Crude Nation, Raul Gallegos [Review]

Cover for Raul Gallegos, Crude Nation

One of the punchiest descriptions of the “resource curse” comes from Venezuelan oil minister and OPEC founder Juan Pablo Perez Alfonso, who called oil “the devil’s excrement”. Yet the saying obscures more than it reveals. Perez Alfonzo’s pessimism about oil dated to an era before contemporary scholarship admits of an oil curse (the most recent resource-curse literature argues that the curse began in 1980 or so, and Perez Alfonzo’s bon mot dates to 1975). It is also the money from oil, not the properties of petroleum itself, that is said to be the cause of the curse, whether through the knock-on effects on productive sectors’ competitiveness through the Dutch Disease of currency appreciation or the conversion of productive competition into indolent rent-seeking through the corruption of political institutions by the replacement of taxation.

The biggest problem for Perez Alfonsz’s wit, however, is the simple fact that for much of the twentieth century, it was hard to say that Venezuela had been particularly cursed by oil revenues.

The statistics suggest that oil simply made Venezuela richer than it would have otherwise been (assuming that its neighbors supply a good idea of its counterfactual, non-oil-based economic outcomes). Similarly, Venezuela’s Polity score (a measure of democracy) show that the country was ranked most democratic by outside experts during periods of high oil income, and only began a slide away from a Polity score as high as France’s when oil prices entered a prolonged depression in the 1990s.

Since the leftist government of Hugo Chavez (and, since his death, Nicolas Maduro) came into power in 1999, however, all of this has changed dramatically. Today, Venezuela does indeed seem to have been cursed by oil wealth in some fashion, as Raul Gallegos documents in Crude Nation, a fine, readable survey of contemporary Venezuelan life, based on his work as a reporter in the country.

Gallegos has an unstinting eye for detail and a knack for the telling anecdote. He chronicles the despair and steady crumbling of free enterprise, political competition, and, indeed, contemporary society that has marked Venezuela’s recent history.

Many of the passages in the book deal with the ordinary business of life in a country where politicians have sought, and failed, to use oil revenues to bring about a socialistic revolution. Ill-conceived government projects aim to use oil rents to subsidize staples for the populace, but much of them end up on the black market in Columbia as the result of energetic smugglers in border towns. Constant currency devaluation has made importing all but impossible and rampant inflation has converted much of the country away from a monetized basis and into a barter one, in which a pickup truck is a better store of value than a bank account. Emblematic of the failed attempts to impose command-and-control systems in a formerly mostly marketized economy is a nationwide shortage of toilet paper.

The collapse of the money system is impressive–indeed, it competes with other instances of hyperinflation.

Boeing 747 planes filled with cash landed in Venezuela’s airport every two weeks in 2015, carrying anywhere between 150 and 200 tons of bills (roughly 150 million bills) packed in large crates that are unloaded using a special railing system. Experts in the bill-printing business estimate that Venezuela will need 10 billion new bills in 2016, which amounts to one third of the total printing capacity controlled by all the money-producing private companies in the world. (p. 23)

(Recently, of course, the Maduro government has exacerbated (!) the currency crisis.)

The political system has similarly faced collapse. Maduro’s constituents must resort to novel ways of catching their government’s attention, including one woman who wrote a request for aid on a melon which she tossed to the president, inadvertently (one presumes) catching him on his noggin. And as the bizarre shortages and weird excesses of the economy continue apace, political connections help to smooth the way for those connected for the regime. Elite members receive payoffs that apparently total in the billions; less-well-connected supporters exchange muscle and intelligence for apartments and motorcycles.

One regards this with puzzlement. Gallegos is understandably critical of Venezuela’s current government, as well as previous regimes, but the machinations of an earlier generation leaders like Perez Alfonso display a dazzling capability for craftiness. In the early postwar period, Perez Alfonso sought to strike better deals with oil majors, arriving at the coveted “fifty-fifty” agreement (sharing fifty percent of royalties with the majors, far better than prewar imperialism). But this success posed a further problem:

A shrewd Perez Alfonzo realized that it was cheaper for oil companies to produce oil in the Middle East than in Venezuela. To address this, a delegation of Venezuelan officials traveled all over the Middle East with copies of Venezuela’s fifty-fifty agreement translated into Arabic, promoting its adoption. Soon Saudi Arabia forced similar terms on foreign oil companies…Venezuela’s fifty-fifty arrangement had become the norm in the oil world.

Such cleverness merits more attention from IR theorists thinking about how common knowledge and focal points can radically upset institutions based on rimless hub-and-spoke arrangements.

As one might have guessed by now, my biggest complaint with Gallegos’s book is not the reportage (excellent) or the historical work (first-rate for a non-academic work and will be on future syllabi for that reason). It is that Gallegos still, overall, subscribes to the idea that oil caused Chavez’s ruinations. But this seems to omit the fact that plenty of oil-rich countries have managed to avoid the worst excesses of centrally planned economies while still managing to provide massive welfare states; I call the Gulf oil-rich states “Soviet Arabia” precisely because of the way that state planning and centralized authority coexist in this manner.

Ironically, what stands out in Gallegos’s account is the way in which a relatively small country (in population terms) has managed to turn its massive oil revenues into the means of establishing a Soviet-style basket case. Descriptions of ordinary economic and political life in Chavez-Maduro’s Venezuela resemble nothing so much as descriptions of the tedium and tawdry corruption of Brezhnev-era Soviet politics, leavened with cynical quasi-Maoist cadres mouthing slogans that contrast bleakly with the decay all around. Most oil-rich countries not named “Norway” have tended toward either a Saudi-style welfare state (laced with varying degrees of moral regulation) or a Equatoguinean paradise for predators. Yet Venezuela’s collapse looks not like any of the standard oil-bred malaises, but rather the typical end-stage of a failed Communist state.

That suggests that oil was neither necessary nor sufficient for the country’s problems. Yet one wonders whether the sorts of institutional defects that Venezuela has now have their roots in oil nevertheless. Without oil, would a Chavista revolution have been quite as appealing? More deeply, as Gallegos recognizes, oil and the accompanying macroeconomic distortions long provided rents (through currency arbitrage among other, more direct rent-provision) to the country’s elites. If Chavistas are consuming some fraction of their rents in failing to build a worker’s paradise, that is not necessarily different in kind from the more ordinary cronyism of earlier oil-fueled governments.

Teasing out the details of the ways that resource rents affect politics remains an active research program. Institutions may be endogenous on the way that petrol rents interface with state development. And Perez Alfonzo may yet be proved right in his diagnosis of petroleum’s problems.

2 thoughts on “Crude Nation, Raul Gallegos [Review]

  1. RG

    Paul – A good piece on the book. Many thanks for writing it and for your interest in the book. I disagree however with the premise that the book blames oil riches. The book blames mismanagement. Moreover I do point out in the last chapter at length how other resource-rich countries have managed to avoid this dysfunction and I lay out what Venezuela can do to move beyond it. Among the recommendations is the use of a saving fund similar to Alaska’s so the country can save oil wealth for the future. Best regards. Raul Gallegos

    Reply
  2. Raul Gallegos

    Paul – A good piece on the book. Many thanks for writing it and for your interest in the book. I disagree however with the premise that the book blames oil riches. The book blames mismanagement. Moreover I do point out in the last chapter at length how other resource-rich countries have managed to avoid this dysfunction and I lay out what Venezuela can do to move beyond it. Among the recommendations is the use of a saving fund similar to Alaska’s so the country can save oil wealth for the future. Best regards. Raul Gallegos

    Reply

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