Venezuela and Russia or the Rise of 21st Century “State-Capitalism”

March 6, 2007

Hugo Chavez knows very well that pure “socialismo”, i.e., centralised economic planning and 100% state ownership of the production apparatus doesn’t work. So how can you still be a socialist in the 21st Century? By practising “21st Century Socialism”. This means:

  • Reverse the trend to ever-more market-based economic solutions by increasing the role of the state in the economy, but do not abolish the market economy as a whole. Leave the market economy in peace where you are not politically in danger.
  • Use “market-friendly” moves in the assets you want to nationalise (example here)– see the recent increase in stakes in oil fields by the Venezuelan government
  • If you can’t abolish the market – you can at least undermine democracy by taking control of the media, and managing tightly your populist one-man show.

This is exactly what is also happening under Putin in Russia (please see previous posts on recent trends in Russia and on the relationship between the oil industry and governments today). The only differences: the climate (tropical heat versus icy continental winters), the packaging (“socialism” vs a new powerful Russia like in good old tsarist times), and the propensity to spend (Russia’s Stabilisation Fund has resisted the sirens of massive spending, Chavez distributes his riches all around).

Russia is even more sophisticated in its intricate strategic use of the market for purposes of the raison d’Etat. Gazprom, the oil and gas company that clearly serves the current Russian administration is “only” owned 51% by the government (see previous post). The company is meant to be functioning like a normal market-based company. Many Russians don’t understand the West’s panic when Gazprom suddenly decides to make Russia’s neighbours such as Ukraine, Belarus, Moldova, pay international market rates for gas. “What does the West want, isn’t it always advocating proper use of market prices?”, is what they think. Big state-owned or state-supported huge banks such as the savings bank “Sberbank” or VTB are going to the capital markets this year with IPOs that are going to be so juicy that investors’ usual concern with sound economic management will be set aside.

Is this new in history? Current Venezuela and Russia show many features of the past in modern and 20th Century history – blunt mercantilism like in the 17th Century, elements of ruthless economic state socialism, good old populism in 21st century television-disguise, elements of the purest market economics, African-style predatory behaviour when it comes to seizing assets such as oil. What is interesting is the new blend : the strategic use of market mechanisms for ruthless power politics, at home and abroad. Venezuela and Russia are each role models in their respective regions, and there are signs that, from Bolivia to Kazakhstan, others are, in their own way, going down a similar path. Oh, and Venezuela likes to buy arms from Russia….

This could mean three things:

1) This is the new 21st- Century compromise between liberal market democracies and state socialist dictatorships. One could consider that the 20th-Century compromise was the now crisis-ridden peaceful and democratic European-style post-1945 welfare state. Are Russia and Venezuela showing the road ahead for the next decades?

2) Or states, despite strong power- and sovereignty-rhetorics just are no longer able to completely overcome the forces created by markets and basic freedoms. They just try to manipulate them as much as they can.

3) Or, despite the announced “End of History” after the end of the Cold War with liberal market democracies, nasty people with endless desire for power are still capable of destroying freedoms, including the ones that tend to resist most, economic freedoms.

Well, let’s see what happens. The moment of truth will probably come when and if commodity prices go down.

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2 Responses to “Venezuela and Russia or the Rise of 21st Century “State-Capitalism””

  1. Publius Poplicola Says:

    The market should be regulated however in the interest of workers and people, obviously regulation should be limited and encourage growth however.

    I see Clinton 3rd way of economics as a healthy middle ground

  2. rainerirsinn Says:

    as long as we depend on international capitalistic concepts such as the oil-price, selling to the highest bidder, which is in a logical conclusion the most exploitent states such as the USA and the EU (and China furthermore) we can never emancipate our socialist solidarity from these states as we most depend on their goodwill to pay us the highest price.
    By pure Logic you can tell us that this is leading us nowhere but into higher dependancy on the states which we, in common sense would assume to be the mother of so much socio-economic suffering in our part of the globe.
    Isn’t there a more noble and better way to get around?


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