Caracas Chronicles

It’s April 10th 1948.  Inocencio and Manuela live in a humble house in La Guaira but that day they rushed to Clínica Venezuela in La Candelaria for the birth of their first son.  It’s a boy and they name him Aurelio.  

Inocencio is the son of an unmarried couple; he didn’t finish primary school and worked as shopkeeper selling fruit juices and imported food products in the Mercado de La Guaira (later on, he will open his own mechanic shop).  

Manuela is the daughter of hard working immigrants from Spain that arrived to Venezuela in the 30s on the Vasco da Gama steamship looking for a better life after the great depression.  She narrowly escaped becoming a nun and dedicated her life to raising her family of six.  Neither Inocencio nor Manuela come from a privileged background.  

Thanks to Manuela and Inocencio’s determination, pigheadedness and access to decent public health and education, young Aurelio worked his way through and graduated from Liceo Razetti, a quality public high school.  He is selected for a spot in Universidad Central de Venezuela (UCV), and after surviving the shutdown of the university by Caldera in the 60s and an active militancy in the Socialist Youth, he graduated as Electrical Engineer.  He begins a career from the very bottom of Compañía Nacional de Teléfonos de Venezuela (CANTV) –a state-owned company, of course.  

Fast forward to the 1970s and after few years working Aurelio embarks to see the world thanks to a merit based scholarship he won from Fundación Gran Mariscal de Ayacucho (Fundayacucho) to do his graduate degree at the University of Paris I.  

In the city of love, he meets a girl (and what a girl), he marries at the Mayor’s office (rather than church) and has his first child.  Of course, while in Europe he doesn’t miss the chance to visit the USSR, keeping his leftist flame burning.  

They return to Venezuela just after oil industry is nationalized.  Aurelio first works in the public sector. Later on, he goes into independent management consultancy.  They move to the Avenida Roosevelt in el Cementerio, where Aurelio’s parents lived.  At first they live with Aurelio’s parents and, later on, they buy an apartment in one of those block buildings from the 60s.

The story of Aurelio —not his real name— is not at all uncommon.  His life is intimately bound with the story of Sembrar el Petróleo.  It’s a story of social mobility, mostly in times of democracy, and enabled by social policies financed by the rent extracted by the Venezuelan state from the oil business at a time before PDVSA even existed.  A time when the Venezuelan petro-State invested not just in agriculture, or in industrial development or infrastructure but in people.  The opportunity was there, so with a bit of luck, hard work and support from the family regular people could climb the ladder.  I personally know many, many Aurelios.

Were the rents sometimes sowed inefficiently, unequally and corruptly? Of course they were. But to jump from that to saying they weren’t sowed at all is to make an indefensible leap.  

It wasn’t just a small elite that benefited from it all. In Venezuela, between 1960 and 1998 according to the World, Bank:

•      Life expectancy increased from 59 years to 72,
•      Infant mortality dropped from 81 per 1,000 to 24,
•      Cereal production increased from 500 thousand metric tons to 2,100,
•      Food exports (yes, exports of food from Venezuela to the world) increased from 1.4% of total merchandise exports to 3.9%, and
•      Fixed telephone subscriptions increased from 2 per 100 people to 11.

Each of these advances was made on the back of heavy state intervention fuelled by oil rents. Often, granted, those investments crowded out private investment. At times, they went hand in hand with corruption and often their reach across the country was unequal. You were much better positioned to catch the rents if you were in Caracas than in Guasdualito, and much better placed if you came of age in the 60s than in the 80s or 90s. All these frustrations help explain chavismo.

And yes, from 1998 to 2015 most of these indicators continued to improve, but often at a slower rates than in the 1960-1998 period (well, except food exports).   

So what if, instead of this sterile debate on diversification and economic structure, we focused on the area where we can all agree investment is needed? What if we stepped back from thinking about sectors and started thinking about people instead? What might that look like, going forward?

Realistically, in any transition scenario, oil rents are going to remain the State’s main source of income and the nation’s overwhelming source of foreign exchange.  The State will also be practically broke.  Oil revenue will remain lower for longer due to declining production and depressed oil prices.  Increasing oil revenue will take time.  At best, unlocking The Shocking Potential of Natural Gas and Condensate and removing the Obstacles to Producing all that Oil should start to deliver private investment and revenue in two to three years’ time.  So there won’t be much oil left to sow beyond than maintaining the State’s basic services and holding together a fragile society that is gravely ill and starving.

In that context, we can’t afford the wasteful approaches to diversification we’ve seen in the past. The model has to change. And if you really have to focus your oil rents on one sector, to me, the choice is obvious. You go big into “human capital” —to use the jargon: you spend on schools, you spend on hospitals, you spend on maternal health, you spend on early childhood interventions, you spend on worker training and vaccines and sanitation. You spend on the things only the government can provide and provide well. Most importantly, you spend on people, not industries or state owned companies.

That’s how you use oil rents to defeat rentismo: by changing the model to focus on human capital, which delivers returns to society as a whole, rather than on picking winners, which simply burns through petrodollars while enriching the well-connected.

We need to reimagine “Sembrar el Petróleo”, in other words, as something quite different from what Adriani and Uslar Pietri originally intended: not as a strategy for refocusing away from oil, but as a strategy to allow people to thrive under any sectoral structure.

And that could happen faster than what you think. Human capital can be replenished by attracting some of the Venezuelan brains and capital that emigrated over the last decades, returning the expropriated or nationalized businesses back to entrepreneurs who actually know how to run them (RCTV, Aceites Diana, Café Fama de América, Agroisleña, Lácteos los Andes, just to mention a few) and creating the conditions for new investments -particularly in the hydrocarbon sector as I have written about in previous pieces and which will remain to be Venezuela’s source of comparative advantage for decades to come.  

In the long term, giving equal chance to access public healthcare and education opportunities to millions of Venezuelans will allow our society to crop the multiplying benefits of individual initiative.  In this model the State, rather than giving everything to everyone, actually gives equal access to opportunities so individuals and their initiatives can reach their maximum potential. It’s when we focus on people, and set aside this fixation with determining the structure of the economy centrally, that we’ll finally be able to turn rents into real social well being.