VENEZUELA: Socialist schisms spell trouble for Chavez

Analysis

Following his defeat in the December 2 referendum on constitutional reform, President Hugo Chavez accepted the need to slow down his Bolivarian revolution, as the government vowed to concentrate on 'low level' popular concerns such as housing and food shortages, crime and garbage collection (see VENEZUELA: Debilitating distractions weaken Chavez - April 3, 2008). Neglect of these issues was seen to have alienated the Chavista vote. Four months later, Chavez has returned to his pledge to 'nationalise everything that was privatised' in strategic sectors of the economy, as outlined in his victory speech after the December 2006 presidential election.

1. Milk and meat. In March, Chavez announced the nationalisation of Venezuela's largest chain of slaughterhouses, representing 70% of national capacity, and dairy company Los Andes, which represents 30% of milk-processing capacity. The move follows shortages of basic staples, which Chavez claimed were due to hoarding by producers -- which he saw as part of a wider US-instigated plot to destabilise his government. However, various factors have contributed to reduced supply, including a sharp increase in national and international demand and price controls, which have made it profitable to smuggle milk into Colombia and to process products such as cheese and yoghurt with higher profit margins.
2. Cement. On April 3, Chavez announced that the cement industry would be nationalised. The decision affects Mexican-based Cemex, the world's third largest cement company and the leading Venezuelan producer, Swiss Holcim and French Lafarge. Senior representatives of the companies met with ministers in mid-April and were offered a joint-venture scheme under which the government will acquire a minimum 60% stake. According to Energy Minister Rafael Ramirez, they indicated that the deal would be accepted with due compensation. Chavez had called for the nationalisation of the cement sector in June 2007 after the government failed to meet its targets for housing construction, and in August 2007, a small affiliate of Colombian cement company Argos was nationalised.

3. Steel. On April 9, Vice-President Ramon Carrizales announced the renationalisation of the Sidor steel plant in Bolivar state, privatised in 1997. The Italian-Argentine parent company Techint, which owns 60% of Sidor (with the government holding 20% and the workforce the remaining 20%) will be compensated. Sidor is one of the region's largest steel producers, with annual production of 4.8 million tons of liquid steel. While the new management consortium has improved production and profits, this has been achieved through major cuts to the workforce, down from 13,000 to 4,000, with 9,000 jobs outsourced to over 200 private contractors.

   Sidor has a long history of labour disputes, experiencing five strikes and losses of 50 million dollars in 2008 alone. The nationalisation decision follows a March strike that led to violence and a series of arrests when the National Guard broke up union protests. The dispute centred on union demands for a daily wage increase to 37 dollars, the end of outsourcing -- prohibited by a May 2007 government decree -- and improvements in health and safety procedures. According to the main Sidor union, 18 workers have been killed because of reduced industrial safety at the plant.

4. Sugarcane. On April 13, the army was deployed to 32 sugarcane farms in Lara state after the National Lands Institute (INTI) expropriated the privately held plantations. The INTI actions formed part of the government's 'agricultural reactivation' strategy and were legitimised through Article 90 of the 2001 Land and Agricultural Development Law, which allows the state to expropriate idle land and farms whose legal ownership cannot be proved (see VENEZUELA: Land reform may stir new conflicts - January 13, 2005). According to INTI, 80% of the land on the 32 farms is idle. The move has caused protests by local landowners, who claim 80% of the land is in full production. The owners have 60 days to prove legitimate title. Failing this, the land will be incorporated into state-owed Social Production Units. Over 2 million hectares of 'idle' land have been reclaimed by the INTI since October 2007 and a further 4 million are scheduled for expropriation in 2008.

Problems ahead. Beyond the issue of the government's fiscal capacity to extend its nationalisation drive (see VENEZUELA: 21st Century Socialism brings policy shifts - January 16, 2007), this renewed wave raises serious political questions:

• Nationalisation is becoming a default strategy for the Chavez administration, to overcome blockages and policy failure. However, it is doubtful that this can redress problems in the food and housing sectors, particularly at the pace required for the government to address popular concerns and its own production targets. Indeed, this ad hoc approach may actually exacerbate shortages.
• Unlike the 'first' wave of nationalisations that affected mainly US and European interests, this second wave affects South American private interests. Although full compensation is likely, the political fallout may be significant.
• The nationalisation process will increase already high risk perceptions, further depleting capital inflows while increasing Venezuelan reliance on oil export revenues. It is difficult to predict which sectors will be next in line for nationalisation, with the banking sector looking particularly vulnerable (see VENEZUELA: Risk of banking nationalisation is limited - June 19, 2007).
• These latest nationalisations come despite efforts by private companies to meet government demands to increase domestic supplies. It is increasingly difficult for private operators to insulate themselves from the threat of expropriation. The Confederation of Industry (Conindustria) has also emphasised that macroeconomic policies, particularly price and exchange rate controls, conspire against enhanced productivity.
• Nationalisation and expropriation are being driven 'from below', with the government apparently responding to actions by grassroots supporters in the union and agricultural sectors. That priority is being placed on assuaging political rather than economic pressures is a concern, specifically as recent events at Sidor will encourage similar union actions in other private enterprises -- in particular given Carrizales's comment that "this is a government that protects workers and will never take the side of a transnational company".

The political challenge. While Chavez is seen to be responding to worker pressures, the Sidor nationalisation in particular highlights the political challenges ahead. Of Venezuela's 11 million workers, 3 million are unionised and the pro-government UNT union movement is deeply divided. On April 16, Chavez replaced Labour Minister Jose Ramon Rivero with Roberto Hernandez of the Communist Party. While this was seen as a result of Ramon Rivero's failure to resolve the Sidor dispute, it also follows a backlash from radical leftist currents after his claim that the UNT was not representative of the labour force and his call for a new separate union to be established. Ramon Rivero was condemned as a class traitor by key union leaders, allegations to which Chavez and his government are highly sensitive as the country approaches regional elections in November.

In addition, the labour sector is further divided over the forms of worker control it would like to see exercised. There is a division between union factions that support worker-based cooperatives and those that wish to see state-owned enterprises run by worker councils. For the radical leftist currents now in the ascendancy, the latter is the preferred option. For Chavez, who has demonstrated little interest in union politics to date, this raises complex questions about the form of socialist state he wants to see created.