Table Of ContentJonathan Di John
from
Windfall
Curse?
to
, 1920
oil and industrialization in venezuela to the present
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from Windfall to Curse?
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Jonathan Di John
from
Windfall
......................................................................................................................................................................................................................................
Curse?
to
......................................................................................................................................................................................................................................
oil and industrialization in venezuela,
to the present
1920
the pennsylvania state university press
university park, pennsylvania
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Library ofCongress Cataloging-in-Publication Data
DiJohn,Jonathan.
From windfall to curse? :oil and industrialization in Venezuela,
to the present / Jonathan Di John.
p. cm.
Includes bibliographical references and index.
Summary:“Examines the political economy ofgrowth in Venezuela
since the discovery ofoil in ”—Provided by publisher.
----(cloth :alk.paper)
.Venezuela—Economic conditions—–.
.Venezuela—Economic conditions—–.
.Venezuela—Economic policy.
.Petroleum industry and trade—Venezuela.
.Industrialization—Venezuela.
I.Title.
.
.´—dc
Copyright © The Pennsylvania State University
All rights reserved
Printed in the United States ofAmerica
PublishedbyThe Pennsylvania State University Press,
University Park,PA -
ThePennsylvania State University Press is a member of
theAssociationofAmerican University Presses.
It is the policy ofThe Pennsylvania State University Press
touseacid-free paper.Publications on uncoated stock
satisfy the minimum requirements ofAmerican National
Standard for Information Sciences—Permanence of
Paper for Printed Library Material, .–.
This book is printed on Natures Natural,which contains %
post-consumer waste.
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Preface and Acknowledgments vii
List ofAbbreviations xv
part one: introduction
1 Accounting for Growth and Decline in Venezuela 3
2 Trends and Cycles in the Venezuelan Economy 15
part two: a critical survey of the “resource curse”literature
3 Economic Explanations ofthe Growth Collapse in Venezuela 35
4 Political Economy Explanations ofthe Growth Collapse in
Venezuela 77
5 Economic Liberalization,Political Instability,and State Capacity in
Venezuela 108
part three: an alternative political economy of venezuelan
growth and decline
6 Toward a New Political Economy ofLate Industrialization 133
7 Periodization ofIndustrialization Stages and Strategies in Venezuela 169
8 The Structure ofand Changes in Political Settlements in Venezuela 186
9 A New View on the Political Economy ofGrowth in Venezuela 226
part four: beyond the venezuelan case
10 The Political Economy ofGrowth in Malaysia and Venezuela 271
11 Conclusion:Rethinking the Political Economy ofGrowth 285
References 303
Index 327
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Understanding why the wealth ofless developed nations increases over time is
one ofthe oldest concerns ofpolitical economy and development economics.
Reigning theories of economic growth postulate that there are linear tenden-
cies in the growth process. Depending on the assumptions, growth theories
predict either divergence or convergence ofthe income per capita ofless devel-
oped counties trying to catch up with advanced industrial countries.Reality
paints a different picture ofthe growth process.The fastest-growing countries
are never the countries with the highest per capita incomes,but always a small
subset of lower-income countries. Economic theories of growth are thus of
limited use in explaining the wide and persistent divergence of performance
among late developing countries.Furthermore,growth theories cannot explain
why some countries sustain rapid growth for long periods only to fade into
long periods of stagnation and even downward spiral and disintegration. A
major challenge ofpolitical economy is to explain why economic growth varies
so widely within countries over time.
The Venezuelan experience since the discovery of oil in the 1920s provides
one such interesting example.Venezuela was among the fastest-growing econ-
omies in Latin America in the period 1920–80.However,two important trends
mark the period 1968–2005. First, from the mid-1960s the non-oil economy,
and particularly the manufacturing sector,experienced a dramatic decline in
non-oil and manufacturing productivity growth.Second,output growth in the
manufacturing sector (and the non-oil economy more generally) collapsed in
the period 1980–2003.Accompanying this decline was the virtual collapse of
once vibrant political parties and the rise ofa more volatile and unstable form
ofantiparty politics and governance in the first decade ofthe 2000s.
More perplexing is the fact that worsening economic performance coin-
cided with many favorable initial conditions such as high levels ofhuman and
physical capital investment,a competitive democratic system since 1958,and
plentiful resources to finance growth.Was this worsening economic perform-
ance due to policy errors or inappropriate institutions, or did oil windfalls
themselves become a “curse”by crowding out the development ofnon-oil sec-
tors such as manufacturing,or were there other factors that explain the slow-
down in growth? This book attempts to answer these questions.
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viii..........................................................................Preface and Acknowledgments
Explaining what factors contribute to growth (such as high levels ofinvest-
ment,secure property rights,macroeconomic stability) does not tell us how or
why such factors are achieved.This is where role ofthe state becomes relevant,
since the state is the set ofinstitutions that is responsible for the creating and
implementing the regulatory structure ofthe economy,which determines the in-
centives ofeconomic actors.One ofthe oldest (and most ideologically charged)
debates in the political economy of development is identifying what types of
state intervention are most likely to promote sustained economic growth.
Advocates of laissez-faire suggest that state intervention distorts markets,
stifles competition,and generates corruption,all of which create obstacles to
potentially growth-enhancing investments.In recent times,this view has dom-
inated as manifested in the adoption of widespread economic liberalization,
particularly within Latin America.The outcome ofsuch reforms in Venezuela
as well as in most of the region,however,has been disappointing.Economic
liberalization has failed to revive investment and growth to the levels of1950s
and 1960s,when more interventionist policies were followed.While the state in
Venezuela and many other less developed economies have failed to generate
and implement growth-enhancing regulatory structures,market liberalization
does not eliminate the market failures and risks oflate development that justi-
fied state intervention in the first place.The failure ofeconomic liberalization
to deliverpositive developmental outcomesis not confined to the world ofless
developed countries.For instance,advocates of laissez-faire saw little need to
regulate financial markets because it was thought that market competition
would weed out poorly performing investments and thus generate socially
productive resource allocation.The world financial and economic crises that
emerged in 2008 suggest that such confidence in lightly regulated financial
markets was unfounded.
In contrast,developmental state theorists have pointed to the benefits that
state intervention, and particularly industrial policy, can have in promoting
learning and technology acquisition,and in socializing the risks infant indus-
tries face in the context of trying to catch up with more experienced and
productive firms in advanced industrial countries.Advocates ofmore dirigiste
strategies will point to the effectiveness ofvarious types ofindustrial strategies
in East Asia.And indeed,the Venezuelan state attempted to implement state-
led industrial policy from the late 1950s.While the potential benefits of state
intervention may be accepted, developmental state theorists do not explain
why most countries that tried policies similar to those of more successful
industrial policy states have been far less successful.
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Preface and Acknowledgments............................................................................ix
The historical evidence suggests that there are a variety of models of state
intervention that can promote economic development.The broader question
is why leaders in economies undergoing economic decline do not alter the reg-
ulatory structure that approximates one of the various production strategies
that could enhance growth.The analytical narrative ofthe Venezuelan growth
process since the 1920s presented in this book also attempts to answer this
broad question.
Part One summarizes the main argument and introduces the main economic
trends in the Venezuelan economy. Part Two provides an extensive critical
examination ofarguments have dominated discourse on Venezuela’s long-run
economic decline in the post-1968period.The most important is the so-called
resource curse, which is the idea that oil abundance harms the prospects of
economic growth. There is a vast “resource curse” literature in economics,
political science,and political economy which attempts to explain the negative
effects oil windfalls and busts can have on the structure ofthe economy and on
patterns ofgovernance.
The main problem with these arguments is that they cannot explain why
oil abundance has been compatible with cycles of growth and stagnation in
Venezuela over the period 1920–2005.Comparative evidence presented in this
book suggests that Venezuela has not been an “exceptional”case in Latin Amer-
ica.Problems ofgrowth slowdown,external debt,and capital flight (which fea-
tured in post-1980Venezuela) were a feature of most countries in the region.
This suggests that understanding Venezuela’s growth trajectory may have res-
onance for other middle-income Latin American and oil-abundant economies
in other regions.
Part Three offers a new explanation of the long-run cycles of growth and
decline that Venezuela has experienced since 1920.It argues that reigning expla-
nations ofVenezuela’s growth slowdown (as well as the more general literature
on state intervention whether from a neoliberal or developmental state per-
spective) do not examine the extent to which different development strategies
and stages ofimport-substitution affect the economic and political challenges
and conflicts that state policymakers face in attempting to implement indus-
trial policies.Detailed historical evidence presented in Part Three suggests that
the process of industrialization involved two very different strategies over
time.The period from the early 1900s to the late 1960s was a period of“easy”
import-substitution strategies,where infant industry production tends to be
technologically simple and small-scale and where require major coordination
ofinvestment by the state is not essential for rapid growth to occur.Moreover,
