Venezuela's Lesson On Market Reform
Economic trials forecast political turnover
WITH the rest of the world singing the praises of the free market, why did the Venezuelans vote overwhelmingly against it Dec. 5?
The candidates rejecting the free-market policies of the last Venezuelan administration won a decisive victory that day. President-elect Rafael Caldera Rodriguez made it abundantly clear during the campaign that the social and political cost of those policies were unacceptable, that they had brought Venezuela to the brink of disaster. The voters agreed. Why?
Venezuela had gone from riches to rags in record time. With oil, iron ore, aluminum, gold, diamonds, coffee, rice and cotton in an area larger than Texas and Oklahoma combined, and with a population of only 20 million, the country has the resources to provide a decent living for its population. And it was on its way to doing that. Five years ago it had already created a successful and growing middle class.
The change came in 1988 with Carlos Andres Perez. It was Mr. Perez's second time as president. Ten years before he ran the country as a populist. This time he became a high priest of neo-liberalism, a convert to the belief that once markets are open, peace and prosperity are automatic.
What followed deserves attention. By 1988 Venezuelan democracy had been working smoothly for more than 30 years. A strong two-party system had emerged and the soldiers were back in their barracks. Venezuela boasted the most stable democracy in Latin America. Its foreign policy shunned dictators and sponsored democracies. Foreign observers felt Venezuelan democracy and its economy to be well established. Even during the deepest moments of the Latin American debt crisis in the 1980s, when Mexico, Brazil, and Argentina were close to financial collapse, Venezuela remained stable.
Then things began to unravel.
Free-market dogma - not to be confused with pragmatic free-market initiatives - assumes that as the market become less restrictive, competition takes place, income gets distributed accordingly, and that while disparities in income increase, everyone benefits from the eventual ``trickle down'' effect of increased overall wealth. The road may be rocky, but the ending is happy.
As soon as he announced his free-market policies in 1988, Perez faced a mass revolt in Caracas from the lowest segment of the population - those who still lived in marginal conditions. This happened only days after his second inauguration. So widespread was the revolt and so stern the methods of repressing it, that the government never gave a full account of the casualties. Estimates vary from 300 dead to more than 2,000.
Amazing as it seems in retrospect, the Perez administration heeded the warning. The measures of the Perez government brought inflation down, increased the country's reserves, pushed up the GNP, and attracted foreign investment. In theory the program succeeded; all the believers in and out of Venezuela said so. Then, in 1992, the dam broke.
THE same measures that brought an increase in overall wealth undermined the position of the middle class and pushed the lower classes further down. The national economy may have grown, but only a small group of individuals were benefited; trickle-down was nowhere to be found. As the distribution of income became highly polarized, social tensions and political discontent grew accordingly.
1992 brought two attempted military coups. The main point in the soldiers' agenda was the revocation of the Perez economic plan. Polls taken after the first coup attempt in February showed 80 percent of Venezuelans in favor of it. Some facts speak for themselves: In 1983 only 11 percent of Venezuela lived in poverty; by 1992 some 57 percent of the population could afford only a meal a day.
The lesson is simple but important - reinforced by the recent elections in Russia. Economic measures cannot be taken independently of social and political implications. The dogma of a free market as a miracle cure for the ills of a society is as divorced from reality as Marxism was. The Venezuelan election results were not an aberration but an attempt by voters to force their government to face reality. As our economic involvement with Latin America increases, we would be advised to keep the Venezuelan lesson in mind. The Opinion/Essay Page welcomes manuscripts. Authors of articles we accept will be notified by telephone. Authors of articles not accepted will be notified by postcard. Send manuscripts to Opinions/Essays, One Norway Street, Boston, MA 02115, by fax to 617 -450-2317, or by Internet E-mail to OPED@RACHEL.CSPS.COM.