Venezuela, located on the northern coast of South America, is the fifth-largest oil exporting country in the world. Possessing the largest reserves of conventional oil in the western hemisphere and the largest reserves of non-conventional oil in the world, Venezuela has an enormous dependence on the oil industry. As a result of its continued dependency on the oil industry, Venezuela faces economic instability because of the fluctuation of the price of oil, which in turn has led to political change and the institution of several major social reforms.
The social effects of the reliance on oil can be viewed as relatively positive. “The oil wealth has promoted the idea that one can do well in Venezuela, as long as one has access to the country’s oil wealth. The consequence was that rather than engaging in creative entrepreneurial activity, Venezuelans were encouraged to ally themselves with the state, seeking either employment or contracts from the state.”(Lapper) On the positive side, however, Chavez is instituting several beneficial social reforms to better the country and the Venezuelan people. “Chávez's reform program promises to use the country's oil revenue to reduce spiraling rates of poverty, making him a hero for anti-globalization activists and prompting a burgeoning interest in Venezuela.”(Ellsworth) He is striving to provide impoverished people with healthcare, a decent education, and decent employment opportunities.
As a single crop-farmer who is dependent upon a single crop to make a living, Venezuela is dependent upon oil for the survival of its economy. This type of a dependency could sometimes be beneficial, but in many instances could also be detrimental. Ever since 1999, when Hugo Chavez took power, there has been a 28 percent decline in oil production, putting the Venezuelan oil company into a state of debt and causing many foreign oil partners to pull out from the company.(“Future of Venezuelan Oil Company…“) “In 2002, the Venezuelan economy experienced a significant downturn following a failed military coup to overthrow Chavez and a two-month strike by the state-run oil company PDVSA.” (“Lapper”) However, in later years, the rise in international oil prices has helped the economy to recover. This serves to show that since there is no variety in the Venezuelan market, the stability of the oil industry is extremely crucial to the survival of the country. Therefore, a fluctuation in oil prices drastically impacts their economy, either making it very strong or very weak, just as the failure or success of a crop impacts the farmer.
When looking into the political sphere, the oil wealth has turned Venezuela into what Terry Lynn Karl, a political scientist, refers to as a “pacted democracy.” “The term “pacted democracy” describes a democracy which is held together via an agreement among different elite groups. It is a kind of truce among opposing powerful interest groups in the society, so as to maintain their privileges.”(Wilpert) Chavez has been increasingly focused on maintaining control over the production of oil. Because of its possession of this valuable resource, many other countries, including the U.S., have been exploiting Venezuelan oil.
Although there are social, economic and political effects of Venezuela’s reliance on oil, the most devastating of the three seems to be the economic effects. Solely relying on oil puts the economy of Venezuela in a risky situation. If the oil fails them, the Venezuelan people do not have any other major product to turn to in order to safeguard and recover their economy. Therefore, as in any case, when the economy of a country fails, the power of the political leader and the lifestyle of the people are also negatively impacted. So, if the economic status of Venezuela declines, Chavez’s power will in turn decline. In addition, living conditions will worsen for the people because a lack of money leads to increased unemployment and poverty. Therefore, since the economic status of Venezuela, as in any other country, directly impacts the political and social sphere, the economic effects are the most devastating of the three.
Sources:
"Future of Venezuelan Oil Company Will Have Ripple Effects Far and Wide." Peakoil.com. 27 Jan. 2008. Web. http://peakoil.com/alternative-energy/future-of-venezuelan-oil-company-will-have-ripple-effects-far-and-wide/.
Lapper, Richard. "Venezuela's Oil-Based Economy." Council on Foreign Relations. 9 Feb. 2009. Web. 08 May 2011.
Wilpert, Gregory. "The Economics, Culture, and Politics of Oil in Venezuela | Venezuelanalysis.com." Venezuelanalysis.com | Venezuela News, Views, and Analysis. 30 Aug. 2003. Web. 08 May 2011.
Ellsworth, Brian. "Chávez's Social Reforms Impress American Liberals." Home | Common Dreams. Web. 08 May 2011. <http://www.commondreams.org/headlines04/1007-09.htm>.http://www.cfr.org/economics/venezuelas-oil-based-economy/p12089.http://venezuelanalysis.com/analysis/74.
The economic effects are the most devastating to Venezuela as well as Chavez's political control on oil production.
ReplyDeleteAgreeing with your views on the economics, the economy of Venezuela needs diversification. Even before Chavez came into power, Venezuela's primary export was oil. One of the reasons why Venezuelan oil is thriving today is because of the recent turmoil in the Middle East and the United States' need for oil. In order for Venezuela to have a consistent stable economy, they need to branch out and have different exports.
Yes, Chavez's power is very much dependent on oil production. Like you said, his power rests in the hands of the need for oil. Today, he is major reason why,though,that Venezuela is solely oil based exports. He increased government control and wiped out majority of private companies.
While the social reforms seem good in theory, especially reducing the unemployment and impoverished rates, Chavez may be using this as political propaganda for re-election in 2012. In the past, as you mentioned, a failed military coup rebelled against him in 2002. Social reforms may be used as a ploy to gain the Venezuelans to forget the past and the ever fluctuating economy of their country. These reforms may or may not truly happen if he gets re-elected. So, while these may seem positive now, only time will tell how positive these will be.
Anasha Green
ReplyDeleteThe rise and fall of oil prices in can definitely impact the stability of Venezuela as a country. The two aspects of Venezuela that these fluctuations impact the most are the economy and the government. It is evident that the change in oil prices would impact the economy and government greatly, yet it is also clear that the government becomes more turbulent than the economy with the rise and fall of oil prices.
The effect of rising oil prices would be a stronger economy. This allows Venezuela to not only sustain itself, but to also be able to hold its ground in the global arena. In the present day, oil seems to be a major factor in the relations between countries. An increase in oil prices and a stable government would allow for countries to remain in a good relationship with Venezuela. When oil prices decline, the economy, and the country as a whole, are hurt. Internally, the product that sustains their entire country is not as profitable and as a result, the people experience poverty. Externally, as stated above, countries lose faith in Venezuelan oil and begin to cut ties with the country. This has a lasting effect because when these ties are cut, it becomes very difficult to get these countries back into business with Venezuela and they lose out on more money.
The rise of oil prices in Venezuela means faith in the government and cooperation between the government and the people. This is beneficial for the country because between cooperation means the people are more willing to work. An increase in work not only benefits the economy, but the stability of the government as well. The government becomes stronger because not only are the people cooperative, they are financially stable as well. A decline in oil prices means chaos for the entire country. When the oil prices decline, the people become poor, and upset. They look at Hugo Chavez, the leader of the Venezuelan government, as the cause of a declining economy. This makes the people more apt to revolt, and other countries, which are being economically harmed by the drop in prices, may support the people in their revolt, simply because it gives them a greater chance of regaining economic balance between them and Venezuela.
The social effects on the economy are definitely true. With government jobs available for the people, Venezuelans always have something to lie back on, and therefore have no motivation to develop their own businesses and stimulate manufacturing, thereby stifling the economic growth of the nation.
ReplyDeleteHowever, though Chavez is introducing social reforms that are helping the effects of poverty, the government is overly confident in its dependence on oil revenue. There is too much government spending, which is resulting in an increase in the national debt.
As you stated, it is also very true that the country is too dependent on oil and should diversify its economy. With all focus on that one sector, the economy can easily rise and fall with inflation and deflation. Chavez's control is essentially a defect to the economy, for he eliminates any other competition.
Shereen Noormohamed
ReplyDeleteTo Amanda S:
The turmoil in the Middle East and the United States' need for oil is definitely allowing Venezuela's oil industry to flourish today. However, when the oil industry falls apart, there will be a serious economic decline. As stated, without diversification, these effects in Venezuela cannot be eliminated or prevented.
Agreeing with your view about the social reforms, Chavez is definitely using the social reforms as political propaganda. He hopes to safeguard his political power by utilizing the profit from the oil industry and the institution of social reforms.
To Anasha:
The fluctuation of oil prices is definitely devastating to Venezuela. When the oil prices decline, the country as a whole is impaired. To further the problem, other countries tied to Venezuela will lose faith and begin to cut these ties like you stated. After this, it is certainly very difficult to bring these countries back into business.
As you said, when people face poor living conditions in their country, they look upon their leader as ineffective. The people would be inclined to revolt against Chavez, further worsening the condition of the country and putting it at risk of being taken over by another country.
To Amanda C:
As you stated, the government certainly does show an overconfidence on their reliance on oil revenue. As a result of this overconfidence that the government instills in them, the Venezuelan people are freely spending their money. This, as you said, is putting them into a state of national debt.
Focusing solely on oil is clearly risky, and this must be changed. Agreeing with your view on Chavez, he can be viewed as a major defect to Venezuela’s economy, because of his elimination of diversification and competition.