Hammond - James M Jasper

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With this paper I venture into a completely new area, so I am eager to get your reaction. Its
origin is highly opportunistic. I was invited to a conference in Angola in October, 2007 (my first
venture onto the African continent).

I had paid little attention to Angola since I completed work on the
Portuguese revolution, so before going (I didn't have very much notice) I tried to get some background
on the intervening decades. Everything I read had two overwhelming themes: oil and

corruption.
Similarly, while I was there, these seemed to be on everyone's mind. I can't glorify my experience there

as research because it was a quick trip and logistical difficulties made it impossible to go very far
beyond the scheduled spaces or mee
t many people, but from the Chinese oil trader in line at the airport
when I arrived to the American engineer who explained offshore drilling to me, not to mention most
Angolans, these things were on their mind and they emphasized the paradox of oil riches

and human
poverty.



Much of the literature on Angola focused on the resource curse. This started me to wondering
why Venezuela
-
-
another place where you can't walk two meters without hearing something new about
oil
-
-
was different. The political hypothes
is seemed obvious. So I gave myself a cram course on the oil
industry. I quickly found out that, while my initial thoughts were not wrong, the full story was much
more complicated and much more interesting.



I wrote this paper a year ago when the price
of oil was shooting up to $150. Every day while I
was working on it I turned eagerly to see where it had landed that day
-
-
and, I confess, I was rooting for
it (I don't own a car). When I came to revise the paper this past winter, I recognized that it had

been
written under the assumption that the price was going to stay, if not at that level, at least high enough
that the patterns I had observed would remain more or less the same. So I had to rethink again. Here is
the (provisional) result.


Jack




2


Draft
: Do not cite, quote, or duplicate

without author's permission

Comments invited


The Resource Curse and Oil Revenues in Angola and Venezuela


John L. Hammond

Hunter College and Graduate Center, City University of New York


January, 2009


Sociolo
gy Department

Hunter College

695 Park Avenue

New York, New York 10065


212
-
663
-
1358

fax: 212
-
772
-
5645

e
-
mail: jhammond@hunter.cuny.edu



This is a revised version of a paper presented at the Global Studies Association, New York,
June, 2008. I appreciate t
he helpful comments of Renate Bridenthal, Steve Ellner, Sujatha Fernandes,
Barbara Foley, Rose Anne Franco, Ernie Harsch, Dan Hellinger, Franz
-
Wilhelm Heimer, Lenny
Markowitz, George Martin, Mário Murteira, Fred Rosen, Mike Tanzer, Victor Wallis, and Greg
Wilpert.



John L. Hammond is the author of
Fighting to Learn: Popular Education and Guerrilla War in
El Salvador

(Rutgers University Press, 1998) and
Building Popular Power: Workers' and
Neighborhood Movements in the Portuguese Revolution

(Monthly Review,

1988). He teaches
sociology at Hunter College and the Graduate Center, City University of New York.



Abstract



In this article I call for a reconsideration of the theory of the resource curse. According to that
theory, poor countries with large endowm
ents of natural resources, especially oil, often do not achieve
sustainable economic growth because the size and volatility of oil revenues encourage corruption,
mismanagement, and authoritarian governments that fail to invest for the future or provide for

the well
-
being of the majority of their populations. These are not consequences of resource riches per se,
however, but of the political conditions under which they are exploited. Angola is a classic case of the
resource curse. Since independence in 19
75 it has experienced corrupt and authoritarian government
living off of its offshore oil resources. Venezuela, after experiencing massive development failure in
the 1970s and 1980s, appears to have avoided the resource curse under President Hugo Chávez.

The
concept of resource curse, and accordingly its remedies, must be understood as multidimensional:
accountability includes honesty, sound economic management, and providing for the public welfare.
Venezuela shows that imposing sound economic management

is not sufficient to assure that oil
revenue will be devoted to social needs, and can even be counterproductive. What is required is a
political and social revolution dedicated to serving the interests of the population as a whole.




3



The Resource Curse a
nd Oil Revenues in Angola and Venezuela



Can poor countries harness their oil wealth to promote economic growth and improve the
welfare of their populations, or do they necessarily squander it in waste and corruption? For many
countries the re
cord is not encouraging. According to the theory of the resource curse, oil seems to be
an obstacle to development in poor countries.



That experience, though common, is far from inevitable. But to understand what conditions
allow oil wealth to contri
bute to development, one must specify what is meant by development and
distinguish among the hypothesized effects of the resource curse. Overcoming the resource curse has
been taken to mean promoting economic growth, diversified industrialization, improve
d social welfare,
and government accountability. All these goals are not the same, however, and they may even be
incompatible. For example, protecting oil production from political control and sequestering revenues
in investments outside of the country h
ave been proposed by advocates of the resource curse theory as
the remedy for economic inefficiency. Under such conditions, however, oil revenues will not be used
to meet social needs. That will be more likely if their use is controlled by the political
process.



In this paper I will compare Angola and Venezuela to illustrate alternative ways of using oil
wealth. The two countries illustrate three different scenarios: Angola is a classic example of the
resource curse, while Venezuela has overcome it a
t least to some degree. Venezuela successfully
channeled oil revenues into productive investment in the 1980s and 1990s when the national oil
company operated autonomously from the state, preventing its revenues from being used to finance
social welfare e
xpenditures. Since President Hugo Chávez took office in 1999, Venezuela has
reasserted political control of the company and used its revenues for social programs. So oil is not
inevitably a "curse" with negative outcomes. An oil
-
rich government can make

political choices that
enable a country to put its oil wealth to positive uses.



The Economy of Oil Production



The price of oil rose from $8/barrel in January, 1999 to a record $147.27 on July 11, 2008.
Most of that rise came after 2003, when the pric
e fluctuated around $28. The spectacular increase had
several causes, including price manipulation by the producer countries through OPEC, supply
disruptions due to war in Iraq and civil conflict in Nigeria, the dollar's decline in value, and speculative
portfolio inflows. But the more structural cause was an increase in worldwide demand, fueled by the
industrial and consumer needs of China's and India's fast
-
growing economies.



The boom was followed by an even more rapid crash, to a low of $30.28 on D
ecember 23,
2008. By the following May, it rose again as high as $58. The collapse followed the worldwide
economic crash, which rapidly reduced global demand. Further fluctuations will depend in large
measure on how quickly the world economy recovers. Bu
t it is the tremendous increase in demand, the
price rise, and the concomitant increase in revenues to producer countries that underlay the recent
renewal of interest in the theory of the resource curse.



The claim of the resource curse is that, contrar
y to what might seem to be common sense, poor
countries with large oil reserves do not often experience rapid or balanced economic growth. Oil rents
encourage inefficient management, corruption, failure to plan for the long term, unresponsive and
authorit
arian government, and neglect of the needs of the population. Oil production distorts currency
exchange rates, disrupts trade relations, and creates vested interests that leave little space for alternative
growth models. Windfall revenues encourage exces
sive spending, even for legitimate purposes,



4


without providing for economic diversification to offset the eventual exhaustion of resources.



Many of these effects are not specific to oil but apply to the exploitation of rents in general,
especially minera
l rents. Rent refers to the discrepancy between the cost of production of a commodity
and its price. When the price of a commodity far exceeds its cost, actors use political means to capture
the rent. According to Adam Smith (cited by Karl, 1997: 5), re
nt
-
seeking creates a bias toward
unproductive activities
-
-
in other words, perverse incentives to use the rents for consumption and short
-
term gain rather than investing them for long
-
term development. In the case of oil, its centrality to the
global econo
my and the high profit on investments that are large in the absolute but small in relation to
the expected return make its effects far more acute than is the case for other resources.



Oil as a commodity has several characteristics which underlie the reso
urce curse.
1

First, it is
vital to the international economy, a source of energy for electrical power, transportation, and heat.
Second, it does not need to be produced, merely extracted. Third, it is depletable; oil once extracted is
used, making oil r
evenue more like the expenditure of an asset than like income. Fourth, production is
capital
-

and technology
-
intensive. Fifth, its price is high; its exceptional value means that it can be
sold at prices that generate large profits relative to the cost o
f extraction. At the same time, however,
its price is highly volatile on the world market (Humphreys et al., 2007: 3
-
4; Karl, 1997: 47
-
48; 2007:
3).



These characteristics are exogenous to the national economies of oil
-
producing states.
Endogenous chara
cteristics, on the other hand, are related to the fact that oil is frequently produced in
an enclave. Because it is extracted, rather than produced, the oil industry is likely to be an economic
enclave with few forward and backward linkages to the rest of

the economy. It is typically found in a
geographical enclave as well, since the location of oil deposits is random with respect to the location of
population centers and other economic activities. The high capital and technology demands mean that
transn
ational oil corporations typically play a major role in production and distribution, further limiting
its contribution to a national economy. Finally, as a capital
-
intensive activity, it generates relatively
little employment.



Taken together, all these
factors often produce perverse incentives for rent
-
seeking behavior.
This has adverse effects, both economic and political. On the economic side, the volatility of oil
revenues, whether because of varying cost of extraction over the life of an oil deposi
t or fluctuations in
the international price of oil, makes planning difficult. Because of its enclave character, oil produces
few spinoffs for the national economy as a whole; in particular, it discourages investment in
infrastructure, social welfare, and

education. An oil boom makes a country vulnerable to the "Dutch
disease," whereby a rapid increase in the exchange rate weakens domestic production in other sectors
because it becomes cheaper to import many goods rather than produce them domestically, wh
ile goods
produced for export become more expensive in foreign markets
-
-
which does not conduce to a diverse,
sustainable economy capable of thriving after the oil boom is over.
2

The producer country becomes



1
Hereafter, I will refer to oil specifical
ly, rather than to natural resources in general. I remind the
reader, however, that the same characteristics, possessed in lesser degree by other resources, have
similar if muted effects.


2
The terms "resource curse" and "Dutch disease" are often u
sed interchangeably (e.g. Oliveira and
Ali, 2006). In more precise usage, however, the resource curse embraces all the alleged negative
effects of oil on development, while Dutch disease refers to one aspect of the resource curse, the
inflationary effect
of a natural resources windfall (in the case of the Netherlands, it was natural gas).




5


dependent on a transnational corporation whose i
nterests are not generally the same as its own
(Humphreys et al., 2007: 4
-
10; Karl, 1997: 34
-
37).



Political problems are a corollary. Most of the world's poor oil
-
producing states are weak
states. Many of them became independent less than half a centur
y ago and others whose national
existence goes back further also have poorly developed institutions. The presence of oil tends to
aggravate that condition. First, oil can be an incentive to internal political conflict, especially in
ethnically divided st
ates, as groups compete for control of the resources (Collier and Hoeffler, 1999;
Kaldor et al., 2007: 20
-
22; Karl, 2007: 28
-
29; for a contrary view, see Fearon, 2005). Even in the
absence of overt conflict, states fail to develop strong institutions. Ex
traordinary rents are an incentive
to corruption and authoritarianism. A government living on oil revenues does not need to develop a
strong tax base or cultivate popular support through consistent programs. Closing deals with
transnational corporations
provides abundant opportunity to demand bribes and kickbacks.
Unaccountable rulers neglect the welfare of the population; in particular, they fail to promote education
and health programs. They can maintain power by coopting or coercing different segment
s of the
population. Overall, rent
-
rich governments tend strongly to authoritarianism and inefficiency in
development and welfare programs (Humphreys et al., 2007: 10
-
14; Karl, 1997: 2007: 16
-
25). In
particular, they do not invest adequately in education
-
-
thereby not only disregarding social welfare
needs but also failing to produce human capital, creating a further impediment to development
(Gylfason, 2001).



Thomas Friedman has enunciated the "First Law of Petropolitics:" the higher the price of oil,
t
he less likely are democratic institutions to develop, and conversely, the lower the price of oil, the
more likely oil
-
producing countries are to develop open, transparent political systems that will
encourage economic entrepreneurship (Friedman, 2006: 31)
. This "law" is about the price of oil, not
its presence, but the conclusion is the same: greater oil revenues do not encourage democratic and
responsive government.



Not all of these effects occur at the same time in the same oil
-
producing country. Nev
ertheless,
they are sufficiently common to account for the surprisingly poor growth records of oil
-
producing
countries as a group. Resource
-
poor countries grew four times as fast as oil
-
producing countries
between 1970 and 1993. Many oil
-
producing countr
ies lost ground after the collapse of the two oil
booms of the 1970s. One of the countries examined in this paper, Venezuela, was a catastrophic
example: between 1979 and 1999, real per capita income fell by 27% (Karl, 2007: 5; Wilpert, 2007:
13). The cl
aim has been challenged by C. N. Brunnschweiler and E. H. Bulte (2008), who argue that
the data, properly analyzed, reveal that resource abundance is favorable for economic growth
-
-
but their
argument from resource abundance is not the same as the argument
from actual resource revenues.



There are exceptions, however. None of these outcomes is foreordained or intrinsic to the
production of oil. All of them depend on the nature of political institutions in an oil
-
producing
country, and are, at least in pri
nciple, susceptible to change through effective public policies. That
those policies are rarely adopted is a testament to the fact that weak institutions are self
-
reinforcing and
rents reward corruption and authoritarianism. Countries which are exception
s to the resource curse
differ significantly from the typical oil producer either in the economy of oil production or in the
allocation of revenues in the national budget. Norway is the most prominent example. In this paper I
will contrast Angola and Ven
ezuela. Angola has enormous oil revenues but a corrupt, authoritarian
government which does little for the welfare of its people. Venezuela under Hugo Chávez, in contrast,
has to a degree escaped the resource curse: in particular, it has generous social

programs funded by oil.





6



It might be argued that the comparison of these two countries is misleading, because they are so
different in so many respects. However, as Terry Lynn Karl shows in
The Paradox of Plenty

(1997),
the most widely read account of t
he resource curse, it has been found to arise in countries at many
different levels of development. The five countries she examines closely (Iran, Nigeria, Algeria, and
Indonesia, as well as Venezuela), she argues, are heterogeneous in every respect excep
t the possession
of oil; yet all of them went through similar crises as a result of the oil shocks of the 1970s (1997: 32).
That Venezuela since 1999 is an exception, when it was the type case in
The Paradox of Plenty
, shows
that political changes can cre
ate conditions to avoid the resource curse.



The resource curse is a complicated phenomenon with many dimensions. In this paper I will
emphasize three: corruption, poor economic management, and social welfare provision. Many
accounts of the resource cur
se treat all of these indistinctly. But they do not always occur together and
their remedies are not always compatible. In particular, a drive for economic efficiency within the oil
sector and the provision of social welfare benefits may demand different

policies. Welfare benefits are
costly and, especially in the policy environment of the last quarter century, have been seen as luxuries.
Many countries, including some resource
-
rich countries that became heavily indebted during periods of
low oil prices
, have curtailed social programs in the belief that austerity and fiscal stability are
necessary to promote economic growth. In comparing Angola and Venezuela I will argue that in
searching for a cure for the resource curse it is necessary to specify for
which of its aspects a cure is
sought.




The Oil Sectors of Angola and Venezuela



Angola and Venezuela have very different histories with regard to oil exploitation, but both are
major producers today. Angola became the largest producer in Africa in 200
8, supplanting Nigeria.
Oil contributes about 45% of the country's GDP, 90% of exports, and 90% of government revenues
(Table 1). Oil from Angola, like that of the other countries on the Gulf of Guinea, is mostly offshore.
These countries' oil is attrac
tive to foreign (especially US) companies because it is high quality and
close to major markets, notably the US, and because its offshore location reduces the political risk (but
concomitantly accentuates its enclave character and lack of linkages with the

local economy).



Table 1 about here



Oil was discovered in Angola in 1955 and exploitation began under the Portuguese colony. By
1973 it was Angola's chief export. amounting to 30% of exports. Oil exploitation continued during a
thirteen
-
year war of l
iberation and a civil war after independence in 1975 that continued until 2002.
The national oil company Sociedade Nacional de Combustíveis de Angola (Sonangol) was established
in 1976, based on the departing SACOR, the Portuguese oil concessionaire under

the colony. Sonangol

is the sole concessionaire for oil exploration and production in the country (Alexander and Gilbert,
2008: 18
-
20; Energy Information Administration, 2008a: 3; Ferreira, 2006: 25).



Most of Angola's oil is in Cabinda, an enclave terr
itorially separate from Angola, sandwiched
on the coast between the Republic of the Congo and the Democratic Republic of the Congo. It has
onshore as well as offshore oil. Angola exports 90% of its crude oil, mostly to the US and China. Its
domestic con
sumption in 2007 was approximately 60,000 barrels per day (bpd), of which
approximately two thirds was refined at the country's sole refinery in Luanda, the rest imported. A new
refinery is being developed in Lobito (Energy Information Administration, 200
8a: 2
-
5).



Angola joined OPEC in 2007. It received a quota of 1.9 million bpd. As of January, 2008, its



7


proven reserves were calculated at 9.0 billion barrels, up from 8.0 billion a year earlier. Extensive
explorations are going on both onshore and off
shore, and further major discoveries are expected
(Energy Information Administration, 2008a: 1
-
2).



Production has risen rapidly: from 701,000 bpd in 2000 it more than doubled to 1.7 million bpd
in 2007 (Oliveira, 2007: 603; Energy Information Administrat
ion, 2008b: 148). It is carried out by
Sonangol in partnership with foreign companies The major partners are ExxonMobil, BP, Shell, and
Total. They work primarily under production sharing agreements (PSAs) and to a lesser degree joint
ventures (JVs).
In a PSA, the foreign partner pays the costs of exploration and development; it then
takes all the profit from the "cost oil" until it has recovered its investment, then shares "profit oil" with
the government, so the government does not share any risk in
exploration. Under a joint venture, the
foreign concessionaire and the government share investment costs. An advantage of the PSA to the
producing country is that the oil company bears all the initial cost and risk. But since the host
government only be
gins to receive money from "profit oil," unevenness in the flow and variations in
the international price of oil make the host country's income more uncertain than the company's
(Alexander and Gilbert, 2008: 20; Gary and Karl, 2003: 10; Shaxson, 2005: 312
-
13).



Venezuela's oil sector is larger and its history longer than Angola's. The first well was drilled in
the second decade of the last century (1912 or 1913, according to different sources; Lander, 2001: 26;
Wilpert, 2007: 87) and the first internation
al oil company, Shell, became involved in 1917. Oil was
nationalized in 1976 with the creation of a single national oil company, Petróleos de Venezuela SA
(PDVSA), founded in 1976.



Most of the relevant data on the size, production, and potential of the

oil sector in Venezuela
are politically contested. For example, the Venezuelan embassy in Washington claims a production of
3.3 million bpd; according to the US Department of Energy's Energy Information Administration, it is
2.8 million. Similarly contr
oversial is the size of its reserves: 89 billion barrels of crude oil, according
to the embassy; 80 billion, according to the EIA. In addition, its Orinoco Belt has reserves of 1.2
trillion barrels of extra
-
heavy crude (embassy estimate), more difficult an
d more expensive to extract
and refine (Gobierno Bolivariano de Venezuela, 2008; Energy Information Administration, 2007).



There is no disagreement, however, that Venezuelan oil is economically, politically, and
strategically important, both domestically

and internationally. Oil accounts for about 80% of
Venezuela's exports, half of total government revenues, and one third of GDP (Table 1). It is the ninth
largest oil producer in the world, the sixth largest in oil exports, and the fourth largest source

of United
States oil imports, sending 1.41 million bpd in 2006.



The Curse of Angola



Angola can be regarded as the quintessential case of the resource curse. In the words of Tony
Hodges (2004), it is "a graphic example of how developing countries wit
h large natural resources
-
-
in
particular oil and other minerals
-
-
are among those most prone to poor governance, armed conflict and
poor performance in economic and social development." Angola possesses immense mineral wealth:
in addition to being the larg
est oil producer in Africa, it is the world's fourth largest source of
diamonds. This wealth financed twenty
-
seven years of civil war after independence from Portugal in
1975. The hallmarks of the resource curse have followed: a corrupt, rent
-
seeking gov
ernment which
made secret deals with foreign oil companies and completely disregarded the well
-
being of the
population.





8



As a Portuguese colony, Angola had been underdeveloped and impoverished. In 1960 its main
export was coffee; it was also self
-
suffici
ent in food crops and exported some corn. Unprocessed
agricultural goods constituted 56% of exports. But in the 1960s, the colonial power began to develop
its oil, at first in the Cabinda enclave (Ferreira, 2006: 25; Hodges, 2001: 90
-
91).



The liberatio
n struggle against Portugal began in 1961. Three competing factions emerged: the
Popular Movement for the Liberation of Angola (MPLA), the National Front for the Liberation of
Angola (FNLA), and the National Union for the Total Independence of Angola (UNI
TA). They were
at odds with each other as much as with the colonial power (Hammond, 1988: 47
-
51; Marcum, 1978).



The independence settlement nominally created a coalition among the three forces but they
quickly fell into fighting among themselves. Ang
ola became a pawn in the cold war, in which each of
the factions had foreign patronage: the MPLA from the Soviet Union and Cuba, UNITA from South
Africa and the United States, and the FNLA from Zaire and, during the independence struggle, China.
After a r
approchement between the governments of Angola and Zaire in 1978 and 1979, however, the
FNLA lost its sanctuaries and rapidly crumbled (Hodges, 2001: 39). The war continued between the
MPLA and UNITA. Despite their differences in ideology and internation
al alliances, both were
centralized and dominated by a single leader, the MPLA by President José Eduardo dos Santos (after
the first president, Agostinho Neto, died in 1979) and UNITA by its leader Jonas Savimbi.



Dos Santos and the MPLA controlled the go
vernment. In power, it rapidly turned authoritarian.

Based on a Marxist
-
Leninist ideology, the MPLA's model of socialism established a centralized
command economy. The MPLA concentrated rule in the president and created a series of mechanisms
to assure
continuity of that rule and enrichment of its agents. It purged factional rivals after a 1977
coup attempt. Thousands were killed in the repression that followed.



The MPLA was corrupt and incompetent in government. Immediately on independence the
gove
rnment implemented major social programs, especially in health and education, that reached far
into the interior of the country, but within a short time they collapsed as the war dominated the country
and the elite became more concerned with enriching itse
lf than with promoting egalitarian development
(Vidal, 2008: 205
-
13). Mismanagement and conflict prevented the economy from producing, but the
war gave opportunities for corruption: in a precedent that was to take on much greater magnitude with
the oil boo
m, military expenditures were channeled outside the normal budgetary process and
kickbacks were routine. With the economy in a shambles, and with the waning of the cold war, the
MPLA began to contemplate abandoning its centralist economic model for marke
t
-
oriented reforms in
the 1980s; in 1990 the MPLA formally foreswore its Marxist
-
Leninist ideology and the one
-
party
system.



But in the practice of government, little changed. State
-
owned firms newly privatized in the
transition to free enterprise were
appropriated by the politically favored. The creation of an ostensible
multiparty system only increased the number of people to be bought off (Hodges, 2008; Munslow,
1999; LeBillon, 2001). Corrupt and incompetent government compounded the ravages of the
war.



A 1991 peace settlement with UNITA prepared for a presidential election in 1992. The election
was reasonably honest, though the electorate was not enthusiastic about either of the two leading
parties (on the street the word was that "the MPLA ste
als, UNITA kills"). Dos Santos won nearly 50%
of the vote, Savimbi 40%. The agreement provided for a runoff if no party won a majority, but the
runoff was suspended when Savimbi rejected the results and took up arms again. Some UNITA
representatives too
k seats in parliament, however. After a new peace accord in 1994 broke down,



9


some of them split from Savimbi to form a new party, UNITA Renovada, allegedly on payment of a
three million dollar bribe to each of them (Munslow, 1999: 559).



For the rest of
the decade, armed conflict alternated with negotiations. The character of the war
changed: UNITA won some decisive victories and conquered areas where it had not been in control
before. It attacked cities, including Luanda. The economy was devastated; h
undreds of thousands
were displaced as refugees; the cities of the interior were destroyed (Birmingham, 2002: 173; Ferreira,
2006: 27). But when Savimbi was killed in combat in 2002, the insurgency collapsed and a peace
agreement, now a lasting one, was r
eached. While conflict with UNITA ceased, the Front for the
Liberation of the Enclave of Cabinda (FLEC) continued small
-
scale guerrilla operations.



Especially after the withdrawal of the competing cold war powers, the civil war was a naked
struggle for

power, in which "minerals provided both the prize of victory and the means for achieving
it" (Hodges, 2004). The MPLA controlled the oil, and UNITA controlled the extraction of diamonds.
The government actively sought foreign partners to explore and dri
ll for oil starting in the 1980s, not
only in Cabinda but off the coast of Angola proper. Corruption was rife. Foreign oil companies paid
signature bonuses in the millions of dollars in exchange for oil concessions. Even with war raging,
production moun
ted steadily, from 120,000 bpd in 1982 to 701,000 bpd in 1997 (Oliveira, 2007: 603).



A small coterie of people close to the government enjoyed lavish wealth, directly and indirectly
from oil revenues. Much of the revenue was sequestered in a secret "p
arallel budget" over which there
was no public accountability. Government officials took advantage of the production
-
sharing
agreements with multinational oil companies to deposit signature bonuses abroad. Reliance on
multinational oil companies and the
location of most of the oil offshore kept it separate from the affairs
of the nation and its financial aspect out of sight. As James Ferguson puts it, "neither the oil nor most
of the money it brings in ever touches Angolan soil" (2005: 378).



The exchan
ge rate was kept artificially low, the key to profit
-
taking. Those with access to the
official exchange could buy dollars cheaply and then sell them back at the official rate ("round
-
tripping")
-
-
until 1999 when the collapse of oil prices forced the govern
ment to float the exchange rate.

A large share of the education budget went to pay for foreign scholarships for the children of the elite
(Hodges, 2001: 39
-
41; Hodges, 2008: 187; Munslow, 1999: 563).



In the interior of the country, UNITA controlled the
mining and sale of diamonds. Alluvial
(river
-
borne) diamonds are found over a wide area in the northeast of the country, which remained
outside of the government's control while the war lasted. UNITA began to rely on diamonds to finance
itself in the lat
e 1970s and depended on them even more after the withdrawal of US and South African
support in the early 1990s. It took advantage of the sporadic cease
-
fires to consolidate its control of the
diamond
-
producing areas; it exploited some areas directly, ofte
n using forced labor, and taxed small
miners elsewhere. UNITA reaped an estimated two billion dollars from the diamond trade between
1992 and 1998. The conflict continued because it was economically profitable even though UNITA
clearly had little prospec
t of military victory. Beginning in 1998, a United Nations
-
sponsored
campaign attempted to prevent the international trade in Angolan diamonds, but its effect was limited
(Birmingham, 2002: 182; Collier and Hoeffler, 1999: 4; Hodges, 2001: 147
-
54; Hodges,

2004;
LeBillon, 2001: 67
-
71).



Since the end of the war, the combination of increased production and record prices for oil has
spurred rapid economic growth. While production increased steadily during the war, it has grown even
more dramatically afterwa
rd. That growth has brought Angola an ostensible economic boom, with



10


cumulative economic growth at 67.5% between 2003 and 2006 (20.6% in 2005, 18.6% in 2006). Most
of this growth was due to oil production (Centro de Estudos e Investigação Científica, 200
7: 18
-
19;
International Monetary Fund, 2006; Council on Foreign Relations, 2007).



Most of the population received no benefit from that wealth, however (Table 2). Though oil
wealth drove per capita GDP up to usd2,335 (at purchasing power parity) in 2005,

edging Angola into
the ranks of middle income countries, income distribution is extremely skewed. The poverty rate is
estimated at 68%. Angola also ranks among the lowest in the world on other social indicators: the
Human Development Index stood at .446

in 2005.
3

Its combined (primary, secondary, and tertiary)
school enrollment ratio was 25.6% and life expectancy was 41.7 years (United Nations Development
Program. 2007: 232).



Table 2 about here



Because agriculture collapsed during the war (a colla
pse exacerbated by the privatization of
land that had been nominally collectivized, with the effect of expropriating it from peasant farmers and
redistributing it to members of the presidential clique), much of the population ate only because food
aid was
provided by international donors. The recovery of agriculture has been slow; in 2008, half the
country's food supply was still imported (Central Intelligence Agency, 2008; Pacheco, 2004; Vidal,
2008: 217
-
21).



The national budget shows little effort to a
lleviate poverty or improve the standard of living of
the population. Expenditures on education and health, as a proportion of GDP, actually fell from 2001
to 2005: education from 3.3% to 2.1%, health from 2.8% to 1.4% (Central Intelligence Agency, 2008;
Rocha, 2006: 55
-
57). A rough but serviceable measure of a country's effort to improve its population's
well
-
being can be derived by comparing its GDP per capita to its human development index. A
country whose HDI is significantly higher than would be pre
dicted from its average income can be
assumed to be devoting substantial efforts to improving the social level; conversely, an HDI
significantly lower than its GDP per capita would predict suggests a weak government effort. Angola
ranks 128th of 174 count
ries on GDP per capita, and 162d of 177 countries on HDI, so the social level
of the population is much lower than its wealth should make possible. On two of the components of
HDI it is nearly the worst
-
off country in the world: its school enrollment rati
o is 170th of 172, and its
life expectancy is 174th of 177 (See Table 2).



Authoritarian governing practices established during the war have continued into the present.
The human rights record was rated as poor by most observers, including Human Rights Wa
tch (2004)
and the Department of State (2008), which reported unlawful killings by police, military, and private
security forces; arbitrary arrest, detention, and torture in life
-
threatening prison conditions; lack of due
process in an inefficient and over
burdened judicial system; and forced evictions. In particular,
corruption continued to be widespread and accountability was limited, although some steps had been
taken to increase transparency. Parliamentary elections held in 2008 were an apparent step t
oward
democracy: the MPLA won 82% in a vote that met with muted protests of unfairness by international
observers. An election for president is scheduled for 2009. But human rights abuses have continued



3
The Human Development Index is a measure of the social well
-
being of the population, based on
per capita income, literacy, school enrollment, and infant mortali
ty. It is computed for all countries and
published annually by the United Nations Development Program in its Human Development report
(2007). It ranges from zero to one.




11


into the present, and one channel for holding the g
overnment to account disappeared when the
government ordered the United Nations to close its Human Rights Office in Luanda in April, 2008
(Africa News, 2008). Angola demonstrates the close connection, noted by Amartya Sen (2000) among
others, between obse
rvance of civil and political rights, on the one hand, and economic and social
rights, on the other (cf. Human Rights Watch, 1992).



The country has been deemed one of the most corrupt in the world by a variety of sources. In
its ranking of 163 countries

in 2006 from the least to the most corrupt, Transparency International
ranked Angola 142d, with a score of 2.2 on a ten
-
point scale (an improvement from rank 98 out of 102
with a score of 0.3 in 2002; Transparency International, n.d.). The Transparency I
nternational ratings
have been criticized for being based on reputation, not hard data; but the evidence from closer studies
suggests if anything an even worse record. Corruption has been documented by journalists (Africa
Confidential, 2008; Gumede, 2006;

Shaxson, 2007) and academic researchers (Hodges, 2001 and
2004; Ferreira, 2005 and 2006; LeBillon, 2001; Munslow, 1999; Oliveira and Ali, 2006). It has been
denounced by the IMF (2006), the Department of State, in its annual human rights reports (DOS 200
8
and earlier years), and nongovernmental organizations
-
-
in the US, Human Rights Watch (2004); in the
UK, Catholic Relief Services (Gary and Karl, 2003), Global Witness (2001 and 2004), and Chatham
House (Vines et al., 2005).; in South Africa, the Institut
e for Democracy in South Africa (Alexander
and Gilbert, 2005). The US's Council on Foreign Relations (2007), more measured in its
pronouncement, nevertheless emphasizes the need for reform and points to ways that the government,
given the will, could prod
uce it.



The corruption is found in the looting of state revenues for the benefit of the ruling clique
around the president. They deploy a spectacular array of mechanisms of corruption. Oil deals are
shrouded in secrecy. The basic tool for private enri
chment is the lack of transparency in reporting the
size of the oil revenue. Though legally all of it is required to be deposited in the National Bank of
Angola, in fact much of it goes into the parallel budget, deposited in special accounts, often abroad
, for
the presidency and Sonangol, the national oil company. The mechanisms for this fraud include offshore
money laundering, overinvoicing of procurement and sales, loans backed by future oil production (a
deliberately deceptive method of borrowing), and
overpriced military procurement (Global Witness,
2004: 40). Transnational oil companies operating in Angola are knowing, if not willing, accomplices
who cooperate in these practices because the oil (in steadily increasing quantities) is too big a prize to

resist.



Pressure from outside sources for transparency in the payment of oil revenue led to some
investigations which have revealed exactly how the transfer of wealth is corrupted. Under pressure
from the IMF, the government agreed to contract the acco
unting firm KPMG to perform a diagnostic in
2000. Even though the government had contracted the study, it failed to provide all the data the firm
requested. A heavily edited version of the Oil Diagnostic, as it came to be known, was published, but
even
with deletions, the report revealed serious discrepancies in revenues. Most of the discrepancies
the diagnostic found were not on the part of multinational oil companies but of Sonangol.



The IMF began to investigate more closely in 2001 in what are know
n within the fund as
Article IV consultations, annual reviews of the financial status of debtor countries. These studies have
been summarized in reports by the NGOs Human Rights Watch (New York) and Global Witness
(London). Angola refused to allow the 20
01 and 2002 Article IV reports to be published; the 2003
report was published, and Global Witness obtained the first two reports. Human Rights Watch and
Global Witness researchers detected a series of discrepancies in revenues and expenditures. Global
Wi
tness concluded that "an average of US$1.7 billion has gone missing each year from 1997
-
2001



12


from the Angolan treasury" (2004: 41). Human Rights Watch, further, said that the Angolan
government could not account for four billion dollars in expenditures be
tween 1997 and 2002. The
2002 Article IV report also mentions unaccounted
-
for signature bonuses directly controlled by the
Presidency and Sonangol (Global Witness, 2004; Human Rights Watch, 2004). With respect to the
underreporting of oil revenue, the Ec
onomist Intelligence Unit said that "Angola is clearly in a class of
its own" (quoted by Gary and Karl, 2003: 33).



Global Witness detailed the scandal known in France as "Angolagate," an alleged conspiracy to
rob the country of its oil money through over
priced sales of military equipment. Forty
-
two people,
including former French officials (among them Jean
-
Christophe Mitterrand, the son of the former
president) went on trial in October 2008 for accepting illegal payments for arms sales between 1993
and 2
000 (Global Witness, 2001; Agence France Press, 2008).



Angola has frequently taken oil
-
backed loans from international banks, offering future
production as collateral. The oil
-
backed loan is a complicated financial instrument whose purpose is to
keep th
e information about the destination of oil revenues obscure.
4

The IMF offers better terms
(lower interest, longer duration) but the Angolan government prefers loans from private banks to avoid
pressure for transparency (Global Witness, 2004: 51; Vines et
al., 2005: 16
-
17).



The government has also directly threatened oil companies that have responded to pressures for
disclosure. In February 2001, BP offered to release data on its payments to the government, but
reneged when Sonangol threatened to termina
te its contract for violation of contractually guaranteed
confidentiality (Global Witness, 2004: 56).



Calls for transparency, accountability, and efficient management in the collection and
expenditure of revenue are frequently heard from NGOs, but the c
ase of Sonangol illustrates the
difference between efficiency and probity. From its founding in 1976, Sonangol was kept independent
and free of the race for spoils, the anti
-
corporate mentality, and the state
-
led economic management
that the MPLA put into

practice in the rest of the economy. Over time, it became a major international
player with diversified holdings including air and maritime transport subsidiaries, telecommunication,
insurance, marketing and trading subsidiaries in the US, the UK, Hong K
ong, and Singapore; its
socially beneficent activities include scholarships for children to study abroad and financing of two
Angolan football teams (Oliveira, 2007: 599
-
605).



Its revenues do not, however, contribute to development. Instead, as Ricardo

Soares de
Oliveira shows, it accumulates riches at the service of the President and his clique. It has built up an
effective network of international commercial collaborators, who comply with its irregular practices
perhaps out of enthusiasm and perhaps
to assure their access to the country's oil. "Oil ensures that
whatever the domestic political conditions, there will be an interest by multiple external and internal
actors in maintaining a notional central structure, and that enough resources will be av
ailable to prop
up incumbents, guarantee their enrichment, and coerce or co
-
opt enemies" (Oliveira, 2007: 610). This
paradoxical condition of effective management in the company, protected from the corruption which is
otherwise general, leads Oliveira to
characterize Angola as a "successful failed state" (2007: 617)
-
-



4
The oil
-
backed loan and other Special
-
Purpose Vehicles (SPV) are "structure
s of Byzantine
complexity that can be used to obscure assets or losses" (Global Vision, 2004: 51), similar to the
innovative financial instruments created by the Enron Corporation to hide its labilities before its
collapse in 2001.




13


successful at the purpose for which it is intended, enriching the elites, even as it fails to provide for the
country as a whole. Sonangol calls into question the assumption that efficient ma
nagement is
sufficient to put oil revenues at the service of the public good.



There have been efforts at reform; but the Economist Intelligence Unit sees them as less "an
effort to improve openness, although it has done so, and more an attempt by the pre
sidency to make the
system of political patronage (often described by outsiders as corruption) more acceptable and
sophisticated rather than to abolish it" (quoted by Oliveira, 2007: 612
-
613).



China plays an increasing role. It has forged close diplomat
ic, financial, and commercial
relations with Angola and has become the second largest importer of Angolan oil after the US. It has
provided oil
-
backed loans for infrastructure projects and direct investment, especially in oil exploration
and construction.

It offers a welcome similarity of preference for opaqueness in financial transactions.

The nature of the Chinese regime and its propensity for secret dealings mean that it does not impose
pressures for transparency and good governance as some western le
nding institutions do. This new
relationship reinforces the machinery of corruption by its "non
-
interference" relationship with Angolan
practices. Chinese loans come with better conditions, lower interest, and longer repayment time than
those of other cr
editors, all of which have made it Angola's favorite lender (Campos and Vines, 2007;
Ferreira, 2008; Taylor, 2006).



China also provides foreign aid, which it channels directly through the office of the president.
Its aid distorts development as well,
with a preference for expensive "white elephant" projects for
construction of public works without regard for the country's ability to manage them successfully
(Gumede, 2006: 15; Taylor, 2006: 947
-
49).



While having officially abandoned socialism, the MPL
A practices the same top
-
down model of
development as before, emphasizing high technology, big projects, and international borrowing. The
welfare of the population is not a serious consideration; indeed, in some cases (as in the recent
evictions of shanty
town dwellers in Luanda to clear room for expensive commercial and residential
construction) it is an obstacle to be cleared out of the way (Vines et al., 2006: 6; Human Rights Watch,
2007).




Venezuela: Escaping the Resource Curse?



"Very little happens

in Venezuela that does not have to do, directly or indirectly, with oil,"
according to the scholars Luis E. Lander and Margarita López Maya (2002). The oil history of
Venezuela is very different from that of Angola, going back to the beginning of the las
t century. It is
also a much more developed country. But as Karl shows, oil has had similar effects on countries with
very different prior developmental trajectories (1997: 32), so I believe I am justified in comparing these
two. The western hemisphere'
s largest oil reserves have been as fateful for Venezuela as have Angola's
for its own history.



The case of Venezuela is crucial to the study of the resource curse, for two reasons: first, if my
argument is correct that Venezuela under Hugo Chávez has pa
rtially escaped the resource curse, it has
been not in spite of its oil riches, but precisely because of them. Oil has been central to the fortunes of
the Chávez regime. Second, as I have mentioned, Venezuela (before 1999) occupies a central place in
the
most widely read discussion of the resource curse, Karl's
The Paradox of Plenty

(1997). Venezuela
under Chávez is an exception in two senses: to the general rule of the resource curse in poor oil
-
producing countries, and to its own history. I will examin
e what it is that has allowed Venezuela to



14


escape the typical pattern.



If the oil story in Angola is one of failure to serve public purposes, the story in Venezuela is in
some ways the opposite. During the boom years of the 1970s, oil was the essential
underpinning of a
social democratic project, with generous welfare provisions and great developmental ambitions. After
the bust, though PDVSA remained nationalized, it operated much as a private transnational oil
company, pursuing capitalist efficiency an
d insulating itself from political demands. Though it
eschewed the overtly corrupt practices which have characterized Angola, the result was similar to that
in Angola in one sense: oil revenues financed investment for the growth of the company, largely by

acquiring foreign assets. They did not contribute to the needs of the population, and living standards
deteriorated. One alleged effect of the resource curse is corruption and lack of transparency; another is
an unresponsive government that disregards t
he needs of the population. In the former respect,
Venezuela after the bust escaped the resource curse; in the latter respect, it exemplified it.



Under President Hugo Chávez, Venezuela has taken a different path. The Venezuelan
government is using its
oil revenue to underpin his political project of "twenty
-
first century
socialism"
-
-
economic development under the aegis of an interventionist state, economic redistribution
and political incorporation for the poor masses of the population, and Third World
solidarity in
defiance of the United States. It promoted the revival of production quotas for OPEC countries to raise
prices and revenues (aided, to be sure, by the huge increase in worldwide demand) and dedicated a
substantial share of those revenues to
social programs in education, health, and subsidized
consumption. It has asserted national control over its petroleum resources, challenging transnational
oil companies. Both in its relation to international actors and in its use of oil revenues for dome
stic
programs, it has made oil a political weapon. The example of Venezuela demonstrates that the
resource curse is not inevitable but is the consequence of deliberate policy choices, and can be
exorcised by a government that applies the necessary politic
al will.



Initially dominated by transnational oil companies, the Venezuelan oil industry began to shake
off that domination with a 1943 hydrocarbons law raising taxes and giving the government greater
control. Since the 1960s, Venezuela has worked to ma
nipulate the international oil market in its favor.

It was a major initiator of OPEC in 1960.



At the time of the first oil price shock, oil had given Venezuela grandiose ambitions. When
Carlos Andrés Pérez became president in 1974, he announced that

he would use the new revenues to
fund ambitious projects to create
la Gran Venezuela
. Planning to "sow the oil" and reap a diversified,
sustainable economy, Pérez created a welfare state with medical and social security programs and
massive industrializa
tion projects involving vast investments many of which failed to come to fruition.

In Karl's account, Venezuela now experienced the resource curse at its worst. At the same time, these
ambitions exemplified what Fernando Coronil has called the "magical st
ate" with prospects based on
oil's "power to awaken fantasies" (1997: 2).



While the dream held, Pérez nationalized all oil holdings in 1976. Foreign owners were
compensated and each of the thirty
-
two nationalized companies was maintained as a separate e
ntity
within the structure of the new company, Petróleos de Venezuela SA (PDVSA). The second oil price
shock in 1979 led to even more extreme excess under Pérez's successor Luís Herrera Campíns. With
the oil bust, Venezuela borrowed heavily from internat
ional banks to maintain government programs.
Through boom and bust, however, the government did not plan seriously for the future or build state
structures adequate to manage the windfall (Ellner, 2008: 51
-
88; Hellinger, 2006
-
2007; Karl, 1997: 78
-
184; Wil
pert, 2007: 87
-
92).




15




Crisis came in 1989. Pérez was reelected president in 1988 on a populist platform. But
immediately after he took office in 1989, when the IMF demanded repayment of the foreign debt, he
announced a package of austerity measures. Rio
ting broke out across the country, especially in Caracas
(the
caracazo
) where the brutal response left hundreds dead. Pérez was forced out of office in a
corruption scandal in 1993, leaving his successors saddled with the collapse.



The 1980s and 1990s

also saw what Bernard Mommer (who is now deputy oil minister)
characterized as two parallel but opposite conspiracies. The first was in the military. Young officers
led by Hugo Chávez, disgusted at the corrupt government, founded the Bolivarian Revoluti
onary Army
(EBR
-
200, later renamed Bolivarian Revolutionary Movement) on the two hundredth anniversary of
the birth of Simón Bolívar. Two coups were attempted in 1992, the first led by Chávez. Both coups
failed, and Chávez was jailed for two years, but h
e began to attract the popular acclaim that was to
bring him into the presidency seven years later.



The second conspiracy was among PDVSA executives. The 1976 nationalization had
maintained the structure, and much of the personnel, of the private oil
companies. The managers had
an essentially capitalist vision for the company. Their goal was to restore sound management and
transform the company into a multinational corporation which would maximize profits by operating as
a private firm independent of

the national executive. They undercut OPEC by pumping as much oil as
possible even when the price was low and OPEC was calling for restrictions. They "internationalized"
the company by investing abroad in refineries and distribution facilities (includin
g the US gasoline
company Citgo, wholly owned by PDVSA), won court decisions that allowed foreign investment to re
-
enter the Venezuelan oil industry under very favorable concessionary terms, and used international
transfer pricing and other financial mecha
nisms to avoid Venezuelan taxes and sequester profits
outside of the country and the Venezuelan treasury (Lander, 2001; Mommer, 2003).



This transformation of PDVSA, known as the
apertura
, or opening to foreign investment, is
seen differently by different

observers. For Karl, it represented reform in response to a crisis, a
solution to the resource curse. For Hellinger, Mommer, and Wilpert, it represented the sacrifice of
national sovereignty and the general good of the population to the interest of inte
rnational capital, a
perpetuation of the resource curse in a different form.



Since 1999, and especially since 2004, Venezuela's oil policy has been the opposite: redirection
of PDVSA to serve public purposes and allocation of the revenues to meet the nee
ds of the population.

This turnabout is inseparable from two events. The first is Chávez's nationalist revolution. His
political support comes from the poor masses of the population, especially in Caracas, and he is
meeting their needs and insisting on
the independence of Venezuela from domination by the
hemispheric superpower. Second, the Bolivarian revolution began just when oil prices started soaring.



Chávez was elected president in 1998, anticipating a wave of progressive presidents in Latin
Ameri
ca in the new century (Hammond, 2008). Immediately on taking office in 1999, he called a
referendum to convoke a constituent assembly. The referendum passed on April 25, 1999, with 92%
support; in the election of the assembly, on July 25, Chávez's suppor
ters won 125 of 131 seats; and the
constitution written by the assembly was approved in a popular referendum on December 15 by 72%.
The constitution rings with revolutionary pronouncements promisimg a reorientation of the Venezuelan
state to allow for dir
ect participation and to meet the economic and social needs of the people (Wilpert,
2007: 21, 29
-
44).





16



When Chávez was elected, the price of oil had hit a low point, eight dollars, following the 1997
worldwide slump. He apparently had no clear plans for
PDVSA, although the new constitution
guaranteed that the state would remain the sole owner of the company (though existing production
agreements with foreign companies were untouched). In OPEC, on the other hand, Chávez saw an
opportunity: if member count
ries could once again unite and agree to limit production, they could raise
the price of oil, which would restore Venezuela's oil revenues. Through diplomatic efforts, personally
and by his oil minister Alí Rodríguez (who later became secretary general of

OPEC), he persuaded
OPEC members in 2000 to reduce production to levels that would keep the price of oil within a band of
$22
-
28. He called a meeting of OPEC heads of state (only the second in the organization's history) in
Caracas the same year (Lander,

2001: 28
-
30; Wilpert, 2007: 97).



At home Chávez's intentions became clearer in November, 2001, when he issued 49 decree
-
laws, including one mandating agrarian reform, another demarcating fishing waters, forcing large fleets
to the high seas and reservin
g coastal waters for small artisanal fishers, and a hydrocarbons law which
nearly doubled the royalties paid to the treasury by PDVSA or foreign companies (Wilpert, 2007: 95).



The constitution and the decree
-
laws, and, even more, the loss of influence
by the traditional
elite, led the opposition to start organizing. In an atmosphere of increasing tension, a military coup
ousted Chávez on April 11, 2002; however, Chávez retained the loyalty of key sectors of the armed
forces, and the population of the p
oor barrios of Caracas came out massively in his support, assuring
his reinstatement two days later. The coup attempt found strong support in PDVSA.



The firm became the flash point of opposition in December when it moved against Chávez by
shutting dow
n for two months. The shutdown crippled production: during the strike, production fell
from over 3 million bpd to a low of 25,000; the strike cost over 7 billion dollars (Lander, 2005: 12).
By mid
-
2004, however, production had returned almost to pre
-
stri
ke levels, according to company
sources. Others disputed the claim but agreed that the company had made a surprising recovery
(Forero, 2004). In August, the next major assault of the opposition came: a petition drive had
succeeded in convoking a recall r
eferendum, but Chávez won handily with 59% of the vote.



In response to these assaults by the opposition, Chávez radicalized the revolution, in economic
policy generally, oil policy in particular, and social welfare policy. He moved to extend control over

PDVSA. Approximately eighteen thousand employees (about half the company's workforce) who had
walked out were fired. In 2005, joint ventures were imposed on foreign companies to replace the
existing operating agreements, with Venezuela taking majority c
ontrol and changing the taxation rules
to raise revenue and make evasion more difficult. In 2007 the remaining production sites under private
control were nationalized, affecting production of heavy crude in the Orinoco oil belt (a move accepted
by all th
e foreign companies except ConocoPhillips and Exxon Mobil).



The significance of government control over the nation's oil is far greater than the economic
value of the revenue. Because primary commodity dependence has long been a mechanism of
imperiali
st domination, challenges to foreign companies and to privatizing domestic interests are an
assertion of national sovereignty and a victory over imperialism. Chávez harnesses oil production to
his foreign policy: Venezuela has proposed a pipeline to Argen
tina and signed three major multilateral
agreements with the Southern Cone Common Market (Mercosur), the Caribbean, and the Andean
region offering oil at discounted rates to promote Latin American integration and counter US influence
in the region. Relian
ce on and reinforcement of OPEC asserts the power of resource producers over
against the wealthier consumer nations. Subsidies for heating oil for poor communities in the US form
part of the rhetorical barrage against the imperialist enemy (Ellner, 2008:
118
-
20; Liebowitz, 2005;



17


Reuters, 2008; Weisbrot and Sandoval, 2008: 22; Wilpert 2007: 25, 96
-
99).



The domestic counterpart of antiimperialism is the empowerment of the poor and working
class, and the elevation of their symbolic and material status. The

government has created social
projects, known as
misiones
, to provide health care, education, job training, housing and urban
infrastructure in the massive shantytowns, agrarian reform, and nutrition through the provision of
subsidized food. Social servi
ces are provided in a form that calls for mobilization by the recipient
population. The missions are organized locally, involving local participants in the execution (if not
necessarily in the planning and initiation) of the projects. Typically, a commit
tee of residents is
recruited to organize the activities of the mission in each neighborhood.



Misión Robinson I

was a nationwide campaign in which volunteers taught illiterate
Venezuelans to read and write. It claimed to have taught almost 1.5 million

people to read in one year
(2004
-
2005). On its first anniversary, Chávez claimed that illiteracy in the country had been eradicated
(UNESCO, 2005; Wilpert, 2007: 124).
Misión Ribas
, the followup to Misión Robinson, provides high
school equivalency class
es at night.
Misión Barrio Adentro

is the primary medical care practice in
which Cuban doctors and other medical personnel
-
-
over 23,000 in 2006
-
-
staff primary care clinics in
the barrios. Chávez keeps very close touch on the missions, exercising personal

direction over them
and over the organization of his supporters.



The significance of these missions is greater than the provision of services; greater, even, than
the opportunity for poor people to organize and participate in running their communities.

In today's
Venezuela the poor are accorded a status and recognition that reverses the inferiority to which they had
been relegated throughout the country's history. As Coronil (2008a: 3) puts it, "now it is impossible to
participate in politics in Venezu
ela without recognizing the centrality of common people." They have
responded with massive support for the government, manifested in militant defense of the revolution
against the 2002 coup and in a series of victories in elections to office and in refere
nda from Chávez's
first election to 2009.



The prospects for Chávez's revolution will depend on the future course of the price of oil and
on the government's success in avoiding the resource curse. Given the heavy dependence of the
Venezuelan economy on
oil, the resource curse theory would predict that the current prosperity is all
too vulnerable to the price decline. Many analysts today have suggested that Venezuela is headed for
another bust. As already mentioned, all assessments of the Venezuelan eco
nomy appear to be highly
ideological. Those who sympathize with the Chávez government are eager to credit it with a viable
strategy for sustainable economic growth while its opponents wish to prove corruption,
mismanagement, and a coming economic collapse

(see, for example, the debate between Rosenberg,
2007, and "Oil Wars," 2007, about the management of PDVSA, that between Rodriguez, 2008, and
Weisbrot, 2008, about poverty reduction, and the collection of views of supporters and critics of
Chávez's oil po
licy in Coronil, 2008b). I will evaluate the occurrence of the resource curse in
Venezuela on the basis of four criteria: corruption, social spending, sustainable economic growth, and
the response to the current price collapse. I will argue that, while t
he outlook is mixed, there are signs
that Venezuela's development strategy shows signs of having defeated the resource curse.



Corruption
. Political favoritism in hiring and kickbacks in purchasing are widely rumored.
Venezuela ranked 138 on the 2005 Tr
ansparency International Index, just above Angola (Transparency
International, n.d.). Corruption is intrinsically hard to verify. It has been widely reported in academic
and journalistic sources as well as in everyday conversation among Venezuelans, alth
ough in his first
campaign for president, Chávez promised a vigorous attack on corruption. Complaints are even



18


common among Chávez supporters, especially in the grassroots organizations. But some academic
accounts mention corruption only in passing, as i
f taking it for granted, without specific allegations
(Corrales, 205: 107; Ellner, 2008: 184; McCoy, 2005: 120; Ortiz, 2004: 87
-
90).



The most detailed accusations are leveled by Gustavo Coronel of the conservative Cato Institute
in Washington. Coronel,
while claiming that corruption under Chávez has reached record levels, uses
a broad definition of corruption that mixes allegations of financial irregularity with admittedly political
criteria. He seems to view anything that expands the power of governmen
t as necessarily corrupt. His
examples of corruption range from political control of the oil company and subsidies to oil purchasers
abroad such as Cuba and poor communities in the United States to inadequate garbage collection. It is
only by that broad
definition that he can claim that "the eight
-
year period of Chávez's government has
been hypercorrupt, surpassing all preceding governments in both incidence and intensity of corruption"
(Coronel, 2006:8).



Gregory Wilpert, an acknowledged sympathizer of

the Chávez regime, recognizes the
prevalence of corruption (while also pointing out that it is longstanding, an extension of the clientelism
that has been an integral part of Venezuela's political and economic history; Wilpert, 2007: 212
-
15).
But its mag
nitude in Venezuela does not appear to be comparable to that of Angola or other oil
-
producing countries on the Gulf of Guinea. It appears that national control of oil production in
Venezuela precludes corruption in the assignment of contracts to internati
onal oil companies that
elsewhere rise to the billions of dollars.



Social spending.

Part of the resource curse argument is that governments of poor oil
-
producing countries are unresponsive to the needs of their populations because the rulers live off t
he
rents generated by high oil revenues, so they are more concerned with their constituency in the
international oil business. This is clearly not a characteristic of the current Venezuelan government.
Social spending has increased massively under Chávez
, especially in the areas of health, education, and
food subsidies. Government social spending increased from 8.2% of GDP in 1998 to 13.6% in 2006;
on a per capita basis, social spending increased by 170% between 1998 and 2006. These figures do not
inclu
de social spending by PDVSA, which itself amounted to 7.3% of GDP in 2006. Counting
PDVSA's share, total social spending was 20.9% of GDP in 2006. In the aggregate, real social
spending per capita had increased by at least 314% over 1998 (Weisbrot and Sa
ndoval, 2008: 10
-
12).



In practice, all the "missions" are funded by oil revenue. In some cases the relation is direct.
Venezuela pays for the Cuban medical personnel of Misión Barrio Adentro by selling oil to Cuba at
discounted prices. Misión Ribas
is run directly by PDVSA and the electric company CADAFE; its
headquarters are located in PDVSA's offices (Collier, 2006; Gobierno Bolivariano de Venezuela, 2006;
Gobierno en línea, n.d.; Wilpert, 2007).



These social programs have improved the living s
tandards of the population (Table 2). GDP
per capita stood at usd6,632 in 2005 and the Human Development Index was .792. Life expectancy
was 73.2 years and the school enrolment ratio was 75.5%. If we make the same comparison of HDI
and GDP per capita as

for Angola, we find that while the country's GDP ranks 88th of 174 countries,
its HDI ranks at 74th of 177 countries. In life expectancy it ranked 61st of 177 countries and in school
enrollment, 76th of 172 countries (UNDP, 2007: 230). That the social w
elfare measures are better than
would be predicted from GDP (just the reverse of Angola) suggests the effectiveness of government
social welfare programs.



The poverty rate declined from a peak of 55.1% in 2003 to 26% at the end of 2008; the 2003



19


peak wa
s due to the decline in the economy because of the PDVSA strike, but the 2007 figure also
represents a decline from 43.9% in 1998 before Chávez took office. Unemployment tracked the
poverty rate, falling from 19.2% in the first half of 2003 (and 15.3% in
the first half of 1999) to 7.8%
in 2008 (Weisbrot and Sandoval, 2008: 10
-
12; Weisbrot et al., 2009: 9, 15).



Social programs are costly, and Venezuela's depend heavily on oil revenue. I will address the
effect of the 2008 price collapse below.



Invest
ment and economic growth.

The greatest claimed burden of the resource curse is that
dependence on oil, however profitable, does not guarantee economic growth. In Venezuela, however,
quantitative economic growth in the present century has been spectacular
. Turmoil in response to the
PDVSA shutdown meant major disruptions in 2002 and the first quarter of 2003. During those two
years GDP fell. Recovery began in the second quarter of 2003 and has continued at least to the end of
2007. The country attained

double
-
digit GDP growth levels in 2004, 2005, and 2006 (Weisbrot and
Sandoval, 2008: 9).



The picture is mixed with regard to investment and diversification
-
-
"sowing the oil" to create an
economy less dependent on oil. Some critics have argued that Ch
ávez's nationalization of oil
extraction and some non
-
oil industrial firms has scared away foreign investment (Romero, 2008). But
investment has nevertheless been strong, both in the public and private sectors. Gross fixed capital
formation, which stagna
ted during the first years of the Chávez administration and then collapsed
during the PDVSA strike, has come back strong, exceeding the levels of before the strike by a wide
margin: its real growth was 49.7% year
-
over
-
year in 2004, 38.4% in 2005, and 26.6%

in 2006. For the
first three quarters of 2007, it was up 24.6% year
-
over
-
year. Oil Minister Rafael Ramírez said in
January, 2008, that PDVSA invested $5.8 billion in 2006 and $10 billion in 2007, and would invest
$15.6 billion in 2008, which would incre
ase oil production to 5.8 million bpd (Alvarez, 2007; PDVSA,
2008; Weisbrot and Sandoval, 2008: 21).



To diversify the economy, the government is investing in small producer cooperatives. It is
clear, however, that the economy remains concentrated in the

oil sector, and outside of that sector,
growth in manufacturing has not been as strong as growth in finance and other services (Weisbrot and
Sandoval, 2008: 8; Wilpert, 2007: 76
-
81).



Inflation posed a threat to economic growth in 2007 and the first half

of 2008 due to the
worldwide surge in food and energy prices, but then abated with the worldwide decline in demand.
The Chávez government has successfully pursued a policy of keeping public debt, especially foreign
debt, low (it has in fact been reduced)

and maintaining a balance of payments surplus which should
help to contain inflation (Weisbrot and Sandoval, 2008: 15
-
16; Weisbrot et al., 2009: 19
-
20).



After the price collapse
. If Venezuela did not succumb to the resource curse during the oil
boom, i
ts response to the loss of oil revenue since the sudden, steep price collapse that began in July,
2008 is an important further test. As of this writing (May, 2009), it is too soon to be certain, but there
are signs that Venezuela has some resources that w
ill enable it to weather the storm better than might
be expected.



Venezuela has attempted to protect itself against the price decline by conservative budgeting
and promoting output controls in OPEC (Mouawad, 2008). What appeared to be a conservative
acc
ounting measure estimated oil revenues at $60 a barrel for 2009, but in 2008 the price fell to half
that level. Finance Minister Alí Rodríguez (the former OPEC head), presenting the 2009 budget to the



20


National Assembly, anticipated curtailment in financin
g for the missions
-
-
though he did not say by
how much (Morgan, 2009).



If evaluations of the present status of Venezuela's oil industry are politically contested,
projections of its future are even more so. Some economists predict a complete economic col
lapse.
Others have argued that the greatest economic danger Venezuela faces is inflation, and that it should
adjust to the decline in oil revenues by adopting a conservative fiscal policy. But according to Mark
Weisbrot and Rebecca Ray (2008), the key is
sue is the current account balance. Inflation, in their
view, is less of a danger to continued economic growth than is the prospect of having to cut imports.
The current account balance has been strongly positive for several years, allowing the country t
o
accumulate a dollar reserve that provided a cushion to protect the economy at least to the end of 2008.
Weisbrot and Ray argued (in November, 2008) that if oil remained at $50/barrel, the accounts balance
would remain positive. It is too soon to tell w
hether the recent recovery will be sustained and prevent a
deficit in 2009. But assuming recovery from recession at the global level, the price of oil will remain
higher than at the end of 2008. In the meantime, Venezuela's ample cash reserves
-
-
$40 billi
on in the
Central Bank, $37 billion in other accounts, amounting to 23% of GDP
-
-
provide an enormous cushion
against a trade deficit.



Conclusion



Why has Venezuela avoided the resource curse (at least partly and for a time), while Angola has
not? Can Ve
nezuela's success offer guidance for other countries facing the threat?



Because the resource curse is a complex phenomenon, it is helpful to begin by stating exactly
what are the problems associated with it that any remedy is meant to solve.
5

The three
main issues that
proponents of the resource curse theory point to are corruption in the use of revenues, economic
mismanagement, and neglect of the living standards of the population.



Most of the remedies proposed for the resource curse address the issue

of corruption. They
concentrate on "good government" measures to assure transparency and accountability to avoid
corruption or political interference. Often recommendations express an optimism about the prospects
of reform that is belied by the conditio
ns they are addressing: for example, hopeful observers claimed
that the end of the war in Angola offered an "unprecedented opportunity" (the phrase is used by
Hodges, 2004, and Human Rights Watch, 2004: 3) to institute transparent and accountable use of oi
l
revenues.



Some who call for reform and an end to corruption see a solution in civil society. If its
organizations were strengthened, they could compel rulers to comply with their demand for honesty in
government. Many of the most vigorous advocates o
f this solution come from NGOs and regard their
own organizations as exemplars of civil society. Some offer more detailed proposals in the same vein:



5
An important re
ason why some countries
-
-
the United States and Canada, for example
-
-
have
avoided the resource curse is that they were not poor when they began developing their mineral
resources and those resources never had the predominant weight in their national product

that oil has
today in the countries which have been victims of the curse. I leave these considerations out of the
present discussion, however, because they are not subject to manipulation by government policy. (In
any case, in the US an oil economy had
locally corrupting effects in such states as Louisiana, Texas,
and, perhaps, Alaska; Goldberg et al., 2008).




21


they call for countervailing political and social pressures, for building the political capacity of group
s
that do not share the interests of corrupt governments and international oil companies, for instituting a
merit
-
based civil service, for taxation not based on oil, and for democratic institutions to rein in the
alliance between multinational oil companie
s and political leaders (Alexander, 2008: 23
-
24; Gary and
Karl, 2003; Karl, 1999: 45
-
47).



A demand that the corrupt put an end to their corruption has an air of unreality, since it asks
them to surrender their power and privilege. All these proposals em
phasize that any reform will
require a change in political will, but none explains where the new political will might come from. If
oil oligarchies and transnational corporations are profiting from the present arrangement and any
change can only harm thei
r interests, they have the power to prevent it. The prospects for the
emergence of alternative centers of power to compel good behavior are limited, moreover, since those
who appropriate the oil wealth can buy off potential opponents (Hodges, 2008: 198).



Oliveira and Ali (2006) place their confidence in the transnational oil corporations' embrace of
corporate social responsibility. Others who have less confidence in the good faith of corporations
nevertheless also see them as the appropriate pressure po
int. A coalition of NGOs proposed the
"Publish What You Pay" initiative in 2002, a plan to require oil companies to disclose the royalties
they pay to producer countries; In 2003, Tony Blair offered an alternative, the Extractive Industries
Transparency I
nitiative, calling for such disclosures; it asked producer countries to comply voluntarily,
but once the country had signed on, disclosure would be compulsory for companies. This distinction
led to some rivalry between the sponsors of the two initiatives,

but with little effect since the "Publish
What You Pay" initiative had no means of enforcement. And (as mentioned earlier) when BP offered
to disclose its payments to Angola, Sonangol forced it to back down (Alexander and Gilbert, 2008: 72;
Dias, 2007: 3
5
-
36; Shaxson, 2007: 217
-
18)



Those who focus on the inefficiency associated with the resource curse propose technical
solutions to stave off its economic effects. For example, they argue that to protect an economy from
inflation and the Dutch disease, r
evenues should be sterilized by being held outside the country in a
sovereign wealth fund (Humphreys and Sandbu, 2007: 194
-
233; Karl, 1997: 66; Karl, 1999: 44). Two
IMF economists suggest bypassing the state, distributing oil revenues directly to the popu
lation, then
taxing them back (Sala
-
i
-
Martin and Subramanian, 2003). But Michael L. Ross (2007: 243
-
44) points
out that any distribution scheme would be plagued by the same problems of lack of transparency and
administrative capacity that characterize the

oil states now.



Some would pursue efficiency by isolating oil revenues from political control. This was the
method adopted by officials of PDVSA during the period of apertura
-
-
revenues were reinvested, often
outside of the country, so that they could
not be spent for political purposes. That is no guarantee
against corruption, however, as the case of Sonangol shows. It reaps money through corrupt oil
-
related
transactions and invests it around the world, functioning somewhat like a sovereign wealth fu
nd
(Africa Confidential, 2008: 10
-
11). Keeping money outside the country is hardly a guarantee of
transparency.



Even if it were, it raises the question: in whose benefit is the resource curse being exorcised?
Achieving sound management and economic eff
iciency will not necessarily redound to the benefit of
the entire population. Reform advocates from the NGO world generally call on governments to
account for their revenues honestly so that the money will be applied to improving the welfare of their
popu
lations. But they appear to assume that better social policies will automatically follow from
transparency and honest government. That is not necessarily the case.




22




Others who call for transparency and efficiency are fundamentally concerned about profit

maximization without regard for the uses to which the profits are put. If oil is the patrimony of a
nation and all its citizens are entitled to share in its rewards, however, oil wealth rightfully belongs to
them. If profit maximization is the goal, tho
se who appropriate the profits violate their rights whether
appropriation proceeds by legal or illegal means.



Economists who privilege efficiency have learned too well the lesson of Adam Smith, cited
earlier, that rent
-
seeking creates a bias toward unpr
oductive activities. This unproductive bias must be
guarded against; it is nevertheless not a necessary consequence of rent
-
seeking. If rent
-
seeking means
using monopoly power to get the highest price for natural resources, it is no different from the ca
pitalist
pursuit of gain in general. Readers of this article who drive low fuel
-
efficiency vehicles in the United
States and remember gasoline at five dollars a gallon may find this hard to accept, but the producer
who forces the price of oil up is engagi
ng in rational behavior. Successful rent
-
seeking will produce
income for the benefit of some people on the side of the producer. The question is for whom.



The goals of efficiency and public benefit can conflict with each other unless the first is put
e
xplicitly in the service of the second. My argument is that Venezuela has done so, and overcome this
more fundamental aspect of the resource curse.



How then do we explain Venezuela's success in addressing the resource curse and using its oil
to fund th
e welfare of the whole population, in contrast to so many oil
-
producing countries with
outcomes similar to Angola's (even if Angola is an extreme case)?



Some claim that the changes brought about by the Bolivarian revolution are purely
personalistic, due
to the ambitions, ideology, and ego of President Chávez. But his program of twenty
-
first century socialism goes well beyond personal self
-
aggrandizement. Venezuela is addressing the
resource curse with a fundamental social revolution and has decided to o
perate according to principles
of international third
-
world solidarity and maximizing the benefits of the oil revenue to the population
as a whole. This offers the best opportunity to make oil work as a blessing rather than a curse.



When PDVSA adopted "
sound" management practices in the 1980s and 1990s and curbed the
excesses of spending that some scholars identify with the resource curse, it made the oil company an
independent entity that operated without regard for national goals. This policy brought
efficient
capitalist management, but it deliberately excluded applying oil revenues to the development of the
country. With Chávez's election the orientation changed: PDVSA was newly subject to political
direction
-
-
contrary to good business practices, acc
ording to some, but operating in the international
environment to maximize returns and domestically to harness oil revenues in the service of investment
in human and physical capital and general welfare.



Venezuela has not only found a cure for the diseas
e. It has also found a cure for the cure.




23


Table 1

Oil Industry, Angola and Venezuela



Angola Venezuela


% of GDP

45

33


% of exports

90

75


% of government revenue

90

50


Production, 2007

1.7

2.4


(million

bpd)



Sources: Oliveira and Ali, 2006: 4; Energy Information


Administration, 2007, 2008b: 148.


Table 2

Social indicators, 2005



Angola Venezuela


Adult literacy

67.4%

93.0%


Rank

109 of 139

42 of 139



Life expectan
cy

41.7 years

73.2 years


rank

174 of 177

61 of 177



Human Development


Index

.446

.792


Rank

162 of 177

74 of 177



GNP/capita

usd 2,335

usd 6,632


Rank

128 of 174


88 of 174



Source: United Nations Development Program, 2007: 230, 232.




24



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