Crude World

by Peter Maass

  As Michael McFaul and Kathryn Stoner-Weiss, Russia experts, have noted, between 1999 and 2006 Russia’s growth rate, impressive in isolation, was only ninth fastest among the fifteen post-Soviet states. When the Soviet Union fell apart, its successor states went into an economic free fall that halted after each government initiated emergency reforms, as all did. Russia, like every other country in the former Soviet Union, was experiencing economic growth before Putin came to power. “Putin arrived on the scene at a good time in Russia’s economic cycle, and got even luckier as oil prices rose worldwide,” McFaul wrote with Stoner-Weiss. They noted that Russia’s standings in corruption and public health surveys worsened under Putin. Russia’s fate rested once again upon a fickle resource sector that had functioned, in the Soviet era, as a trap door; once oil prices receded from nearly $150 a barrel, as they would, the country would find itself with a crippled economy and a brittle autocracy. “The strengthening of institutions of accountability—a real opposition party, genuinely independent media, a court system not beholden to Kremlin control—would have helped tame corruption and secure property rights and would thereby have encouraged more investment and growth,” McFaul and Stoner-Weiss wrote. Not long afterward, when oil prices fell below $100 a barrel, the Russian stock market plummeted along with the value of the ruble, and the once-mighty government surplus, along with one of the sovereign wealth funds, were greatly depleted to support the faltering economy. Russia’s megarich took a cold bath, with Moscow dropping below New York as the billionaire capital of the world. Even Putin’s popularity began to shrink. A rash of street protests broke out—and were quashed.

  As Russia suffers the blows of falling prices and declining output, McFaul and Stoner-Weiss worried that it could become another Angola, led by hard men who care more about controlling crude-oil money than providing good governance. An extreme outcome of that sort is not certain, thankfully, but McFaul, who in 2009 was appointed to President Obama’s National Security Council, was not alone in seeing an unfortunate future. His conclusion was shared by Andrei Illarionov. A year after our encounter, which ended at the Prague restaurant, Illarionov turned on Putin and resigned. “The state has become, essentially, a corporate enterprise that the nominal owners, Russian citizens, no longer control,” he wrote. “There are other countries like this: Libya and Venezuela, Angola and Chad, Iran and Saudi Arabia. Russia is one of them now. It is a historical dead end.”

  The addictions of Hugo Chávez, president of Venezuela, are regularly in full view. On his television show, Aló Presidente, Chávez sips espresso from a white porcelain cup, and because the program can last from morning until night, with Chávez talking and singing and crying and joking and taking phone calls from Fidel Castro, the nation watches him drink cup after cup. Quite famously, the paratrooper-turned-president is wired on caffeine. That’s not his only craving. In the halls of American power, Chávez is known as a leftist who appeared at the United Nations a day after President George W. Bush and proclaimed, crossing himself and sniffing the air, “The devil came here yesterday, and it still smells of sulfur.” In his disobedience of political etiquette, Chávez acts with intended provocation. His defiance extends to the realm of economic strategies, because he is trying to overturn the dismal conventions of third-world resource management.

  If, in the last century, you watched in dismay as oil profits were stolen or wasted, you might have been hopeful when Chávez was elected president and vowed to use resource wealth to help the needy. Though Venezuela has the world’s seventh-largest reserves, most of its 26 million citizens are exceedingly poor. The enclaves of wealth in Caracas are surrounded by coils of angry slums. It is a classic example of what economist Joseph Stiglitz calls “rich countries with poor people.” Chávez’s desire for a fairer economic order was not new, because radical and well-meaning leaders across the globe had tried to make oil a blessing. Nigeria had had one or two presidents who preferred reform to looting, and even Huey Long tried to spread the oil wealth in Louisiana. But Louisiana remains one of the poorest states in America, and Nigeria is, well, Nigeria. I went to Venezuela to see whether Chávez could perform the magic that had eluded so many others, and my first stop was the barrio of Gramoven, where a new paradigm of resource management was being built.

  Gramoven, at first glance, seems a model for little more than world-class squalor. Its crowded streets are lined with bare-essentials shops selling everything from sacks of flour to used shoelaces. Young men linger on corners in the way of the unemployed, swapping rumors about jobs that are hard to find. There is a wariness in their eyes, on the lookout for not just work but danger, because on these unkind streets even the jobless are mugged. Other hazards include manhole covers that have been stolen, which means that if you do not watch your step, you can disappear into a black hole. In a general sense, Gramoven is a black hole of poverty from which few escape.

  A supporter with a placard of Hugo Chávez, president of Venezuela

  Gramoven was hosting a vision of the future that went by the awkward name of Fabricio Ojeda Nucleus of Endogenous Development. The “nucleus,” located on a side street near the barrio’s heart, consisted of three main brick buildings the size of low-slung dance halls. One building housed a medical clinic, while the others held cooperatives that produced shoes and clothes. The well-tended complex covered just sixteen acres and had, at its center, a small amphitheater for meetings and performances; off to one side were an organic garden and a sports field. This nucleus was a model for Chávez’s effort to plow oil money into social development. There were plans for hundreds like it across Venezuela, and not only did the funding come from oil, but the state-owned oil company managed everything. At the time I visited in 2005, the nucleus had received more than $7 million from Petróleos de Venezuela S.A., and a PDVSA manager, wearing a company badge, helped run the place. It was a showcase of sorts, because Chávez had broadcast an Aló Presidente episode from it, and its visitors included Harry Belafonte, Danny Glover and Cornel West.

  The shoe cooperative, suffused with the aromas of leather and glue, was brightly lit and freshly painted. Its sewing and cutting machines were not crammed together, as they might be in a typical sweatshop. The pace of work was not hectic when I visited, and perhaps because of that, the output was a modest six hundred pairs of shoes a day. The measured rate of production did not translate into high quality, unfortunately. The workers were new to shoemaking and most of their output went to Cuba, which cannot afford to be picky, or was distributed at discount prices to poor families in the barrio. Oswaldo Quintero, one of the associates, as workers called themselves, explained that the 140 members of the cooperative voted on their pay (about $190 a month) and hours (two six-hour shifts a day). Quintero, who was forty years old, a former taxi driver and the father of five children, had an Everyman look, with a slight potbelly, a two-day stubble and short legs. His blue overalls were smeared in shoe polish. He savored his new life because he didn’t need to drive around the city for twelve or fourteen hours a day, six days a week, risking robbery or carjacking every minute.

  “PDVSA now belongs to all Venezuelans,” he said. “Before it was just a small group who profited from it.”

  He meant that PDVSA, though state-owned, had not served the state well. In 1976, when a nationalization law went into effect, PDVSA gained control of the country’s oil reserves. By the 1990s, most of the firm’s gross revenues were plowed back into its operations; the rest went to the government. Because oil revenues were the government’s largest source of income, the company ended up with a larger budget than the government, and this had the perverse effect of creating a prosperous first-world company in an impoverished third-world nation. The firm had a talented and well-paid cadre of engineers, its facilities had up-to-date equipment and it smoothly pumped out large amounts of oil—reaching a peak of nearly 3.5 million barrels a day. But like the foreign companies with which it operated joint ventures, PDVSA spent only a token amount of its considerab
le revenues on social or economic programs.

  When Chávez was elected, PDVSA was quasi-independent of the government that owned it. This would not last. In 2002, after a series of political conflicts that included an anti-Chávez coup, PDVSA workers went on a two-month strike that ended with Chávez firing eighteen thousand managers and engineers—most of the firm’s white-collar workers. Chávez proceeded to turn the firm’s priorities upside down. Instead of about 40 percent of its revenues going to the state, two-thirds did. But there was a twist: instead of the oil money being transferred to the government and then to ministries that oversaw health, education and welfare programs, PDVSA was put in charge of the blitz of new programs. Chávez calculated that PDVSA’s revamped staff would be more loyal and more capable than the civil servants whose uninspired presence lent government ministries the aura of early retirement homes for bureaucrats.

  “Sowing the oil”—in Venezuela, this phrase is often used to describe the spending of oil revenues on human development—had a quick impact on the lives of people like Quintero. Thanks to his reasonable work hours at the nucleus, he had enough time to attend an adult-literacy course for which he received a “scholarship” of nearly $100 a month; he was being paid to take the course, which was held at a nearby school. PDVSA subsidized these courses—not only the scholarships but teachers, textbooks, televisions and videocassettes. PDVSA funded these adult schools across the country, as well as a network of new universities and secondary schools named after Chávez’s nineteenth-century hero, Simón Bolívar, who fought for Latin American independence.

  Because oil prices rose from almost the moment he was elected, Chávez was able to pour tens of billions of dollars into these programs. He had the same fortunate timing as another statesman who came to power as oil prices took off—Vladimir Putin. Chávez called his reform movement a Bolivarian revolution, and poor Venezuelans were its beneficiaries. For the first time in his life, Quintero even had access to decent medical care, thanks to the nucleus clinic, which had six pediatricians, two gynecologists, a radiologist and three GPs, as well as X-ray and ultrasound machines. Everything—the clinic building, the medical equipment, the tongue depressors, the television and air-conditioner in the bright waiting room—was paid for by PDVSA. Oil revenues even fed Quintero, who shopped at a subsidized grocery store, part of a chain called Mercal, adjacent to the nucleus. This store sold sugar, rice, milk, cheese and other items for discounts as high as 50 percent; the walls of the Gramoven Mercal were covered in murals that showed a slave breaking his chains. The country had thousands of these stores and, it seemed, a larger number of revolutionary murals.

  It was stirring if you did not let your mind linger too long on economics or history.

  In the early 1980s, I’d visited Yugoslavia and toured a factory cooperative. The Yugoslav economy revolved around workers’ cooperatives, a proud achievement of the country’s longtime leader, Josip Broz Tito, who claimed to have found a third way to prosperity that avoided the brutishness of capitalist managers and the dimness of party apparatchiks. At the cooperative I visited, the workers were the owners, or so the pitch went, and all decisions were made democratically by the workers or a council they elected. Shifts, pay and even disciplinary measures were decided by them. Everything was done fairly, and everyone was happy.

  It was splendid and unreal, because Yugoslavia’s economy was a sort of Ponzi scheme. The cooperatives did not produce goods that people wanted, and behind the scenes, dim-witted apparatchiks were making the big decisions. The country’s showcase industrial product, a compact car called the Yugo, was a punch line for late-night comics. The economy held together because Western nations loaned about $20 billion to the Yugoslav government so that it would not fall under the sway of the Soviet Union. The loans were dispersed by Belgrade to cooperatives like the one I visited, and they stayed afloat until the decline of the Soviet Union meant the West no longer needed to subsidize Yugoslavia. The subsequent contraction of the Yugoslav economy helped trigger civil war in the 1990s.

  Venezuela’s endogenous nuclei, adult-literacy programs and subsidized Mercals were not being kept afloat by loans. They floated on oil. Under Chávez, output was more than 2 million barrels a day, which meant that when prices were $100 a barrel, Venezuela was producing more than $200 million worth of oil every twenty-four hours. Even after deducting the cost of getting the oil out of the ground and shipping it to markets, it was a lot of money for a nation of 26 million souls—not Kuwait levels of drowning-in-oil riches, but higher on a per capita basis than Nigeria or Russia. You didn’t need to be a utopian or Marxist to believe it might be possible to reach the goals enunciated by Rafael Ramírez, who served as oil minister and PDVSA president: “To rescue and redistribute petroleum rent to the benefit of the people … to transform the terrible imbalances and social inequalities which, paradoxically, are present in one of the countries with the largest oil endowments on the planet.” Few governments had made this happen, and by pouring oil money into programs that reminded me of Yugoslavia, I suspected, Venezuela was galloping toward a mirage.

  PDVSA’s fastest-growing subsidiary was Palmaven, which ran the firm’s social programs and was located in an office tower adjacent to the luxury Radisson hotel. It was unusual enough that an oil company had an entire division devoted to good works, but even stranger that the man in charge of the marquee program—the endogenous nuclei—was a navy officer. Captain Rommel Rangel, whose handshake was military strong and whose civilian clothes were pressed to perfection, was not a typical naval or corporate man. He was a Chávez supporter who, like the president, had been born into poverty and become disenchanted with neoliberal policies that hollowed out his homeland in the 1980s. Rangel didn’t mind that I arrived at his immaculate office on a Friday afternoon, when the city was emptying out for the weekend; he happily talked as it became dark outside, and his fervor was an evangelical’s. When I mentioned the oddity of a navy officer running a social program in a petroleum firm, he smiled and responded by turning globalization on its head, Chávez-style. “Economic development is not as important as social change,” he said, with the enthusiasm of a man who has just solved a Rubik’s Cube. His optimism was admirable. His plans, less so.

  Chávez’s policies were born of the notion that because neoliberal economics had failed, its opposite would succeed. His embrace of a radical alternative brought to mind Ryszard Kapuscinski’s description of oil as “the temptation of ease, wealth, strength, fortune, power.” Kapuscinski meant that oil seduces rulers into believing it is possible to build a new Rome with little difficulty, because money can do anything. The shah of Iran, Kapuscinski noted, promised to create a second America in a generation, but succeeded only in paving the way to an oppressive religious regime that, among its many failures, cannot produce enough gasoline for its drivers. Libya’s reserves spurred Muammar Qaddafi to a particular brand of change-the-worldism, hinted at by one of his titles, Brotherly Leader and Guide of the Revolution. After taking power in a 1969 coup, Qaddafi aspired to lead the non-aligned world, then scaled back his ambitions to the Arab world, then to Africa only. He planned to develop nuclear weapons and attack American targets. After three decades of failure, and with his country an economic wreck and politically isolated, Qaddafi finally let go of his radical visions.

  Chávez’s visions of petrograndeur were geographically vast, too. In addition to subsidizing the barrios of Caracas, he was distributing discounted heating oil to poor families in New York, Philadelphia and Boston. Because these donations were intended to embarrass President George W. Bush, who treated Chávez as a grave menace, PDVSA paid for a full-page advertisement in the New York Times that boasted, “Venezuela is warming up the holidays in New York.” And not just there—Venezuelan oil was distributed at deep discounts throughout Latin America, with a generous portion going to Cuba. Chávez’s regime provided financing for a Latin American TV network, Telesur; bought Argentinean bonds when the government in Buenos Aires was re
eling; and sent engineers to Bolivia to run gas facilities that were being nationalized. Venezuela’s hemispheric outlays were estimated at nearly $9 billion in 2007, which were several times more than the non-military aid doled out by the United States south of its border. Chávez made no secret of his desire to be this century’s Bolívar.

  The problem was not, as the Bush administration fretted in those days, that Chávez would turn South America into Cuba writ large. That fear overlooked a geopolitical fact, which is that you can rent political friends in this world but you cannot buy them. Chávez’s billions in direct aid were no match for the cultural, corporate and political influence Washington retained in the region; American dominion would not be ended with a few years of subsidies from Caracas. The problem was that Venezuela, believing its mirage, could not afford its friends any more than the Soviet Union could afford its satellites in Eastern Europe. The Gramoven nucleus was replicated throughout Venezuela, but these cooperatives, created at great cost to PDVSA, provided a fraction of what the country needed in the way of jobs. Caracas was drowning in the usual mix of oil and unemployment. A core feature of the resource curse, as we’ve seen, is that although the oil industry dominates an economy, it creates few jobs. High-tech refineries can cost billions of dollars to construct, but once they’re up and running, perhaps a few hundred workers are needed to monitor them. If you have as much oil per capita as Kuwait, you don’t need to worry about real jobs—you can subsidize a life of indolence for everyone in your kingdom. But Venezuela did not have enough oil for that, and the upshot was that its unemployment rate was well into the double digits even during the (relatively) good times. Caracas had a booming business in luxury cars and the highest rate of gun violence in the world for cities not at war. The capital’s infrastructure, ignored during decades of economic doldrums, continued to be ignored during the boom. A highway to the airport had to be rerouted for months due to a bridge that was in danger of collapsing; what had been an hour-long commute to the airport required three to four hours over a zigzag of back roads.