!er, <aren 8. (2003). :lections and :cono!ics in Conte!+orary 8atin A!erica.
@ost>stabilization @olitics in 8atin A!ericaH Co!+etition, (ransition, Colla+se.
C. ;ise and $. $oett. ;as)in%ton, 7.C., /roo2in%s 6nstitution @ress.
$oberts, <ennet) (2003). ocial @olarization and t)e @o+ulist $esur%ence in ?enezuela.
?enezuelan @olitics in t)e C)[0ez :raH Class, @olarization, and Con.lict. .
:llner and 7. Hellin%er. /oulder, C1, 8ynne $ienner @ublis)ers, 6nc.
$oberts, <ennet) M. 199A. &eepening &emocracy9 !he ;o,ern Left an, 'ocial
;o)ements in Chile an, Peru. (tan.ord, CAH tan.ord 9ni0ersity @ress.).
3
ala!anca, 8uis (200"). Ci0il ocietyH 8ate /loo!ers. ()e 9nra0elin% o.
$e+resentati0e 7e!ocracy in ?enezuela. I. 8. McCoy and 7. Myers. /alti!ore,
Io)ns Ho+2ins 9ni0ersity @ress.
(rin2unas, Harold. 2002. W()e Crisis in ?enezuelan Ci0il>Military $elationsH 3ro!
@unto 3i4o to t)e 3i.t) $e+ublic.W Latin American %esearch %e)iew 37(1)H "1>
7,.
(rin2unas, Harold. 200'. Crafting Ci)ilian Control of the ;ilitary in Venezula: A
Comparati)e Perspecti)e. (C)a+ell Hill, =CH 9ni0ersity o. =ort) Carolina
@ress).
;orld /an2 (2001). /oli0arian $e+ublic o. ?enezuelaH 6n0estin% in Hu!an Ca+ital .or
&ro5t), @ros+erity and @o0erty $eduction. ;as)in%ton, 7C, 8atin A!erica and
t)e Caribbean $e%ion, t)e ;orld /an2
;orld /an2. 2002. 7lo8alization- 7rowth an, Po)erty. (;as)in%ton, 7CH ()e ;orld
/an2).
K[\ez, @atricia (200"). 8as in!i%raciones del Cono ur en ?enezuela. 7Ecada 70>A0.N
8as 6n!i%raciones a ?enezuela en el si%lo VV. Caracas, 3undaci#n 3rancisco
Herrera 8u-ue.
1
CHAPTER 14:
(il) *acro +olatilit, an- Crime in the
.etermination o/ 0elie/s in +ene12ela
:afael 6i Tella^
:arvard Business 0chool
Ja"ier 6onna
;niversidad Torcuato -i Tella
and
:obert /ac+ulloch
/mperial .ollege London
0irst draftB )pril ?=& ?==*( This draftB 0ebruar' 19& ?==A
Abstract
1e use data on political beliefs (broadl'& left-ri!ht position& meritocrac' and
ori!ins of
po"ert') to discuss <eneuela3s economic institutions( 7ur startin! point is
the lar!e
role attributed to beliefs in determinin! the economic s'stem and the extent
of
!o"ernment inter"ention (see& for example& )lesina et al& ?==1)( This brin!s
us to the
Fuestion of #hat causes chan!es in beliefs( 1e brieQ' discuss and present
some
e"idence consistent #ith the idea that some of the main social and economic
forces
that aEected <eneuela this centur' ma' ha"e chan!ed people3s rational
beliefs( These
include a dependence on oil& a histor' of macro-economic "olatilit'& the rise
in crime
and the rise in a preoccupation #ith corruption( 1e end up #ith a
cautionar' resultB
althou!h these results point in the direction of !i"in! a role to real shoc-s in
the
determination of beliefs& #e test and 4nd that perceptions for diEerent
phenomena
are sometimes correlated( .n particular& the perception of corruption is
related to the
perception of crime rather than the amount of real corruption actuall'
experienced(
J8LB ,1*& 8*?(
<ey#ordsB beliefs& oil& crime& corruption& macro "olatilit'& perceptions&
causalit'(
3333333333333333
^ :afael 6i Tella& Car"ard 2usiness >chool& 2oston /) =?1*3& Tel _*1A $9%%=$8& emailB
rditella@hbs(edu& Ja"ier
6onna& emailB 5donna@utdt(edu( :obert /ac+ulloch& .mperial +olle!e& London >1A ?)Z&
;P Tel _$$ (=)?= A%9$
91%A& r(macculloch@imperial(ac(u-( 1e are "er' !rateful to 2en 7l-en (our commentator)&
0rancisco :odri!ue and
other participants at the <eneuela seminar at Car"ard ;ni"ersit' on )pril ?9& ?==*(
?
45 4ntro-2ction
.n an important paper& ,i-ett' (199%) sho#ed ho# beliefs could be central
to economic or!aniation(
Ce focused on beliefs concernin! the income !eneratin! process and
ar!ued that #hen income #as
determined b' luc-& rational a!ents #ould be inclined to increase taxes( .n
contrast& #hen eEort
pla'ed a lar!e role& rational a!ents fearin! ad"erse incenti"e eEects #ould
moderate taxes( Ce then
ar!ued that& e"en if there #as one 4xed realit'& t#o a!ents #ho started #ith
prior beliefs at each end
of the spectrum #ould not necessaril' con"er!e as lon! as a!ents could not
freel' 4nd credible
information to !eneralie from their o#n experience( .n fact& he ar!ued that
information on ho#
much eEort reall' pa's is not eas' to obser"e (!i"en that eEort input is not
obser"able)& and that
e"entuall' a!ents #ould settle on some belief about the li-el' "alue of these
parameters and stop
experimentin! (a form of bandit problem)( Reneraliin! to countries& he
ar!ued that tax choices
#ould reinforce these beliefsB #here eEort doesn3t pa' and luc- dominates&
a!ents #ould tend to
"ote on hi!h taxes and luc- #ould then reall' dominate( .ndeed& the -e'
4ndin! in ,i-ett'3s paper is
that t#o diEerent economic s'stems& one #ith hi!h taxes and beliefs that
luc- matters that can be
called the 0rench eFuilibrium and another #ith lo# taxes and a belief that
eEort pa's that can be
called an )merican eFuilibrium& could arise out of the same underl'in!
realit'( 7ther papers that
explore related ideas concern the role of up#ard mobilit' (2enabou and 7-&
?==1)& fairness ()lesina
and )n!eletos& ?==?)& belief in a 5ust #orld (2enabou and Tirole& ?==*) and
corruption ()lesina and
)n!eletos& ?==$ and 6i Tella and /ac+ulloch& ?==?)( Torth and 6enau
(1993) discuss institutions
as Jshared mental modelsK (see also Rreif& 199$)(
) belief-based explanation is attracti"e !i"en the diEiculties that the
standard economic model (e(!(&
/elter and :ichards& 1981) has in explainin! the obser"ed patterns of
ineFualit' and redistribution
across 8urope and the ;>( .ndeed& these models are particularl' rele"ant
once one obser"es the
remar-able diEerences in beliefs across the )tlantic( 0or instance& )lesina
et al (?==1) report that
*=` of )mericans - 'et onl' ?*` of 8uropeans - belie"e the poor are la'&
#hile spendin! on social
#elfare in 199% in the ;> #as 1*` of R6, compared to an a"era!e of ?%`
for countries in 8urope(
>ee also Lipset and :o--an (19*A) and the e"idence in Cochschild (1981)&
)lesina and La 0errara
(?==%)& 0on! (?==$) and Ladd and 2o#man (1998) inter alia(
3
Ri"en the centralit' of beliefs in economic or!aniation& it seems natural to
as- #hat dri"es beliefs(
<er' little e"idence (that has a causal interpretation) is a"ailable (but see 6i
Tella& 6onna and
/ac+ulloch& ?==*& on the connection #ith crime9 and 6i Tella& Raliani and
>char!rdos-'& ?==$& on
the connection #ith propert' ri!hts and a #indfall !ain)( 7ne extreme
position is to ar!ue that
beliefs are cultural norms and are thus immutable( )lternati"el'& a rational
learnin! process #ould
posit their dependence on economic conditions( The latter h'pothesis is
particularl' interestin! in the
context of Latin )merica& in !eneral& and <eneuela& in particular& !i"en
their rather e"entful histor'&
#ith se"eral traumatic and 5o'ous e"ents that ma' ha"e aEected beliefs
simpl' because realit'& at least
for a #hile& appeared to ha"e chan!ed( The oil disco"eries and the hi!h
prices durin! the 19A=3s& the
macroeconomic crises and the crime #a"es are all candidate episodes to be
explored(
.n this paper& #e ta-e some of the li-el' forces that ma' ha"e aEected the
formation of beliefs in
<eneuela& explore their "alidit' usin! data from a broader sample of
countries& and then use the
results to see ho# much of the <eneuelan experience the' can explain(
.n section .. #e discuss the role of a histor' of macroeconomic "olatilit'& in
section ... #e explore
the role of a countr'3s dependence on oil rents9 in section .< #e present
further results on the role of
corruption and beliefs (alon! the lines discussed in 6i Tella and /ac+ulloch&
?==?)& #hile section <
presents the correlations bet#een beliefs and ha"in! been the "ictim of
crime( >ection <. studies the
correlation bet#een beliefs about a phenomenon (corruption) and the
beliefs about a second
phenomenon (crime) controllin! for realit' (i(e(& the experience #ith
corruption and the experience
#ith crime)( >ection <.. discusses the results in the context of <eneuela
#hile section <... oEers
some concludin! comments(
445 0elie/s an- a Histor, o/ *acro +olatilit,
.n this section #e stud' the correlation bet#een a countr'3s historical
macroeconomic performance
and their a"era!e beliefs in a cross-section of countries( 1e use the a"era!e
"alues obtained from the
3rd #a"e of the 1orld <alues >ur"e' to construct our measures of beliefs and
the 1orld 2an-3s
1orld 6e"elopment .ndicators to construct our measures of macro "olatilit'(
The basic results are
presented in Tables 1)-2( )ll re!ressions are estimated usin! 7L> for
simplicit' (similar results are
$
obtained if ordered lo!its are estimated) and control for income (*
cate!ories)& !ender and a!e(1
:esults in columns (1-$) in Table 1) focus on a !eneral measure of beliefsB
ideolo!ical selfplacement
on a =-1= scale( These re!ressions are illustrati"e as a 4rst broad pass at
the data as clearl'
the ans#ers are pro"ided #ith some countr'-speci4c ideolo!ical content( .t
is still perhaps interestin!
to note that a histor' of inQation "olatilit' tilts the sur"e' ans#ers
si!ni4cantl' to the left( .n order to
!et some sense of the sie of the eEect& note that a one standard de"iation
of the :istory of /n=ation
Volatility "ariable is associated #ith a decline of "ight $ing2" of %(8` of a
standard de"iation of this
"ariable (-=(=%8[(3?9(1O?(33)^(-$(1e-=$))( +olumns (?-$) in Table 1)
presents similar re!ressions&
usin! :istory of G-( Gro#th Volatility3 :istory of E,change "ate Volatility
and :istory of ;nemployment(
The results are consistent (the coeEicients are ne!ati"e) althou!h the' are
less precisel' estimated(
:e!ressions (%-8) in Table 1) focus on a more interestin! dimension of
beliefs& namel' ;nfair for
(oor2L3 a dumm' eFual to 1 if the response to the FuestionB 7$hy3 in your
opinion3 are there people in this
country #ho live in need> :ere are t#o opinions1 #hich comes closest to
your vie#> ?@A They are poor because of
la!iness and lacB of #illpo#er3 or ?CA They are poor because society treats
them unfairly+ is (?) and = if the ans#er
is (1)( To# the -e' coeEicients are !enerall' positi"e as expected (the
"ariable is de4ned so that
bi!!er numbers ha"e a natural interpretation as bein! left) and si!ni4cant
for both a histor' of
inQation "olatilit' and a histor' of exchan!e rate "olatilit'( ) histor' of
unemplo'ment "olatilit' is
also positi"e& but onl' si!ni4cant at the 1%` le"el(
+olumns (1-$) in Table 12 focus on the "ariable %o Escape2L (all "ariable
de4nitions are in the
)ppendix) and re"eal that the "olatilit' of inQation and of the exchan!e rate&
as #ell as the histor' of
unemplo'ment& are correlated #ith more left-#in! beliefs as expected(
+olumns (%-8) focus on
Business O#ner2L( +olumns (%-*) are positi"e and si!ni4cant& #hile column
(A) is positi"e but onl'
si!ni4cant at the 11` le"el(
1 The controls are chosen to -eep constant some basic set of personal characteristics of the
respondents that ma' aEect
beliefs (althou!h these are countr' a"era!es& so their inQuence in this particular case is
mar!inal) #ithout sacri4cin!
sample sie(
%
4445 0elie/s an- (il
1e no# explore the h'pothesis that economic dependence on oil causes the
a"era!e beliefs in the
countr' to lean to#ards the left-end of the political spectrum( The results
are presented in Table ?&
#here #e no# focus on one summar' "ariable of beliefs (ideolo!ical self-
placement on a 1-1= scale)
and re!ress the a"era!e countr'-'ear "alues a!ainst se"eral measures of
dependence on oil( 7ne
impro"ement o"er the pre"ious section is that& !i"en that #e are no lon!er
interested in historical
bac-!round& #e can exploit the time dimension of the "alues data and
present panel re!ressions that
control for countr' and 'ear 4xed eEects( 1e adopt the con"ention that data
from the 1<> for
#a"e 1 is matched to 1orld 6e"elopment .ndicators data from 1981& for
#a"e ? to 199= and #a"e 3
to 199A( )ll re!ressions control for a!e& !ender and income of the
respondents& althou!h !i"en
representati"e samplin! #ithin countries this should not ha"e a lar!e
inQuence in our results(? )ll
standard errors ad5usted for clusterin! at the countr' le"el(
+olumn (1) reports a ne!ati"e coeEicient& si!ni4cant at the 13` le"el&
indicatin! a tendenc' to mo"e
left #hen fuel exports (as a percenta!e of merchandise exports) increase(
+olumn (?) uses lo!s and
reports a some#hat lar!er and considerabl' more precise coeEicient on the
dependence on oil (it is
si!ni4cant at the 1` le"el)( .n terms of sie& a one standard de"iation of Log
'uel E,ports is associated
#ith a decline eFual to $(*` of a standard de"iation in (ri!ht-#in!) beliefs(
The rest of the table s#itches to other measures of income3s dependence on
luc- in the countr'(
+olumn (3) focuses on ores and metal exports as a percenta!e of
merchandise exports( The
coeEicient is ne!ati"e but insi!ni4cant( +olumn ($) uses lo!s& and 4nds a
ne!ati"e coeEicient
si!ni4cant at the 8` le"el( .n terms of sie& a one standard de"iation of Log
Ores E,ports is associated
#ith a decline eFual to 3(%` of a standard de"iation in beliefs( +olumns (%-
*) present #ea-er results
(but still #ith the expected si!n) usin! &anufacturing E,ports and its lo!(
? 1hen #e add !ender as personal control in the re!ressions of Table ?)& /exico3s
obser"ations for the 4rst #a"e are
lost( This mi!ht be si!ni4cant as /exico is a !ross outlier& #ith the lar!est reduction in
dependence on fuel exports& all
concentrated in the 4rst t#o #a"es& and the lar!est decline in "ight $ing inclinations(
*
4+5 0elie/s an- Corr2ption
.n Table 3 #e explore the relationship bet#een ideolo!ical inclination and
corruption( 1hen
corruption is #idespread& the le!itimac' of pro4ts and business is called
into Fuestion and indi"iduals
#ill be attracted to left-#in! ideas& particularl' in the economic sphere (see
6i Tella and /ac+ulloch&
?==?& ?==*)( .t uses a corruption "ariable as coded b' experts #or-in! for
,olitical :is- >er"ices& a
pri"ate international in"estment ris- ser"ice( .ntroduced into economics b'
Pnac- and Peefer
(199%)& the .nternational +ountr' :is- Ruide (.+:R) corruption index has
been produced annuall'
since 198? and intends to capture the extent to #hich Jhi!h !o"ernment
oEicials are li-el' to
demand special pa'mentsK and Jille!al pa'ments are !enerall' expected
throu!hout lo#er le"els of
!o"ernmentK in the form of Jbribes connected #ith import and export
licenses& exchan!e controls&
tax assessments& police protection& or loansK(
+olumn (1) in Table 3 correlates the a"era!e ideolo!ical inclination in the
countr' #ith the percei"ed
corruption le"el& controllin! for countr' and 'ear eEects( The coeEicient is
ne!ati"e as expected and
si!ni4cant at the 3` le"el( .n terms of sie& #e note that a one standard
de"iation (#ithin) in the
.+:R corruption indicator is associated #ith a decline in a countr'3s
ideolo!ical inclination& "ight
$ing2"& eFual to 3(A` of a standard de"iation (#ithin) of the ideolo!ical
"ariable (-=(=3A[=($?^(-
=(19)O?(1%)( +olumn (?) sho#s that the same correlation usin! lo!s is
#ea-er as it is onl' statisticall'
si!ni4cant at the 1=(%` le"el(
+5 0elie/s an- Crime
.n Table $ #e stud' the connection bet#een crime and beliefs follo#in! 6i
Tella et al (?==*)( >uch a
connection mi!ht be expected #hen& for example& a!ents ha"e incomplete
information about the role
of eEort in the income !eneratin! process and the obser"ation of crime
informs a!ents about other
people3s "ie# of ho# much it pa's to #or- hard (#hich is probabl' lo#&
!i"en that the' ha"e chosen
crime)( .ndeed& the t#o eFuilibria in the ,i-ett' (199%) model sur"i"e onl'
as lon! as a!ents cannot
obser"e ho# much eEort others are puttin! in (and ho# much income the'
obtain)( This reFuires
that a!ents cannot reconstruct other people3s information set from their
choices in the labor mar-et
or in the political mar-et #hich is a some#hat arti4cial assumption !i"en
that "ote outcomes are
A
#ell--no#n and also career choices (for example& criminal or not)( .n order
to test this h'pothesis #e
need data on people3s beliefs and on their "ie# of ho# much crime there is
(or on their experience as
"ictims of crime)(
>uch data can be found in the Latino-barometer& an annual public opinion
sur"e' of approximatel'
19&=== inter"ie#s in 18 countries in Latin )merica( Luestions of interest
rotate& so the number of
#a"es (and thus our sample sie) "aries considerabl' dependin! on the
Fuestion bein! studied( .t is
produced b' LatinobarYmetro +orporation& a non pro4t TR7 based in
>antia!o& +hile( .t has data
on a number of attitudinal "ariables that are associated #ith ideolo!ical
standin! (on an economic
dimension)( 0rom the lon! list #e choose t#o that are suitable for our
purposes( 7ne concerns the
fairness of the distribution of income and the other concerns ho# successful
#ere pri"atiations(
The exact data is 'air2L (To# .]d li-e 'ou some Fuestions about the problem
of po"ert'& in this
countr' and in other countriesB Co# fair do 'ou thin- the distribution of
income is in this countr'G
The four possible ans#ers are 1( <er' fair9 ?( 0air9 3( ;nfair9 and $( <er'
unfair) and (rivati!2L (6o
'ou a!ree or disa!ree #ith the follo#in! statementB The ,ri"atiation of
public companies has been
bene4cial to the countr'G The t#o possible ans#ers are 1( . a!ree9 and ?( .
disa!ree)(
.n columns (1-?) of Table $ #e correlate these beliefs Fuestion #ith
(erception of crime3 the ans#er to
the Fuestion J+rime has increased or decreasedGK( The possible ans#ers
are coded such that it ta-es
the "alue = if the ans#er is JCas increased a lotK and 1 if it is JCas
increased a littleK& JCas sta'ed
the sameK& JCas fallen a littleK or JCas fallen a lotK( 1e collapse the
ans#ers into t#o because&
althou!h there are four cate!orical ans#ers to this Fuestion& the
o"er#helmin! ma5orit' chooses one
option( The ra# data sho# that 9*&3%8 indi"iduals selected the ans#er
Jcrime has increased a lot
o"er the past 'earK& #hile 1$&*1= sa' Jit has increased some#hatK& 8&%91
sa' it has sta'ed the same&
?&9=$ sa' it has dropped some#hat and $39 sa' it has dropped a lot( 1e
repeated the anal'sis usin!
the four cate!ories and all the results remain Fualitati"el' similar( 2oth
coeEicients are ne!ati"e as
expected and si!ni4cant( Tote that this is unli-el' to reQect a 4xed trait of
the respondents because
such a 4xed characteristic is most li-el' ideolo!ical orientationB ri!ht #in!
indi"iduals are al#a's
complainin! that crime is a terrible thin! and also tend to thin- that the
distribution of income is fair(
.n this case the connection !oes the opposite #a' so& at least in this re!ard&
it is an underestimate of
the true eEect( 1e also include a set of control "ariables that help
ameliorate this concern& includin!
a!e& !ender income as #ell as 'ear and countr' 4xed eEects(
8
+olumns (3-$) mo"e to "eal .rime as independent "ariable& namel' #hether
the respondent (or a
relati"e of the respondent) #as a "ictim of crime o"er the pre"ious 'ear(
)!ain& both coeEicients are
ne!ati"e and comfortabl' si!ni4cant( To# the potential confoundin! eEect
is not an ideolo!ical
4xed eEect but rather some omitted "ariable such as income& #hich
determines that 'ou are both the
"ictim of crime and that 'ou hold left #in! "ie#s( +olumns (%-*) repeat the
exercise #ith a broader
set of controls( These include a!e& !ender& dummies for cit' sie and all the
pre"ious explanator'
"ariables but usin! a ne# measure of each respondent3s income( ) person3s
declared income le"el is
no# captured b' the FuestionB JThe #a!e or salar' 'ou recei"e and the total
famil' income& 6oes it
allo# 'ou to satisfactoril' co"er 'our needsG .n #hich of these situations are
'ouGK The possible
ans#ers areB J.t is !ood enou!h& 'ou can sa"eK& J.t is 5ust enou!h& #ithout
!reat diEicultiesK& J.t is
not enou!h& 'ou ha"e diEicultiesK and J.t is not enou!h& 'ou ha"e !reat
diEicultiesK( The results are
a!ain supporti"e of the h'pothesis that an experience #ith crime mo"ed
indi"iduals to the left-end of
the political spectrum( .n auxiliar' re!ressions #e included controls for
educational attainment& a
person3s ideolo!ical self-placement and simultaneous controls for both
measures of income and
obtained similar results(
+45 Perceptions vers2s Realit,
Ca"in! established that perceptions of corruption and crime aEect
ideolo!ical inclination& it is
interestin! to explore #hat dri"es these perceptions( .s it realit'& so that
people3s perception of
corruption follo#s the fact that there is more corruptionG 7r is it that these
perceptions are li-e
JmoodsK that can !et di"orced from realit'G .n a recent paper& 7l-en (?==*)
sho#s that there can be
a substantial di"orce bet#een realit' and perceptions usin! .ndonesian
data(
7ne possible strate!' is to e"aluate if the perception of a certain
phenomenon is related stron!l' to
the experience of that phenomenon or the perception of a (presumabl'
unrelated) phenomenon( .n
Table % #e present re!ressions for (erception of .orruption on "eal
.orruption( The coeEicient is positi"e
and si!ni4cant& su!!estin! that realit' does aEect perceptions( :e!ression
(?) includes 'ear 4xed
eEects and the coeEicient remains unaEected( :e!ression (3) sho#s that
#hen #e include the
perception and realit' of a second phenomenon& crime& the coeEicient on
"eal .orruption is almost
9
hal"ed and is no# statisticall' insi!ni4cant( .nterestin!l'& the coeEicient on
(erception of .rime is
positi"e and statisticall' #ell-de4ned (#hile "eal .rime is uncorrelated #ith
(erception of .orruption)(
"eal .rime is included as a reassurance that actual crime is bein! -ept
constant (althou!h its inclusion
does not aEect the conclusions)( The sie of the coeEicient is extremel'
lar!e& su!!estin! that the
role of perceptions (!enerall') is important& potentiall' o"er#helmin! the
impact of realit'( To !et a
sense of the relati"e sie& note that a one standard de"iation increase in
"eal .orruption is associated
#ith an increase in (erceived .orruption eFual to less than 1` of a standard
de"iation in that "ariable
(=(==9[(=($3O=(*8)^=(=1%)( .n contrast& a one standard de"iation increase in
(erception of .rime is
associated #ith an increase in (erception of .orruption eFual to %3` of a
standard de"iation
(=(%3[(=(A$O=(*8)^=($9)( "eal .rime has "irtuall' no eEect (5ust o"er 1($` in
standardied units)(
:e!ressions (%-*) repeat the exercise for <eneuela and re"eal that the
same phenomenon applies
there( This su!!ests that perceptions of corruption (and of other JbadsK) are
dri"en not b' realit'&
but rather b' some other force( 1e con5ecture that this ma-es the
electorate particularl' recepti"e to
Jpolitical acti"istsK #ho suppl' beliefs& as in Rlaeser3s (199%) model of
hatred(
+445 The Case o/ +ene12ela
1e can appl' the abo"e results to the case of <eneuela( 1e 4rst focus on
the role of "olatilit' of
the econom'( Ci!h le"els of "olatilit' ma' mean that the connection
bet#een eEort and re#ard is
lost( This ma' in turn aEect people3s (ri!ht-left) beliefs about the de!ree of
re!ulation and taxation
that is reFuired for their societ'( <eneuela lies in the top Fuarter of the
countries in our sample in
terms of both inQation and unemplo'ment "olatilit'( )n increase in inQation
(unemplo'ment)
"olatilit' from ;> to <eneuelan le"els explains *(9` (?$(8`) of the
diEerence in leftist beliefs
about the de!ree to #hich the poor ha"e been treated unfairl' and $(3`
(?1(=`) of the diEerence in
leftist beliefs about the chances of escapin! from po"ert' bet#een these
t#o nations (see Tables 1)
and 12)(
)nother stri-in! feature of <eneuela is its3 unusuall' hi!h dependence on
natural resources& in
particular oil( To the extent that this countr' relies on abundant natural
resources& becomin! #ealth'
ma' be more associated #ith success in capturin! rents and belon!in! to
the elite& rather than on
1=
#or-in! hard in competiti"e industries( <eneuela has the second hi!hest
le"el of fuel exports as a
proportion of total merchandise exports across all the countries in our
sample (at A8(9`)( The
hi!hest proportion is Ti!eria (see 0i!ure 1)( ) hi!h dependence on oil ma'
also be one of the causes
of the increased unemplo'ment and inQation "olatilit' discussed abo"e (see&
inter alia& +arruth&
Coo-er and 7s#ald& 1998)( )n increase in fuels as a proportion of total
merchandise exports from
;> to <eneuelan le"els is predicted to push an indi"idual to#ard ha"in!
more leftist beliefs b' 1(1
units on the =-1= ri!ht-left scale (see Table ?)(
Fuel !"ports )@ $erc> e"ports-
0 20 40 60 80 100 120
1
5
9
13
17
21
25
29
33
37
41
45
49
:ene;uela
0i!ure 1B 7rdered :an-in! of 0uels 8xports as a ,roportion of Total /erchandise
8xports for >ample
Turnin! to corruption& the .nternational +ountr' :is- Ruide (.+:R) index
places <eneuela in the
bottom 13` of nations in our sample( )n increase in the corruption index
from ;> to <eneuelan
le"els is predicted to push an indi"idual to#ard ha"in! more leftist beliefs
b' =(?$ units on the =-1=
ri!ht-left scale (see Table 3)( 1e also noted earlier ho# hi!her obser"ed
crime rates ma' lead people
to belie"e that eEort exerted in le!al labour mar-et acti"ities is not
re#ardin! thereb' aEectin! their
political beliefs( )n increase from the lo#est to the hi!hest a"era!e
measures of (erception of .rime
recorded bet#een 199% and ?==1 #ithin <eneuela explains 1%($` of the
ran!e of leftist "alues as
measured b' afairness of the distribution of income3 (see Table $)(
11
+4445 Concl2sions
The startin! point of this paper is the fact that the <eneuelan public is
recepti"e to left #in!&
populist& anti-mar-et rhetoric( This paper explores #h'( .t uses anecdotal
e"idence to focus on four
phenomena that appear to be #idespread in <eneuelaB a histor' of macro-
"olatilit'& an economic
dependenc' on oil& a belief that corruption is #idespread and the belief that
there has been a crime
#a"e in the countr'( These four phenomena are theoreticall' compatible
#ith mo"in! the electorate
to the left& because macro-"olatilit' and oil dependenc' mean that luc- is
important relati"e to eEort
in the determination of income& because corruption erodes the le!itimac' of
business (see for
example 6i Tella and /ac+ulloch& ?==?) and because #idespread crime
!i"es us information about
ho# badl' other people (criminals) fared in the labor mar-et( The e"idence
is consistent #ith the
h'pothesis that beliefs are correlated #ith these forces(
)lthou!h these points broadl' in the direction of realt' bein! an important
factor in the formation of
beliefs for some of the factors stud' (e(!(& our data on oil dependenc' is
from actual oil dependenc')&
the data on corruption used on 6i Tella and /ac+ulloch (?==?) is based on
the perception of
corruption( ,erceptions ma' sometimes be di"orced from realit'& as political
pla'ers (li-e Cu!o
+ha"e) can potentiall' aEect the beliefs of the electorate (perhaps b'
attac-in! a political !roup for
political !ain)( .n an attempt to shed some li!ht on the relati"e perception of
realit'& #e run
re!ressions of the perception of corruption on realit' (personal experience
#ith corruption) and on
the perceptions of another phenomenon (the perceptions of ho# much has
crime increased)&
controllin! for realit'( 1e note that the perceptions of corruption are
stron!l' correlated #ith the
perceptions of this second phenomenon (the increase in crime) and ha"e a
much #ea-er connection
#ith the personal experience #ith corruption or crime (realit')(
1?
Appendi, @1 Tables
Table 1A
Ho6 0elie/s 78eneral 4-eolog, an- 9Poor are :a1,;< var, 6ith *acro
+olatilit,:
Cross =ection) 3 co2ntries
.epen-ent variables:
?@A
"ight
$ing2"
?CA
"ight
$ing2"
?DA
"ight
$ing2"
?EA
"ight
$ing2"
?FA
;nfair for
(oor2L
?GA
;nfair for
(oor2L
?HA
;nfair for
(oor2L
?IA
;nfair for
(oor2L
:istory of /n=ation
Volatility
-$(1e-=$
(1(3e-=$) 1(%e-=$
(3(9e-=%)
:istory of G-( gro#th
Volatility -=(=18
(=(=3$) -=(==*
(=(=1%)
:istory of E,change "ate
Volatility -=(=33
(=(=?A) =(=19
(=(==A)
:istory of ;nemployment -=(=1A
(=(=??) =(==8
(=(==%)
:-sF =(=13 =(=1= =(==3 =(=11 =(=18 1e-=$ =(=11 =(=1=
Tumber of Rroups 3? 3? 3? 3? 31 31 31 31
Tumber of 7bs( 31&%8% 31&%8% 31&%8% 31&%8% ?A&1?= ?A&1?= ?A&1?= ?A&1?=
>otes:
b1c Tame of dependent "ariable has L (:) extension if hi!her numbers mean more Left
(:i!ht)(
"ight $ing2"1 ) cate!orical "ariable that is the ans#er to the FuestionB 7.n politics people
tal- of the JleftK and of the
Jri!htK( .n a scale #here J=K is left and J1=K is ri!ht& #here #ould 'ou place 'ourselfGK(
;nfair for (oor2L1 ) dumm' that is the response to the FuestionB 71h'& in 'our opinion& are
there people in this countr'
#ho li"e in needG Cere are t#o opinionsB #hich comes closest to 'our "ie#G (1) The' are
poor because of lainess and
lac- of #illpo#er& or (?) The' are poor because societ' treats them unfairl'(K The dumm'
ta-es the "alue 1 if the ans#er
is (?) and = if the ans#er is (1)(
b?c )ll re!ressions are cross-section (3rd #a"e) 7L> re!ressions( >tandard errors (ad5usted
for clusterin!) are in
parentheses( The re!ressions include a set of personal controls #hich include a!e& !ender
and /ncome /a (#hich is the
respondents declared income le"el as captured in the ans#er to the FuestionB J,eople
sometimes describe themsel"es as
belon!in! to the lo#er class& the middle class& or the upper( Co# #ould 'ou describe
'ourselfGK(
b3c :i!ht hand side "ariables are constructed usin! the 1orld 2an-3s 1orld 6e"elopment
.ndicators as follo#sB
:istory of /n=ation VolatilityB )"era!e of the absolute "alue of the inQation (+,.) 1993-199A
(% 'ears before the 3rd #a"e of
the 1<>) usin! annual a"era!es in `(
:istory of Gro#th VolatilityB )"era!e of the absolute "alue of the R6, !ro#th 1993-199A (%
'ears before the 3rd #a"e of
the 1<>) usin! annual a"era!es in `(
:istory of E,change "ate VolatilityB )"era!e of the absolute "alue of the 8xchan!e :ate
!ro#th 1993-199A (% 'ears before
the 3rd #a"e of the 1<>) calculated usin! the oEicial exchan!e rate (L+; per ;>d& annual
a"era!e)
:istory of ;nemploymentB )"era!e of the absolute "alue of the ;nemplo'ment rate 1993-
199A (% 'ears before the 3rd #a"e
of the 1<>) usin! annual a"era!es (` of total labor force)(
13
Table 10
Ho6 0elie/s 79Escape /rom Povert,; an- 9(6nership o/ 02siness;<
var, 6ith
*acro +olatilit,: Cross =ection) 3 co2ntries
.epen-ent variables:
?@A
%o
EscapeL
?CA
%o
EscapeL
?DA
%o
EscapeL
?EA
%o
EscapeL
?FA
Business
O#ner2L
?GA
Business
O#ner2L
?HA
Business
O#ner2L
?IA
Business
O#ner2L
:istory of /n=ation
Volatility
?(?e-=$
(%(3e-=%) ?(=e-=$
($($e-=%)
:istory of G-( gro#th
Volatility -=(==9
(=(=??) =(=3*
(=(==%)
:istory of E,change "ate
Volatility =(=?9
(=(=1=) =(=?$
(=(=1%)
:istory of ;nemployment =(=1*
(=(==8) -8(?e-=$
(=(==%)
:-sF =(=?$ =(==A =(=1% =(=?3 =(=3? =(=%A =(=1$ =(==A
Tumber of Rroups 3? 3? 3? 3? 3? 3? 3? 3?
Tumber of 7bs( 3?&?** 3?&?** 3?&?** 3?&?** ?9&%** ?9&%** ?9&%** ?9&%**
>otes:
b1c Tame of dependent "ariable has L (:) extension if hi!her numbers mean more Left
(:i!ht)(
%o EscapeL1 ) dumm' eFual to 1 if the ans#er to the FuestionB J.n 'our opinion& do most
poor people in this countr'
ha"e a chance of escapin! from po"ert'& or there is "er' little chance of escapin!G (1) The'
ha"e a chance or (?) There is
"er' little chance(K #as cate!or' (?) and = if it #as cate!or' (1)(
Business O#nership2L1 The response to the 1orld <alues FuestionB JThere is a lot of
discussion about ho# business and
industr' should be mana!ed( 1hich of these four statements comes closest to 'our
opinionG (1) The o#ners should run
their business or appoint the mana!ers& (?) The o#ners and the emplo'ees should
participate in the selection of
mana!ers& (3) The !o"ernment should be the o#ner and appoint the mana!ers& ($) The
emplo'ees should o#n the
business and elect the mana!ersK( Business O#nership2L #as de4ned as a dumm' eFuals 1
if the ans#er is cate!or' (3) or
($) and = if the ans#er is cate!or' (1) or (?)(
b?c )ll re!ressions are cross-section (3rd #a"e) 7L> re!ressions( >tandard errors (ad5usted
for clusterin!) are in
parentheses( The re!ressions include a set of personal controls #hich include a!e& !ender
and /ncome /a (#hich is the
respondents declared income le"el as captured in the ans#er to the FuestionB J,eople
sometimes describe themsel"es as
belon!in! to the lo#er class& the middle class& or the upper( Co# #ould 'ou describe
'ourselfGK(
b3c :i!ht hand side "ariables are constructed usin! the 1orld 2an-3s 1orld 6e"elopment
.ndicators as follo#sB
:istory of /n=ation VolatilityB )"era!e of the absolute "alue of the inQation (+,.) 1993-199A
(% 'ears before the 3rd #a"e of
the 1<>) usin! annual a"era!es in `(
:istory of Gro#th VolatilityB )"era!e of the absolute "alue of the R6, !ro#th 1993-199A (%
'ears before the 3rd #a"e of
the 1<>) usin! annual a"era!es in `(
:istory of E,change "ate VolatilityB )"era!e of the absolute "alue of the 8xchan!e :ate
!ro#th 1993-199A (% 'ears before
the 3rd #a"e of the 1<>) calculated usin! the oEicial exchan!e rate (L+; per ;>d& annual
a"era!e)
:istory of ;nemploymentB )"era!e of the absolute "alue of the ;nemplo'ment rate 1993-
199A (% 'ears before the 3rd #a"e
of the 1<>) usin! annual a"era!es (` of total labor force)
1$
Table
:e/t ?ing 0elie/s an- .epen-ence on (il Rents: Panel Regressions
.epen-ent +ariable:
"ight $ing2" ?@A ?CA ?DA ?EA ?FA ?GA
'uel E,ports -=(=1=
(=(==*)
Log 'uel E,ports -=(3?3
(=(=9?)
Ores E,ports -=(=*%
(=(=?*)
Log Ores E,ports -=($**
(=(?%*)
&anufacturing E,ports =(==*
(=(==$)
Log &anufacturing E,ports =(?11
(=(?=$)
)d5 :-sF =(=*1 =(=*? =(=*? =(=*? =(=*= =(=*=
2et#een Tumber of Rroups ?$ ?$ ?$ ?$ ?$ ?$
/ax Tumber of Rroups $9 $9 $9 $9 $9 $9
Tumber of 7bs( A9&?%1 A9&?%1 A9&?%1 A9&?%1 A9&?%1 A9&?%1
>otes:
b1c )ll re!ressions are 7L> re!ressions and include countr' and 'ear dummies( b?c
6ependent "ariable is "ight $ing32" a
cate!orical "ariable that is the ans#er to the FuestionB J.n politics people tal- of the JleftK
and of the Jri!htK( .n a scale
#here J=K is left and J1=K is ri!ht& #here #ould 'ou place 'ourselfGK and is obtained from
the 1<>( b3c 'uel E,ports
refers to a0uel exports as ` of merchandise exports3 and is obtained from the 1orld 2an-3s
1orld 6e"elopment
.ndicators( b$c Ores E,ports refers to a7res and metals exports as ` of merchandise
exports3 and is obtained from the
1orld 2an-3s 1orld 6e"elopment .ndicators( b%c &anufacturing E,ports refers to
J/anufactures exports as ` of
merchandise exportsK and is obtained from the 1orld 2an-3s 1orld 6e"elopment
.ndicators( b*c &erchandise E,ports
sho# the f(o(b( "alue of !oods pro"ided to the rest of the #orld "alued in ;(>( dollars( The'
are classi4ed usin! the
>tandard .nternational Trade +lassi4cation (>.T+)( .n particular& the 1orld 2an- 4!ures
distin!uish bet#een
a/erchandise 8xports3 and J8xports of >er"icesK( bAc Log Variable %ame refers to the
natural lo! of Variable %ame( b8c )ll
re!ressions control for a!e& !ender and /ncome /a( b9c /ncome /aB The respondents declared
income le"el as capture in the
Fuestion J,eople sometimes describe themsel"es as belon!in! to the lo#er class& the
middle class& or the upper( Co#
#ould 'ou describe 'ourselfGK b1=c >tandard errors on 'uel E,ports3 Log 'uel E,ports3 Ores
E,ports3 Log Ores E,ports3
&anufacturing E,ports and Log &anufacturing E,ports ad5usted to ta-e account of
clusterin! #ithin countries( b11c +lustered
standard errors in parentheses(
1%
Table 3
Ho6 :e/t ?ing 0elie/s var, 6ith Corr2ption: Panel Regressions
.epen-ent +ariable: "ight $ing2" ?@A ?CA
.orruption -=(19=
(=(=8*)
Log .orruption -=(?*?
(=(1%A)
)d5 :-sF =(=*A =(=*1
2et#een Tumber of Rroups ?% ?%
/ax Tumber of Rroups 3* 3*
Tumber of 7bs( **&1$$ **&1$$
>otes:
b1c )ll re!ressions are 7L> re!ressions and include countr' and 'ear dummies( b?c
6ependent "ariable is "ight $ing2"& a cate!orical "ariable that is the ans#er to the
FuestionB J.n politics people tal- of the JleftK and of the Jri!htK( .n a scale #here J=K is
left and J1=K is ri!ht& #here #ould 'ou place 'ourselfGK and is obtained from the 1<>(
b3c .orruption is obtained the .+:R( >ee Pnac- and Peefer (199%)( bAc Log .orruption
refers to the natural lo! of +orruption( b8c )ll re!ressions control for a!e& !ender and
/ncome /a( b9c /ncome /aB The respondents declared income le"el as captured b' the
Fuestion J,eople sometimes describe themsel"es as belon!in! to the #or-in! class& the
middle class& or the upper or lo#er class( Co# #ould 'ou describe 'ourselfGK b1=c
>tandard errors on .orruption and Log .orruption ad5usted to ta-e account of clusterin!
#ithin countries( b11c +lustered standard errors in parentheses(
1*
Table !
Ho6 :e/t ?ing 0elie/s var, 6ith Crime: Panel Regressions
:AT4> A*ER4CA
71< 7< 73< 7!< 7"< 7#< 7$< 7%<
.epen-ent +ariables: 'air2L (rivati!2L 'air2L (rivati!2L 'air2L (rivati!2L 'air2L
(rivati!2L
(erception of .rime -=(?83 -=(=%1 -=(?3A -=(=%=
(=(=1?) (=(==%) (=(=1$) (=(==%)
"eal .rime -=(=31 -=(=11 -=(=?? -=(=1=
(=(==9) (=(==$) (=(=11) (=(==$)
,ersonal +ontrols . Ses Ses Ses Ses To To To To
,ersonal +ontrols .. To To To To Ses Ses Ses Ses
,seudo :sF =(=8? =(=$% =(=A? =(=$$ =(1=% =(=$% =(=99 =(=$?
/ax To( of Rroups 1A 1A 1A 1A 1A 1A 1A 1A
2et#een To( Rroups 1A 1A 1A 1A 1% 1A 1% 1A
To of 7bser"ations $A&?83 %3&1=A $A&?31 *8&A38 3%&?*A %1&8?A 3%&181 **&3?3
>otes:
b1c Tame of dependent "ariable has L (:) extension if hi!her numbers mean more Left
(:i!ht)( b?c )ll re!ressions are
7L> re!ressions and include countr' and 'ear dummies( b3c )ll "ariables are obtained from
the LatinobarYmetro( b$c
>tandard errors in parentheses( b%c (erception of .rime is a dumm' that eFuals = if the
ans#er to the Fuestion J+rime has
increased or decreasedGK is JCas increased a lotK and 1 if it is JCas increased a littleK&
JCas sta'ed the sameK& JCas fallen
a littleK or JCas fallen a lotK( b*c "eal .rime is a cate!orical "ariable eFual to 1 if the
ans#er to the FuestionB JCa"e 'ou or
a relati"e of 'ours been a "ictim of an assault& an a!!ression& or a crime& in the last 1?
monthsGK is JSesK& and ? if the
ans#er is JToK( bAc ,ersonal +ontrols .B a!e& !ender and /ncome /b( ,ersonal +ontrols ..B
a!e& !ender& /ncome /b& and .ity
0i!e( b8c /ncome /bB The respondents declared income le"el as capture in the Fuestion JThe
#a!e or salar' 'ou recei"e and
the total famil' income& 6oes it allo# 'ou to satisfactoril' co"er 'our needsG .n #hich of
these situations are 'ouGK The
possible ans#ers are J.t is !ood enou!h& 'ou can sa"eK& J.t is 5ust enou!h& #ithout !reat
diEicultiesK& J.t is not enou!h&
'ou ha"e diEicultiesK and J.t is not enou!h& 'ou ha"e !reat diEicultiesK( b9c .ity 0i!eB The
sie of the cit' #here the
inter"ie# ta-es place( The ? possible cate!ories are 1 if J1==&=== or lessK and ? if Jcapital
or more than 1==&===K( b1=c
6ependent "ariables are the ans#ers to the FuestionsB
Col2mns 71)3)")$< 'air2L1 To# .]d li-e 'ou some Fuestions about the problem of po"ert'& in
this countr' and in
other countriesB Co# fair do 'ou thin- the distribution of income is in this countr'G The 4"e
possible ans#ers are 1( <er' fair9 ?( 0air9 3( Teither 0air nor unfair9 $( ;nfair9 and %( <er'
unfair(
Col2mns 7)!)#)%< (rivati!2L1 6o 'ou a!ree or disa!ree #ith the follo#in! statementB
The ,ri"atiation of public companies has been bene4cial to the countr'( The t#o possible
"alues are 1( . a!ree (if the ans#er to the Fuestion isB . completel' a!ree or . a!ree)9 and ?(
.
disa!ree (if the ans#er to the Fuestion isB . completel' disa!ree or . disa!ree)(
1A
Table "
Ho6 Perceptions o/ Corr2ption var, 6ith Real Corr2ption)
Perception o/ Crime an- Real crime: Panel Regressions
.epen-ent +ariable: :AT4> A*ER4CA +E>E@AE:A
(erception of .orruption ?@A ?CA ?DA ?EA ?FA ?GA
"eal .orruption =(=?8
(=(=1?)
=(=?8
(=(=1?)
=(=1%
(=(=11)
=(=1%
(=(=11)
=(=*9
(=(=*$)
=(=*8
(=(=%9)
(erception of .rime =($9=
(=(==A)
=($9=
(=(==A) =(**=
(=(=$$)
"eal .rime =(=11
(=(=1=)
=(=11
(=(=1=) -=(=?8
(=(=%$)
Jear dummy %O JE0 %O JE0 SearB ?==1 SearB ?==1
:? o"erall =(==9 =(=1= =(?1A =(??= =(=3* =(?11
To( of Rroups 1A 1A 1A 1A
7bs 1A&%*$ 1A&%*$ 1A&%*$ 1A&%*$ 1&=3A 1&=3A
>otes:
b1c )ll re!ressions are 7L> re!ressions( b?c 6ependent "ariable is (erception of .orruption
a cate!orical
"ariable eFual 1 if the ans#er to the Fuestion J+orruption has increased or decreasedGK is
JCas increased a
lotK& ? if it is JCas increased a littleK& 3 if it is JCas sta'ed the sameK& $ if it is JCas fallen a
littleK and % if it
is JCas fallen a lotK( b3c "eal .orruption is a cate!orical "ariable eFual to 1 if the ans#er to
the FuestionB
JCa"e 'ou or a relati"e of 'ours been a "ictim of corruption& in the last 1? monthsGK is
JSesK& and ? if the
ans#er is JToK( b$c (erception of .rime& a cate!orical "ariable eFual 1 if the ans#er to the
Fuestion J+rime
has increased or decreasedGK is JCas increased a lotK& ? if it is JCas increased a littleK& 3 if
it is JCas sta'ed
the sameK& $ if it is JCas fallen a littleK and % if it is JCas fallen a lotK( b%c "eal .rime is a
cate!orical "ariable
eFual to 1 if the ans#er to the FuestionB JCa"e 'ou or a relati"e of 'ours been a "ictim of an
assault& an
a!!ression& or a crime& in the last 1? monthsGK is JSesK& and ? if the ans#er is JToK( b*c )ll
re!ressions
control forB a!e& !ender& /ncome /b and "ight $ing2"( bAc /ncome /bB The respondents
declared income le"el as
capture in the Fuestion JThe #a!e or salar' 'ou recei"e and the total famil' income& 6oes
it allo# 'ou to
satisfactoril' co"er 'our needsG .n #hich of these situations are 'ouGK The possible ans#ers
are J.t is !ood
enou!h& 'ou can sa"eK& J.t is 5ust enou!h& #ithout !reat diEicultiesK& J.t is not enou!h& 'ou
ha"e
diEicultiesK and J.t is not enou!h& 'ou ha"e !reat diEicultiesK(b8c "ight $ing2"& is the
ans#er to the 1orld
<alues FuestionB J.n politics people tal- of the JleftK and of the Jri!htK( .n a scale #here J=K
is left and
J1=K is ri!ht& #here #ould 'ou place 'ourselfGK( b9c >tandard errors in parentheses(
18
Table #
>ummar' >tatistics for the )!!re!ate <ariables
(LatinobarYmetro& 1<>& 1orld 2an-)(
<ariable 7bs( /ean >td(
6e"( /in( /ax( Table
"ight $ing2"
- bet#een
- #ithin
Total[ 31&%8%
n[3?
T-bar[ 98A(=31
%(A1 ?(33
=(*8
?(?*
1
$(AA
-=(33
1=
A(93
1=(9$
1)
;nfair for (oorL
- bet#een
- #ithin
Total[ ?A&1?=
n[31
T-bar[ 8A$(839
=(A1 =($%
=(13
=($3
=
=($=
-=(1%
1
=(8*
1(31
1)
%o EscapeL
- bet#een
- #ithin
Total[ 3?&?**
n[3?
T-bar[ 1==8(31
=(%9 =($9
=(19
=($%
=
=(1?
-=(?A
1
=(8*
1($A
12
Business O#nerK2L
- bet#een
- #ithin
Total[ ?9&%**
n[3?
T-bar[ 9?3(938
=(?3 =($?
=(1$
=($=
=
=($
-=(3$
1
=(%A
1(19
12
:istory of /n=ation Volatility
- bet#een
- #ithin
Total[ 31&%8%
n[3?
T-bar[ 98A(=31
1*9(3= 3?9(1=
3=*(?=
=
=(8=
=(8=
1?19(8?
1?19(8?
1?19(8?
1*9(3=
1)
:istory of G-( gro#th Volatility
- bet#een
- #ithin
Total[ 31&%8%
n[3?
T-bar[ 98A(=31
$(88 ?(31
?(3=
=
=(8?
=(8?
$(88
1?($A
1?($A
$(88
1)
:istory of E,change "ate Volatility
- bet#een
- #ithin
Total[ 31&%8%
n[3?
T-bar[ 98A(=31
=(81 1(A9
1(A?
=
1(9e-=3
1(9e-=3
=(81
A(*?
A(*?
=(81
1)
:istory of ;nemployment
- bet#een
- #ithin
Total[ 31&%8%
n[3?
T-bar[ 98A(=31
A(91 $(3=
$(9A
=
=(%=
=(%=
A(91
??(3?
??(3?
A(91
1)
L continued ne,t page
19
continued from previous pageL
<ariable 7bs( /ean >td(
6e"( /in( /ax( Table
"ight $ing2"
- bet#een
- #ithin
Total[ A9&?%1
n[$9
T-bar[ 1&*1A(3A
%(%* ?(?1
=(*?
?(1$
1
$(?*
-=($A
1=
A(93
11(3=
?)
'uel E,ports
- bet#een
- #ithin
Total[ A9&?%1
n[$9
T-bar[ 1&*1A(3A
1?(*% ?=(%=
?=(*3
?(A9
=(=1
=(=1
-1(81
9*(?8
9*(?8
?%(A3
?)
Log 'uel E,ports
- bet#een
- #ithin
Total[ A9&?%1
n[$9
T-bar[ 1&*1A(3A
1(3% 1(A8
?(=3
=(31
-%(11
-%(11
=(*=
$(%A
$(%A
?(1%
?)
Ores E,ports
- bet#een
- #ithin
Total[ A9&?%1
n[$9
T-bar[ 1&*1A(3A
*(33 9(%=
9(A=
=(91
=(=1
=(=1
?(?*
%$(*1
%?(1%
8(A8
?)
Log Ores E,ports
- bet#een
- #ithin
Total[ A9&?%1
n[$9
T-bar[ 1&*1A(3A
1(1? 1($1
1(%1
=(1*
-$(??
-$(??
=(%%
$(==
3(9%
1(*%
?)
&anufacturing E,ports
- bet#een
- #ithin
Total[ A9&?%1
n[$9
T-bar[ 1&*1A(3A
%9(A? ?$(A?
?*(=9
$(18
3(3*
3(3*
$1(99
9%(89
9%(3%
A9(33
?)
Log &anufacturing E,ports
- bet#een
- #ithin
Total[ A9&?%1
n[$9
T-bar[ 1&*1A(3A
3(93 =(*8
=(A$
=(=8
1(?1
1(?1
3($%
$(%*
$(%*
$(?*
?)
"ight $ing2"
- bet#een
- #ithin
Total[ **&1$$
n[3*
T-bar[ 1&83A(33
%(*1 ?(?1
=(*$
?(1%
1
$(%8
-=($3
1=
A(93
11(=?
3
.orruption
- bet#een
- #ithin
Total[ **&1$$
n[3*
T-bar[ 1&83A(33
?($* 1(38
1(3*
=($?
1
1
1(?=
%
%
3(A8
3
Log .orruption
- bet#een
- #ithin
Total[ **&1$$
n[3*
T-bar[ 1&83A(33
=(A3 =(*=
=(%8
=(?3
=
=
=(=1
1(*1
1(*1
1(11
3
L continued ne,t page
?=
continued from previous pageL
<ariable 7bs( /ean >td(
6e"( /in( /ax( Table
'air2L
- bet#een
- #ithin
Total[ $A&?83
n[1A
T-bar[ ?&A81(3%
$(== 1(=3
=(19
1(==
1
3(*$
=(*%
%
$(3%
%(3*
$
(rivati!2L
- bet#een
- #ithin
Total[ %3&1=A
n[1A
T-bar[ 3&1?3(9$
1(*% =($8
=(=8
=($A
1
1($$
=(88
?
1(AA
?(??
$
(erception of .rime
- bet#een
- #ithin
Total[ $A&?83
n[1A
T-bar[ ?&A81(3%
=(?= =($=
=(11
=(39
=
=(=*
-=(?3
1
=($3
1(1$
$
?1
Appen-ix : =2rve, .escriptions ?orl- +al2es =2rve,
1orld <alues >ur"e' and 8uropean <alues >ur"e' (1981-8$& 199=-9?& 199%-9A)
The +ombined 1orld <alues >ur"e' is produced b' the .nstitute for >ocial
:esearch& )nn )rbor& /.& ;>)(
The series is desi!ned to enable a cross-national comparison of "alues and norms
on a #ide "ariet' of norms
and to monitor chan!es in "alues and attitudes across the !lobe( 2oth national
random and Fuota samplin!
#ere used( )ll of the sur"e's #ere carried out throu!h face-to-face inter"ie#s& #ith
a samplin! uni"erse
consistin! of all adult citiens& a!ed 18 and older& across o"er *= nations around
the #orld( The 1981-83
sur"e' co"ered ?? independent countries9 the 199=-93 sur"e' co"ered $?
independent countries9 the 199%-9A
sur"e' co"ered %3 independent countries( .n total& *$ independent countries ha"e
been sur"e'ed in at least
one #a"e of this in"esti!ation (countin! 8ast Rerman' as an independent countr'&
#hich it #as #hen 4rst
sur"e'ed)( These countries include almost 8= percent of the #orld3s population( )
fourth #a"e of sur"e's is
bein! carried out in 1999-?===( The full set of countries co"ered isB )r!entina&
)rmenia& )ustralia& )ustria&
)erbai5an& 2el!ium& 2an!ladesh& 2ul!aria& 2osnia-Cere!o"ina& 2elarus& 2rail&
+anada& >#iterland& +hile&
+hina& +olombia& +ech :epublic& 8ast and ;ni4ed Rerman'& 6enmar-& 6ominican
:epublic& >pain&
8stonia& 0inland& 0rance& ;nited Pin!dom& Reor!ia& Rhana& +roatia& Cun!ar'&
.ndia& .reland& Torthern
.reland& .celand& .tal'& Japan& >outh Porea& Lithuania& Lat"ia& /ada!ascar& /exico&
/acedonia& /ontene!ro&
The Tetherlands& Tor#a'& ,a-istan& ,eru& ,hilippines& ,oland& ,uerto :ico&
,ortu!al& :ussia& >lo"a-
:epublic& >lo"enia& >#eden& Tur-e'& Tai#an& ;-raine& ;ru!ua'& ;nited >tates of
)merica& <eneuela& >outh
)frica& /osco#& Tambo" oblast& /ontene!ro& >pain& Ti!eria& :omania& /oldo"a
and >erbia(
/ncome /aB The respondents declared income le"el as capture in the Fuestion
J,eople sometimes describe
themsel"es as belon!in! to the lo#er class& the middle class& or the upper( Co#
#ould 'ou describe
'ourselfGK
"ight $ing2"1 is a cate!orical "ariable that is the ans#er to the FuestionB 7.n
politics people tal- of the JleftK
and of the Jri!htK( .n a scale #here J=K is left and J1=K is ri!ht& #here #ould 'ou
place 'ourselfGK(
;nfair for (oor2L1 ) dumm' that is the response to the FuestionB 71h'& in 'our
opinion& are there people in
this countr' #ho li"e in needG Cere are t#o opinionsB #hich comes closest to 'our
"ie#G (1) The' are
poor because of lainess and lac- of #illpo#er& or (?) The' are poor because
societ' treats them
unfairl'(K The dumm' ta-es the "alue 1 if the ans#er is (?) and = if the ans#er is
(1)(
%o EscapeL1 ) dumm' eFual to 1 if the ans#er to the FuestionB J.n 'our opinion&
do most poor people in
this countr' ha"e a chance of escapin! from po"ert'& or there is "er' little chance
of escapin!G (1)
The' ha"e a chance or (?) There is "er' little chance(K #as cate!or' (?) and = if it
#as cate!or' (1)(
Government help (oorL1 The response to the 1orld <alues FuestionB J6o 'ou thin-
that #hat the !o"ernment
is doin! for people in po"ert' in this countr' is about the ri!ht amount& too much&
or too littleG (1)
Too much& (?) )bout the ri!ht amount& or (3) Too little(K( Government help (oorL is
a cate!orical
"ariable eFual 1 if the ans#er is (1)& ? if the ans#er is (?) and 3 if the ans#er is (3)(
Business O#nership2L1 The response to the 1orld <alues FuestionB JThere is a lot of
discussion about ho#
business and industr' should be mana!ed( 1hich of these four statements comes
closest to 'our
opinionG (1) The o#ners should run their business or appoint the mana!ers& (?)
The o#ners and the
emplo'ees should participate in the selection of mana!ers& (3) The !o"ernment
should be the o#ner
and appoint the mana!ers& ($) The emplo'ees should o#n the business and elect
the mana!ersK(
Business O#nership2L #as de4ned as a dumm' eFuals 1 if the ans#er is cate!or'
(3) or ($) and = if the
ans#er is cate!or' (1) or (?)(
??
'air (ay2LB The response to the 1orld <alues FuestionB J.ma!ine t#o secretaries& of
the same a!e& doin!
practicall' the same 5ob( 7ne 4nds out that the other earns considerabl' more than
she does( The
better paid secretar'& ho#e"er& is Fuic-er& more eEicient and more reliable at her
5ob( .n 'our opinion&
is it fair or not fair that one secretar' is paid more than the otherG (1) 0air or (?)
Tot fair(KK 'air (ay2"
#as de4ned as a dumm' eFuals 1 if the ans#er is cate!or' (?) and = if the ans#er
is cate!or' (1)(
Appen-ix 7contin2e-<: :atinobarometro
The Latinobarometro >ur"e'& an annual public opinion sur"e' of approximatel'
19&=== inter"ie#s in 18
countries in Latin )merica( Luestions of interest rotate& so the number of #a"es
(and thus our sample sie)
"aries considerabl' dependin! on the Fuestion bein! studied( .t is produced b'
LatinobarYmetro +orporation&
a non pro4t TR7 based in >antia!o& +hile( .t sur"e's de"elopment of democracies&
economies and societies
and #e are particularl' interested in a number of attitudinal "ariables that are
associated #ith ideolo!ical
standin! (on an economic dimension)( Just li-e the 1<>& it is desi!ned to enable a
cross-national comparison
of "alues and norms on a "ariet' of topics( )s far as #e can tell& a national random
samplin! #ere used& and
the sur"e's #ere carried out throu!h face-to-face inter"ie#s& #ith a samplin!
uni"erse consistin! of adult
citiens& a!ed 18 and older( The countries co"ered are )r!entina& 2oli"ia& 2rail&
+olombia& +osta :ica& +hile&
8cuador& 8l >al"ador& Ruatemala& Conduras& /exico& Ticara!ua& ,anama&
,ara!ua'& ,eru& ;ru!ua'&
<eneuela and >pain(
(erception of .rime is a dumm' that eFuals = if the ans#er to the Fuestion J+rime
has increased or decreasedGK
is JCas increased a lotK and 1 if it is JCas increased a littleK& JCas sta'ed the
sameK& JCas fallen
a littleK or JCas fallen a lotK(
"eal .rime is a cate!orical "ariable eFual to 1 if the ans#er to the FuestionB JCa"e
'ou or a relati"e of 'ours
been a "ictim of an assault& an a!!ression& or a crime& in the last 1? monthsGK is
JSesK& and ? if the
ans#er is JToK(
(erception of .orruption is a cate!orical "ariable eFual 1 if the ans#er to the
Fuestion J+orruption has increased
or decreasedGK is JCas increased a lotK& ? if it is JCas increased a littleK& 3 if it is
JCas sta'ed the
sameK& $ if it is JCas fallen a littleK and % if it is JCas fallen a lotK(
"eal .orruption is a cate!orical "ariable eFual to 1 if the ans#er to the FuestionB
JCa"e 'ou or a relati"e of
'ours been a "ictim of corruption& in the last 1? monthsGK is JSesK& and ? if the
ans#er is JToK(
"ight $ing& is the ans#er to the FuestionB J.n politics people tal- of the JleftK and
of the Jri!htK( .n a scale
#here J=K is left and J1=K is ri!ht& #here #ould 'ou place 'ourselfGK(
'air2LB To# .]d li-e 'ou some Fuestions about the problem of po"ert'& in this
countr' and in other countriesB
Co# fair do 'ou thin- the distribution of income is in this countr'G The four
possible ans#ers are 1(
<er' fair9 ?( 0air9 3( ;nfair9 and $( <er' unfair(
(rivati!2LB 6o 'ou a!ree or disa!ree #ith the follo#in! statementB The ,ri"atiation
of public companies has
been bene4cial to the countr'( The t#o possible ans#ers are 1( . a!ree9 and ?( .
disa!ree(
AgeB The respondent3s a!e& in 'ears(
GenderB The respondent3s !ender(
?3
/ncome /bB The respondents declared income le"el as capture in the Fuestion JThe
#a!e or salar' 'ou recei"e
and the total famil' income& 6oes it allo# 'ou to satisfactoril' co"er 'our needsG .n
#hich of these
situations are 'ouGK The possible ans#ers are J.t is !ood enou!h& 'ou can sa"eK&
J.t is 5ust enou!h&
#ithout !reat diEicultiesK& J.t is not enou!h& 'ou ha"e diEicultiesK and J.t is not
enou!h& 'ou ha"e
!reat diEicultiesK(
.ity 0i!eB The sie of the cit' #here the inter"ie# ta-es place( The ? possible
cate!ories are 1 if J1==&=== or
lessK and ? if Jcapital or more than 1==&===K(
Appen-ix 7contin2e-<: ?orl- .evelopment 4n-icators 7?orl- 0anB<
16. 7nline is a data source on the !lobal econom'( .t contains statistical data for
o"er *== de"elopment
indicators and time series data from 19*=-?==$ (selected data for ?==%) for o"er
?== countries and 18 countr'
!roups( 6ata includes social& economic& 4nancial& natural resources& and
en"ironmental indicators(
/n=ation3 consumer prices ?annual MA1 .nQation as measured b' the consumer price
index reQects the annual
percenta!e chan!e in the cost to the a"era!e consumer of acFuirin! a 4xed bas-et
of !oods and
ser"ices( .n !eneral& a Laspe'res index formula is used(
G-( gro#th ?annual MA1 )nnual percenta!e !ro#th rate of R6, at mar-et prices
based on currenc'(
)!!re!ates are based on constant ;(>( dollars( R6, measures the total output of
!oods and ser"ices
for 4nal use occurrin! #ithin the domestic territor' of a !i"en countr'& re!ardless
of the allocation to
domestic and forei!n claims( Rross domestic product at purchaser "alues (mar-et
prices) is the sum
of !ross "alue added b' all resident and nonresident producers in the econom'
plus an' taxes and
minus an' subsidies not included in the "alue of the products( .t is calculated
#ithout ma-in!
deductions for depreciation of fabricated assets or for depletion and de!radation of
natural resources(
ONcial e,change rate ?L.; per ;0O3 annual averageAB 7Eicial exchan!e rate refers
to the actual& principal exchan!e
rate and is an annual a"era!e based on monthl' a"era!es (local currenc' units
relati"e to ;(>( dollars)
determined b' countr' authorities or on rates determined lar!el' b' mar-et forces
in the le!all'
sanctioned exchan!e mar-et(
;nemployment Total ?M of total labor forceAB ;nemplo'ment refers to the share of
the labor force #ithout #or- but
a"ailable for and see-in! emplo'ment( 6e4nitions of labor force and
unemplo'ment diEer b'
countr'(
:istory of /n=ation VolatilityB )"era!e of the absolute "alue of the .nQation
(consumer prices) 1993-199A (%
'ears before the 3rd #a"e of the 1<>) usin! annual a"era!es in `(
:istory of Gro#th Volatility1 )"era!e of the absolute "alue of the R6, !ro#th 1993-
199A (% 'ears before the 3rd
#a"e of the 1<>) usin! annual a"era!es in `(
:istory of E,change "ate Volatility1 )"era!e of the absolute "alue of the oEicial
exchan!e rate !ro#th 1993-199A
(% 'ears before the 3rd #a"e of the 1<>) calculated usin! the oEicial exchan!e rate
(L+; per ;>d&
annual a"era!e)
:istory of ;nemployment1 )"era!e of the absolute "alue of ;nemplo'ment Total (`
of total labor force) 1993-
199A (% 'ears before the 3rd #a"e of the 1<>) usin! annual a"era!es(
'uel E,portsB :efers to 0uel exports as ` of merchandise exports( 0uels comprise
>.T+ re"ision 1& section 3
(mineral fuels)(
?$
Ores E,ports1 :efers to ores and metals exports as ` of merchandise exports( 7res
and metals comprise
commodities in >.T+ re"ision 1& sections ?A (crude fertilier& minerals nes)9 ?8
(metalliferous ores&
scrap9 and *8 non-ferrous metals)(
&anufacturing E,ports1 :efers to /anufactures exports as ` of merchandise
exports( /anufactures comprise
commodities in >.T+ re"ision 1& sections % throu!h 9 (chemicals and related
products& basic
manufactures& machiner' and transport eFuipment& other manufactured articles
and !oods not
else#here classi4ed) excludin! di"ision *8 (non-f errous metals)(
&erchandise e,ports sho# the f(o(b( "alue of !oods pro"ided to the rest of the
#orld "alued in ;(>( dollars( The'
are classi4ed usin! the >tandard .nternational Trade +lassi4cation (>.T+)( .n
particular& the 1orld
2an- 4!ures distin!uish bet#een e/erchandise 8xportse (8xports of thin!s that
'ou can touch) and
J8xports of >er"icesK& li-e shippin!& tourism& and communications
.orruption1 The .nternational +ountr' :is- Ruide (.+:R) corruption index has been
produced annuall' since
198? b' ,olitical :is- >er"ices& a pri"ate international in"estment ris- ser"ice( .t is
measured on a = to
* scale( The index is based on the opinion of experts& and intends to capture the
extent to #hich
Jhi!h !o"ernment oEicials are li-el' to demand special pa'mentsK and Jille!al
pa'ments are !enerall'
expected throu!hout lo#er le"els of !o"ernmentK in the form of Jbribes connected
#ith import and
export licenses& exchan!e controls& tax assessments& police protection& or loansK(
?%
Re/erences
)lesina& )lberto&8d Rlaeser and 2ruce >acerdote (?==1) J1h' 6oesn3t the ;> ha"e
a 8uropean >t'le 1elfare
>tateGK& BrooBings (apers on Economic Activity& ?& 18A-?AA(
)lesina& )lberto& and 8liana La 0errara (?==%) J:edistribution in the Land of
7pportunitiesK& Journal of
,ublic 8conomics& Lfff.f& 89A(931(
)lesina& )lberto and Reor!e-/arios )n!eletos (?==%) J+orruption& .neFualit' and
0airnessK& *ournal of
&onetary Economics& "ol( %?(A)& pp( 1??A-$$(
)lesina& )lberto and Reor!e-/arios )n!eletos (?==%) J0airness and
:edistributionK& American Economic "evie#&
9%($)& 9*=-98=(
2enabou& :oland and 8fe )( 7- (?==1) J>ocial /obilit' and the 6emand for
:edistributionB The ,7;/
C'pothesisK& )uarterly *ournal of Economics& 11*(?)& $$A-$8A(
2enabou& :oland and Jean Tirole (?==%) (2elief in a Just 1orld and :edistributi"e
,olicies(& forthcomin!
)uarterly *ournal of Economics(
2enabou& :oland (?===) e;neFual >ocietiesB .ncome 6istribution and the >ocial
+ontracte American Economic
"evie#& 9=& 9*-1?9(
+arruth& )(& Coo-er& /( and )( 7s#ald (1998) J.nput ,rices and ;nemplo'ment
8FuilibriaB Theor' and
8"idence for the ;nited >tates& :e"ie# of 8conomics and >tatistics& 8=& *?1-*?8(
6enau& )( and 6( Torth (1993) J>hared /ental /odelsB .deolo!ies and
.nstitutionsK& 8conomic Cistor'
9=39==3 #or-in! paper(
6i Tella& :afael and :obert /ac+ulloch (?==?) e1h' 6oesn]t +apitalism 0lo# to
,oor +ountriesGe& mimeo(
6i Tella& :afael and :obert /ac+ulloch (?==*) J+orruption and the 6emand for
:e!ulatin! +apitalistsK&
+hapter 13 in >usan :ose-)c-erman (ed() Candboo- of +orruption& 8l!ar
,ublishin!(
6i Tella& :afael& >char!rods-'& 8rnesto and >ebastian Raliani (?==$) JThe
0ormation of 2eliefsB 8"idence
from the )llocation of titles to >FuattersK& forthcomin! )uarterly *ournal of
Economics(
6i Tella& :afael& 6onna& Ja"ier and :obert /ac+ulloch (?==*) J+rime and 2eliefsK&
mimeo(
6i Tella& :( and :( /ac+ulloch (?==%) J+ulture and 2eliefsK& mimeo(
0on!& +hristina (?==$) J1hich 2eliefs /atter for :edistributi"e ,oliticsG Tar!et-
speci4c "ersus !eneral beliefs
about the causes of incomeK& mimeo +arne!ie /ellon ;ni"ersit'(
Reert& +liEord (19A3) The .nterpretation of +ultures( Te# Sor-B 2asic 2oo-s(
Rlaeser& 8d#ard& JThe ,olitical 8conom' of Catred&K )uarterly *ournal of
Economics& +ff (?==%)& $%-8*(
Rreif& )"ner (199$) J+ultural 2eliefs and the 7r!aniation of >ociet'B ) Cistorical
and Theoretical :eQection
on +ollecti"ist and .ndi"idualist >ocietiesK& *ournal of (olitical Economy 1=?(%)& 91?-
%=(
Cochschild& Jennifer& (1981) 1hat3s 0airG )merican 2eliefs about 6istributi"e
Justice& +ambrid!e& Car"ard
;ni"ersit' ,ress(
Pnac-& >tephen and ,hilip Peefer (199%)& J.nstitutions and 8conomic ,erformanceB
+ross-+ountr' Tests
;sin! )lternati"e .nstitutional /easures(K Economics and (olitics& A (3)& pp( ?=A-
?A(
Ladd& 8"erett +arll and Parl'n 2o#man (1998) Attitudes To#ards Economic
/ne4uality& )8. ,ressB 1ashin!ton(
Lipset& >e'mour /artin and :o--an >tein (19*A) J+lea"a!e >tructures& ,art'
>'stems& and <oter )li!nmentsB
)n .ntroductionK& in Lipset and :o--an (eds() ,art' >'stems and <oter )li!nments(
Te# Sor-B 0ree
,ress(
/elter& )( and >( :ichard (1981) ) rational theor' of the sie of !o"ernment(
*ournal of (olitical Economy 89(%)B
91$-9?A(
7l-en& 2en (?==*) J+orruption ,erceptions "s +orruptioin realit'K& T28:
#pg1?$?8(
,i-ett'& Thomas (199%)( J>ocial /obilit' and :edistributi"e ,olitics(K )uarterly
*ournal of Economics& 11=(3)B
%%1h8$(