In death, Hugo Chavez leaves economic legacy

A man walks by a painting on a wall of Venezuelan President Hugo Chavez in Caracas on Jan. 9, 2013. Venezuela's Supreme Court on Wednesday upheld the indefinite delay of Chavez's swearing-in to a new term and said his current administration can continue in office in the interim.

Venezuelan leader Hugo Chavez has died at the age of 58, according to AP reports. Besides his geopolitical influence, Chavez's legacy will be an economic one -- the socialist strongman fused his ideas and his country's oil money to refashion the country, for better or worse.

Chavez economics starts with Chavez ideology. He took office in 1999, pledging to fight corruption and share the wealth.

"People tend to vote with their pocketbooks, even here," said business publisher and consultant Robert Bottome in Caracas, back in January*. "And so Chavez was offering a change. He was going to get the economy growing again. Throw the bastards out. He has tremendous personal appeal."

Early on in his administration, Chavez took control of the biggest piece of his country's economy: oil.

Foreign companies like ExxonMobil and Conoco Phillips operated there. But Bottome says Chavez was unsatisfied with the royalty payment negotiated in a contract. So he doubled it.

"And then he doubled it again," Bottome said. "He didn't like the tax scale. And then finally he said he didn't like my partners. So he told them from now on instead of being majority owners and operators, you can be minority partner if you like. And I am going to run the show. "

Speaking of show, Chavez hosted his own talk show every Sunday. As in him talking.

"He once fired all the top management of the national oil company" during the show, said former Venezuelan trade minister Moises Naim, now with the Carnegie Endowment for International Peace. "In other instances of his show, he would nationalize a bank or the electricity company."

What you and I consider independent economic data is hard to come by in Venezuela.

But there's no question Chavez spent money on the poor -- on health care, appliances, subsidized gas. And he drove out lots of foreign companies and private-sector investors.

Pomona College historian Miguel Tinker Salas said Venezuela's now a hybrid economy -- part socialist, part consumption capitalist.

"You can have on the one hand a discourse about socialism, but the malls are full," Tinker Salas said in January. "Venezuela is the highest consumer of scotch whiskey per capita in the world."

Chavez also sent money to neighboring countries, often in the form of cheap energy.

Some were friends of the ideological revolution, like Cuba. Others were marriages of political convenience.

"So if there are votes in organizations that come up about Venezuela," said Michael Shifter of the Inter-American Dialogue in Washington, D.C., "those countries are more likely to be influenced if get good deal on oil to vote with Venezuela as opposed to against Venezuela."

It's been a potent fusion of power, ideology, and economic leverage, says Shifter.

Which raises the question: is this how every strongman economy tends to work?

"I don't think it necessarily has to go this way," Shifter said. "You have Evo Morales who is a close ally of Hugo Chavez. But the Bolivian economy is much better managed than the Venezuelan economy."

Today, Venezuela faces double-digit inflation, billions in debt, and remains highly dependent on the oil sector. When energy prices fall, the economy goes with it.

And yet the socialist experiment continues.

Why? Oil money to bankroll it, said Moises Naim at Carnegie.

"That allows you to experiment, and provides you a cushion to cover your mistakes," Naim said. "The 'oil curse' allows for sustained bad ideas to linger over time."

On his show late last year, Chavez picked a successor.

"I don't think there's any going back," said Tinker Salas. "Venezuela has changed. People who have been in power are not going to retreat into the margins any more. Venezuela will not change, whether Chavez is there or not."

*UPDATED: This article is an updated version of a story on Hugo Chavez that ran on Marketplace in January.

About the author

Scott Tong is a correspondent for Marketplace’s sustainability desk, with a focus on energy, environment, resources, climate, supply chain and the global economy.

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