Since 1912, oil has played a significant role in the country of Venezuela. As a highly valued resource of the global population, oil has become Venezuela’s prized and most key export. However, the dependence on oil in Venezuela has limited the opportunities for the nation’s population, hindered business development and industry, and, most importantly, created an unstable and vulnerable economy.
Venezuela’s possession of large oil reserves has certainly shaped its cultural and social atmosphere. Since 1976, oil has been government-controlled in Venezuela. Accordingly, as stated by Wilpert, “it is estimated that of the people employed in the formal economy (about 50% of the working population), approximately 45% are employed through the government.” While it is beneficial that through the nationalization of oil that people have obtained jobs, this figure shows that the expansion of other occupational opportunities has been stifled. By being dependent on the success of oil, Venezuelans lack an “entrepreneurial” mindset that would stimulate them to develop businesses and take part in global trade that would diversify the nation’s economy.
Similarly, Venezuela’s dependence on oil has largely affected its political climate. Chavez, the president of Venezuela, has sought to maintain oil under government control, thereby eliminating any competition that would be a threat to the bureaucracy’s power. For example, when Chavez saw “that PDSVA had become a state within a state – or even a state above a state,” he desired to bring it under his direct control. (Phillip). Although the PDSVA “managers lined up in opposition…and went on strike with the avowed aim of weakening the economy” it had no positive effect, for Chavez simply “dismissed the strikers.” (Phillip). Thus, since the PDSVA is “more cheaply and austerely run, [and] less efficient and less proud, [it has become] a much weaker organization.” (Phillip). More importantly, “it seems to have lost some of its ability to develop new and more difficult aspects of the industry.” (Phillip). Clearly, it is further demonstrated that with government-controlled oil, there is a lack of opportunity for the development of new ideas, ideas that would foster economic growth and industrialization.
Moreover, Venezuela’s undiversified and unbalanced economy is the most detrimental effect of the country’s dependence on oil. According to Wilpert’s article, Venezuela has been affected by “the Dutch disease,” in which “a commodity, [oil], brings a sudden increase of income in one sector of the economy, which is not matched by increased income in other sectors of the economy.” Thus, with Venezuela as “an oil exporting country, the fifth largest in the world” (Wilpert), it receives a lot of foreign money, causing inflation, and thereby making its manufacturing sector less competitive and therefore weak and undeveloped due to its lack of monetary significance in the eyes of the government. Accordingly, in Venezuela, “Currently agriculture makes up about 6% of GDP. Also industrial production declined between 1990 and 1999 from 50% of GDP to 24%.” (Wilpert). With complete focus on one sector of the economy, the nation can easily rise and fall along with the price of oil. In addition, with Chavez and the government’s manipulation the oil industry, it has threatened the United States in the past with withdrawing its supplying of oil. However, according to an article by Mufson in the Washington Post, “oil analysts believe it is unlikely that Chavez would carry out his threat,” for “Venezuela, beleaguered by food shortages, depends heavily on oil exports for about 90% of its export earnings and about half of government revenue.” Evidently, the Venezuelan economy is so reliant on oil that the country, which “sells about 1.3 million barrels a day of oil to the United States,” would be negatively affecting the wellbeing of its people just by withholding exportation for only about a day.
Venezuela’s reliance on the exportation of oil has had several effects on its society, politics, and economy. The social and political problems all contribute to the underlying most significant economic issues in the country. Without a diverse economy, there is a lack of development and industrialization, which ultimately hinders the country’s wealth. Furthermore, with the government having direct power over oil, there is a lack of competition, and therefore no motivation for innovation or stimulation for modernization. Throughout the years, it is seen that the countries that are well developed and diversified are those that are most successful, which is not the case in Venezuela.
Mufson, Steven. "Chavez Threatens to Halt Venezuela's Oil Sales to U.S. - Washingtonpost.com." The Washington Post: National, World & D.C. Area News and Headlines - The Washington Post. 8 Feb. 2008. Web. 08 May 2011. <http://www.washingtonpost.com/wp-dyn/content/article/2008/02/10/AR2008021001381.html>.
Phillip, George. "The Politics of Oil in Venezuela." OpenDemocracy. 23 May 2006. Web. 08 May 2011. <http://www.opendemocracy.net/democracy-protest/venezuela_oil_3580.jsp>.
Wilpert, Gregory. "The Economics, Culture, and Politics of Oil in Venezuela | Venezuelanalysis.com." Venezuelanalysis.com | Venezuela News, Views, and Analysis. Web. 08 May 2011. <http://venezuelanalysis.com/analysis/74>.
Anasha Green
ReplyDeleteThe economy is no doubt a factor that is heavily influenced by the oil business in Venezuela. However, should the exportation of oil in Venezuela be stopped for a day, the economy would not be the only factor that suffers.
After the loss of money from not selling oil over a short period of time, the economy would definitely decline. However, the time that would be needed for this sort of decline to occur would take an extended amount of time. The decline of the government, however, would occur much more rapidly, as the government is influenced directly by the money received by oil profits. Being that the government is such a vast body to sustain, this makes the task of making sure it has the proper funds even more important.
The decline in oil revenue would affect the people greater from a political standpoint than from an economic standpoint. Both the loss of economy and government would bring a decrease in job availability, yet the loss of the government would result in an even higher rate of job loss. This is because as stated in the evidence above, about 50% of the working population is employed formally, and of this percentage, about 45% are employed by the government. This means two things for jobs in Venezuela. The first is that not all of the working population has formal jobs, implying that there is another source other than the formal job sphere where the people are receiving jobs. Consequently, the decline in the economy would mean that only a small portion of those working 50% would lose their jobs. Secondly, this means that the 45% of workers employed by the government have a greater chance at losing their jobs if the oil industry were to fail, simply because the funds for the sustainment of these jobs would be gone.
Obviously, the lack of diversification effects Venezuela's economy but also the politics and society of the country.
ReplyDeleteAs stated above, it is clear that Venezuela lack modernity and while it keeps exporting oil, most likely won't reach modernity.
The first step for Venezuela to become modern and industrious is to not re-elect Chavez in 2012. Since he took power, the economy and politics have gone hand in hand with his increased government control of the PDVSA. Once he is gone, the elected president should be competent, reduce the federal control of oil, and open the economy to the people.
Workers in Venezuela should then be able to become entrepreneurs and invigorate other occupational opportunities, as mentioned above, that would diversify and stabilize the economy.
Shereen Noormohamed
ReplyDeleteThe opinion that the economic effect of the reliance on oil is the most devastating on the society is most definitely a valid point.
As stated, “Venezuela’s undiversified and unbalanced economy is the most detrimental.” Without a diverse economy, Venezuela is solely dependent upon the success of the oil industry. Therefore, if the oil industry fails them, the Venezuelans will face devastating consequences since there are no other valuable products to recover their economy. An unsuccessful economy brings about a decline in political power and a deterioration of living conditions. In order to prevent this from happening in Venezuela and to make it a more modernized nation, the economy must first be diversified.
Amanda Chivil
ReplyDeleteAnasha: The government is definitely extremely affected by its dependence on oil. The government does provide a bulk of the jobs of the people. Thus, with its control over oil, if there was a failure in the oil industry, the government would be directly affected and possibly eliminate jobs and leave people in poverty. It is also very true that the monetary exchange for workers would be depleted if there was a failure of the oil industry. In addition, the government is a massive body that would be adversely affected in relatively short amount of time if there was a sharp decrease in production.
Amanda:Your points are truly valid. Chavez should certainly not be reelected in 2012, for his control of the oil is hindering the development of the economy. The Venezuelan people should certainly become apart of the economy and contribute to the industrialization and development of other sectors of the economy, thereby creating diversity.
Shereen: It is definitely true that Venezuela needs to diversify its economy. By solely relying on oil, the government is susceptible to the rise and fall of prices. They do not have any other significant resources to fall back on if there is a failure in the oil industry. By opening up the economy to the people, they can innovate other ideas that would stimulate industry. A more capitalistic approach is needed in Venezuela.