Thursday, 21 July 2016

REVIEW: "Crude Nation: How Oil Riches Ruined Venezuela" by Raul Gallegos

Book Review by Sapphire Ng

Crude Nation: How Oil Riches Ruined Venezuela
by Raul Gallegos
Potomac Books
ISBN: 978-1612347707
Copyright October 2016
Hardcover, 256 Pages

Crude Nation brilliantly paints the reality, and comprehensively expounds the extent and implications of Venezuela's mishandling of precious and finite oil riches, and its unpropitious economic mismanagement.

The book furnishes an incredibly compelling depiction of Venezuela—a hubbub of “petroleum insanity”—as the unfortunate epitome of “economic ignorance” where locals involuntarily live in a “mad reality” where “the bolivar is worth less” for “every minute that passes,” and where “finding a roll of toilet tissue has become the equivalent of a form of lottery.” Economics enthusiasts will undoubtedly enjoy this book. For readers not generally acquainted with the economical situation in Venezuela, the book will turn out to be a stupefying, if not immensely flabbergasting, read.

The reader will be taken along a roller-coaster ride as the book deconstructs the inner functioning of Venezuela—the “most wasteful government in the planet;” the “worse macroeconomic environment” among oil producing nations excepting Yemen; the possessor of one of the “most deficient” levels of infrastructure in the world; and the country which clinched last place in the World Economic Forum's Ethics and Corruption ranking.

To read and learn of the multitude of unforgivingly unsound economic policies dictated by the late Venezuelan President Hugo Chavez was particularly cringe-inducing. Whilst it was fascinating to learn that Venezuela has multiple prices of the exchange rate for dollars—for example, the 6.3-bolivar-per-dollar rate, the 12-bolivar-per-dollar rate, and the 50-bolivar-per-dollar rate, with each individual rate accessible to specific segments of the local population—as established by law, it was nonetheless painful to discover the ways this mechanism breeds corruption and galvanizes the rise of black market dollars, an activity labelled by the government as an “economic war” against its “socialist revolution.”

The Venezuelan government was responsible for a disproportionate amount of ill-informed economic practices; this is an unmistakably dominant theme in the book. The nationalization of companies, a Chavismo measure, in the hopes of advancing socialism only compounded Venezuela's economic woes. Chavez injudiciously turned the country's central bank into his “personal piggy bank;” he stripped the bank of independence and began tapping its dollar reserves. The notion of saving money is anathema to Chavez, and Venezuelan politicians “of all stripes.” Accompanying his failure to address the wild inflationary distortion the Venezuelan economy faces, Chavez compounded the severity of the problem by imposing limits on bank lending rates, which spurred people to “borrow heavily and spend their cash quickly.” Particularly damning, Chavez, in mirroring past leaders, failed to invest adequately and appropriately in the economic lifeline of the country, the oil business.

The book vividly paints the extremely dreary backdrop for businesses in Venezuela; it was exceedingly depressing to read of the authoritarian ways and immense efforts expended by the government into making life harder for businesses. In a ludicrous instance, the president and operations vice president of Farmatodo, a drugstore chain, was arrested, charged, and jailed for “boycott and economic destabilization;” they were preposterously accused for “not having enough cash registers functioning in one of the chain's pharmacies.” Rather shockingly, Chavez's death in 2013 also marked “one of the highest in the world” of the amount of money the state took from every barrel of oil produced; the Venezuelan government reaped more than 90%.

It was almost surreal to learn of the reality that in Venezuela, the list of price controlled products has grown to include “1,400 pharmaceuticals, 140 food items, and more than 240 personal hygiene goods.” Price controls, the author noted, simultaneously stimulate “excess demand” whilst discouraging production—“a dangerous combination.” There was also the interesting exploration of “bachaqueros,” a new class of informal merchants who make a living from reselling price-controlled goods.

For laissez-faire believers, it was definitely harrowing to learn of for example, a law passed by Chavez which “forbids” companies from downsizing the workforce without “express government authorization.” Singularly memorable was the instance the author cited a Venezuelan business owner who expressed that “this is a country where producing and adding value is practically prohibited, because of its economic policies,” and who referred to his rum making business as an “extreme sports business” due to the abundance of “risk and uncertainty involved in every step” of production.

The situation in Venezuela only gets bleaker; there is a dearth of transparency in the country which only exacerbates the economic disaster. A product scarcity index—one that tracked “what percentage of basic food staples was absent from stores”—abruptly became unavailable, and central bank authorities similarly simply stopped making inflation figures available every month; food scarcity and inflation, or conceding that “the bolivar is increasingly worthless,” have become extremely sensitive political subjects.

The media is another target of the government's wrath. Photographers taking photos of people lining up outside stores were arrested in “an attempt to clamp down on the media's focus on product shortages;” major newspapers similarly got into trouble for writing about economic problems originating from the country's “inflation and weak currency.”

The author did a commendable job examining the Venezuelan economy's grapple with “the curse of Dutch Disease”—a phenomenon that occurs “when the success of one natural resource ruins the rest of a country's economy.” Oil, “The Devil's Excrement,” and oil wealth bore an overwhelmingly significant impact on Venezuelans' economic life. The author attributed Venezuela's dwindling political accountability to oil; oil money was used to “purchase voter support.” The political establishment enacted policies and took actions that made the country “ever more dependent on crude,” failed to diversify the economy beyond and away from the oil industry, and allowed continuous decline in Venezuelan agriculture. Certainly, oil income was also named as the culprit for the “ridiculously low” income taxes in the country.

Worth a mention is the book's interesting coverage of notable historical events. An example being the fifty-fifty principle—a new oil law passed in Venezuela in 1943—which is said to become both “the norm” in the oil world, and “an important milestone in Venezuela's oil history.” Or the infamous Venezuelan “Black Friday,” February 18, 1983, when the bolivar's biggest devaluation against the U.S. dollar was ordered.

It was a uniquely engaging reading experience to learn of the greater specificities of the predicament faced by individual Venezuelan businesses through well-crafted and absorbing narratives. Especially captivating were the cases of Ron Santa Teresa, a rum producer, and Empresas Polar, food giant and producer of Harina P.A.N.—the company's and the country's “most emblematic” food product.

Chavez's nationalization scheme stripped Santa Teresa of a third of its estate, 3,212 acres; and Chavez's land law also coerced Santa Teresa to devote 20% of its farmlands to “planting corn instead of sugar cane.” The business also suffered various kinds of ingredient and product shortages—a molasses shortage compelled it to suspend its distillation process for two months in 2014, whilst a glass bottle problem forced a stoppage of production of its Rhum Orange, “an orange rum liqueur made of two-year old rum and macerated orange peels, that came in a slender 50 centiliter bottle.”

Chavez's imposition of price controls, on the other hand, of the price of 19 bolivars, or ten U.S. cents, per bag for Harina P.A.N. made the flour “cheaper than practically anything for sale in Venezuela,” and caused Polar to lose money on the sales of the flour since 2006.

The story of Alto—“a gastronomic jewel” and a famed haute cuisine restaurantwas yet another interesting example of a business that was obliged to cope with the myriad of economic and legislative floundering courtesy of Chavez. The author also interestingly fashioned the life, most prominently the economic livelihood and struggles, of Venezuela's “everyman”—one representative of “nearly 80 percent of Venezuelans,” and classified in “the poorest two socioeconomic groups D or E.”

The discussion of what the author termed mango management”—a phrase inspired from an incident involving President Nicolas Maduro—was intriguing. The author elucidated the mango management style—“a hallmark of Chavismo,” and involving conspicuous gestures of “presidential generosity”—as exemplification of the country being run by shifting focus “from one emergency to another, offering short term fixes with little long term planning.”

Certainly the book would not be complete without an investigation of Venezuela's economic woes through the perspectives and characterizations of local Venezuelans, and the author accomplished this well. Paralleling the country's politicians, fiscal restraint is said to be similarly “anathema” to Venezuelans. Venezuelans are referred to as dollar-crazed,” and Gallegos even inserted discussions pertaining to the supposed Venezuelan cultural trait of “anarchic individualism.”

The author also aptly noted the plight of the local economy—“a world of unreal dollar prices” coupled with “unreal opportunities to profit from them”—as facilitating abuse of the system. The country's subsidized gasoline prices, whilst viewed by locals as no less than “a birthright” and “an entitlement,” was also asserted to encourage Venezuelans “to smuggle fuel to neighboring countries for a living.”

Disclaimer: I received an advance review copy of this book from NetGalley for this review.

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