Would Venezuela be Better Off Without Oil?

A interesting piece from the American Scholar:

The founder of OPEC, a Venezuelan by the name of Juan Pablo Pérez Alfonzo, had a different take on the country’s vast oil deposits. “It is the devil’s excrement,” he declared. “We are drowning in the devil’s excrement.” When he delivered that judgment in the 1970s, it was, to put it mildly, a contrarian view. Who could complain when a surge in oil prices had boosted Venezuela’s fiscal per capita income to equal West Germany’s? Several booms and busts later, however, that statement doesn’t seem so outlandish. Oil has shaped every aspect of Venezuela, from its economy to its citizens’ values to its style of governance. Survey that legacy, and so-called black gold begins to look like a poisoned gift.

Dependence on one export has strapped the country’s financial fortunes to a roller coaster. When oil prices are high, many Venezuelans enjoy an enviable quality of life, particularly for a developing nation. The state doles out subsidies to domestic businesses, adds thousands of state jobs, and keeps the domestic currency artificially strong, which makes imports cheap. This state-dispensed bounty has helped create a carefree, let-the-chips-fall-where-they-may mentality in Venezuelans and fostered a concomitant sense of entitlement. After all, with money seeping out of the ground, what incentive is there to work? Of course, government can only apportion handouts when the cash box is full. When oil prices fall, government revenue plummets, and the state is forced to curtail the spoils.

The prudent approach would be to leverage the country’s petroleum wealth to fortify other sectors of the economy. But Venezuelans gravitate to leaders who swear oil reserves can keep the party going indefinitely. Chávez is the latest in a long line of irresponsible, populist presidents, and if he has his way, his successor won’t emerge for many years. Chávez is demanding—and is expected to receive— authority to run for unlimited reelection. Still, even as he concentrates power, broader trends could determine how long his unlimited term in office lasts. Chávez’s standing—like so many things in this country—may depend more on the price of oil than he would like to believe.

Via Free Exchange.