Sowing the seeds of oil...

I've been interested in learning when oil outpaced all other traditional Venezuelan exports, as if the date were a point of no return when policy decisions were made that pushed the country into a mining dependent economy.  There is some truth in the notion that policy decisions that favored petroleum were made, but it is interesting to note that there were many dissenting voices that were struggling to be heard in the meantime.

Baptista and Mommer ("El petroleo en el pensamiento economico venezolano") state that by 1935 petroleum was fundamental to the Venezuelan economy, more important than all other traditional exports together.  The 1929 crisis hadn't greatly affected oil prices, though it destroyed the coffee industry and commodity prices plummeted.  The crisis helped emphasize the bad shape the Venezuelan agricultural industry was in.  It had become a subsidized and peripheral activity when compared to the booming oil industry.  Without the mining sector, the country would have been motivated to modernize its agricultural sector, but the mineral resources made such efforts unnecessary for economic growth.  When the dollar was devalued in 1933 the traditional export market worsened and Venezuelan economists and politicians discussed devaluing the bolivar.  However, the perceived loss of oil rents was considered worse than the benefit to the agricultural sector, and the currency was not devalued.

As indispensable as the petroleum sector was becoming to the Venezuelan economy, the industry was a foreign enclave with no connection to more traditional exports.  Oil rents flowed into the economy, increasing consumption, but the failing agricultural sector put Venezuela in danger of becoming a parasitic economy.  One intellectual and politician who criticized the path the country was taking during the 1930s and 1940s was Arturo Uslar Pietri.  Uslar Pietri characerized agriculture as a "reproductive and progressive" economy, while mining was "destructive" (18).  In his opinion, oil rents should be sown back into the economy through productive investments.  With the right politics allowing oil rents to be used for development he believed Venezuela did not need to have a parasitic relationship with its natural resources.  His theory was tested in 1943 when the oil laws were changed and rents increased to previously unknown levels.  The capital could not be absorbed by the weak Venezuelan economy and matters were complicated by the 1945 coup.  Uslar Pietri fled the country and continued to write from Buenos Aires.

Uslar Pietri identified with theories about productive capitalism and, as such, oil rents were a moral problem for the Venezuelan economy.  Under this theory, the ideal capitalist receives income for productive work and/or its trade.  Therefore oil rents cannot be considered legitimate income, since no productive work was carried out to receive them, and instead they are a gift of nature.  The private capital of the international oil companies (IOCs) became a public good through oil rents, though Uslar Pietri's theories on how to transform the public good back into private capital were vague (22).

Legitimization of the rents could only come through their investment, which would allow the income to become productive.  Uslar Pietri believed that the Venezuelan government after 1945 was channelling oil rents only to consumption, causing it to grow much faster than the country's productive capacity.  The vision of what comprised a "normal" economy was being lost and structural changes within Venezuela were making the process irreversible, with Venezuela's future completely dependent on its mineral resources.  The moral problem extended to the labor force as well as laborers and businessmen profited from rents that were not a product of their own work, causing them be become corrupted.  But in Uslar's opinion it was not the IOCs who were the source of this corruption, it was the incorrect investment of their private capital.  The oil rents had not been sown properly. 

Romulo Betancourt and Juan Pablo Perez Alfonso believed that the seeds of oil should be sown quite differently, initiating in 1945 the idea of a popular distribution of oil rents, in order to dissolve the traditional agricultural sector, improve the country's human capital and create a national market with a high adquisitive ability.  But that is a story for another post...