25 percent of GDP—all of which means that the overall performance of its economy is inordinately tied to what happens with the price of oil and gas. And while Russia is much more than a petro-state, it has some of the characteristics of a petro-state—from which it can benefit and with which it must contend—and which generates a constant debate about how to diversify the economy away from oil and gas.
“WE COULDN’T LOSE TIME”
But it is Venezuela that is as identified as any nation with the very idea of the petro-state. And it was Carlos Andrés Pérez who embodied the petro-state—at least the first time around. His first term as president of Venezuela was during the height of the oil boom in the 1970s, when revenue far greater than anyone had ever contemplated was flowing into the national treasury. As a result of the quadrupling of the oil price in 1973–74, he had gained, on an annualized basis, four times as much money to spend as his immediate predecessor. And he was determined to spend it. “We are going to change the world!” he would say to his cabinet. Venezuela’s human capital made the ambitions more credible. Even before the price increases, the government was taxing the oil companies as much as 90 percent, and as part of the policy of “sowing the oil,” a good deal of money had been spent on education, and as a result, Venezuela had an educated and growing middle class.
As much as anyone, Pérez was the architect of what became the modern Venezuelan petro-state, “the kingdom of magical liquid wealth.” Some called it “Saudi Venezuela.” Pérez proclaimed his vision of Le Gran Venezuela, an increasingly industrialized, self-sufficient nation that would march doubletime, fueled by oil, to catch up with the developed countries. Oil had “given us,” he said, the opportunity to “pull Venezuela out of her underdevelopment . . . We couldn’t lose time.”
In 1976 Pérez engineered the government takeover of the oil industry, in accord with the great wave of resource nationalism that was sweeping the developing world in that decade. But Venezuela carried out its nationalization in a careful and pragmatic way. Considerable talent had been built up throughout the industry during the years that the international majors ran the sector. Prior to nationalization, 95 percent of the jobs in the industry, right up to the top management, were held by Venezuelans. So nationalization would be a change of ownership but not of personnel. The new state-owned company, Petróleos de Venezuela, S.A. (PDVSA), was generally run on professional grounds. It was the holding company, overseeing a series of cohesive, operating subsidiaries.5
“IT IS A TRAP”
When Pérez left the presidency in 1979, the money was still flowing. But in the 1980s, the oil price plummeted and so did the nation’s revenues. Yet the edifice of the new petro-state was locked in place and indeed had expanded. Pérez was out of office during the 1980s, and the ills of the petro-state now became all too evident to him. As he traveled the world, he looked at different models for economic development and the struggle for reforms, and reflected on the costs and inefficiencies and defects of the overweening, oil-fed state. “An [oil] price spike is bad for everyone but worst for developing countries that have oil,” he had concluded. “It is a trap.”
By the end of the 1980s, Venezuela was the very paradigm for the petro-state. It was in deep crisis. Inflation and unemployment were rising rapidly, as was the share of the population below the poverty line. The widening income gap was evident in the massive emigration from the countryside to the cities and in the ever-expanding slums and shanty towns that climbed up on the hills surrounding the capital city of Caracas. Meanwhile, a substantial part of Venezuela’s current revenues was being diverted to meet interest payments due to international lenders.
All these pressures were made worse by one other factor—Venezuela’s rapid rise in population, which had, over two decades, almost doubled. Such an increase would have required heroic economic growth under any circumstances to keep per capita incomes constant. (Although sometimes overlooked, the growth in population was an indicator of social improvement—of better health and lower infant mortality.) To prevent explosive social protest, the government ran an ever more complex system of price controls that made the economy even more rigid. The price of almost everything was set by the government, right down to ice, funerals, and the price of a cup of