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Venezuela Part II: CAP's botched reform

By Francisco Toro, Caracas Chronicles

Back in 1989, all you needed to do to realize how badly Venezuela needed reform was pick up a phone. On a bad day it could take 5 minutes or more to get a dial-tone. You’d unhook the phone, go make a sandwich, check for a dial town, eat the sandwich, check for a dial town again, wash your dishes and put away the mayonnaise, come back and check for a dial tone again…it was pretty ridiculous.

But once you’d managed to place the call, your troubles had only started: more often than not you’d have to go through the delightful ritual of the “linked call.” It was a queer little phenomenon where two totally separate conversations would become entwined somehow, and you’d end up sharing your conversation with two complete strangers. Sometimes, these absurd little four-way interchanges would develop, as each set of callers tried to convince the other set to hang up and try their call again: of course, you didn't’t want to be the one to have to hang up, because then you’d have to wait who-knows-how-long for a new dial tone.

I remember one time when my sister was talking to a school friend and their call got linked to a call between two of their other school friends – a serendipitous event so pleasant and novel (in those halcyon days before the conference call) that they stayed on the line to chat for hours on end, knowing they’d never get that lucky again.

Ah, the days of the nationalized phone company. Working with 40 year old equipment, CANTV (as the company’s called) was far, far behind the technological and service curves. Waiting times to get a new phone line hooked up could extend into months or years. Predictably, the delays spawned their own little hotbed of corruption: if you needed a new phone line, you had to pay off somebody inside CANTV to bump you to the front of the line. Phone lines became such a scarce luxury that they started to carry a premium in the real-estate market: in the classified ads, people selling apartments would advertise not just location and size, but also, proudly, “con teléfono” – an item that would add a good 5% to the cost of the place. Having a second phone line became the ultimate status-symbol, the height of conspicuous consumption.

It’s just one example, a particularly notorious one, but typical of the times. State-owned CANTV was prey to all the vices of clientelism run amok. Shielded from any competition, the company could get away with any and every outrage. As a consumer, you were powerless. That attitude of total contempt for the user/citizen pervaded the state. Trying to get anything out of the bureaucracy was a nightmare. Registering your car or trying to get a passport or a cédula (a national ID card) became an exercise in frustration-control. Even paying your taxes was a problem: tax officials knew that you needed that little shard of official paper they controlled (the certificate that you’d paid your taxes) for a number of reasons – you couldn't sell real estate without it, for instance - so people ended up in the ridiculous position of having to bribe an official for the privilege of paying their taxes. That’s how entrenched the culture of corruption was.

But the rot wasn't confined to the micro-level: macro economically, the country was also in serious trouble. The Central Bank was more or less out of foreign reserves. Protected by years of tariff barriers and subsidies, Venezuelan businesses were inefficient, rent-seeking leaches cranking out substandard goods at inflated prices.

The government was a huge albatross around the nation’s neck – the public sector payroll was ridiculous bloated. To a worrying extent, the petrostate model had degenerated into a full-employment scheme for governing party members. Venezuela had more public employees than Japan back then, but, as the old joke went, “of course, in Japan they don’t get quality public services like we do”. Lots of people on the state payroll showed up just twice a month to collect their paychecks, but they didn’t actually do any work – phantom workers, they were called. Many others treated their official salaries as a sort of retainer, but knew full well that the real money was elsewhere – in the kickbacks, commissions and bribes that state jobs gave them access to.

People were sick of it, and understandably so. But – and this is a crucial “but” – they didn’t see the need for root and branch reform. What they wanted was to see the petrostate fixed, not replaced. People longed for the bonanza days of the mid 70s, when windfall oil revenues financed a huge and rapid expansion in petrostate spending. If they were angry at politicians, it’s because they thought they had failed to deliver on their basic mission to meet everyone’s needs and desires by distributing the oil money fairly and generously. Do that, they figured, and the country could relive the good old days of the mid 70s.

This all has to do with the mental model that underpins the Venezuelan petrostate, with the founding myth that Venezuela is a fantastically rich country and that all the state has to do is distribute those rents for everyone to be well off. If you genuinely believe that, as 90% of Venezuelans still do, but you personally live in poverty, then the obvious inference is that the reason you’re poor is that somebody else stole your fair share. Those adeco bastards!

Let me be clear about this: corruption really was a huge problem back then (still is). But Venezuelans had wildly overblown expectations of how much their lives would improve if corruption was stamped out. Few people back then understood that even if corruption could be stopped cold, most of their problems would remain. The complicated structural and demographic reasons that made the petrostate model fundamentally non-viable were not a part of the national debate. They were understood only partially even in academic and technocratic circles. The perception that corruption was the whole of the problem actually impeded a deeper examination of the real reasons the state had stopped working – like the basic notion of the distributive state, and a social system that had been built on vertical, submission/dominance relationships.

Lo and behold, the 1988 presidential election featured a candidate uniquely positioned to play into people’s anger at the state of the state: Carlos Andrés Pérez, who had actually presided over the flood of petrodollars from 1974 to 1979. CAP, as everyone called him, ran as an old style populist, promising, disingenuously, to turn back the clock, to govern just as he had the first time around. People wanted a revamped petrostate, and he offered a revamped petrostate. Not surprisingly, he won by a landslide.

Now, what on earth CAP was thinking when he ran his campaign that way is still a subject of hot debate in Venezuela today. Looking back, it’s clear that the state was in no financial position to bankroll the whole society anymore, and CAP must have known that. Some people think it was all a carefully calculated ploy from the start, that he knew he needed to talk the talk to get elected, but was aware all along that he wouldn’t walk the walk.

Others think it was more a matter of circumstance. As one interesting anecdote would have it, CAP was certain that he could revamp the petrostate because he had already worked out a preliminary deal with the incoming US administration – the soon-to-be secretary of the treasury was fully on board for a financial rescue package that would allow the Venezuelan government to keep doing business more or less as usual…and that incoming administration would be run by President Michael Dukakis. Oops.

Well, CAP won with a record number of votes, but of course Dukakis went down in flames. Literally weeks after being elected, he had no choice but to renege on pretty much everything he’d promised during the campaign.

Days after his election, he announced a program of massive, IMF-sponsored structural reforms – lifting tariff barriers, dropping subsidies, privatizing state assets…a straightforward neoliberal, Washington Consensus type program. Given the size of the mess that state finances were in, it was a sensible proposal. But it was also an incredible, bald-faced betrayal of everything he’d stood for just weeks before. People thought they’d elected him to fix the petrostate, instead, he was moving to dismantle it. It barely made a difference that the petrostate was badly in need of dismantling: anyone needing a phone-line in those days should have been able to see that. The point is that there was nothing like a political consensus for reform at that point. CAP didn’t think he needed to make the case for dismantling the petrostate, he thought he could just do it, steamroll over all opposition and present the country with a fait accompli. His thinking, apparently, was that the economic benefits of reform would be so evident within a couple of years that the critics of reform would be marginalized.

Alas, he miscalculated badly. First off, CAP was elected on an Accion Democratica ticket, as the candidate of the party that pioneered the petrostate. In fact, the main source of resistance to CAP’s reform push was his own party. CAP might have had a road-to-Damascus moment sometime after Michael Dukakis imploded, but the rest of his party was still very much wedded to the dominance/submission model of social relations I described in the last essay. And CAP’s reforms were plainly incompatible with that vision of the state.

Take CANTV. It was a nightmare for consumers, yes, but for the AD cronies who got to run it, the phone company was a cherished power-base. Not only could they turn their access to a scarce commodity – phone lines – into an inexhaustible source of kickbacks, enriching themselves and feeding their personal patronage networks, they could also use the company to listen in on their opponent’s phone conversations, to distribute CANTV jobs to party workers, and, of course, to install multiple phone lines in their own homes. If you privatized the company, that entire structure would come crashing down.

Similar arguments could be made about any of four dozen other state institutions CAP wanted to sell off, streamline, or reform. Obviously, AD was horrified – the proposals would drive a stake through the heart of the party’s whole racket - so they mobilized furiously against the president they’d just helped to elect.

Soon, CAP found himself engulfed in a rising tide of unmanageable protest and dissent. Every scrap of reform cost him a pound of flesh in Congress; the bickering, obstructionism, and protests were constant. Venezuelans were outraged at what they saw as an unacceptable onslaught on their populist goodies. Too many people were too dependent on the cash that flowed through the patron-client network – and those people, by definition, were easy to mobilize politically, because they were part of the network.

The straw that broke the camel’s back came when the government put up gasoline prices in February 1989. Public transport operators responded by doubling fares, and the shit hit the fan. On February 27th, 1989, a group of left-wing agitators in Guarenas, a Caracas suburb, started a small riot over the fare hikes. The riots spread incredibly quickly, first to Caracas itself and then throughout the country. For three days Venezuela was an orgy of rioting, arson, and very widespread looting. The police was helpless in the face of this sudden outburst of anarchy. Eventually, the government called out army troops with orders to shoot rioters on sight. At least several hundred people were shot dead in the next two days, perhaps over a thousand.

It was the end of Venezuela’s age of innocence.

The February 27th riots were a kind of September 11th moment for Venezuela: they transformed the country deeply. Until then, Venezuelans had seen themselves as different, more civilized, more democratic, better than their Latin American neighbors. 31 years of unbroken, stable, petrostate-funded democracy had made us terribly cocky. In a sense, the riots marked Venezuela’s entry into Latin America. The country was no longer different: just another hard-up Latin American republic struggling to put its democracy on a stable footing.

CAP’s reform program was seriously hobbled by the riots, but it continued, at half-steam, for another 4 years. Economically, it was a success – after a serious recession in 1989 that saw the economy contract by 10.9%, Venezuela experienced real economic growth for the first time since the 70s. Real per capita income was expanding steadily: 3.9% in 1990, 7.1% in ‘91, 3.6% in ‘92. From a narrowly economic point of view CAP’s program had put the country on a path towards sustained growth, something the petrostate model was fundamentally unable to do.

But none of that mattered to the old-style bosses, the 10,000 caciques heading up patronage networks large and small throughout the country. What they cared about was power, wealth, interpersonal dominance. CAP’s program constituted a real threat to all of that. From their perches in AD’s National Executive Committee, in congress, in the courts, the nationalized companies and the labor movement, they were extraordinarily well placed to wreck the reform drive.

On the third year of this little CAP vs. AD psychodrama that a certain army lieutenant colonel first entered the public scene…and with a bang. On February 4th, 1992, a group of junior officers launched a bloody coup attempt against the elected government. The crazed adventure – the first time someone had tried to overthrow a Venezuelan government by force of arms since the 60s – left about a hundred dead. But it also turned its leader into a kind of folk hero – the valiant paratrooper willing to put his life on the line to stop CAP’s outrageous drive to dismantle the cherished petrostate.

The coup-plotting lieutenant colonel went to jail, where he whiled away two years reading (not understanding) Rousseau, Bolivar and Walt Whitman. In those two years, the government faced a second, even bloodier coup attempt by officers loosely associated with the first. Eventually, CAP was impeached by his fellow AD party members on trumped up charges, and after a brief interim government, the presidency passed to yet another petrostate dinosaur – Rafael Caldera, who had also been president already, but even further back than CAP, in 1969-1974.

Like CAP, Caldera ran as an old style populist. Unlike CAP, Caldera governed like one.

By the time he reached power for the second time, Rafael Caldera was over 80 years old. He’d spent 58 of those years in front-line politics. Frail, some would say decrepit, his voice tremulous and barely audible, he wasn’t exactly the kind of politician you’d turn to for bold new ideas. Caldera tried to patch up the old state system – the only one he understood – as best he could. Predictably, he failed. Corruption continued to proliferate, cronyism as well, while the banking sector collapsed, the economy languished, and the nation’s collective impoverishment continued afoot. Eventually, he was persuaded of the need for some reform, including an important overhaul of the criminal system and of social security. But he didn’t understand, much less share, the notion that the basic model of the state he had spent a lifetime championing needed a total overhaul.

If the petrostate was well past its sell-by date in 1989, by 1998 it was putrid. Nobody doubted that the country needed a serious shake-up, a massive jolt to move beyond the stagnation and decay of the last 20 years. Indeed, all three of the politicians who ever looked to have a serious shot at power that year were anti-establishment figures, people who’d built political careers outside the traditional party system. The country faced a choice between a one-time Miss Universe turned centrist mayor of a wealthy district of Caracas, a reformist conservative governor from Carabobo State, and a certain leftist Lieutenant Colonel who’d been pardoned and released from prison after heading a coup attempt. Disenchantment with the old party structures ran so deep that Copei didn’t even bother to try to run a party insider as candidate. Instead, they tried to co-opt the beauty queen, who collapsed in the polls the second she accepted their nomination. As always, AD was the last to get the message: they nominated a semi-literate 80 year-old cacique sitting at the pinnacle of the party’s patronage structure, and the guy never got beyond 7% in the polls. The much vaunted adeco electoral machine had sputtered to a halt. Soon enough, it was all down to the governor and the coupster, and it was clear that the election would go to the one who best voiced the people’s virulent rage at the failure of the petrostate.

And if that’s the game you’re playing, nobody but nobody beats Hugo Chavez.


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