The Chavez Frankenstein

What made Hugo Chavez possible? How does a country let a man whose credentials are those of a coup leader who tried to topple a legitimate government become the unbridled ruler of the nation? What kind of people applaud a president who would replace the republican institutions with a system -- socialism -- that was so discredited in the 20th century?

Some of the answers to these troubling questions can be found in a paper written by professor Hugo Faria and sponsored by the Institute of Superior Administration Studies and Monteavila University in Caracas -- "Hugo Chavez Against the Backdrop of Venezuelan Economic and Political History." This is not a purely academic exercise.

Latin America's history shows that populist strongmen keep appearing with astonishing frequency. Understanding why Chavez came to power almost a decade ago and is now poised through a constitutional amendment to become president-for-life is a necessary step in trying to halt the emergence of future populist strongmen.

In the first half of the 20th century, Venezuela had a relatively free economy even though its political system was undemocratic. Far from giving rise to a typical state-run economy dependent on its natural resources, the discovery of oil in 1918 gave impetus to a free-market system that led to impressive results. Manufacturing and services, in addition to oil, expanded at rates greater than the economy as a whole.

The Central Bank was autonomous, the marginal income tax rate was 12 percent, the public sector absorbed no more than one-fifth of the nation's production and the government ran surpluses every year. By 1960, the average Venezuela worker earned 84 cents for every dollar made by the average American worker.

But then something went wrong. It started under the dictatorial government of the 1950s and gathered pace when democracy came to Venezuela in 1958. Venezuelans went from being mostly self-relying entrepreneurs to depending on a government that began to grow -- and grow. Professor Faria thinks that economic success led to a desire for political participation -- i.e., democratic government, which in turn generated all sorts of pressures on a new political elite bent on pandering to the people's instincts for dependency rather than hard work.

"The inception of democracy," Faria says, "brought more redistributionist policies and a greater influence of rent-seeking groups that had the effect of undermining the economic freedoms." The results were high fiscal spending, limits on foreign investment, a wave of nationalizations and the politicization of the currency and the judiciary. Between 1960 and 1997, the year before Chavez gained power, Venezuela's real income per capita shrank by an average annual rate of 0.13 percent.

I would add another explanation to the one given by Faria for the move toward big government after the establishment of democracy in Venezuela -- the political culture of the Latin American elites. They were profoundly influenced by the nationalist ideas in vogue at the time -- that development was only possible by breaking away from the international centers of power and the creation of domestic markets through government protection. The policies associated with these ideas -- import substitution, nationalizations, currency manipulation, price controls -- were deeply ingrained in the political mind of Latin America.

By the time Chavez campaigned for an end to the "Punto Fijo" system -- the name by which the four decades of democratic rule between 1958 and 1998 are known in Venezuela -- the people had no faith in their republican institutions. They had no memory of the small-government days and they associated the Venezuelan economy with free-market exploitation because a few groups close to the state seemed to prosper at the expense of everyone else.

Tragically, Venezuelans inadvertently put their faith in a man who guaranteed that a system that had impoverished the country would be perpetuated. Nothing Chavez has done -- handouts, nationalizations, land expropriations, price controls, taxes -- is new. Under the governments of Romulo Betancourt, Raul Leoni, Rafael Caldera (twice), Carlos Andres Perez (twice), Luis Herrera and Jaime Lusinchi, those policies were also implemented in different degrees and mixes. The price of oil was not as high as it is today, so the shortcomings were less easily concealed than they are in present-day Venezuela.

The immense responsibility of previous democratic governments in Chavez's rise is one that Latin Americans should never forget. It was not liberal democracy as such but leaders acting under its mantle that made Chavez the man who is seeking "indefinite" re-election today. What a sad story.