[Athena]

Here is an extract from excellent source of information about the very difficult balancing act that the government of Venezuela must achive. Privately owned industry can not achieve what the government must achieve for the good of all people. Maybe Chavez isn't doing everything exactly right, but he isn't the cause of the problems, and government is how we resolve such problems, not private industry focused on its own profit. I am not sure those who are criticizing Chavez, understand the problems this government faces.

Venezuela: Participatory Democracy or Government as Usual? One can trace the effect of the relatively sudden dominance of oil on the country along two dimensions, the economic and the cultural. In economic terms the dominance of oil meant first of all the emergence of a problem known as the “Dutch disease.”[1] A country catches this economic disease whenever a commodity brings an increase of income in one sector of the economy, which is not matched by increased revenues in other sectors of the economy. What happens is that the increase in income rapidly raises the demand for imports, since domestic production cannot meet demand quickly enough, and also raises the demand for services, which the domestic market has to supply because services cannot be imported as easily as tradables can. That is, the oil income causes a distorted growth in services and other non-tradables, while discouraging the production of tradables, such as industrial and agricultural products. The increased demand for imported goods and domestic services, in turn, causes an increase in prices, which ought to cause domestic production to increase, but doesn’t because the flow of foreign exchange into the economy has caused a general inflation of wages and prices. One can observe the symptoms of the Dutch disease in the Venezuelan economy quite clearly when one looks at the extent to which the increase in oil production and income was followed by a corresponding decrease in agricultural production and delays in industrialization. While agricultural production made up about one third of Venezuela’s GDP in the 1920s, it shrank to less than one tenth by the 1950s. Currently agriculture makes up about 6% of GDP. In addition to the typical Dutch Disease problem, the sudden increase of oil revenues in the 1970s caused a serious problem in the government’s fiscal policies. That is, the new revenues created the illusion that oil income could be used to industrialize the country via massive infrastructure projects, to “sow the oil,” as the president at the time of the oil boom, Carlos Andres Perez, used to say. What happened is that the quadrupled government income caused government spending to quickly increase and even surpass the newfound revenues. When the oil income began to decline, it was not as easy to reduce government spending as it had been to increase it. Over a period of two decades, between 1982 and 1998, the price of oil began a steady decline, going from $15.93 per barrel (in 1973 dollars) in 1982, to $3.19 per barrel in 1998.[2] The result was that the government gradually went deeper and deeper into debt. A combination of factors thus came together in Venezuela over the course of the last twenty years or so: Declining per capita oil revenue (47% drop from 1963 to 1997) Doubling of the population (from 12 million in 1975 to 24 million in 2000) The “Dutch Disease” (declining industrial and agricultural sectors) Increasing state indebtedness (from 9% of GNP in 1970 to 53% in 1994)