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Venezuela and the Blairites

I haven’t been writing as much as I should recently, and I think that’s largely because there’s simply been too much to write about. Every time I get a piece halfway to the finish line, something else drags my attention away.

Traditionally, this problem has resolved itself when somebody writes something so monumentally wrongheaded that I really can’t drag my brain away from it, and I’m pleased to report that a certain deputy editor has kindly stepped in to fulfil this role.

Consider the following statements:

“Often forgotten that New Labour’s “Third Way” was an early influence on Venezuela. Parallels between overdependence on oil/City of London to fund social spending”.

[considering Venezuela’s “overdependence on oil”]: “One is reminded of Gordon Brown’s Faustian pact with the City of London”.

Let’s ignore, for now, the idea that Chavez was a Blairite who slowly found that his political hero’s ideology simply did not work. Let’s ignore the idea that it was simply a collapse in the oil price — rather than the deleterious effects of government policies — that landed Venezuela in its current state. Let’s even ignore the basic economics of the comparison. Instead, let’s look at the numbers: was the City as important to Blair as oil was to Chavez?

No. Not even close.

Tony Blair left office in 2007. At that point, the UK’s finance and insurance industry – every last bit of it, from local bank branches and building societies to the City and Canary Wharf – was worth about £118 billion, or 8.6% of GDP. The exchequer netted a total of around £68 billion from this, or 14% of total government revenues 1.

In Venezuela, oil accounts for up to 50% of GDP and 98% of export earnings. In a given year, about 60% of the Venezuelan government budget is financed from oil revenues.

To say that Blair’s “overdependence” on the City of London inspired Venezuela’s overdependence on oil is like saying you were inspired to blow your life savings on lottery tickets after your neighbour bought a scratchcard. It’s also just historically wrong: Venezuela has been hooked on oil since the 1920s.

The one comparison which might have been halfway reasonable would have been between Venezuela’s profligate use of oil revenues, and Britain’s use of the North Sea windfall in the 1980s — although that wouldn’t have made for a gratuitous pop at the Blairites.

Another problem with the comparison is that while oil runs out, finance is forever. For all the money that Qatar and the United Arab Emirates are spending on cities in the desert and Farquaad-style overcompensation, they’re also stashing money in sovereign wealth funds and working on plans to diversify their economies; they know perfectly well that without the oil money it will all collapse back into sand.

In the meantime, that oil means there are rents to be extracted; politicians find it far more attractive to fight over petrodollars than to invest in the development of a country. Hugo Chavez’s daughter is allegedly worth $4.2bn; Tony Blair’s son runs a recruitment agency.

For all that finance fluctuates, markets are somewhat differentiated and contagion does not necessarily spill over borders; a crisis in Thailand does not necessarily mean a serious problem in the United Kingdom. If you simply rely on selling oil, then changes in supply or demand in other countries create large price swings. And if politicians are spending or expropriating every incoming penny, then it’s hard to build up reserves for the lean periods.

In short, what matters is less the make-up of your economy and more your political structures. There are plenty of oil-dependent economies out there, with greater or lesser levels of diversification, but we’re not discussing the inevitable collapse of Norway, or the terrible fate of the United Arab Emirates. We’re wondering how a country with the world’s largest oil reserves has managed to inflict upon itself a crisis worse than the Great Depression.

The answer probably isn’t Blairite policies. As Eaton notes, Chavez does cite our former PM as an influence in an interview he gave in September 2006 “When I was released from prison [in 1994] and began my political life, I naively took as a reference point Tony Blair’s proposal for a “third way” between capitalism and socialism”.

Chavez followed this up with “I no longer think a third way is possible. Capitalism is the way of the devil and exploitation”. Earlier in the year, he described Blair as “the main ally of Hitler” and “a pawn of imperialism”.

In practice, rather than implementing a moderate path Chavez followed his election by removing effective limits to his power and ramping up government interference in the economy. What flowed from that point was the predictable consequence of his policies and politics.

Header image courtesy of Michaelarcand, used under a creative commons license

  1. The equivalent figures today are £72 billion, and 11%.