¡Exprópiese!

Episode 13  |  How did Chávez’s expropriations destroy Venezuela’s economy? 

In this episode, we examine the mass expropriations at the heart of Chávez’s socialist project—from banks and supermarkets, to factories and farms. We explore how worker “co-management,” price controls, state ownership, and corruption devastated domestic production. 

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Transcript

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There's a video that I will never forget watching for the first time. It was February 2010. I was still in middle school. And I can remember sitting with my friends hunched over a laptop screen, laughing. The video came from a broadcast of Aló Presidente. Hugo Chavez's TV show. Where he regularly spoke to the country for hours, pontificating, singing, governing, and campaigning all at once. On this particular morning, Chavez was walking through Plaza Bolívar, in the historic center of Caracas, alongside Jorge Rodriguez, the mayor of Central Caracas. As they walked, Chavez began pointing at the buildings surrounding the plaza and asked Rodriguez what they were. Then Chavez pointed toward another building containing several jewelry stores. But he wasn't finished. He continued pointing at more buildings around the plaza. Expropiese. Over and over again, Chavez issued the order, live on national television, as the people surrounding him applauded. And I have to be honest, there's still something deeply comical about that video to me. The casualness of it, the theatricality. The way Chavez points toward a building says one word, and everyone immediately understands that a decision has been made. But underneath the comedy was something truly horrifying. Because this wasn't Chavez improvising. By 2010, Chavez dominated the Venezuelan state. A command delivered casually during his TV show would set the entire machinery of the government into motion. And that single word, expropiase, would come to symbolize his economic model. Expropriations, nationalizations, price controls, state-owned companies, the destruction of private property in the name of Chavez's socialist project. Because Chavez believed that the state could seize, control, and command its way to prosperity. But it couldn't. And Venezuela would pay the price. You'll remember from last week's episode that it was only after Chávez won re-election in December 2006 that he officially launched his socialist project for Venezuela. Expropriation quickly became the central tool of this new socialist era Chavez envisioned. On January 8, 2007, just two days before he was sworn in for another term, Chavez announced that the state would take control of the telecommunications giant Ganteve, as well as the country's largest private electricity company, Electricidad de Caracas. Now, state ownership of utilities is not by itself particularly unusual, but these nationalizations were only the beginning. Over the next several years, the Venezuelan state moved into sector after sector of the economy. The stated goal was to place what Chavez called the country's strategic resources under public ownership. And almost anything could be declared strategic. And these were only the most famous cases. Between 2005 and 2010, more than 1,150 companies were nationalized. The sectors most heavily targeted were construction, agriculture, oil, commerce, and food, the basic industries on which the rest of the economy depended. And by the end of the decade, expropriation had become one of the defining features of Chowis' economic policy. Now, the process was not identical in every case. Some major companies negotiated payments for their shares, others were compensated only after years of disputes, but smaller Venezuelan businesses had far less power, never receiving compensation. But the fundamental problem went beyond the disputes over compensation. Under Chavez, private property was no longer protected. Once the president announced that a company would be taken over, government officials would immediately occupy its facilities. And only afterward were the owners left to argue over what, if anything, they would receive in return. And the assault on private property didn't stop with large companies. A series of laws governing unused land and vacant housing gave legal and political cover to property occupations. Across Venezuela, Chavez supporters invaded farms, homes, apartment buildings, and businesses, claiming the right to remain because the property was supposedly abandoned or unproductive. It was pure political showmanship, backed by the coercive power of the state. Expropriation also became a weapon of intimidation, a threat that Chavez could direct at any company he accused of defying the revolution. In January 2011, during a national broadcast, Chavez picked up his cell phone and called Pedro Rodriguez, the president of BBVA Banco Provincial, one of Venezuela's largest private banks. Chavez accused the bank of refusing to comply with government rules governing mortgages and housing. I'll pay you what it's worth. Tell me how much it costs. I'm not going to debate with you. That final sentence captured the entire relationship between Chavez and the private sector. I'm not going to debate with you. There would be no negotiation, no independent institution, no court who would decide whether the government's actions were legal or justified. Chavez would decide whether a company had complied, and Chavez would decide whether its owners were allowed to keep it. And we can hand them over to the workers who work there. I'm sure they won't rob anyone. Why? Because rice is essential to a person's diet. And any economic disagreement became justification for state control. If prices increased, the owners were thieves. If production declined, they were hoarding. If they objected to government controls, they were sabotaging the economy. And if they resisted Chavez, he could threaten to take everything from them, live on television. But what was the ideological justification for all of this? According to Chavez, expropriation was not simply about transferring companies from private owners to the government. It was supposed to create an entirely new economic system. Multinational corporations and wealthy business owners would be replaced by public ownership, cooperatives, and what the government called worker co-management. Factories would no longer exist to enrich a small group of private owners. They would be managed collectively, producing for the good of society rather than for profit. At least that was the theory. But here's the thing. In reality, the workers didn't actually become the owners. The company just became property of the Venezuelan state. Government ministries retained control over appointments, financing, and production. Political officials and state-appointed managers made the decisions that private owners had once made. So what emerged was not genuine worker control. It was more like state capitalism. It was a bureaucratic state ownership, administered from above, exclusively by Chavista loyalists. Without competition, independent oversight, or any real risk of failure, these companies became fertile ground for corruption. Many survived only because the government continued to pump oil money into them. Most suffered chronic losses or complete collapse. Chavez also tightened state control over private employment. In 2012, he rewrote Venezuela's labor laws by decree, expanding benefits and job protections while exposing employers who defied certain reinstatement orders to possible arrest. Once again, the policy was presented as power for workers, but the real power belonged to the state, which now decided whether a company could dismiss an employee and could punish its managers for resisting with jail time. In theory, this new economic model would break the power of oligopolies and multinational corporations and return economic life to the people. But in practice, it made producing anything in Venezuela extremely difficult and risky. Why would you invest in a factory if the government could seize it whenever it wanted? Why hire more workers if you might never be allowed to fire them? Why increase production if the government could accuse you of hoarding the moment that goods disappeared from the shelves? But the damage had begun long before Chavez completed this legal transformation. His government had created an impossible trap. Companies were ordered to sell products at prices that increasingly failed to cover the cost of producing them. Some manufacturers reduced production. Others stopped producing regulated goods altogether. Products disappeared from stores and reappeared on black markets at much higher prices, especially basic goods like eggs, milk, coffee, corn flour, sugar, and cooking oil. The government responded to each new failure in one of two ways. It could seize more of the economy and attempt to produce those goods itself, or it could use Venezuela's oil money to import them from somewhere else. For a while, the oil money made that model seem sustainable, but underneath, Venezuela was gradually losing the ability to produce what its population consumed. By the end of 2007, annual inflation had reached 22.5%. Shortages of milk, sugar, coffee, meat, and other basic products had become increasingly common. This was an extraordinary contradiction, because Venezuela was experiencing the largest oil boom in its history. Billions of dollars were pouring into the country, the economy was growing rapidly, and yet Venezuelans were struggling to find milk. The government blamed the shortages on private sector mafias, business owners supposedly hoarding products, sabotaging production, and waging an economic war against the revolution. But the oil boom concealed the deeper problem. Instead of creating the conditions for Venezuelan companies and farms to produce more, the government increasingly used oil revenue to import whatever the country no longer produced for itself. Imports filled supermarket shelves, subsidies kept prices artificially low, but the entire structure depended on one thing: oil money continuing to flow. The first serious warning came in late 2008, when the global financial crisis sent oil prices tumbling. Venezuela entered a recession, inflation remained above 25%, and the weaknesses of Chavez's socialist economic model became much harder to ignore. This was not yet the final collapse, though. Oil prices would eventually recover, and Chavez would once again use government spending to revive the economy. But the crisis had revealed what was hiding beneath the oil boom. Venezuela's prosperity was increasingly disconnected from its capacity to produce. And when confronted with that warning, Chavez didn't reconsider the model. He doubled down. But Chavez's economic model didn't only undermine production, it also created extraordinary opportunities for corruption. Every new control gave a government official power over something valuable: the power to award a state contract or approve an import license. The power to decide which company received government subsidies. And, more importantly, the power to decide who could purchase dollars at the government's artificially cheap exchange rate. Under the new currency control agency known as Cadivi, businesses needed government authorization to obtain the dollars necessary to import goods into Venezuela. For anyone connected to the government, the opportunity was enormous. A company could obtain cheap dollars by claiming it needed to import food, machinery, or medicine. It could inflate the value of what it was importing. It could import only a fraction of what it promised to import. Sometimes the company didn't even need to import anything at all. The difference between the official exchange rate and the real value of the dollar created almost unlimited opportunities for fraud. And access depended on political connections. Ironically, Chavez had promised to destroy Venezuela's old elite, and instead, his revolution had just created a new one. Government officials, military officers, contractors, and well-connected businessmen accumulated fortunes through state contracts, subsidies, and preferential dollars. Venezuela gave this new class a name, La Bolivurguesia, the Bolivarian bourgeoisie. And the physical evidence of the system would eventually be seen across the country. State-owned factories operating at a fraction of their capacity, and then collapsing, housing developments and infrastructure projects left unfinished, railway tracks ending in empty fields, construction sites that looked more like graveyards, abandoned after billions had been spent on projects that were never completed. Chavez's revolution had promised to place Venezuela's oil wealth in the hands of the people, and instead an enormous share of that wealth disappeared into inflated contracts, fraudulent imports, and unfinished projects, directly into the bank accounts of a new revolutionary elite. The revolution had not abolished the oligarchy, it simply created its own. And here's what I want you to take away from this. People often talk about Venezuela's economic collapse as something separate from Hugo Chavez. This is partly because oil prices fell shortly after his death in 2013. But the truth is that the economic disaster and the humanitarian catastrophe that followed under Nicolas Maduro can be traced directly to Chávez. And these policies, this spree of mass expropriations, were the central component of Chavez's socialist project. Chavez believed that the state could become the driving engine of the transformation of society, that by taking control of the country's most essential sectors, the government could lower prices, increase production, and redistribute economic power. But that's obviously not what happened, and the reasons were even more obvious. Chavez's government was built entirely around loyalty. As long as you remained loyal to Chavez and to the revolution, you were free to steal, embezzle, and enrich yourself through the state. And because Chavez controlled every institution, especially the courts, there was no independent authority capable of holding these people accountable. So when the state took over companies, it ran them into the ground. Why? Because corruption destroys any possibility of running an effective business. Political loyalty replaced competence. Government ministries replaced experienced managers, and state companies became vehicles for theft and revolutionary propaganda. The result was a decimated economy in which only those connected to Chawis could do business. Soon products began to disappear, not because of hoarding, not because of sabotage, and not because of some imaginary economic war. They disappeared because the companies that had once produced them went bankrupt, collapsed, and stopped functioning after they were taken over by the state. And I cannot stress how catastrophic this was. Take Agroislena. Before it was expropriated, Agroislena was Venezuela's largest supplier of seeds and fertilizers to farmers. But it did much more than sell agricultural inputs. It provided credit, it financed machinery, it offered technical assistance to improve crop yields. It helped farmers produce more. Agroislena was an agricultural giant in its own right. It alone supplied around 45% of the seeds, fertilizers, chemicals, and other inputs needed by Venezuelan agriculture. A few years after it was expropriated, it supplied nothing. Zero. Imagine that. One company supplied almost half of what Venezuelan agriculture needed to function. Then Chavez took it over and it disappeared. That was the source of the shortages. Company after company, the Chavez government took over the country's most important businesses and ran them directly into the ground. Then, when Venezuelan production collapsed, the government used oil money to import the products that the country could no longer produce for itself. And it's worth thinking about how absurd all of this was. If the state truly wanted to enter the economy, why didn't it create something? Why didn't it acquire land, hire workers, build infrastructure, purchase machinery, and prove that its socialist model could produce more efficiently than the private sector? Because it was never really about production. It was about performance. It was a show. The seizure, the applause, the circus of the revolution. And when I think back to my 16-year-old self, sitting with my friends and laughing at Chavez expropriating buildings in the center of Caracas, I can't help but realize that, in one way or another, we were all under the same spell. Whether you loved Chavez or you hated him, he had captured the entire country's attention. We watched, we laughed, we argued. And while all of us were watching the show, Chavis was destroying the economy beneath our feet.