The Viridian Design Movement

From: Bruce Sterling []

Sent: Tuesday, January 28, 2003 5:35 PM

Subject: Viridian Note 00360: Venezuela's Curse

Key concepts:
oil riches, economic destabilization,
carbon mining
Attention Conservation Notice:
A FORTUNE magazine article points out that carbon mining has ruined Venezuela. But why wasn't this helpful tip delivered much earlier? And what about all those other formerly prosperous countries massively harmed by corrupt carbon domination in their centers of government? Not that we're naming any names.


It's so bad in Venezuela that even oil technocrats are really scared. Man, it's hard to be a rich, educated guy on strike.

Here come the next eager victims after Venezuela.

Ever seen terrifying, naked, out-of-control class warfare from immiserated, dirty, semiliterate slum dwellers? Go see this movie and find out how that worked in America.

Hey wait, since the North Pole is melting, we don't need Venezuela any more. We can ship in some handy Russian oil where there used to be solid ice.

But wait! Russia is a carbon-mining state just like Venezuela, so it doesn't have a workable economy, either. It's wall-to-wall corrupt energy moguls selling out the population wholesale! Let's pretend that's really respectable, though. We don't have much of a choice.

Okay Australians: brace yourselves, and check out this ghastly prediction about what's going down in China.

Source: Fortune magazine, Feb 3, 2003, page 96,15114,409899,00.html

"The Devil's Excrement"

by Jerry Useem

"'Ten years from now, 20 years from now, you will see,' former Venezuelan Oil Minister and OPEC co-founder Juan Pablo Perez Alfonso predicted in the 1970s, 'oil will bring us ruin.'

(((Well, oil brought Perez Alfonso's nephew some ruin recently, after he tried to throw a Venezuelan coup and had to scram to Florida. Perez Alfonso himself died years ago in Maryland of pancreatic cancer.)))

"It was an oddball statement at a time when oil was bringing Venezuela unprecedented wealth – the government's 1973 revenues were larger than all previous years combined, raising hopes that the black gold would catapult Venezuela straight to First World status. But Perez Alfonso had a different name for oil: 'the devil's excrement.'

"Today he seems a prophet. When it hit the jackpot, Venezuela had a functioning democracy and the highest per- capita income on the continent. Now it has a state of near civil-war and a per-capita income lower than its 1960 level. (((Venezuela also has a screwed-up climate and is badly polluted, but who's counting.)))

Far from an anomaly, Venezuela is a classic example of that economists call the 'natural resource curse.' A 1995 analysis of developing countries by Jeffrey Sachs and Andrew Warner found that the more an economy relies on mineral wealth, the lower its growth rate. Venezuela isn't poor despite its oil riches – it's poor because of them."

(((Read it 'n' weep. This Sachs-Warner thing is 8 years old. Ever heard of it before? Me neither.)))

"How could that be? For the same reason so many entertainers go bankrupt. (((Hey, at least we make people laugh, fella.))) Showered with sudden windfalls, governments start spending like rock stars, creating programs that are hard to undo when oil prices fall. And because nobody wants to pay taxes to a government that's swimming in petrodollars – 'In Venezuela only the stupid pay taxes,' a former President once said – the state finds itself living beyond its means. (((Boy, irresponsible deficits like that would never happen in America. Rich people get no tax breaks, either.)))

"A cycle begins. The economy can't absorb the sudden influx of money, causing wages and prices to inflate the the nation's currency to appreciate (by an average of 50 percent, according to a World Bank economist's study)."

Link: (((Euros now worth more than dollars. My goodness me.)))

"That makes it harder for local manufacturers to compete. Incentives, meanwhile, become wildly distorted. When free money is flowing out of the ground, people who might otherwise start a business or do something innovative instead busy themselves angling for a share of the spoils. Why slog it out in a low-margin industry when steering some oil business toward a contact could make you a millionaire? Thus a deadly double dynamic: a ballooning public sector, a withering private one." (((Unless you are Enron, in which case you innovate in angling for spoils, while privatizing the public sector. No wonder FORTUNE loved those guys for years on end.)))

"Eventually you're 16th-century Spain. (((Do we really have to stretch this far for a cogent comparison? The US National Security Council is chock-a-block with oil people))) It too, once struck it rich on gold (not the black kind) from the Americas. Its monarchs spent like loons, ((nice turn of phrase there))) expanding the army 15-fold, creating an elaborate patronage system and sending conquistadores in search of El Dorado.

(((This piece is so politically touchy that it reads like an Aesop's fable. 'You see, one king is a kind of log, while the other king is a kind of stork, and....')))

"(...). While inflation and currency appreciation slowly killed industry and agriculture, a parasitic class of noblemen lived off gold money (think of Saudi Arabia's idle princes) (((hereditary nobleman unknown in American politics, thankfully))) waiting for the next ship to come in. By the time the ships stopped coming, Spain wasn't able to feed itself, forcing it to declare bankruptcy eight times and finishing it as a world power."

(((For a rather less business-friendly economic analysis, check out this Hazel Henderson jeremiad on a Venezuelan website.))) Link:

"But the Midas myth dies hard. 'This is a country that can never, ever sustain itself on oil,' Terry Lynn Karl, author of 'The Paradox of Plenty: Oil Booms and Petro-States,' says of Venezuela. 'But everyone from the President to the poor believes it can.' And therein lies the trap."

(((Looks like the peace for oil is even more debilitating than the war for oil.))) Link:

"President Hugo Chavez rode popular rage into office by focussing on corruption. But what neither he nor anyone else will face up to is this: oil is not an economy. (((!))) Creative economic activities have spillover effects that become self-sustaining. Oil spills only into a barrel – and from there usually into the hands of a favored few. That's the real reason Venezuela's productivity growth has been roughly half the Latin American average."

(((It might be useful to have a word with people on the coast about Spain about where that oil spills.)))

"Can the curse be avoided? A few smaller countries: Malaysia, Norway, Mauritius – curbed its worst effects by spending slowly and using the money to diversify their economies. In Venezuela oil still accounted for 80 percent of exports before a devastating strike made even that scarce. As a 16th-century Spanish economist said of his homeland, 'What makes her poor is her wealth' – a suitable lament for Venezuelans who have been waiting so long for their ship to come in."

(((So the answer to the debilitating oil disease is to get those lazy decadent locals to work a lot harder. I have another suggestion. How about using less oil?)))

O=c=O O=c=O O=c=O O=c=O
O=c=O O=c=O O=c=O O=c=O

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