Research Proposal FROM RENT CAPITALISM TO RENT SOCIALISM: ITS ECONOMIC, INSTITUTIONAL, IDEOLOGICAL, POLITICAL AND LEGAL IMPLICATIONS

THE CASE OF VENEZUELA ABSTRACT Venezuelan society is characterized by the exceptional role played by oil. It is of dual importance, qualitatively and quantitatively. Regarding quality, a difference between oil as a productive activity (the oil industry) and oil as a source of rent (a state-owned natural resource) should be established. Oil is a source of an international ground rent since it comes from the international exploitation of a nationally-owned natural resource 1. With respect to quantity, the oil industry is Venezuelas principal industry, in addition to its extraordinary contribution as a source of rent to national income. Oil rent is a unilateral transfer received from abroad representing net income that may be freely used. This is the origin of the specific characteristics of Venezuelan capitalist development over the last 90 years, with an international ground rent as the main source of national capital accumulation. Thus, during the 20th Century, the Venezuelan historical process may be defined by the term rent capitalism. One of the features of rent capitalism is that the state appears as the national landlord seeking to maximize oil rent, a natural resource subject to international exploitation. Thereby oil rent fosters concomitantly the national development of capitalism. Income appears completely external to the national production process and is distributed by the state without relation to the distribution of national income. This parallel process has
1

A theoretical development of the concept of international ground rent and its quantification in the case of Venezuelan oil is to be found in Mommer (1990); and the theoretical support of rent capitalism can be found in Baptista (1997).

significance at the institutional, political and ideological levels. The laws and rules that govern oil rent matters (income of external origin) are determined by the state based on political and ideological criteria. Thus, the Venezuelan state may be defined as a rentier state 2: a capitalist state within the national sphere, but a rentier state internationally, which raises the problem of legitimacy. This is solved politically by declaring oil deposits natural capital and giving, therefore, an intrinsic (moral) value to oil. In this way, oil rent becomes a capitalist income that does have an equivalent, the assumed intrinsic or moral value. In order to carry out a comparative analysis between patterns of institutionalization and political development, the interest of my research proposal is twofold: 1- To analyse the interaction between economic development and the state political, ideological and legal institutions in Venezuela and other non-oil countries, such as Argentina, Colombia and Peru (1999-2007); 2- To analyse mechanisms and problems derived from moving from a rent capitalism to a rent socialism, as defined by the current Venezuelan government (2005-2007). Keywords: Rentier state, oil rent, representative democracy, authoritarian democracy, power concentration, bending of law.

Professor Terry Lynn Karl (1997), of the Stanford University, calls the states in oil countries as petrostates. See below.

CONCEPTS AND DEVELOPMENT OF THE RESEARCH PROPOSAL RENT CAPITALISM Rent capitalism is a singular experience at the heart of contemporary economics. Its structure is marked by the dominant presence of the rent of international land, the behavioural analysis of its basic relations reveals in itself like a field full of significance for knowledge. In this respect, we have carried out previous research over the last two decades (Dvila), where the main historical referential environment has been Venezuelan society. However, I consider that the possible importance of the results obtained should go farther than the local limits of this referential space to contrast or compare them with the realities of other societies that do not share the dominant presence in their economies of international oil rent. Rent capitalism has basically four defining elements: 1- it is a form of capitalist development; 2- it is a form of national capitalist development, significantly favored and sustained in the long run by an international rent coming from petroleum exploitation; 3- the national economy, where this capitalism develops, is found inserted in a highly developed world market; 4- this international land rent corresponds to the State, which is the owner of the petroleum subsoil. Petroleum rent creates societies with clay feet. That is, 1- with a structural insufficiency in its capital absorption capacities and in the countrys management practices; 2- it shapes a culture, a State and a rentist political system characterized by the pronounced disequilibrium between the private and public sectors; 3- characterized by a weak institutional fiber

that favors the concentration of power, a legal vacuum, discretionality in decision-making, and corruption. Given that Venezuelan capitalism is sui generis, how will the socialism, which is sought, influence society? What is the political, ideological and legal institutionality over which this socialism will be built? If petroleum rent made possible in a few decades the change from a rural and backwards society to a market, urban and, in appearance, a very modern society; given a middle class with consumer patterns and buying power equal to those of industrialized capitalist countries, is it possible to reverse this historical tendency? How to construct a new (socialist) man and not to look beyond national borders, imbued with values of solidarity, non egotistical and non consumer? If the foundation of its wealth did not come from the social forces, but a wealth generated precisely on the criticized international capitalist system and distributed with political criteria by the State, how to change this context? On the other hand, the state captivator of the petroleum riches never needed to convince the population of the need to pay taxes as a contribution of private interests to public purposes for the common good. This is crucial for capitalists to build states of social well being in the United States or Europe. The public services were paid for with petroleum rent. This led to efficiency norms, responsibility, caution, and accountability being notoriously weak for all governments and society for nearly a century. In the legal environment, the difficulty for clearly distinguishing between public and private, has had a profound effect on the behavior of State officials as well as private citizens. Finally, in terms of the political system, democracy in rent capitalism is built based on pacts and agreements, where no one, except for the State treasure, sacrificed their

particular interests.

This created: 1- corrupt elites, insensitivity to the

extreme, little given to social inclusion; 2- subordinate social sectors dependent on the State. Then, in a rent socialism, how is continuing to distribute the petroleum rent, nationally as well as internationally possible, in exchange for obedience and political support to an idea that still seems utopian and with out a major basis? Socialism, or the alternative society that begins to be the objective of discussion in Venezuela, should pass for understanding the profound and deeply rooted mechanisms that in the economy, culture and politics implanted rent capitalism. It is enough to slowly observe the recent history of the country to perceive: 1- the influence of rentism everywhere, in the values and consumer patterns, in the galloping inefficiency of the public and administration, in the inability of government officials to differentiate between public monies that belong to everyone, and those that are private; 2- the ease with which it is assumed that our society can be moved towards a holistic transformation because there is a lot of money. Again, the story repeats itself. And, since 1936, what is defined as a philosophy and politics of the State: sow petroleum, is retaken again and the effort is made to use the petroleum rent to build a fair and free society in the 21st Century under the dominium of socialist ideology. However, in many of the strategies and the daily routines of the State, of the government, of the politicians and citizens, the rentist mentality that everything can be solved through will and money continues to predominate without anyone sacrificing. The center of the debate is then placed on how to take advantage of the petroleum rent and the state apparatus so that rent socialism will not, again, destroy the most sensitive expectations of society RENTIER STATE

From the beginning of the 20th Century to the present day, the State has been a decisive aspect not only of rent capitalism but also of contemporary Venezuelan society. During the 19th Century, the substantive fact was its material poverty. From the advent of petroleum, the State has enjoyed great economic autonomy with deficient social performance. This rich State and as such, autonomous, has coexisted with a society that is poor and materially dependent on itself. From this, the great paradox of rent capitalism: Rich state, poor society. In 1938 Arturo Uslar Pietri wrote: Our economic life is not but the reflection of a rich State (1945). Now, this wealth is not generated by the impulse of its own national economic forces. As a powerful economic agent, independent of the domestic economy, it gives the State the mere character of owner of the petroleum subsoil. And petroleum, as it is worth mentioning, is a natural object and not the result of a productive process. Rent that is perceived as basic to its property originates, moreover, in international commerce. As such, it means a transfer to the Venezuelan State generated in the world market, whose quantity is very significant with respect to the size of the national economy. The continuity of the perception by the State from this rentist income has remained for more than 90 years, which on a social practical level has been converted to its own characteristic and nature in Venezuelan life. The nature of the State in rent capitalism can be summarized in four characteristics: 1- it is an economic agent independent of the society, which exercises political authority, which does not mean that they be the owners of the means of production as in the case of the socialist State; 2-its interventionist capacity through general political economic orientations depending on the ideological tones of the government, which is no more than its administrative and legal arm; 3- if this is the great giver of

resources, its true sign will the subordination of society to the State. In this sense, it distributes more than it redistributes, grants, and divides without cross-entry, without necessarily having to rely on coercion or on violence; 4- finally, this mastery impedes the existence of citizens capable of requiring demands because the material life of the State is supported by them, what is observed, rather, is a type of slightly anachronic feudal or State dominium. Given the recent deterioration of the State and its institutions it is difficult, if not impossible, to construct a State socialist economy with a State in decay. But on the side of political power, the characteristic of the greatest importance for the purpose of carrying out this research stands out: the asymmetry of power that takes place between the state and society, which can induce authoritarianism almost spontaneously. The autonomy of societys rentist state makes governments and leaders with autocratic and militaristic thoughts use the material advantage to close the political system. Then, what is left is to research the characteristics and the institutionality erected by the so-called, direct, popular and protagonistic democracy that from 1999, came to substitute the model of representative democracy valid as from 1958. Here, two characteristics stand out: 1excessive centrality of the leader; 2- the concentration of power by the State, which tends to totally control society; 3- control that will be justified discursively before the people as necessary to carry out the struggle against the internal oligarchy and international imperialism. Some questions seem pertinent to guide the objectives of this research: How could a society with the exceptional conditions that Venezuela exhibits detain its material growth and see its living standards decrease? How could a society with such characteristics house in its bosom 80% poverty? Why is there an inability to generate forces to counteract the

States economic independence, thus permitting the freedom of action that private initiative requires to make the economy grow? What has occurred since 1999, when a large knot impeded economic and social recovery, despite the high prices of petroleum? What are the conditions needed for society to confront the preeminence of the state? Can the rent socialist State maintain itself isolated from global economic development where it feeds itself- due to merely ideological reasons? To what extent is it possible for this State conducted by a government under the socialist ideological sign, preserves its nationalism when its society is already involved in the logic of global institutionality. Could this clear anachronism be maintained in a contemporary world of economic and political relations? Under what political mechanisms could socialist central planning be substituted by inspired improvisations and ideological whims of the Head of State? Is this in agreement with the logic of a petroleum country like Venezuela, the subjective and whimsical authority of power, where objectivity in law has no place, that is, equality in the face of legal norms of governors and those who are governed?

PRECEDING RESEARCH AND VIABILITY OF THE PROPOSAL

There is an important academic precedent in this matter: the work of Professor Terry Lynn Karl (1997) about petro-states. What exactly is a petro-state? It is described as a mining country with weak institutions and a malfunctioning public sector. Its most important feature are laws that grant subsoil rights to the government, from which spring the extraordinary size and duration of the "petro-rent" which is much, much greater than the profits which can be made in the private sector.

While professor Karls research comparatively analyzes petroleum countries, such as Venezuela, Indonesia, Nigeria, Algeria, Iran, Mexico, and Ecuador among others. In her work, she concluded that most of them "tend to bear a striking resemblance to each other in State capacities and macroeconomic performance, despite differences in types of political regimes, cultures, geo-strategic locations, and the like". In the proposed research, we attempt to identify differences between petroleum and non petroleum countries. We begin with a comparative analysis of Colombia, Argentina and Peru, from the point of view of the functioning of the State and the make up of its political, legal and ideological institutions. As Karl points out in chapter three of her book, "because oil revenues poured into the state and not into the private enterprise, each new discovery or price increase enhanced the role of the public sector". So, it is only natural that new agencies and jurisdictions are born. And, since it is the state, not the private sector, which has first access to the petro-rent, rent-seeking becomes the name of the game for everyone, including, of course, the small private sector. Deadly fights over who controls the country's oil revenues become the only important issue in domestic political life. These "wars" over petro-rents annihilate already weakened institutions, favor the concentration of power, promote the bending of the law, and last but not least, increase corruption, which is already allpervasive. Our objective is to observe the persistence, or not, of those mechanisms in non petroleum producing countries in our case study. Moreover, the very large oil revenues, which come into the hands of the State put pressure on exchange rates that foster imports and discourage exports. Inevitably, inflation sets in. The market is soon saturated with all kinds of imported goods. Currency becomes overvalued because the oil sector is the core of the economy and extensive reliance on imports

undermines local production. With this behaviour, to what extent could rent socialism convince the population in democratic conditions- to build an internal market that dispenses with such consumption patterns? Will it be possible to build an internal socialist market based on imports or will it have to conform to society to have empty shelves, due to the precarious national production? Furthemore, if we take into consideration Karls remarks, closely associated with the idea of "sowing our petroleum", the benefits of government spending are cancelled out by an overheated economy. Again, "the boom not only provokes a grander, oil-led economic model but also simultaneously generates new demands for resources from both the state and the civil society. Policymakers, once torn between their twin preoccupations with diversification and equity, now think they can do both. The military demands modernized weapons and improved living conditions; capitalists seek credit and subsidies; the middle class calls for increased social spending, labor for higher wages, and the unemployed for the creation of jobs. As demands rise, unwieldy and inefficient bureaucracies, suddenly thrust into new roles, find themselves incapable of scaling down expansionist public-sector programs or warding off privatesector requests. Thus they ultimately contribute to growing budget and trade deficit and foreign debt. The boom effect is instantly at work." (p. 65 ) Petro-states apparently cannot cope with oil booms without undermining democracy in the end. Such seems to be the curse of the petro-state: "you shall never attain economic diversification and your people will grow poorer and angrier at you with each passing day". To what extent is building rent socialism and under what mechanisms-possible in this context?

Since the Arab oil embargo in the 1970s, the number of Venezuela's poor has climbed to almost 80% of a population of 26 million. Today, most Venezuelans agree that it was the harvest of inequality, frustration and political unrest, generated by the oil booms of the mid-1970s and 80s that made possible Lt. Col Chvez's ascent to power in 1999. The irony of it all is that after ten years of the longest oil-boom in Venezuelan history, with OPEC crude prices reaching unprecedented peaks, there are 2 million more Venezuelans living below the poverty line than in 1998 and, with 250 billion more dollars having passed through the hands of the Venezuelan state (UCAB, 2004; FERMENTUM, 2006). Despite its radical rhetoric and its denunciations of "neo-liberalism" and "Yankee imperialism" as the enemies of Lt. Col. Chvez's "socialist revolution," the Venezuelan petro-state seems unharmed and relatively sound while it continues to enjoy the longest oil-boom in more than 90 years. But if Karl's comparative analysis of "the paradox of plenty" is correct, the Venezuelan petro-state's extravagant squandering of resources, its massive subsidies, which only reward inefficiency, the crude inequalities of income and opportunity, and the rampant corruption will mean that "the curse of the petro-state" will prove to be the real enemy of Chvez's "revolution" and of his rent socialism. (Martnez, 2002). Could the Venezuelan petrostate monopolize the economic and political at the same time, safeguarding social, democratic and legal forms? AIM OF RESEARCH PROPOSAL There are four objectives to be achieved: 1- write a book for the English speaking public, later adapted to the Spanish speaking public, about the crucial aspects of rentist capitalism and about the those

institutional, political, ideological and legal conditions that make possible or impossible the transition towards a rent socialist model; 2- similarly, at least two papers will be written about the diverse aspects of this topic to be discussed with the scientific community working on the topic; 3- the results obtained are going to be presented for discussion in different academic forums in the United States, Venezuela and in Latin America; 4- to articulate to others interested in the topic, at least a couple of seminars or courses about the inherent rent capitalist problems, the petro-state, the institutional, political, and ideological systems could be offered. BIBLIOGRAPHY Books
- Baptista, Asdrbal, El relevo del capitalismo rentstico. Hacia un nuevo balance de poder, Fundacin POLAR, (Caracas, 2004). - Baptista, Asdrbal, Bases cuantitativas de la economa venezolana: 1830-1995, Fundacin POLAR, (Caracas, 1997). - Baptista, Asdrbal, Teora econmica del capitalismo rentstico. Economa, petrleo y renta, Ediciones IESA (Caracas, 1997). - Barrera, Alberto y Marcano, Cristina, Chvez sin uniforme. Una historia personal , Debate, (Caracas, 2004). - Carrera Damas, Germn, El bolivarianismo-militarista. Una ideologa de reemplazo, Ala de Cuervo, (Caracas, 2005) - Castro, Gregorio (editor), Debate por Venezuela, Editorial Alfa, (Caracas, 2007). - Coronil, Fernando, The magical State. Nature, Money and Modernity in Venezuela , The University of Chicago Press, (Chicago, 1997). - Dvila, Luis Ricardo/ R. Cartay, (eds.), El militarismo en Venezuela. Itinerario de una ilusin, Debates, (Caracas, 2008 forthcoming). - Dvila, Luis Ricardo, Power, Language and Nationalism in Contemporary Venezuela , The Edwin Mellon Academic Press, (London, 1997). - Dvila, Luis Ricardo, El imaginario poltico venezolano. Ensayo sobre el trienio octubrista, 1945-1948, (con prlogo de Ernesto Laclau), Alfadil, (Caracas, 1992).

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Artcles
- Baptista, Asdrbal, El Estado y el capitalismo rentstico, Conferencia Gil Fortoul, Academia Nacional de la Historia, (Caracas, 2005)

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_________________________________ Luis R Dvila University of Los Andes (Venezuela) February, 2008