After Chávez: A Better Way to Help Venezuela's Poor

Downtown Caracas, Venezuela Photograph by Meridith Kohut/Bloomberg

Among his supporters, Hugo Chávez will be remembered as a champion of poor people. On this score, his legacy is decidedly mixed: The social programs Chávez promoted may well have played some role in reducing Venezuela’s crushing inequalities, but they were inefficient and mired in favoritism and corruption.

Now, the death of Chávez presents the country with a rare opportunity. Whoever succeeds Chávez as president should take steps to use some of Venezuela’s immense oil wealth to provide sustainable and transparent direct transfers to every citizen. Doing so will have a bigger impact on the quality of life of the poorest Venezuelans—and might even help repair some of the damage that Chávez’s rule has done to the quality of governance in the country.

Venezuela’s oil reserves amount to 7 million barrels per person—larger than Saudi Arabia’s. Almost two-thirds of the government’s revenue comes from oil. That revenue climbed to $2,097 for every Venezuelan in the country in 2011, up from less than $500 at the start of last decade.

Chávez used part of that money to fund a raft of different social programs and development projects. Thirty-two different Misiones Bolivarianas, operating in a wide range of sectors, set up and staffed free health clinics, provided literacy and job training, supported reforestation, backed worker cooperatives, and provided food and housing subsidies. Some programs even provided cash handouts to participants. The misiones, along with an economy buoyed by oil prices, did have an impact on poverty rates. According to the World Bank, the percentage of Venezuela’s population that lived on less than $2 a day fell from 23 percnet in 1999, when Chavez came to power, to 13 percent in 2006 (the latest year with reliable data). The under-five mortality rate also fell: in 2011, just 1.5 percent of kids died before their fifth birthday, compared with 2.3 percent in 1999.

At the same time, the antipoverty programs were inefficient and larded with political corruption. And despite the progress made against poverty, and despite the boom in oil revenue, Chavez leaves the legacy of an economy in shambles. As former Venezuelan minister Moises Naim pointed out earlier this week, Venezuela has one of the world’s largest fiscal deficits, and it sees one of “the highest inflation rates, worst misalignment of the exchange rate, fastest-growing debt, and one of the most precipitous drops in productive capacity” of any country in the world. It isn’t surprising that a recent poll suggested more than two-thirds of Venezuelans don’t believe they benefited from country’s oil income during the Chávez administration.

That suggests Chávez’s presidency was a lost opportunity to make greater progress against poverty—and even more, a lost opportunity for sustained development that could leave the country less reliant on oil. A first step to fix these problems would be to use some of the country’s current oil revenue to write a monthly check to every citizen of Venezuela—an idea called “oil to cash.” Pedro Rodríguez, José Morales, and Francisco Monaldi at the Instituto de Estudios Superiores en Administración in Caracas have already outlined how the proposal would work in Venezuela.

A proportion of the revenue the government earns from oil would be placed in an independent fund, which would distribute it to all citizens. The fund could be modeled on the Alaska Permanent Fund, created in 1976 to share the wealth about to gush from Prudhoe Bay. Half the fund’s earnings are paid out to all Alaska residents who apply. In 2011 the dividend was $1,174 per person.

If the Venezuelan government’s oil income had been equally distributed to all citizens in 2008, each would have received $2,480—that’s worth about 60 percent of the incomes of the poorest quarter of Venezuela’s population.

The country could generate even more money for the transfer program by raising petrol prices. At the unofficial exchange rate, the domestic price of gasoline in 2011 was little more than a cent a liter—less than 150 the average international price. That’s a huge subsidy to the rich, because it’s wealthy Venezuelans who own cars. In 2010 the richest quarter of households received $3,318 in gasoline subsidies, while the poorest 25 percent received only $479, report Rodriguez and his colleagues. If prices increased to half the international price, and the savings were distributed to every household, each one would get an additional $674 a year.

Of course, were all Venezuela’s oil revenue handed over directly to the country’s citizens, that would blow a huge hole in a government budget already in deficit. The government could tax some of the transfer payments made to richer Venezuelans as the start of a process of moving toward a system of income taxation.

That, in turn, might help strengthen the social contract between government and citizens. If taxpayers see oil revenue as their money, they might be more inclined to monitor how it’s spent. And in a country that languishes toward the bottom of global corruption measures after Chávez’s rule, that would be no bad thing.

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