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Latin America 21

Latin America 21

In the international media, the Venezuelan government continues to be mentioned frequently with the prefix “socialista”. Within the country, a disorderly deregulation process is opening up more space for the market, but it is also creating new and apparent inequalities.

What kind of economic system is Venezuela heading for? Given the scarcity of public data, we started to carry out research in three areas of the economy, in the hope of contributing some pieces to the puzzle that supposes the real functioning of the current Venezuelan economy. What we found was more predatory and authoritarian capitalism than socialism.

The global rise of authoritarian capitalism

It is evident that capitalism is not the same system all over the world. Although it always involves profitable activity on the part of private actors, capitalism is regulated in different ways and for different purposes. Most countries reserve some spaces, such as health, education and child care, to be governed by principles other than profit, and see some kind of state involvement in the economy.

Recent events have made it very clear that there is no automatic association between capitalism and democracy. On the contrary, we have seen the rise of capitalist systems in authoritarian countries all over the world, including, of course, China. Another dimension that distinguishes the different capitalist systems is the solidity of the institutions. In states with weak institutions, it is difficult to make a for-profit economy compatible with social goals, such as providing a certain level of well-being for all.

However, weak institutions can coexist with authoritarian governments that will try to steer the economy in a way that reinforces their political control and compensates for the weakness of institutions. This is the case for nominally socialist countries that may employ forms of market reform at the behest of political leaders for their benefit and that of their close allies.

With a team coordinated by Manuel Sutherland, director of CIFO and supervised by Antúlio Rosales, from the University of New Brunswick, and myself, we carried out three surveys that attempted to provide information on different aspects of the new economy. How does it relate to the process of deregulation of the economy? How do people survive in what has become a high-cost economy, but where wages are still “starved”?

illegal mining

The first part of the investigation was a survey of illegal mining workers in the state of Bolívar. As a way to face the decrease in revenue from oil productionin 2016 the Maduro government established the special development zone Arco MASTERwith the objective of formalizing alliances and attracting new investments in the state of Bolívar.

As a result, the State increased its presence in the area. However, the existing informal practices of territorial control by the armed groups continued and the illegal production and sale of gold increased. In our survey of workers in the area, we found that they endured workdays of 12 hours or more. Most of the time they were paid in grams of gold. There were no forms of social protection and they responded to a combination of local gangs, guerrillas, mafias and the National Guard.

All these actors engage in extortion, charging workers for “vaccinations” (protection money), in a lawless building. The extortions add to the extreme cost of living in the area, with prices 4 to 5 times higher than in the central areas of the country, due to a series of obstacles to the market.

The new face of inequality: the bodegones

The reality of illegal mining areas contrasts sharply with that of the new import trades, the so-called bodegones. As a way of tackling widespread shortages of goods and associated inflation, the ban on private exchange of dollars was relaxed.

In 2018, the government-controlled National Constituent Assembly repealed the Illicit Exchange Law. This meant the end of currency controls and the government’s blessing on informal dollarization. This, and various temporary tariff exemptions and import regulations, allowed large-scale imports of goods, including so-called “door-to-door” services – the direct importation of goods by private persons without any sort of tariffs or regulations. Sanitary.

This is the background for the appearance of the so-called bodegones, which started with small shops that sold imported products in a few luxury places in the capital. Over time, these evolved into a national phenomenon and included huge supermarkets in urban areas across the country that sold both regular foods and a wide variety of luxury items.

At the end of 2020, we conducted 81 interviews with those responsible for the bodegones and 103 customers in 73 bodegones, out of the 613 that were estimated to exist at that time. They were in luxury neighborhoods in the states of Aragua, Miranda, Mérida, Barinas and Zulia, in addition to the Capital. Most establishments (81%) were established after dollarization, and 47% were less than two years old.

Most of the owners had no previous experience in the retail trade, which indicates that this is a business that can help to establish a new class of entrepreneurs. The bodegones are clearly one of the expressions of the growing importance of the dollar. We found that, although 66% of purchases were made in national currency, they were smaller purchases, equivalent to 1 or 2 dollars. Large amounts were paid in dollars.

Interestingly, the majority of bodegones workers (56%) receive their wages in bolivars, and only 12% in dollars or euros. Salaries, although significantly higher than the minimum wage and what is paid in the public sector, are also low: 73% earn less than 60$ per month and 33% earn between 20$ and 40$.

The prices of bodegones range from the relatively reasonable to the extreme. However, general prices are high despite the fact that bodegones do not pay taxes or fees, due in part to the overvaluation of the currency. As a Norwegian, I found it almost comical to find Norwegian salmon in its original packaging with Norwegian text at a price four times what I would have had to pay in my home country.

A family meal of salmon would cost the equivalent of the average monthly salary of one of the workers in the same bodegón where it was sold. So, in many ways, bodegones are the face of new inequalities. They are owned by a group of new entrepreneurs who make a living selling luxury goods in an unregulated market to high-end customers at prices that are totally prohibitive for most people.

Survival in the public sector

The third aspect we study is the survival strategies of public sector workers. Our team conducted 207 interviews with civil servants from 68 different institutions in 8 states, on a range of issues such as wages, survival strategies and the politicization of the workplace. And as for wages, 47% earned less than $6 a month; 83% earned less than $15 a month. Most also received a salary in kind in the form of food, but in 47% of cases, it was worth less than 1$ per month.

Carrying the controversial “homeland wallet” controlled by the government meant an additional bonus for many. However, in two thirds of the cases it was less than 10$ per month, and for the majority much less.

Almost all of them supplement your salary in one way or another. Of those surveyed, 68% had additional positions or their own business. More than 70% remained in the job essentially as a means of maintaining certain stability or accessing political contacts, waiting for better times. When asked about on-the-job training, only 34% of informants said they had received any, and most of them had only received ideological training (in 85% of cases).

The image that emerges from our research, which is certainly limited, is that of a very fragmented form of capitalism in which some spaces are open to private competition, but in which regulation is politicized and opportunities for most people are scarce.

Spaces for capitalist production and exchange have widened even further as the anti-lockdown law adopted in 2020 opened up for large-scale privatization of public enterprises, benefiting government allies above all. Recently, the country has come out of the third longest period of hyperinflation on record, and has seen a slight increase in oil production and economic growth has been recorded as dollarization continues.

All this while the Maduro government has strengthened in power, and democracy remains abused, with the country celebrating mostly unfair and poorly competitive elections that do not vie for executive power.

Our surveys open up a series of additional questions about which economic model Venezuela is moving towards. Where do bodegones customers get their dollars? What are the new elites that control emerging businesses? How deep are the inequalities in the economy really?

It’s too early to draw conclusions about these big questions. With the recently adopted Large Financial Transactions Tax Law, which adds a tax to transactions in foreign exchange or cryptocurrencies, new changes can be produced. But what is certain is that the current system has more characteristics of authoritarian capitalism than of the democratic socialism that the Chavistas aspired to establish in the beginning.

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