Venezuela’s revolution is a process propelled by millions, not one leader

Venezuela’s Bolivarian Revolution is much bigger than Hugo Chávez; it is a movement of millions. The movement that drives the process forward long predates his election and his failed 1992 coup.

Saying this should not come as a revelation, for no large-scale social movement can exist as a personal vehicle, nor can any one person, no matter how charismatic, single-handedly carry the responsibility for social change, especially when that change has the long-term, open goal of supplanting the global capitalist order.

We Created ChávezContrary to the myopic, superficial corporate-media narrative of a caudillo motivated by a fathomless desire to poke Uncle Sam in the eye (although we must immediately ask how a leader who won 16 of 17 national elections, almost all by at least 10 percentage points, can be a “dictator”), the Bolivarian Revolution is a continuation of struggles that have been waged since the late 1950s. The defining moments, George Ciccariello-Maher argues in We Created Chávez: A People’s History of the Venezuelan Revolution,* are not President Chávez’s electoral victories but rather two outbursts of people’s power, a 1989 uprising and the 2002 uprising that re-installed him, reversing the business coup.

The Bolivarian Revolution can’t be understood without a bottom-up perspective, without analysis of the pressure from below that buffeted President Chávez, pushed forward by organizations that support the revolution. Professor Ciccariello-Maher, as his book’s title signals, provides that necessary background:

“Hugo Chávez is not a cause but an effect, not Creator but creation; in this sense, the history that follows is literally a defetishization, a demystification. His election and even his failed coup did not mark the beginning of the Bolivarian Revolution, but were instead the results and reflection of its long and largely subterraneous history.” [page 21]

That history has roots two centuries old, and the modern manifestation of Venezuelan struggle begins in the late 1950s, ironically with the downfall of Venezuela’s last dictator and the establishment of a formally “democratic” republic. Marcos Pérez Jiménez was overthrown in 1958, replaced by a two-party system designed to stifle popular participation. The “social democratic” party, Acción Democrática — unusually ruthless in attacking its base even by the standards of world social democracy — mostly was in power, alternating with Copei, the Christian democrats.

‘Democracy’ proves little different than dictatorship

Acción Democrática leader Rómulo Betancourt won office in the first post-Pérez Jiménez election. Within a year, his government was shooting people dead in the streets and ruling under states of emergency. Violent repression was the swift response by the new president to his unpopularity; repeated massacres sparked uprisings across the country. A revolutionary situation developed, but Professor Ciccariello-Maher argues that the Venezuelan Communist Party waited too long while the Revolutionary Left Movement went too soon. A series of tactical mistakes doomed this armed struggle, not least of which was a lack of connections with the people, the author writes.

A series of groups blossomed and declined, rural guerrilla strategies failed, the electoral Left floundered, and mass fronts and other popular organizations faced severe state repression during the following years. The net of state repression was cast steadily wider — the government provided little services but attacked those who asked for them. Out of this situation, barrio assembles and popular militias began to be organized for self-defense; the latter forcibly ended the drug trade in neighborhoods in which they operated. These popular organizations organized sporting and cultural activities, and expelled the police — their militancy propelled people forward.

Professor Ciccariello-Maher argues that the 1989 uprising known as the “Caracazo” is the first of two “ruptures” (the 2002 coup reversal the other) that are the critical moments in the process that is the Venezuelan Revolution. Carlos Andrés Pérez took office as president that year as the Acción Democrática candidate on an explicitly anti-International Monetary Fund platform. It took him two weeks to jettison his campaign pledges and impose the full IMF-dictated austerity package. Riots broke out the morning of imposition, led by informal workers. But because political organization was widespread, these were not blind lashings-out — the target of the anger quickly went from bus drivers (a doubling of oil prices prompted large fare increases) to the state and its system.

A curfew was declared the next day, and a violent crackdown ensued, with as many as 3,000 left dead. The author leaves no doubt as to the severity of the government crackdown:

“Known organizers were dragged from their homes to be either executed or ‘disappeared,’ and when security forces met resistance from rooftop snipers, they sprayed entire apartment blocks with automatic machine guns. … The human toll of the rebellion has never been fully revealed, especially because the Pérez government subsequently obstructed any and all efforts to investigate the events. … A recent study has shown that some four million bullets were fired to quell the rebellion, and the Relatives of Victims Committee, an organization founded around the victims of the Caracazo, reports that 97 percent of the documented victims died in their own homes.” [pages 96-97]

Grassroots organizations build opposition

The author writes that the Caracazo crystallized and focused organized opposition within the military while civilian armed groups sought to unify the popular militias with the military opposition. By 1991, barrio assemblies in Caracas were organizing and coordinating opposition. The military uprisings in February and November 1992 (the former the one led by Hugo Chávez) were the “detonators” for subsequent popular rebellions. State repression could not break popular control of the streets, and these social movements led to the 1998 election of President Chávez.

“[D]efeat notwithstanding, the Caracazo sounded the death knell of the old system, simultaneously reflecting and contributing to the inevitability of its collapse and thereby setting into motion the entire process that came after it. In symbolic terms, it smashed in a single stroke the façade of [Venezuelan] ‘democratic exceptionalism,’ revealing the bankruptcy and the violence of the existing system for all to see. Neither completely spontaneous nor fully organized, the Caracazo was an instant in which widespread disgust and revolutionary capacity met on the streets, generating historical agency by emboldening the faithful and converting the waverers: it was 1989 that enabled 1992, and 1992 that enabled 1998.” [page 89]

The author’s second moment of rupture, the reversal of the 2002 business coup against President Chávez after two days, was a product of the connections between militias and military, of political understanding and experience. Millions poured into the center of Caracas in defiance of the coup. Venezuela’s corporate media had unleashed an orgy of lies before and during the coup; the state television channel was closed while the private media blacked out any coverage of the mounting resistance. The coup leader, Pedro Carmona Estanga, the head of the national chamber of commerce, dissolved all branches of government and declared the 1999 constitution void, despite its having been approved by 72 percent of the electorate.

Loyalist military units, taking their cues from the mass popular resistance to the coup, took the presidential palace back, with officers giving the credit to the people and their “spontaneity” — but the “spontaneity” was the product of years of organizing, with Left activists seeking much more than the mere return of President Chávez to the palace.

“[M]ass spontaneity, while fundamental in its importance, is often the result of serious organizing that, in the case of Venezuela, spans decades. As with the Caracazo, then, this spontaneous mobilization and its spontaneous grasp of the strategic realities of the situation it confronted should not lead us merely to a panegyric of spontaneity for spontaneity’s sake. Rather, every moment of this spontaneity and every gesture of these spontaneous masses contained an aspiration toward increasingly conscious organization. In this explosive dialectic between spontaneity and organization that was resistance to the 2002 coup, such conscious effort would be especially important in the realm of mediatic and popular armed organizing.” [pages 172-173]

Struggle within the struggle

Can an engaged people go back to the ancien régime? We Created Chávez was published just before Hugo Chávez’s untimely death, but given the context of this story the president’s passing in no way renders the book out of date. The modern history of Venezuela is that of regularly employed workers, informal workers, peasants, students, women, Afro-Venezuelans and Indigenous peoples in a many-sided struggle against domestic elites and the country’s subaltern status in global capitalism. Then there is the struggle within the Bolivarian Revolution.

There are tensions between economic and political demands, between workers’ autonomy and the state, over the nature and content of “co-management” and over if co-management is a step toward a higher level or a capitalist trick, as well as opposition to developing the Bolivarian process from managers and within the ranks of the movement.

What forms should workers’ control take? Some argue for state ownership with employee participation, others argue for full autonomy of enterprises and the workers in them, and there are gradations in between. Enterprises under state ownership presumably should be managed to benefit the community, but how much management should be ceded to the workforce? Should workers fortunate enough to work in the oil industry be able to reap benefits far in excess of other workers? How should autonomous enterprises be managed to benefit the community, not only those who work in them?

There are similarly serious questions regarding agriculture. Venezuelan land ownership remains highly unequal, with owners of large ranches in control of the countryside. Moreover, because the countryside emptied out and the economy grew overly dependent on the oil industry before 1998, the country lost its food sovereignty. This exodus to the cities has swelled the size of the informal workforce, who get by with street vending and whatever other means they can to survive.

Less than half of the workforce has formal employment, Professor Ciccariello-Maher writes, but although the Chávez government had difficulty with informals, to the point of occasional hostility, the author argues that this sector has been the staunchest base of support for the revolution and is neglected at the government’s peril. Informal workers played no small role in reversing the 2002 coup, for example.

There is no stasis

Ultimately, the revolution can only succeed through creating mechanisms for self-government. “Patriotic Circles” became Bolivarian Circles after 1998, and were tasked with drafting and defending the 1999 constitution. Communal councils (local bodies that manage policy and projects in their communities) came into existence after a 2006 law. These are legally on par with state institutions and have oversight over them; these are views as potential replacements for the state bureaucracy. The councils are linked horizontally to one another and vertically in communes with a goal of them exercising sovereignty.

Due to the timing of the book, the author concludes with an analysis of President Chávez’s “complex and nuanced position” as someone who is not purely a representative of the state but also an ally of the social movements that have driven Venezuela forward in past decades:

“[M]ore often than not he has pushed a radical agenda that facilitates the transformation of that state, a fact most visible in the recent development of communal councils and popular militias. Here there are no guarantees, and despite the fact that the collective ‘we’ of the Venezuelan revolutionary movements … ‘created him,’ this does not mean the creation will not betray the creators. However … to do so would certainly require a fight.” [pages 254-255]

The necessity of struggle to deepen the revolution is unchanged by the president’s death. Social movements have driven the process forward, and will continue to do so, regardless of who occupies the palace. We Created Chávez is indispensable toward understanding the process that is the Bolivarian Revolution and the path taken by Venezuela.

* George Ciccariello-Maher, We Created Chávez: A People’s History of the Venezuelan Revolution [Duke University Press, Durham, North Carolina, USA, and London 2013]

The humanity of resistance can’t be erased by a Pinochet or a Friedman

I have long felt haunted by the fate of Chile. I can’t help but feel a strong attachment because the people who were involved, and “disappeared,” tortured and killed, were me and many of my friends and fellow activists.

Not literally, for I was a boy in 1973 and lived on another continent. But if I were then, and there, who I am now, I would have shared the fate of Chileans who believed a better world was possible.

Today is the 40th anniversary of the Pinochet coup. The first “9/11.”

La Moneda 9-11-73I continue to be struck by the fact that participants in the government of Salvador Allende freely apologize for their mistakes. It is no revelation to say President Allende’s Popular Unity government was not perfect. It was full of people who previously had been shut out of political participation — is it reasonable to expect perfection from them? But contrast their thoughtful reflection with the behavior of the coup plotters and those who took up posts in Augusto Pinochet’s murderous 16-year reign.

No apologies. Nothing.

It is to the credit of those who reflect on what they could have done better, who are moved to publicly acknowledge mistakes, particularly in actions or speeches that, intentionally or not, served to throw up barriers to participation by those in mild opposition or sitting on the fence. Their humanity is there for us to see. Where is the humanity of those who killed, those who tortured, those who willingly served a régime that inflicted casualties in massive numbers and hurled millions more into poverty?

The Pinochet coup was the first application of “shock therapy.” The intellectual author of this shock, Milton Friedman, repeatedly used the word “shock” in advising General Pinochet to apply a maximum of pressure, helpfully reprinting a letter he sent to the dictator in his book, Two Lucky People: Memoirs.

Friedman needed believers just as he needed the dictator to implement his ideas. That such ideas need force is exemplified in a revealing interview conducted by Patricia Politzer in her book Fear in Chile: Lives Under Pinochet. In a 1984 interview, an enthusiastic supporter of the régime and self-proclaimed “Chicago Boy” estimated that 80,000 to 100,000 had been killed — a figure, amazingly, he found acceptable because of the dictatorship’s “honest principles that I shared.” This Pinochet supporter declared that “sometimes democratic regimes suffer from too much freedom” in explaining why he applauded the ouster of the elected Allende government, later saying that “freedom ought to be restricted.”

Let us not dishonor those to whom the shock was applied by forgetting. Another story told by Ms. Politzer is that of a communist woman repeatedly arrested, beaten and tortured, as was her husband. One day in prison she was dragged into a torture room, where her husband had cold water thrown on him so that he would regain consciousness and the torture could be resumed. She recounts these grisly details from one session:

“They applied the electric prod to [her husband’s] penis, to his anus, to his eyes. … it was terrible. I knew what was happening from his awful screams and the way he was moving … every scream went straight to my soul. But I didn’t move or express anything. I was suffering enormously, as if they had my heart and they were squeezing and squeezing it. … The only prayer I had was that they wouldn’t go too far with the torture. That he wouldn’t die.”

The authorities had concocted false charges against the couple; the torture was intended to force a false confession.

The obligation of a poet

Let us remember Pablo Neruda, whose house at Isla Negra was ransacked by soldiers and some of his manuscripts destroyed immediately following the coup. He died only two weeks later, apparently silenced via a poison administered by an agent posing as a doctor. The opening of his poem, “Poet’s Obligation,” perhaps provides us one clue as to why the great poet was seen as a danger:

“To whoever is not listening to the sea
this Friday morning, to whoever is cooped up
in house or office, factory or woman
or street or mine or harsh prison cell;
to him I come, and, without speaking or looking,
I arrive and open the door of his prison,
and a vibration starts up, vague and insistent,
a great fragment of thunder sets in motion
the rumble of the planet and the foam,
the raucous rivers of the ocean flood,
the star vibrates swiftly in its corona,
and the sea is beating, dying and continuing.”

Let us remember Victor Jara. The popular singer and songwriter suffered repeated beatings in a sports stadium turned into a concentration camp, then had his hands mangled and his guitar thrown at him by the guards as they sneered “Let’s see you play now.” He did play, so enraging the ignorant shock troops of fascism that they killed him with dozens of machine-gun rounds. He could do nothing else but play. From the last song he wrote before he was murdered:

“Yes, my guitar is a worker
shining and smelling of spring
my guitar is not for killers
greedy for money and power
but for the people who labour
so that the future may flower.
For a song takes on a meaning
when its own heart beat is strong
sung by a man who will die singing
truthfully singing his song.”

Victor Jara’s songs live on. The singer and songwriter Holly Near celebrated his memory in her song “It Could Have Been Me”:

“The junta broke the fingers on Victor Jara’s hands
They said to the gentle poet ‘play your guitar now if you can’
Victor started singing but they brought his body down
You can kill that man but not his song
When it’s sung the whole world round.”

The spirit of life in the face of death

Salvador Allende captured that essence in his last speech. Speaking at the La Moneda presidential palace on the morning of September 11, the coup in progress and not in doubt of what his fate would be, he said:

“Placed in a historic transition, I will pay for loyalty to the people with my life. And I say to them that I am certain that the seed which we have planted in the good conscience of thousands and thousands of Chileans will not be shriveled forever. They have strength and will be able to dominate us, but social processes can be arrested neither by crime nor force. History is ours, and people make history. …

Workers of my country, I have faith in Chile and its destiny. Other men will overcome this dark and bitter moment when treason seeks to prevail. Go forward knowing that, sooner rather than later, the great avenues will open again where free men will walk to build a better society.”

Of what were the rulers of capitalist societies — those in the U.S., those in Chile, those elsewhere — so afraid? Why would an elected government determined to provide concrete reality to the word “democracy” by enabling all citizens to become real participants in the functioning of their society engender such frenzied reactions? Ariel Dorfman, in his memoir Heading South, Looking North: A Bilingual Journey, told the story of “Juan,” a factory worker who was being driven out of the country into exile with him in the aftermath of the Pinochet coup:

“[Allende’s] policies had created an economic boom: increased salaries and benefits led to skyrocketing consumption and that led, in turn, to a major increment in production. So, more goods sold and a better life for Juan and his co-workers, right? Not at all. The owner of the factory, opposed to the revolution, even if it did not threaten his property, had decided to sabotage production. … The workers had watched this class warfare patiently for months and, finally, when the owner had announced he was shutting down the whole operation, they had taken over the premises. It was the only way to save their jobs and keep producing the food that Chile needed. Allende’s government intervened in the conflict, negotiated compensation for the owner, and put the workers in control. Juan had been elected to head the council that, for a couple of years, ran that factory, and in spite of inevitable mistakes, it had been a successful venture.”

Professor Dorfman’s conclusion?

“[T]he Chilean revolution had given him a chance to prove his dignity as a full human being, had dared to conceive through him and millions of others the pale possibility of a world where things did not have to be the way they had always been. That is why the rulers of the world had reacted with such ferocity.”

Equality or dominance. The ability of everybody to develop their full potential and be full participants in societal decision-making or a minuscule elite hoarding wealth and dictating to everyone else.

Which do you want?

Dangers from a ‘mixed’ economy that brought down Sandinista Revolution exist for Venezuela

A revolution meant to advance the material conditions of large numbers of previously disenfranchised people is necessarily larger than one individual. That is true even when the individual who embodies the revolution is a charismatic leader such as Hugo Chávez.

There is no denying that the death of President Chávez is a setback for Venezuela’s Bolivarian Revolution. That revolution is a process — it is perhaps more akin to a steady evolution than a revolution — and will go forward if Venezuelans continue to see the process as beneficial to them. That was true throughout the 14-year reign of President Chávez and is true whether or not he occupies the presidential palace.

Ultimately, the survival of the Bolivarian Revolution rests on two factors: Effecting a change in economic relations and becoming a constituent component of a larger bloc that effects a similar change in economic relations. Simply put, the Bolivarian Revolution has taken political power away from Venezuela’s capitalist elite but largely has left economic power in the hands of that elite. As Nicaragua’s Sandinista Revolution of 1979 to 1991 demonstrated, leaving economic power in the hands of a capitalist elite enables that elite to destabilize a revolution.

That represents a larger threat to the future prosperity of Venezuelans than the many-sided struggles going on within the country’s institutions, including disagreements inside unions, government departments and social organizations. The process of the Bolivarian Revolution is hardly straightforward, with some interests, such as union leaderships, that should be behind the socialization of production instead opposed. President Chávez often acted as an arbiter or a court of last resort, able to settle disputes due to his personal authority.

No other person possesses the charisma to arbitrate in such a manner; nonetheless, that personal authority — based on the late president’s popularity and repeated electoral victories — was invoked only in extraordinary circumstances. Such disputes will remain solvable, but may require more negotiation and grassroots struggle. The much larger question of who owns, controls and/or manages production and distribution is what will be decisive, and no one person, no matter how charismatic, can be decisive. This is a social question.

Sandinistas left economic power in hands of capitalists

A generation ago, another Latin American experiment held the world’s attention. The Sandinista Revolution, like the Bolivarian, tended to be seen through ideological prisms. The same hyperventilating language — “dictatorship” “communist” “repressive” — was used to describe Nicaragua during the Sandinista era. It was not a perfect government — is anything of human creation perfect? — but real progress was made despite the many mistakes that are inevitable when people previously blocked from any meaningful participation in their society suddenly find themselves in government.

The Sandinistas never declared that they would implement a socialist economy, and didn’t. For those who cared to pay attention, the Sandinista leadership repeatedly said their goal was a mixed economy. The Nicaraguan economy came to include large enterprises owned by the government; commonly owned collectives; marketing collectives composed of individual privately owned small farms; small-scale private businesses and independent farms; and private big-business manufacturing and agricultural operations left intact from before the revolution.

The property of the Somoza family, which came to personally own large portions of the Nicaraguan economy during its decades-long dictatorship, was confiscated by the Sandinistas following the revolution. Doing so was not necessarily opposed by Nicaragua’s capitalists, who were disgusted with the Somoza dictators because they had forced their way into many business sectors, muscling out capitalists when they saw an opportunity. Because of that, many business leaders came to oppose the dictatorship however much they applauded its ruthless, frequently deadly, suppression of labor.

The last dictator, Anastasio Somoza Debayle, ordered factories owned by capitalists opposed to him bombed, looted the treasury, laid waste to the economy and ultimately killed 50,000 in his bid to retain power. After the Revolution, the remnants of Somoza’s National Guard and the United States government, which had been the Somoza dynasty’s protector, created the terrorist groups known as the “Contras” that inflicted huge damage. The Contras specifically targeted public infrastructure and cooperative enterprises for destruction.

Nicaragua’s capitalists had expected to assume political leadership after the revolution, and when they discovered that the people and organizations that had carried out the revolution and had suffered the most repression would have the majority of political power, they swiftly began to undermine it. Although credit was now available for the first time for small farmers, most loans went to the country’s capitalists, who instead of using the capital for investment, spirited the money to overseas banks and began stripping their factories of assets. A few factories where this took place were nationalized, but the legal process to do so was lengthy and a factory owner determined to de-capitalize an enterprise could do so before the legal system could act.

The contradictions of a mixed economy

Strange as it may appear, the Sandinistas, more than once, imposed austerity on their own country, reducing living standards for working people while continuing to provide subsidies for capitalists. The Sandinistas had sought to raise living standards for working people in the cities and the countryside, provided large subsidies to the capitalists and were forced to fund an expensive military effort to defend the country. These factors were further aggravated by the U.S. embargo, with the resulting shortages fueling inflation. The only way to support all these policies simultaneously was to print more money, which touched off more inflation.

To combat inflation, the government implemented an austerity program in 1985 designed to “rationalize” these competing interests by reducing consumer consumption through reductions in the earning power of wages while increasing subsidies for capitalists and small farmers to induce more production. But since the capitalists controlled a much bigger share of the economy than did small farmers, the result was more subsidies for the already wealthy. Thus, “austerity” meant austerity only for working people — their reduced living standards would pay for the government money that would be channeled into capitalists’ pockets.

Nonetheless, the capitalists continued to refuse to invest, pocketing the money instead. Those local capitalists had strong links with capitalists in the United States and in other advanced capitalist countries, creating a web of interests. Under the impact of the intense military pressure of the Contras and the U.S.-imposed economic blockade, Nicaragua’s mass-participation social groups lost their grassroots characteristics and became more vertical organizations with imposed leaderships; progress on social issues, such as combating discrimination against women, halted because so much effort had to be put into basic defense.

In 1988, the Sandinistas imposed another round of austerity, a program similar to those demanded by the International Monetary Fund, although in this case without the often dubious benefits of the loans nor the debt burden. Speculators and smugglers had taken advantage of price imbalances by buying products cheaply in Nicaragua and selling them for more in foreign markets and, internally, by diverting subsidized food from intended markets and instead selling it at inflated prices, earning themselves windfall profits while increasing costs to consumers.

The country was also hurt by international currency speculators, who drove down the exchange-rate value of its currency, forcing costly devaluations. Wages were reduced in these austerity programs, to the applause of Nicaragua’s capitalists.

A strong contrast to the Sandinistas’ intentions, this was the result of maintaining a “mixed” economy in which economic power was left in the hands of capitalists. Although capitalists did not possess formal political power, political leaders were forced (by the “market”) to implement policies benefiting capitalists and hurting working people in agriculture and industry.

Social successes during the Chávez era

History does not repeat itself neatly, and the Venezuela of the 2010s is a different place than the Nicaragua of the 1980s. With no equivalent of the Contras and a high-priced commodity (oil) that Nicaragua does not have, the Bolivarian Revolution is on firmer ground. Venezuela also has a far larger population, making it is a much less attractive target for armed interventions. Nonetheless, its stated goal of empowering working people on a road to “21st century socialism” is an example that capitalists, and their governments, around the world would like to stamp out.

Venezuela is a country not without problems, although problems such as high crime rates and inflation were part of the Venezuelan fabric well before President Chávez took office. It is legitimate to argue that these problems have not been sufficiently tackled; it is unfair to insinuate that these are new problems caused by the Bolivarian Revolution as the corporate media repeatedly does. There have been many successes, among them these reported by the Center for Economic Policy and Research:

  • Annual economic growth of 3.2 percent during the Chávez administration (4.3 percent since 2004, after the government asserted control over the state oil company, PDVSA) as opposed to 1.4 percent annual growth in the 13 years preceding President Chávez.
  • Inflation, although high, is less than half of what it was in 1996, two years before President Chávez took office.
  • The unemployment rate is now half of what it was during the former PDVSA management’s lockout in 2003 and is far below what it was when President Chávez took office.
  • The rate of poverty has been halved, and the rate of extreme poverty reduced by three-quarters.
  • The number of higher-education graduates has tripled.
  • The number of Venezuelans receiving a pension has quadrupled.

And none other than the International Monetary Fund reports that Venezuela has the lowest level of inequality in the Latin America/Caribbean region, as measured by the Gini coefficient. Venezuela has also made the greatest improvement since 2005 in this widely used metric of any country in its region, at a time when inequality rose in many countries throughout the world.

As I have previously written, although nationalization of the state oil company receives most of the attention, the bedrock of the revolution are the formations of small cooperatives in a variety of industries; the creation of “social production companies” in which existing enterprises were to create co-management structures and create chains of supply with cooperatives; shuttered enterprises that are expropriated by the workers who re-start production; and experiments in “co-management” with workers’ participation conducted in large state-owned resource enterprises.

The transformation of Venezuela’s industry is not only resisted by capitalists, but faces resistance from within government bureaucracies and even inside the Bolivarian movement itself. Resistance from unions, for example, has contributed to setbacks in creating workers’ co-management of the large state-owned resource enterprises.

‘Endogenous development’ in response to sabotage

The Bolivarian process took a step forward in the wake of the PDVSA lockout carried out by the revolution’s opponents, which followed the failure of their 2002 coup against President Chávez. A 2006 Dollars & Sense article written by Betsy Bowman and Bob Stone noted that the need for internal development was a lesson learned from the lockout and coup:

“Cooperatives also advance the Chávez administration’s broader goal of ‘endogenous development.’ Foreign direct investment continues in Venezuela, but the government aims to avoid relying on inflows from abroad, which open a country to capitalism’s usual blackmail. Endogenous development means ‘to be capable of producing the seed that we sow, the food that we eat, the clothes that we wear, the goods and services that we need, breaking the economic, cultural and technological dependence that has halted our development, starting with ourselves.’ To these ends, co-ops are ideal tools. Co-ops anchor development in Venezuela: under the control of local worker-owners, they don’t pose a threat of capital flight as capitalist firms do.

The need for endogenous development came home to Venezuelans during the 2002[-2003 management] oil strike carried out by Chávez’s political opponents. Major distributors of the country’s mostly imported food also supported the strike, halting food deliveries and exposing a gaping vulnerability. In response, the government started its own parallel supermarket chain. In just three years, Mercal had 14,000 points of sale, almost all in poor neighborhoods, selling staples at discounts of 20% to 50%. It is now the nation’s largest supermarket chain and its second largest enterprise overall. The Mercal stores attract shoppers of all political stripes thanks to their low prices and high-quality merchandise. To promote ‘food sovereignty,’ Mercal has increased its proportion of domestic suppliers to over 40%, giving priority to co-ops when possible.”

A new stress on workers’ control of industrial enterprises was one of the responses to the capitalists’ attempts to sabotage the economy during and after the PDVSA lockout, when management halted oil production. Since 2005, enterprises in a range of industries have come under various forms of workers’ control. This has not been a straightforward process. According to analyst Ewan Robertson, who wrote in August 2012:

“The many achievements by workers in taking over and collectively running individual factories, and in driving forward a project of worker control for the state owned heavy industries in [the eastern region of] Guayana, have generated a backlash, not only among the US-backed conservative political opposition, transnational companies and private bosses, but also among a reactionary and bureaucratic faction within the Bolivarian revolution itself.

This is because progress made by workers threatens those who only support Chavez for personal gain and political opportunism, and see their special privileges or vested interests threatened by worker control: there is little need for state managers or union bureaucrats if workers eliminate hierarchies and operate factories themselves in a participatory democratic manner. It also undermines those who hold a more restrictive view of what socialism is and argue that workers are ‘not ready’ to operate factories themselves. Indeed, there are those in the government that hold socialism to be little more than state ownership of industry and central planning from above, with little participation from workers.”

Socialism is the full and free democratic participation of everybody in all spheres of life. In the workplace, that means a concrete and genuine workers’ control whereby all workers have a say in their enterprise’s decision-making, whether the enterprise is fully or partially owned by a government or fully owned by the workers themselves in a cooperative. Understanding the concept of socialism is one part of ongoing Venezuelan struggles. Another part is that about 70 percent of the country’s economy remains in private hands, according to the country’s central bank.

That means that capitalists still have the power to disrupt the economy and undermine the Bolivarian process. Venezuela’s continuing over-dependence on oil exports is another potential source of destabilization. Venezuela remains tied to the logic of capitalism and, no matter how much progress it makes in implementing its “21st century socialism,” it is too small to be a self-contained island of socialism in a vast turbulent sea of capitalism. No country on Earth can be self-sufficient, not even a country with as much exportable mineral wealth as Venezuela.

The Bolivarian Revolution can only advance and stabilize itself as part of a large regional bloc, large enough to withstand the economic, financial, political and military attacks of capitalist powers. But as of today, the furthest description that could be given to the Venezuelan economy is that it is a “mixed” economy. Capitalists hostile to the revolution still retain considerable ability to undermine it. The history of the Sandinista Revolution demonstrates what happens to a mixed economy. History has also demonstrated that an economy held in state hands has its own serious weaknesses.

Venezuela’s stress on workers’ control and cooperative enterprises demonstrates that the latter lesson has been learned; cooperation is at the center of the country’s “21st century socialism.” But there is also the lesson provided by the Sandinistas — that experience, too, should not be forgotten.

In show of power, financiers impose will on Argentina’s Navy

We know that finance capital is powerful, but that a hedge fund can impound the navy of the world’s eighth largest country is nonetheless startling.

Financiers the world over have fumed over Argentina escaping their clutches a decade ago — the example of a country refusing to acknowledge the maximization of bank profits as the central organizing principle of civilization is too scary to contemplate — but most have made their peace. Accepting that something is better than nothing, at least for now, almost all of Argentina’s creditors accepted 30 percent of the face value of the country’s sovereign debt.

Much of that debt is odious, accumulated by Argentina’s military dictatorship as it killed, tortured, “disappeared” or forced into exile Argentines by the hundreds of thousands as it imposed the Pinochet/Chicago School economic model. The rest of the debt came courtesy of the the country’s neoliberal rulers following the end of military rule, as it followed International Monetary Fund instructions into a crisis that culminated with economic crisis at the end of 2001. When Néstor Kirchner became Argentina’s fifth president in two weeks, he put an end to austerity and defaulted on the debt, ultimately agreeing to pay 30 percent to those willing to negotiate a settlement but refusing to pay anything to holdouts.

Many of Argentina’s creditors are not the financial institutions that originally made the loans; much of the debt was sold to speculators. Two of those speculators, the hedge funds Elliott Capital Management and Aurelius Capital Management, are among the seven percent of creditors who refused to agree, instead demanding full payment of the face value of the debt that they bought for pennies on the dollar. The key speculator here is Paul Singer, the type of character for which the term “vulture capitalist” was coined. Mr. Singer’s hedge fund is Elliott Capital and one of the fund’s subsidiaries is NML Capital.

The eyes of a billionaire

To all appearances, the billionaire Mr. Singer is determined to squeeze every dollar out of every “investment,” and he has the means at his disposal to bring this about. Using the Internet, his NML Capital tracked a ship used as a training vessel for the Argentine Navy. Calculating its chances, NML Capital waited for the ship to dock in Ghana, then quickly went to a local court, where it successfully obtained an order impounding the ship. The ship remains stranded in Ghana’s main port, and the Argentine government had to resort to chartering a flight to bring most of the crew home; it couldn’t use an Argentine airplane under fear that the plane, too, would be impounded.

Mr. Singer has long used such tactics, according to a report in Forbes magazine, and he purposely waited for the ship to dock in Ghana because he believed it was the country among the ship’s ports of call that would most likely grant his wishes. Forbes reports that Elliott Capital had sought in 2007 to seize the Argentine presidential plane when it was scheduled for maintenance in the United States (the plan was foiled when Argentina was tipped off) and two years later plotted to seize Argentine assets at the Frankfurt Book Fair, forcing the government to withhold showing works of art.

That having the ship stranded in port might have negative effects on Ghana, a poor country, does not seem to have been of concern. The ship’s presence has greatly slowed down the ability of cargo ships to use the port, causing dozens of vessels to wait offshore in a lengthening queue, according to The Financial Times. Such delays are also costing the shipping companies and others considerable money.

But what could be more important than a speculator trading on other people’s misfortune scooping up windfall profits?

Buying (very) low, demanding (very) high

There is nothing out of character for Mr. Singer to be using such hardball tactics. In fact, his hedge fund’s strategy is to buy outstanding debt at a tiny fraction of its value and then demand to be paid in full. A report on him and the other billionaires with whom he plays, including David and Charles Koch, on the ThinkProgress blog reports:

“Singer, manager of a $17 billion hedge fund, earned the moniker “vulture capitalist” for buying the debt of Third World countries for pennies on the dollar, then using his political and legal connections to extract massive judgements to force collection — even from nations suffering from starvation and violent conflicts. Singer and his partners have used such tactics in Panama, Ecuador, Poland, Cote d’Ivoire, Turkmenistan, and the Democratic Republic of Congo. In addition to squeezing impoverished countries with sovereign debt schemes, Singer speculates in the oil markets, a practice which can lead to gasoline price hikes.”

Among his other exploits, Mr. Singer is the chairman of the Manhattan Institute, an extreme Right “think tank” that specializes in promoting neoliberal ideology.

That affiliation is evidentially not a coincidence. Investigative journalist Greg Palast, writing for Truthout, provides some of the details of the speculator’s previous efforts to “collect” his debts:

“Singer’s modus operandi is to find some forgotten tiny debt owed by a very poor nation (Peru and Congo were on his menu). He waits for the United States and European taxpayers to forgive the poor nations’ debts, then waits a bit longer for offers of food aid, medicine and investment loans. Then Singer pounces, legally grabbing at every resource and all the money going to the desperate country. Trade stops, funds freeze and an entire economy is effectively held hostage.

Singer then demands aid-giving nations pay monstrous ransoms to let trade resume. … Singer demanded $400 million from the Congo for a debt he picked up for less than $10 million. If he doesn’t get his 4,000 percent profit, he can effectively starve the nation. I don’t mean that figuratively — I mean starve as in no food. In Congo-Brazzaville last year, one-fourth of all deaths of children under five were caused by malnutrition.”

The financier war on Argentina

The billionaire speculator has also been attempting to get many pounds of flesh out of Argentina courtesy of the U.S. federal court system. The latest in a series of thundering rulings by a senior U.S. district judge, Thomas Griesa, earlier this month ordered Argentina to pay US$1.3 billion to Elliott Capital Management and Aurelius Capital Management, the two main holdouts who refused to agree to the 30 percent deal with Argentina.

The Argentine government appealed to a higher court on November 25. That is a routine the government is already familiar with, after the same judge last year issued a ruling that the two hedge funds could seize Argentina’s deposits with the Federal Reserve. Yes, it has come to the point where even the world’s most powerful central bank can be seen as a mere piggy bank to be raided at will by financiers. Well, almost, because that ruling was too much even for the U.S. government — it joined an appeal to a higher court, which threw out the ruling on the basis of sovereign immunity.

The Federal Reserve holds money and gold owned by many of the world’s governments, and has an interest in maintaining a shield that protects those holdings from private seizure.

This was a matter of the principal of sovereignty — the U.S. doesn’t want its overseas assets seized, either — so let us hold off from celebrating the appeals court reversal too joyously. The various bilateral and multilateral “free trade” agreements that elevate corporate profit above all other human considerations, and the arbitration bodies such as the International Centre for Settlement of Investment Disputes that improvise ever harsher rulings that become precedents for future cases, quietly lurk in the background. Not that ago that the idea that a regulation against pollution that threatens human health would be illegal because it hurts profits would have been bizarre. Yet it is now routine international trade law.

A billionaire speculator seizing a military vessel is bizarre; the billionaire’s tactics are sufficiently outlandish that, in this case, other financiers oppose his insistence on being paid in full if only because they are afraid they would not receive their own payments if Argentina has to pay him. President Cristina Fernández has repeatedly said there will be insufficient money available to continue to pay back the creditors who accepted the 30 percent deal nor for domestic social programs if full payments are made to the holdouts Elliott Capital and Aurelius Capital.

But if the holdout hedge funds’ tactics ultimately work, what is outlandish will become accepted. What will be seized next? A country’s food supply?

Financiers love to portray themselves as the lubricants of the modern economy, enabling capital to be distributed to where investment is needed. They can believe that if they wish, but there is no reason for the rest of us not to see financiers as what they are: parasites.

A tale of two elections: Venezuelan accountability and U.S. irregularities

There were two widely watched national elections earlier this month. In one, a popular incumbent won for the fifth time in a voting system called “the best in the world” by former U.S. President Jimmy Carter. The other election featured widespread attempts at voter suppression with many localities using computer systems with no paper backup that do not confirm the results.

The incumbent in the first example is nonetheless routinely referred to the corporate media as a “dictator” while the second country is portrayed by the same corporate media as “the world’s greatest democracy” that has the right to dictate to other countries.

The first example, as you have by now surmised, is Hugo Chávez of Venezuela. Just for the record, here are the results of his presidential contests:

  • December 1998: Elected president with 56.2 percent of the vote.
  • July 2000: Re-elected president with 59.8 percent of the vote under a new constitution.
  • August 2004: Retained presidency by defeating a recall referendum with 59.3 percent of the vote.
  • December 2009: Re-elected president with 62.9 percent of the vote.
  • November 2012: Re-elected president with 55 percent of the vote (81 percent of those eligible voted).

If we were to count elections to the parliament, state and local elections, and various referendums, President Chávez and his United Socialist Party of Venezuela have won 15 of 16 elections since 1998. The lone exception was a ballot on constitutional changes that lost by two percentage points – and his reaction was simply to accept the results. Accepting a narrow defeat and allowing an opposition that bitterly hates you and everything you stand for to place a recall referendum on the ballot — it would seem that President Chávez needs to work much harder to become a “dictator.”

All parties confirm voting process in Venezuela

What most stands out in Venezuelan elections is the transparency of the electronic voting system. Voters in Venezuela make their selections on computers in which party and independent observers participated in 16 pre-election audits, according to a report by the Carter Center. The center’s report further states:

“One of the key aspects of the security control mechanisms involves the construction of an encryption key — a string of characters — created by contributions from the opposition, government, and [National Electoral Council], which is placed on all the machines once the software source-code has been reviewed by all the party experts. The software on the machines cannot then be tampered with unless all three parties join together to “open” the machines and change the software. In addition, each voting system machine has its own individual digital signature that detects if there is any modification to the machine. If the voting count is somehow tampered with despite these security mechanisms, it should be detectable … because of the various manual verification mechanisms.” [page 5]

As an added precaution, each voter has a fingerprint on file, with a voter having to provide a fingerprint to avoid anyone attempting to vote more than once, and this system is also encrypted to guarantee secrecy. Finally, there measures to ensure accuracy in the vote count, including printouts of all votes and an automatic audit. The Carter Center reports:

“The voting process permits voters to verify their ballots through a paper receipt generated by the voting machine. A comparison of a count of the paper receipts and the electronic tally at the end of the voting day with the presence of voters, political party witnesses, domestic observers, and the general public is conducted in a large sample of approximately 53 percent of the voting tables, selected at random. Additionally, party witnesses receive a printout of the electronic tally from every machine. The [National Electoral Council] gives the party a CD with the results of each machine and publishes them on the website so that all of these results can be compared. The human element is therefore still important.” [page 7]

The opposition coalition that supported President Chávez’s main opponent, Henrique Capriles, approved the voting lists and electoral process ahead of the vote; the opposition campaign therefore had no basis to contest the results afterward and indeed conceded soon after the polls closed. It took only “minutes” for the vote to be announced, based on 90 percent of the vote total, according to a commentary by a Venezuelan journalist writing for the business publication Forbes magazine.

One would not expect to see an article praising Hugo Chávez’s government in a publication like Forbes, which proudly refers to itself as a “capitalist tool.” So all the more noteworthy is this commentary by Venezuelan journalist Eugenio Martinez:

“[I]t may be time for the greatest democracy in the world to take a lesson from Venezuela on how to develop and administer an efficient electronic voting system spanning across all stages of the electoral process.”

Controversy in U.S. presidential elections

We can contrast that with the U.S. election, in which it took days for many local races to be known; the Florida vote for president wasn’t decided until the following weekend. A week after the election, the winners of six congressional races could not be determined.

U.S. elections are rarely without controversy, and the last four presidential elections have featured significant attempts to suppress the vote, controversies concerning unverifiable voting machines, hours-long lines at polling places sometimes due to manipulations in the distribution of voting machines and even (in 2000) a sacking of an election office to prevent a re-count from being conducted.

That 2000 sacking occurred in Miami when a mob organized by Republican Party operatives stormed the election office, physically preventing the vote count from continuing in an area expected to vote for Al Gore, the Democratic Party presidential candidate. The 2004 election saw the first widespread use of electronic voting machines. And in 2012, many states with Republican governments passed laws aimed at keeping groups of people, particularly African-Americans, from being able to vote, and on election day there were widespread reports of shortages of machines in areas expected to vote heavily for Democrats, leading to long lines while nearby areas expected to vote Republican had no lines at all. Similar problems also occurred in 2004 and 2008.

In contrast to Venezuelan voting machines which can be checked, many U.S. voting machines are not equipped with any way to confirm the results — and the machines use private, proprietary software belonging to the manufacturers of the machines that is not accessible to election officials, nor do they provide printouts for confirmation. The 2004 presidential election was noteworthy for the extraordinary 5.5 percentage-points disparity between exit polls and the announced results.

In the U.S., the presidential vote is actually 51 separate votes because each state plus the District of Columbia distill their individual totals into the electoral college. Statistically, it would not be unexpected that two might report a result that is a small amount outside the polls’ margin of error, with the divergences evenly distributed. In 2004, seven states reported results that were so far beyond the margin of error that the odds of any one happening are less than one percent, according to a study by the group US Count Votes. The odds of seven outliers (all in one direction, for George W. Bush) to such an extent is one in ten million!

The study then broke down discrepancies between exit polling and official results, and found that in jurisdictions in which paper ballots were used, the aggregate discrepancy was within the margin of error (and thus statistically unremarkable), while the aggregate discrepancy for electronic machines was far outside the margin of error, sufficiently so to conclude that an impartial investigation be conducted (which was not done).

A separate watchdog group, Election Defense Alliance, said of these unexplained discrepancies and other problems following the 2008 election:

“The central process of our elections is the counting of our votes. Yet we now have electronic machines that count our votes out of view [of U.S.] citizens — in other words, in secret. … In the presence of large exit polls discrepancies, there is no way to know whether or not extensive fraud has been committed without an extensive investigation, including access to the voting machines. After three consecutive national elections manifesting large exit poll discrepancies well beyond the margin of error, and all in the same direction, it is way past time that we find a way as a nation to ensure that our elections are conducted fairly.”

The three largest manufacturers of voting machines in the U.S. at that time each had strong connections to the Republican Party, and machines of each were involved in problems with the 2004 vote, according to exhaustive accounts chronicled in the book Fooled Again by Mark Crispin Miller.

The 2012 presidential vote aligned very closely with polling; perhaps sufficient safeguards have begun to be implemented. But the shortage of machines in areas with heavy concentrations of Democratic voters in several Republican-controlled states demonstrates that clean elections remain an aspirational goal. The attempted voter suppression may have backfired, as most of the voting-suppression laws were overturned by courts and news reports were full of African-Americans and others determined to vote to defy those who didn’t want them to do so.

Enthusiasm in Venezuela a contrast to U.S. voters

The sanctity of the vote itself aside, the U.S. election was mostly a sterile affair of voting against the other candidate; neither Barack Obama nor Mitt Romney could generate much excitement. Certainly there were millions of people in Venezuela motivated by opposition to Hugo Chávez, but there were many more who voted for the incumbent enthusiastically. A reporter writing before the election for the online news site Venezuelanalysis wrote:

“Talking to people at the Merida rally, I was impressed by the depth of political consciousness and variety of opinions among the crowd as to why they supported Chavez’s re-election. For some, Latin American integration was the reason, for others, free healthcare. For many, their main reason for supporting Chavez, as one middle-aged couple put it to me, was that ‘he’s the president who has most given power to the people’ while another man told me, ‘he’s the president who has awoken the people of Venezuela and fellow peoples.’ Another young woman told me her reason was quite simply ‘I love him.’ …

Indeed, the young woman who told me that ‘love’ was the reason she voted for Chavez wasn’t being tricked by some populist image or last minute spending burst. She came from a poor family which used to live in a shanty house near where the Merida rally took place. Now she is about to graduate as a doctor in the government’s integral community medicine program, and would have been excluded from the Venezuela’s traditionally elite medical system. Her shanty house had also been transformed into a dignified home through the community driven ‘homes for shanties’ program, part of the government’s mass housing construction mission. It’s transformations like these that have earned Chavez such strong support, as much as it pains the international media to say so. Indeed, according to corporate media sources, gaining the support of the popular majority through directing government policy toward their needs seems to be a bad thing for ‘democracy.’ ”

President Chávez is often accused in the corporate media, by no means only in the United States where the most vigorous opposition to the Bolivarian Revolution originates, of “buying” votes. Yet the presidential campaigns of President Obama and former Governor Romney spent approximately US$2 billion while an additional $1.7 billion was spent on congressional races, according to The Center for Responsive Politics. A handful of billionaires, most notably but not limited to oil barons David and Charles Koch and casino magnate Sheldon Adelson accounted for tens, perhaps hundreds, of millions of dollars each thanks to the a string of decisions in the U.S. Supreme Court that equate money with speech, capped by the Citizens United vs. Federal Election Commission decision.

How does that staggering amount of money not constitute buying votes and offices?

Uneven progress for Bolivarian Revolution

The point here isn’t that Venezuela is perfect or a paradise — it is neither. But President Chávez’s Bolivarian Revolution has repeatedly received Venezuelans’ approval to continue progress toward what he calls “21st century socialism.”

That process is aimed explicitly at putting an end to the neoliberalism that has imposed so much misery and putting power into the hands of local communities so that people can make the decisions that affect them. Doing so is bitterly opposed by the former rulers of Venezuela, who were the leading backers of opposition candidate Henrique Capriles; by industrialists and financiers throughout the advanced capitalist countries; and by the numerically minuscule capitalist elites of regional countries.

The Bolivarian Revolution is a sometimes chaotic process that does not advance in a straight line; aspects of its are opposed by some leaders inside President Chávez’s government. Although nationalization of the state oil company receives most of the attention, the bedrock of the revolution are the formations of small cooperatives in a variety of industries; the creation of “social production companies” in which existing enterprises were to create co-management structures and create chains of supply with cooperatives; shuttered enterprises that are expropriated by the workers who re-start production; and experiments in “co-management” with workers’ participation conducted in large state-owned resource enterprises.

The last of these initiatives has suffered setbacks for a variety of reasons, including resistance from existing managements. A need for modernization and resistance from unions has also contributed to setbacks in creating workers’ co-management of the large state-owned resource enterprises. Considerable differences of opinion on the appropriate forms of management and ownership of enterprises continues not only among working people but among officials in the government.

Dario Azzellini, in a chapter covering Venezuela in the book Ours to Master and to Own (the source for the preceding two paragraphs), summarizes the progress of the Bolivarian Revolution:

“The transformation and democratization of the economy has proved the most difficult. The administration of most companies is neither under workers’ nor community control. Surrounded by a capitalist system and logic, it has been extremely challenging to establish collective production processes. Questions over the distribution of work and the resulting gains are particularly conflictive. However, where workers have succeeded in gaining control of their workplace, it can be observed that they have usually developed ties with the surrounding communities, abolished hierarchical structures, made themselves accountable to the workers’ assembly, and in most cases introduced equal salaries and increased the number of employed workers.” [page 397]

Professor Azzellini concludes that “The search for an alternative economy is thus firmly on the agenda.” We need not look any further to discover the solution to the puzzle of Venezuela being falsely painted as a “dictatorship” when it has elections much more transparent and fair than those of the United States.

The country that said no: Argentina’s path out of austerity

By Pete Dolack

On a daily basis, we are bombarded with messages in the corporate media that any European Union country defaulting on its debt would constitute armageddon. Greece/Ireland/Spain/choose your country must pay back the banks in full, no matter the social cost, we are told ad infinitum.

I would ask readers to contemplate the unthinkable, except for the fact that not sacrificing entire countries for the sake of investment bankers’ bonuses, speculators’ profits and corporate windfalls is not really unthinkable. Countries have done it. One that did, a decade ago, was Argentina. I hope I will not induce any sudden heart attacks, but armageddon was not the result. No fire fell from the sky.

Quite the contrary, Argentines soon were far better off by saying no to the pitiless austerity that had been imposed on them.

There are lessons to be learned, with the usual caveats that every country is different. Other countries might not do as well as did Argentina, and Argentines did suffer considerable short-term pain. But, as people in other countries today ask: Could anything have been worse than endless austerity?

As with the current economic crisis that has reached dramatic points, Argentina’s crisis had a long buildup. The military dictatorship of 1976 to 1983 laid waste to the Argentine economy while killing, torturing, “disappearing” or forcing into exile hundreds of thousands. The military had been given a free hand to launch its “dirty war,” a campaign of terror against opponents of neoliberalism augmented by two fascist groups that operated with impunity. Upon seizing power, the military handed control of the economy to a prominent industrialist and landowner, who heavily favored the largest enterprises, outlawed strikes and banned the union federation. Real wages fell by 50 percent and gross domestic product fell by double digits. The result was a dramatic increase in income inequality and a fivefold increase in foreign debt. The restoration of civilian rule and nominal democracy put an end to government terror, but not to economic policy.

Banks underwriting Argentine government bonds earned an estimated US$1 billion in fees between 1991 and 2001, profiting from public debt.* During the same years, foreign debt continued to grow, speculators inflated a stock-market bubble, social benefits were reduced, and credit cut for small and midsize businesses. Wages were cut further, first by inflation and then by a wage freeze. Argentine exports steadily became less competitive because the peso was fixed at a one-to-one rate with the U.S. dollar; Argentina could not give a boost to its exports because the fixed exchanged rate did not allow the devaluation that capitalist competition had demanded.

In conjunction with the austerity programs, Carlos Menem, who was president for most of the 1990s, sold off state enterprises at below-market prices. This fire sale yielded US$23 billion, but the proceeds went to pay foreign debt mostly accumulated by the military dictatorship — after completing these sales, Argentina’s foreign debt had actually grown. The newly privatized companies then imposed massive layoffs and raised consumer prices.

By 1997, about 85 percent of Argentines were unable to meet their basic needs with their income; the average income was less than one-half of what was necessary to meet basic needs for a family of four and the percentage of workers who were unemployed or underemployed was about 30 percent.** Because these austerity programs were implemented by a Peronist president — traditionally seen as protectors of labor and social services —  working people became ideologically confused and therefore were slow to fight back or coalesce behind anti-austerity political movements. The military junta had also physically wiped out a generation of experienced activists.

An upsurge of unrest finally brought an end to the punishment of Argentines. In December 2001, the government ordered bank accounts frozen and limited the payment of wages and pensions so that the money could be diverted to making interest payments on foreign debt; the government would have defaulted otherwise. A ferocious and broad protest movement mushroomed as Argentines refused to cooperate, and the country went through five presidents in two weeks.

The people had no choice but to find solutions themselves, and did: They set up barter clubs and created a system of popular assemblies, creating dual government structures at the local level. Workers in factories that had been shut down simply took them over, restarting production and converting them into cooperatives. A new president, Néstor Kirchner, suspended debt payments.

These developments soon reduced unemployment from 50 percent to 17 percent and created a budget surplus. The outstanding debt, however, remained — had Argentina resumed scheduled payments in 2005, interest payment alone on the debt would have consumed 35 percent of total government spending, according to an analysis by Alan Cibils published in Z Magazine. Kirchner announced that Argentina intended to pay only 25 percent of what was owed and any group that refused negotiations would get nothing; in the end, Argentina paid 30 percent.

Those moves did not constitute a magic wand, and recovery was slow for many. But over the longer term, Argentina has done well — its gross domestic product nearly doubled from 2002 to 2011, representing the fastest growth in the Western Hemisphere, according to a report published in October 2011 by the Center for Economic and Policy Research.

The Center reports that:

  • Poverty has fallen from almost half of the population in 2001 to approximately one-seventh of the population in early 2010.
  • Income inequality significantly declined. In 2001, those in the 95th percentile had 32 times the income of those in the fifth percentile. By early 2010, that figure fell by nearly half, to 17.
  • Unemployment has fallen by over half from its peak, to eight percent.
  • Social spending rose from 10.3 to 14.2 percent of gross domestic product.
  • In 2009, the government expanded the reach of its social programs, launching the “Universal Allocation per Child,” which resulted in significant reductions in infant and child mortality from 2001 to 2010, somewhat more than in similarly situated countries.

The Center’s report notes that “Argentina’s rapid growth has often been dismissed as a ‘commodity boom’ driven by high prices for its agricultural exports such as soybeans, but the data show that this is not true.” The value of Argentina’s manufacturing exports accounted for more than triple the value of its agricultural and forestry exports. Moreover, exports of agriculture, hunting, fishing and forestry products accounted for a steadily smaller percentage of Argentina’s economy during the past decade — those exports accounted for 5.0 percent of overall gross domestic product in 2002 as compared to 3.7 percent in 2010.

“The recovery is driven by consumption and investment (fixed capital formation),” which together accounted for more than 70 percent of Argentina’s growth during the past decade, the report states.

That success came despite Argentina still being shut out of international lending markets, having little direct foreign investment and continuing to be subject to hostility from the United States and the European Union. The E.U. this week filed suit in the World Trade Organization against Argentina over import restrictions, encouraged by the U.S. An arbitration board based in Washington has repeatedly awarded energy companies hundreds of millions of dollars because the enterprises suffered losses when the peso was devalued in 2002 and regulators refused them steep rate increases. Never mind that market forces were at work — it was the very same markets that these companies swear to live by that caused the fall in value of the peso while it was government intervention that had artificially propped up the peso’s value previously.

Economist Joseph Stiglitz, in a 2007 lecture, said of the arbitration rulings:

“It is clear that maintaining utility prices in dollars — while the rest of the economy was undergoing pesoification — would have been a huge windfall for the utilities. It would have represented a vast redistribution of wealth from the rest of the economy to the utilities — resulting in an unfair and inequitable outcome. It would have harmed the economy, depressing output even further.”

Critical for Argentina’s turnaround was defaulting on its debt, freeing money for investment and social services. Also a factor was eliminating the peso’s peg to the U.S. dollar. Valuing one peso as equal to one dollar was exactly as if Argentina used a common currency like the euro; Argentina’s currency was overvalued and all adjustments imposed by capitalist competition therefore had to be made internally — in other words, harsh austerity.

Once Argentina allowed the value of its peso to be set by market forces, the country not only saved the money that had been spent in foreign exchange markets to prop up the peso’s value (expensive market interventions maintain currency pegs, not government fiats), but the strong decline in the value of the peso made Argentina’s exports cheaper. It also made imports into the country much more expensive. From a consumer perspective that is a harsh burden but within the logic of capitalism in which Argentina had to operate it acted as a spur to internal production. If it is too expensive to buy from another country, the alternative is to make it yourself.

The need to restart production and put themselves back to work also induced workers in plants that had been shut down or were being asset-stripped to take them over. Community support enabled these workers to maintain their operations in the face of government hostility. The recovered enterprises became cooperatives that in turn were managed with community benefit in mind.

Argentina’s industry became more competitive and because many more Argentines were back to work, there was more domestic demand. Consumer demand is ultimately the driving force in a mature capitalist economy. According to the World Bank, household consumption accounted for 60 percent of Argentina’s gross domestic product, a typical figure. Under austerity, when unemployment sharply rises and those who retain their jobs are paid a lower wage,  the economy contracts because people don’t have money to spend.

Working people also don’t pay as much taxes when their wages decline. Corporations and the rich are paying less taxes, too — because they refuse to pay them, much preferring to lend money at interest rather than shoulder responsibility for the society that enables them to accumulate vast wealth — so governments are forced to borrow. But as less revenue comes in, more must be borrowed, and the price extracted by the corporations and the wealthy who lend is to demand more austerity to ensure they will be repaid in full, with interest. Unemployment rises more, more debt is accumulated, the economy contracts further, and round and round it goes until working people rise up to force their government to stop.

That is what happened in Argentina in 2002. That is what is needed to happen in many more countries today.

* This and the following paragraph based on Pablo Pozzi, “Popular Upheaval and Capitalist Transformation in Argentina,” Latin American Perspectives, September 2000, pages 65-70; Colin M. MacLachlan, Argentina: What Went Wrong, pages 169-171 [Praeger, 2006]
** This paragraph based on Pozzi, “Popular Upheaval,” pages 75-80