How a Great Power Falls Apart
Decline Is Invisible From the Inside
After almost 14 years in office, and with an impressive record of electoral victories behind him, Venezuelan President Hugo Chávez now faces the most challenging campaign of his political career. Venezuela's economy is weak, and, for the first time since 1998, Chávez, who has cancer, could suffer defeat when the country goes to the polls, on October 7.
The conventional wisdom is that Chávez's prospects will depend, as they have in the past, on his strong support from the country's poor. He has spent years developing social programs to dole out state funds to those in need, and the tactic has made him wildly popular. But that strategy alone might not work this time around. Chávez's electoral fortune today depends not so much on his connections to the poor but on his approach to Venezuela's private sector.
Chávez has long undercut private enterprise, which has resulted in a weak economy that is hurting his appeal to voters. But he can also use economic troubles to demonize the private sector and rally ideological voters. This complicated relationship to the private sector explains why, this this time around, Chávez's candidacy is damaged but still afloat.
PROBLEMS TO THE PEOPLE
This round of voting is especially significant, because more than at any point in recent memory, stability is an issue: the ruling party is heavily armed, and the opposition is highly charged. (Last weekend, three followers of the opposition were killed; click here to see a timeline of Chávez's rise to power.) Neither side trusts the other, nor the rules by which the other plays. The outcome could be close -- the numbers vary, but two reputable pollsters have shown the opposition candidate, Henrique Capriles Radonski, to be closing the gap -- and there is a risk that neither party will recognize unfavorable results. In other words, the threat of violence is very real in a country that is the fourth most important source of oil for the United States.
At least in theory, Chávez shouldn't be having so many problems. In Latin America, incumbents have a huge advantage because the office of the president is often the most powerful branch of government; the fact is all the more true in Caracas. More, Chávez has presided over one of the most extraordinary oil booms in history, generating nearly $1 trillion since the early 2000s. Yet the president's political prospects look very much like his physical health: he is not quite dying, but he is not thriving either.
Chávez's main problem is that social spending may have reached a saturation point. Since the 2010 parliamentary elections, the urban poor have largely split politically. Some poor continue to trust Chávez as their patron saint, awed by his "missions," as his varied social assistance programs are known. His latest project -- handing out some 244,000 free houses to low-income Venezuelans -- has captured headlines for its imaginativeness and grandiosity.
But the other half of the urban poor seems to have had enough. These people feel besieged by the worst crime wave in the world -- this year, experts expect the homicide rate to reach 70 murders per 100,000 inhabitants (in the United States, the rate is about 4 per 100,000). They are frustrated by declining real wages and scarce job prospects. They are tired of empty promises; many of the new giveaway houses, for instance, are proving to be uninhabitable. And they are frustrated by infrastructure that is collapsing around them. In the last several months alone, a bridge on a major interstate highway collapsed, and an oil refinery exploded, killing 41 people. The electricity grid is in such disrepair that Caracas now schedules daily power outages.
BUSINESS IN A VISE
Chávez's real hope, then, is his relationship with the business class. Contrary to what conservative analysts claim, Chávez is no Bolshevik. He says that he wants to "pulverize" capitalism, but the truth is that he is not intent on obliterating the country's private sector. He wants to keep it alive -- but small, uncompetitive, and dependent on the state.
On that score, he has succeeded. Since the mid-2000s, Chávez has nationalized approximately 100 major firms and almost 900 minor ones, while expanding public-sector employment from 15 to 19 percent of the labor force. He has saddled the private sector with onerous regulations and price controls, overburdening firms with heavy costs. He deliberately overvalues the country's currency, which discourages exports and overstimulates imports. To survive, private firms have had to become import retailers rather than local producers. Thus, imports have increased and private-sector exports have virtually collapsed, down in 2010 by 55 percent since 1998. And finally, firms can't access dollars on their own because they are not exporting; the only way for them to get cash is to go knocking on the government's door. But Caracas sells dollars only at very high prices and under strict controls. Businesses are forced to maintain very good connections with the state.
The result is a reduced, highly unproductive, increasingly state-dependent yet very profitable private sector. The Venezuelan stock market says it all -- the bourse has skyrocketed during Chávez's tenure, appreciating by 870 percent between 2000 and 2010, far outstripping stock markets in the more avowedly capitalist countries of Chile (275 percent), Brazil (299 percent), and Mexico (554 percent). Firms make profits by acquiring import licenses or a privileged exchange rate, or by bribing the state for contracts and exemptions to regulations. Few firms seek profits by investing in their own businesses.
The Venezuelan stock market outshines not just stock markets in other countries but, ironically for a socialist state, workers' earnings at home. Real wages in Venezuela have collapsed by almost 40 percent since 2000 (see the interactive graphic). Elsewhere in the region, real wages have either improved or remained stable.
This odd relationship with the private sector explains both Chávez's not-so-high electoral ceiling and his not-so-low electoral floor. Whereas in most countries governments experiment with different forms of partnerships with the private sector to advance development, in Venezuela the state tries to go it alone. Consequently, Chávez cannot tout achievements in job growth, salary growth, infrastructure improvement, expansion of the middle classes, and jumps in education seen elsewhere in emerging markets. This is a burden on his campaign.
But the underperformance of the private sector works wonders ideologically, as it allows Chávez to bluster on with his anti-capitalist rhetoric. On the campaign trail, he regularly accuses the private sector of predatory hoarding. He complains that businesses are not producing enough or creating jobs fast enough. He blames them for relying on imports and expatriating profits (and thus being in cahoots with international capitalism). His rhetoric about a faltering private sector allows the state to portray itself as the only hope for the poor. To move the masses into the ranks of the middle class, the state cannot act alone -- the private sector must also generate well-paying jobs. But that is not happening in Venezuela, despite the fact that it has everywhere else in Latin America. In many ways, of course, Chávez is correct. The private sector is atrophied. What he fails to mention is the problems are government-induced.
So Chávez's strategy has been to keep the election discussion at the ideological level, emphasizing the problems of capitalism. Since these problems are so visible in Venezuela, his ideological attack resonates. And because there has been some poverty alleviation but not enough growth of the middle class, there is still a constituency for Chávez's self-description as the country's greatest-ever welfare provider.
But in this campaign, Chávez is pushing new boundaries. On the stump, he has portrayed his regime as the country's guarantor of order, and thus, the best choice for business and business-friendly voters. On several occasions this year, Chávez has actually said that to vote for him is to vote for stability and, in turn, more profits. In Latin America, the argument that the state exists to protect the country, and especially businesses, from political unrest dates back to the military juntas of the 1970s. It is the essence of reactionary ideology.
Chávez is campaigning not just on ideological grounds but also, schizophrenically, on both extremes of the ideological spectrum: he is portraying himself as Venezuela's savior from capitalism and as Venezuela's savior of capitalism.
ARMED WITH A SECOND-BEST ARGUMENT
This puts the opposition in a corner. The 40-year-old center-left Capriles Radonski, known as el Flaco (the Skinny One), has run a successful campaign. He has united a fragmented opposition, avoiding getting personal when responding to the government's ad hominem attacks. (When Chávez accused him of being a Nazi sympathizer and thus betraying his grandmother, a Holocaust survivor, Capriles Radonski simply responded, in so many words, I've never messed with your family; don't mess with mine. Last Sunday, he led one of the largest marches ever to take place in Caracas. Capriles Radonski has widened the appeal of the opposition with a conciliatory, rather than vengeful, discourse. He has forced the government to recognize some of its own failings, including an admission by Chávez in June that crime is a "serious problem" that social spending alone cannot cure -- an admission that not long ago would have been unimaginable.
But when it comes to the business class, Capriles Radonski is stuck. He understands that the foremost curse on Venezuela today is not so much the tyranny of oil but the noncompetitiveness of the private sector. To say as much openly, however, would only play into Chávez's accusation that this newcomer is out to serve the elites.
So Capriles Radonski has focused on the next best tactic. Rather than promising better management of the business sector, he is promising better management of the state's businesses: improving garbage collection, ending power outages, easing traffic jams, ensuring water provision, making social spending more transparent, and, of course, fighting crime. Anyone who has visited Venezuela recently knows the dismal state of its public services, and a campaign built around making things better resonates widely.
The election will come down to a showdown between a relentlessly ideological incumbent and a man running as the handyman-in-chief. Chávez wants to be all things ideological while his adversary wants to be all things competent. Chávez's strategy is risky and desperate, and it will not win over the millions of Venezuelans who long for a better-functioning state. Such voters might go with Capriles Radonski. But he faces his own risks -- of overstating his powers as a repairman and of disappointing those who want to know which tasks he'll address first, and how. Thus, Chávez's ideological approach won't convince everyone, but he could end up convincing at least half of Venezuelan voters. And that's all he needs to eke out one more victory.