Venezuelan Socialism fails to produce

Car plants with no parts, sugar mills that lose money, packing plants for grain that is no longer fit for human consumption, private companies taken over by the state, but which have either never begun making anything, or are working at a third of their capacity... Venezuelan President Hugo Chávez's efforts to create the Socialism of the 21st century is in reality crippling the country's industrial base, and is being kept alive only by pumping in billions of petrodollars.

Between 2007 and 2009, the government of Venezuela has spent almost $22 billion on its oil industry, which finances 60 percent of the national budget, and paid out more than $23 billion on buying up large companies and nationalizing them.

At least 16 of the companies bought by the state up until 2009 have not met expectations, according to a study by three Venezuelan economists. Richard Obuchi, Anabella Abadi and Bárbara Lira of the IESA Institute of Higher Administrative Studies, have spent the last two years looking at the performance of newly acquired state companies. Their results, published in a paper titled Gestión en rojo (or, Management in the red) is a damning indictment of the policy.

"The majority of companies that we looked at are not meeting their production targets, and tend to underuse, or not use at all, their installed capacity, while not generating enough income to even cover their costs," says Obuchi. "They need constant cash inputs from the central government, not just in terms of investment, but simply to pay their wage bills." Obuchi goes on to cite the example of the Robert Bastardo Citrics Processing Plant, forcibly appropriated in 2007 from Frutícola Caripe C.A., a private company that had been producing around 13,000 tons of orange products annually since the 1970s.

After public investment in the company in 2007 of around $2 million, it was only able to process 1,700 metric tons of oranges a year, around 13 percent of its former capacity. In 2010, the new management said it hoped, with luck, to be able to increase processing to around 2,900 tons, and that it would begin producing not just concentrates, but juices, soap, and paper.

Sugar levels

Also mentioned in the report is the Sucre Central Azucarero, which was expropriated in 2005 along with its parent company Cumanacoa. Some $8 million was invested in the company in 2008, and it now produces sugar at a cost of $2 a kilo. In the market, sugar sells for seven cents a kilo.

The aim of the expropriation program was to make Venezuela self-sufficient in basic goods. But it continues to import around 70 percent of what it eats. Coffee is perhaps the best example of the failed policy. "At present, around 70 percent of coffee production is in government hands," says Obuchi. "Eight years ago, this country exported coffee; it is now a net importer."

But Chávez shows no signs of a U-turn. "The government is determined to play a dominant role in the production system. We have shown that we do not intend to eliminate the private sector, but there is a clear intention to strengthen the state's presence in the economy," says Obuchi.