Compañer@s:
With this paper I venture into a completely new area, so I am eager to get your reaction. Its origin is highly opportunistic. I was invited to a conference in Angola in October, 2007 (my first venture onto the African continent). I had paid little attention to Angola since I completed work on the
Portuguese revolution, so before going (I didn't have very much notice) I tried to get some background on the intervening decades. Everything I read had two overwhelming themes: oil and corruption.
Similarly, while I was there, these seemed to be on everyone's mind. I can't glorify my experience there as research because it was a quick trip and logistical difficulties made it impossible to go very far beyond the scheduled spaces or meet many people, but from the Chinese oil trader in line at the airport when I arrived to the American engineer who explained offshore drilling to me, not to mention most
Angolans, these things were on their mind and they emphasized the paradox of oil riches and human poverty.
Much of the literature on Angola focused on the resource curse. This started me to wondering why Venezuela--another place where you can't walk two meters without hearing something new about oil--was different. The political hypothesis seemed obvious. So I gave myself a cram course on the oil industry. I quickly found out that, while my initial thoughts were not wrong, the full story was much more complicated and much more interesting.
I wrote this paper a year ago when the price of oil was shooting up to $150. Every day while I was working on it I turned eagerly to see where it had landed that day--and, I confess, I was rooting for it (I don't own a car). When I came to revise the paper this past winter, I recognized that it had been written under the assumption that the price was going to stay, if not at that level, at least high enough that the patterns I had observed would remain more or less the same. So I had to rethink again. Here is the (provisional) result.
Jack

Draft: Do not cite, quote, or duplicate without author's permission
Comments invited
The Resource Curse and Oil Revenues in Angola and Venezuela
John L. Hammond
Hunter College and Graduate Center, City University of New York
January, 2009
Sociology Department
Hunter College
695 Park Avenue
New York, New York 10065
212-663-1358 fax: 212-772-5645 e-mail: jhammond@hunter.cuny.edu
This is a revised version of a paper presented at the Global Studies Association, New York,
June, 2008. I appreciate the helpful comments of Renate Bridenthal, Steve Ellner, Sujatha Fernandes,
Barbara Foley, Rose Anne Franco, Ernie Harsch, Dan Hellinger, Franz-Wilhelm Heimer, Lenny
Markowitz, George Martin, Mário Murteira, Fred Rosen, Mike Tanzer, Victor Wallis, and Greg
Wilpert.
John L. Hammond is the author of Fighting to Learn: Popular Education and Guerrilla War in
El Salvador (Rutgers University Press, 1998) and Building Popular Power: Workers' and
Neighborhood Movements in the Portuguese Revolution (Monthly Review, 1988). He teaches sociology at Hunter College and the Graduate Center, City University of New York.
Abstract
In this article I call for a reconsideration of the theory of the resource curse. According to that theory, poor countries with large endowments of natural resources, especially oil, often do not achieve sustainable economic growth because the size and volatility of oil revenues encourage corruption, mismanagement, and authoritarian governments that fail to invest for the future or provide for the wellbeing of the majority of their populations. These are not consequences of resource riches per se, however, but of the political conditions under which they are exploited. Angola is a classic case of the resource curse. Since independence in 1975 it has experienced corrupt and authoritarian government living off of its offshore oil resources. Venezuela, after experiencing massive development failure in the 1970s and 1980s, appears to have avoided the resource curse under President Hugo Chávez. The concept of resource curse, and accordingly its remedies, must be understood as multidimensional: accountability includes honesty, sound economic management, and providing for the public welfare.
Venezuela shows that imposing sound economic management is not sufficient to assure that oil revenue will be devoted to social needs, and can even be counterproductive. What is required is a political and social revolution dedicated to serving the interests of the population as a whole.
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The Resource Curse and Oil Revenues in Angola and Venezuela
Can poor countries harness their oil wealth to promote economic growth and improve the welfare of their populations, or do they necessarily squander it in waste and corruption? For many countries the record is not encouraging. According to the theory of the resource curse, oil seems to be an obstacle to development in poor countries.
That experience, though common, is far from inevitable. But to understand what conditions allow oil wealth to contribute to development, one must specify what is meant by development and distinguish among the hypothesized effects of the resource curse. Overcoming the resource curse has been taken to mean promoting economic growth, diversified industrialization, improved social welfare, and government accountability. All these goals are not the same, however, and they may even be incompatible. For example, protecting oil production from political control and sequestering revenues in investments outside of the country have been proposed by advocates of the resource curse theory as the remedy for economic inefficiency. Under such conditions, however, oil revenues will not be used to meet social needs. That will be more likely if their use is controlled by the political process.
In this paper I will compare Angola and Venezuela to illustrate alternative ways of using oil wealth. The two countries illustrate three different scenarios: Angola is a classic example of the resource curse, while Venezuela has overcome it at least to some degree. Venezuela successfully channeled oil revenues into productive investment in the 1980s and 1990s when the national oil company operated autonomously from the state, preventing its revenues from being used to finance social welfare expenditures. Since President Hugo Chávez took office in 1999, Venezuela has reasserted political control of the company and used its revenues for social programs. So oil is not inevitably a "curse" with negative outcomes. An oil-rich government can make political choices that enable a country to put its oil wealth to positive uses.
The Economy of Oil Production
The price of oil rose from $8/barrel in January, 1999 to a record $147.27 on July 11, 2008.
Most of that rise came after 2003, when the price fluctuated around $28. The spectacular increase had several causes, including price manipulation by the producer countries through OPEC, supply disruptions due to war in Iraq and civil conflict in Nigeria, the dollar's decline in value, and speculative portfolio inflows. But the more structural cause was an increase in worldwide demand, fueled by the industrial and consumer needs of China's and India's fast-growing economies.
The boom was followed by an even more rapid crash, to a low of $30.28 on December 23,
2008. By the following May, it rose again as high as $58. The collapse followed the worldwide economic crash, which rapidly reduced global demand. Further fluctuations will depend in large measure on how quickly the world economy recovers. But it is the tremendous increase in demand, the price rise, and the concomitant increase in revenues to producer countries that underlay the recent renewal of interest in the theory of the resource curse.
The claim of the resource curse is that, contrary to what might seem to be common sense, poor countries with large oil reserves do not often experience rapid or balanced economic growth. Oil rents encourage inefficient management, corruption, failure to plan for the long term, unresponsive and authoritarian government, and neglect of the needs of the population. Oil production distorts currency exchange rates, disrupts trade relations, and creates vested interests that leave little space for alternative growth models. Windfall revenues encourage excessive spending, even for legitimate purposes,
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without providing for economic diversification to offset the eventual exhaustion of resources.
Many of these effects are not specific to oil but apply to the exploitation of rents in general, especially mineral rents. Rent refers to the discrepancy between the cost of production of a commodity and its price. When the price of a commodity far exceeds its cost, actors use political means to capture the rent. According to Adam Smith (cited by Karl, 1997: 5), rent-seeking creates a bias toward unproductive activities--in other words, perverse incentives to use the rents for consumption and shortterm gain rather than investing them for long-term development. In the case of oil, its centrality to the global economy and the high profit on investments that are large in the absolute but small in relation to the expected return make its effects far more acute than is the case for other resources.
Oil as a commodity has several characteristics which underlie the resource curse.
1
First, it is vital to the international economy, a source of energy for electrical power, transportation, and heat.
Second, it does not need to be produced, merely extracted. Third, it is depletable; oil once extracted is used, making oil revenue more like the expenditure of an asset than like income. Fourth, production is capital- and technology-intensive. Fifth, its price is high; its exceptional value means that it can be sold at prices that generate large profits relative to the cost of extraction. At the same time, however, its price is highly volatile on the world market (Humphreys et al., 2007: 3-4; Karl, 1997: 47-48; 2007:
3).
These characteristics are exogenous to the national economies of oil-producing states.
Endogenous characteristics, on the other hand, are related to the fact that oil is frequently produced in an enclave. Because it is extracted, rather than produced, the oil industry is likely to be an economic enclave with few forward and backward linkages to the rest of the economy. It is typically found in a geographical enclave as well, since the location of oil deposits is random with respect to the location of population centers and other economic activities. The high capital and technology demands mean that transnational oil corporations typically play a major role in production and distribution, further limiting its contribution to a national economy. Finally, as a capital-intensive activity, it generates relatively little employment.
Taken together, all these factors often produce perverse incentives for rent-seeking behavior.
This has adverse effects, both economic and political. On the economic side, the volatility of oil revenues, whether because of varying cost of extraction over the life of an oil deposit or fluctuations in the international price of oil, makes planning difficult. Because of its enclave character, oil produces few spinoffs for the national economy as a whole; in particular, it discourages investment in infrastructure, social welfare, and education. An oil boom makes a country vulnerable to the "Dutch disease," whereby a rapid increase in the exchange rate weakens domestic production in other sectors because it becomes cheaper to import many goods rather than produce them domestically, while goods produced for export become more expensive in foreign markets--which does not conduce to a diverse, sustainable economy capable of thriving after the oil boom is over.
2
The producer country becomes
1
Hereafter, I will refer to oil specifically, rather than to natural resources in general. I remind the reader, however, that the same characteristics, possessed in lesser degree by other resources, have similar if muted effects.
2
The terms "resource curse" and "Dutch disease" are often used interchangeably (e.g. Oliveira and
Ali, 2006). In more precise usage, however, the resource curse embraces all the alleged negative effects of oil on development, while Dutch disease refers to one aspect of the resource curse, the inflationary effect of a natural resources windfall (in the case of the Netherlands, it was natural gas).
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dependent on a transnational corporation whose interests are not generally the same as its own
(Humphreys et al., 2007: 4-10; Karl, 1997: 34-37).
Political problems are a corollary. Most of the world's poor oil-producing states are weak states. Many of them became independent less than half a century ago and others whose national existence goes back further also have poorly developed institutions. The presence of oil tends to aggravate that condition. First, oil can be an incentive to internal political conflict, especially in ethnically divided states, as groups compete for control of the resources (Collier and Hoeffler, 1999;
Kaldor et al., 2007: 20-22; Karl, 2007: 28-29; for a contrary view, see Fearon, 2005). Even in the absence of overt conflict, states fail to develop strong institutions. Extraordinary rents are an incentive to corruption and authoritarianism. A government living on oil revenues does not need to develop a strong tax base or cultivate popular support through consistent programs. Closing deals with transnational corporations provides abundant opportunity to demand bribes and kickbacks.
Unaccountable rulers neglect the welfare of the population; in particular, they fail to promote education and health programs. They can maintain power by coopting or coercing different segments of the population. Overall, rent-rich governments tend strongly to authoritarianism and inefficiency in development and welfare programs (Humphreys et al., 2007: 10-14; Karl, 1997: 2007: 16-25). In particular, they do not invest adequately in education--thereby not only disregarding social welfare needs but also failing to produce human capital, creating a further impediment to development
(Gylfason, 2001).
Thomas Friedman has enunciated the "First Law of Petropolitics:" the higher the price of oil, the less likely are democratic institutions to develop, and conversely, the lower the price of oil, the more likely oil-producing countries are to develop open, transparent political systems that will encourage economic entrepreneurship (Friedman, 2006: 31). This "law" is about the price of oil, not its presence, but the conclusion is the same: greater oil revenues do not encourage democratic and responsive government.
Not all of these effects occur at the same time in the same oil-producing country. Nevertheless, they are sufficiently common to account for the surprisingly poor growth records of oil-producing countries as a group. Resource-poor countries grew four times as fast as oil-producing countries between 1970 and 1993. Many oil-producing countries lost ground after the collapse of the two oil booms of the 1970s. One of the countries examined in this paper, Venezuela, was a catastrophic example: between 1979 and 1999, real per capita income fell by 27% (Karl, 2007: 5; Wilpert, 2007:
13). The claim has been challenged by C. N. Brunnschweiler and E. H. Bulte (2008), who argue that the data, properly analyzed, reveal that resource abundance is favorable for economic growth--but their argument from resource abundance is not the same as the argument from actual resource revenues.
There are exceptions, however. None of these outcomes is foreordained or intrinsic to the production of oil. All of them depend on the nature of political institutions in an oil-producing country, and are, at least in principle, susceptible to change through effective public policies. That those policies are rarely adopted is a testament to the fact that weak institutions are self-reinforcing and rents reward corruption and authoritarianism. Countries which are exceptions to the resource curse differ significantly from the typical oil producer either in the economy of oil production or in the allocation of revenues in the national budget. Norway is the most prominent example. In this paper I will contrast Angola and Venezuela. Angola has enormous oil revenues but a corrupt, authoritarian government which does little for the welfare of its people. Venezuela under Hugo Chávez, in contrast, has to a degree escaped the resource curse: in particular, it has generous social programs funded by oil.
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It might be argued that the comparison of these two countries is misleading, because they are so different in so many respects. However, as Terry Lynn Karl shows in The Paradox of Plenty (1997), the most widely read account of the resource curse, it has been found to arise in countries at many different levels of development. The five countries she examines closely (Iran, Nigeria, Algeria, and
Indonesia, as well as Venezuela), she argues, are heterogeneous in every respect except the possession of oil; yet all of them went through similar crises as a result of the oil shocks of the 1970s (1997: 32).
That Venezuela since 1999 is an exception, when it was the type case in The Paradox of Plenty , shows that political changes can create conditions to avoid the resource curse.
The resource curse is a complicated phenomenon with many dimensions. In this paper I will emphasize three: corruption, poor economic management, and social welfare provision. Many accounts of the resource curse treat all of these indistinctly. But they do not always occur together and their remedies are not always compatible. In particular, a drive for economic efficiency within the oil sector and the provision of social welfare benefits may demand different policies. Welfare benefits are costly and, especially in the policy environment of the last quarter century, have been seen as luxuries.
Many countries, including some resource-rich countries that became heavily indebted during periods of low oil prices, have curtailed social programs in the belief that austerity and fiscal stability are necessary to promote economic growth. In comparing Angola and Venezuela I will argue that in searching for a cure for the resource curse it is necessary to specify for which of its aspects a cure is sought.
The Oil Sectors of Angola and Venezuela
Angola and Venezuela have very different histories with regard to oil exploitation, but both are major producers today. Angola became the largest producer in Africa in 2008, supplanting Nigeria.
Oil contributes about 45% of the country's GDP, 90% of exports, and 90% of government revenues
(Table 1). Oil from Angola, like that of the other countries on the Gulf of Guinea, is mostly offshore.
These countries' oil is attractive to foreign (especially US) companies because it is high quality and close to major markets, notably the US, and because its offshore location reduces the political risk (but concomitantly accentuates its enclave character and lack of linkages with the local economy).
Table 1 about here
Oil was discovered in Angola in 1955 and exploitation began under the Portuguese colony. By
1973 it was Angola's chief export. amounting to 30% of exports. Oil exploitation continued during a thirteen-year war of liberation and a civil war after independence in 1975 that continued until 2002.
The national oil company Sociedade Nacional de Combustíveis de Angola (Sonangol) was established in 1976, based on the departing SACOR, the Portuguese oil concessionaire under the colony. Sonangol is the sole concessionaire for oil exploration and production in the country (Alexander and Gilbert,
2008: 18-20; Energy Information Administration, 2008a: 3; Ferreira, 2006: 25).
Most of Angola's oil is in Cabinda, an enclave territorially separate from Angola, sandwiched on the coast between the Republic of the Congo and the Democratic Republic of the Congo. It has onshore as well as offshore oil. Angola exports 90% of its crude oil, mostly to the US and China. Its domestic consumption in 2007 was approximately 60,000 barrels per day (bpd), of which approximately two thirds was refined at the country's sole refinery in Luanda, the rest imported. A new refinery is being developed in Lobito (Energy Information Administration, 2008a: 2-5).
Angola joined OPEC in 2007. It received a quota of 1.9 million bpd. As of January, 2008, its
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proven reserves were calculated at 9.0 billion barrels, up from 8.0 billion a year earlier. Extensive explorations are going on both onshore and offshore, and further major discoveries are expected
(Energy Information Administration, 2008a: 1-2).
Production has risen rapidly: from 701,000 bpd in 2000 it more than doubled to 1.7 million bpd in 2007 (Oliveira, 2007: 603; Energy Information Administration, 2008b: 148). It is carried out by
Sonangol in partnership with foreign companies The major partners are ExxonMobil, BP, Shell, and
Total. They work primarily under production sharing agreements (PSAs) and to a lesser degree joint ventures (JVs). In a PSA, the foreign partner pays the costs of exploration and development; it then takes all the profit from the "cost oil" until it has recovered its investment, then shares "profit oil" with the government, so the government does not share any risk in exploration. Under a joint venture, the foreign concessionaire and the government share investment costs. An advantage of the PSA to the producing country is that the oil company bears all the initial cost and risk. But since the host government only begins to receive money from "profit oil," unevenness in the flow and variations in the international price of oil make the host country's income more uncertain than the company's
(Alexander and Gilbert, 2008: 20; Gary and Karl, 2003: 10; Shaxson, 2005: 312-13).
Venezuela's oil sector is larger and its history longer than Angola's. The first well was drilled in the second decade of the last century (1912 or 1913, according to different sources; Lander, 2001: 26;
Wilpert, 2007: 87) and the first international oil company, Shell, became involved in 1917. Oil was nationalized in 1976 with the creation of a single national oil company, Petróleos de Venezuela SA
(PDVSA), founded in 1976.
Most of the relevant data on the size, production, and potential of the oil sector in Venezuela are politically contested. For example, the Venezuelan embassy in Washington claims a production of
3.3 million bpd; according to the US Department of Energy's Energy Information Administration, it is
2.8 million. Similarly controversial is the size of its reserves: 89 billion barrels of crude oil, according to the embassy; 80 billion, according to the EIA. In addition, its Orinoco Belt has reserves of 1.2 trillion barrels of extra-heavy crude (embassy estimate), more difficult and more expensive to extract and refine (Gobierno Bolivariano de Venezuela, 2008; Energy Information Administration, 2007).
There is no disagreement, however, that Venezuelan oil is economically, politically, and strategically important, both domestically and internationally. Oil accounts for about 80% of
Venezuela's exports, half of total government revenues, and one third of GDP (Table 1). It is the ninth largest oil producer in the world, the sixth largest in oil exports, and the fourth largest source of United
States oil imports, sending 1.41 million bpd in 2006.
The Curse of Angola
Angola can be regarded as the quintessential case of the resource curse. In the words of Tony
Hodges (2004), it is "a graphic example of how developing countries with large natural resources--in particular oil and other minerals--are among those most prone to poor governance, armed conflict and poor performance in economic and social development." Angola possesses immense mineral wealth: in addition to being the largest oil producer in Africa, it is the world's fourth largest source of diamonds. This wealth financed twenty-seven years of civil war after independence from Portugal in
1975. The hallmarks of the resource curse have followed: a corrupt, rent-seeking government which made secret deals with foreign oil companies and completely disregarded the well-being of the population.
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As a Portuguese colony, Angola had been underdeveloped and impoverished. In 1960 its main export was coffee; it was also self-sufficient in food crops and exported some corn. Unprocessed agricultural goods constituted 56% of exports. But in the 1960s, the colonial power began to develop its oil, at first in the Cabinda enclave (Ferreira, 2006: 25; Hodges, 2001: 90-91).
The liberation struggle against Portugal began in 1961. Three competing factions emerged: the
Popular Movement for the Liberation of Angola (MPLA), the National Front for the Liberation of
Angola (FNLA), and the National Union for the Total Independence of Angola (UNITA). They were at odds with each other as much as with the colonial power (Hammond, 1988: 47-51; Marcum, 1978).
The independence settlement nominally created a coalition among the three forces but they quickly fell into fighting among themselves. Angola became a pawn in the cold war, in which each of the factions had foreign patronage: the MPLA from the Soviet Union and Cuba, UNITA from South
Africa and the United States, and the FNLA from Zaire and, during the independence struggle, China.
After a rapprochement between the governments of Angola and Zaire in 1978 and 1979, however, the
FNLA lost its sanctuaries and rapidly crumbled (Hodges, 2001: 39). The war continued between the
MPLA and UNITA. Despite their differences in ideology and international alliances, both were centralized and dominated by a single leader, the MPLA by President José Eduardo dos Santos (after the first president, Agostinho Neto, died in 1979) and UNITA by its leader Jonas Savimbi.
Dos Santos and the MPLA controlled the government. In power, it rapidly turned authoritarian.
Based on a Marxist-Leninist ideology, the MPLA's model of socialism established a centralized command economy. The MPLA concentrated rule in the president and created a series of mechanisms to assure continuity of that rule and enrichment of its agents. It purged factional rivals after a 1977 coup attempt. Thousands were killed in the repression that followed.
The MPLA was corrupt and incompetent in government. Immediately on independence the government implemented major social programs, especially in health and education, that reached far into the interior of the country, but within a short time they collapsed as the war dominated the country and the elite became more concerned with enriching itself than with promoting egalitarian development
(Vidal, 2008: 205-13). Mismanagement and conflict prevented the economy from producing, but the war gave opportunities for corruption: in a precedent that was to take on much greater magnitude with the oil boom, military expenditures were channeled outside the normal budgetary process and kickbacks were routine. With the economy in a shambles, and with the waning of the cold war, the
MPLA began to contemplate abandoning its centralist economic model for market-oriented reforms in the 1980s; in 1990 the MPLA formally foreswore its Marxist-Leninist ideology and the one-party system.
But in the practice of government, little changed. State-owned firms newly privatized in the transition to free enterprise were appropriated by the politically favored. The creation of an ostensible multiparty system only increased the number of people to be bought off (Hodges, 2008; Munslow,
1999; LeBillon, 2001). Corrupt and incompetent government compounded the ravages of the war.
A 1991 peace settlement with UNITA prepared for a presidential election in 1992. The election was reasonably honest, though the electorate was not enthusiastic about either of the two leading parties (on the street the word was that "the MPLA steals, UNITA kills"). Dos Santos won nearly 50% of the vote, Savimbi 40%. The agreement provided for a runoff if no party won a majority, but the runoff was suspended when Savimbi rejected the results and took up arms again. Some UNITA representatives took seats in parliament, however. After a new peace accord in 1994 broke down,
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some of them split from Savimbi to form a new party, UNITA Renovada, allegedly on payment of a three million dollar bribe to each of them (Munslow, 1999: 559).
For the rest of the decade, armed conflict alternated with negotiations. The character of the war changed: UNITA won some decisive victories and conquered areas where it had not been in control before. It attacked cities, including Luanda. The economy was devastated; hundreds of thousands were displaced as refugees; the cities of the interior were destroyed (Birmingham, 2002: 173; Ferreira,
2006: 27). But when Savimbi was killed in combat in 2002, the insurgency collapsed and a peace agreement, now a lasting one, was reached. While conflict with UNITA ceased, the Front for the
Liberation of the Enclave of Cabinda (FLEC) continued small-scale guerrilla operations.
Especially after the withdrawal of the competing cold war powers, the civil war was a naked struggle for power, in which "minerals provided both the prize of victory and the means for achieving it" (Hodges, 2004). The MPLA controlled the oil, and UNITA controlled the extraction of diamonds.
The government actively sought foreign partners to explore and drill for oil starting in the 1980s, not only in Cabinda but off the coast of Angola proper. Corruption was rife. Foreign oil companies paid signature bonuses in the millions of dollars in exchange for oil concessions. Even with war raging, production mounted steadily, from 120,000 bpd in 1982 to 701,000 bpd in 1997 (Oliveira, 2007: 603).
A small coterie of people close to the government enjoyed lavish wealth, directly and indirectly from oil revenues. Much of the revenue was sequestered in a secret "parallel budget" over which there was no public accountability. Government officials took advantage of the production-sharing agreements with multinational oil companies to deposit signature bonuses abroad. Reliance on multinational oil companies and the location of most of the oil offshore kept it separate from the affairs of the nation and its financial aspect out of sight. As James Ferguson puts it, "neither the oil nor most of the money it brings in ever touches Angolan soil" (2005: 378).
The exchange rate was kept artificially low, the key to profit-taking. Those with access to the official exchange could buy dollars cheaply and then sell them back at the official rate ("roundtripping")--until 1999 when the collapse of oil prices forced the government to float the exchange rate.
A large share of the education budget went to pay for foreign scholarships for the children of the elite
(Hodges, 2001: 39-41; Hodges, 2008: 187; Munslow, 1999: 563).
In the interior of the country, UNITA controlled the mining and sale of diamonds. Alluvial
(river-borne) diamonds are found over a wide area in the northeast of the country, which remained outside of the government's control while the war lasted. UNITA began to rely on diamonds to finance itself in the late 1970s and depended on them even more after the withdrawal of US and South African support in the early 1990s. It took advantage of the sporadic cease-fires to consolidate its control of the diamond-producing areas; it exploited some areas directly, often using forced labor, and taxed small miners elsewhere. UNITA reaped an estimated two billion dollars from the diamond trade between
1992 and 1998. The conflict continued because it was economically profitable even though UNITA clearly had little prospect of military victory. Beginning in 1998, a United Nations-sponsored campaign attempted to prevent the international trade in Angolan diamonds, but its effect was limited
(Birmingham, 2002: 182; Collier and Hoeffler, 1999: 4; Hodges, 2001: 147-54; Hodges, 2004;
LeBillon, 2001: 67-71).
Since the end of the war, the combination of increased production and record prices for oil has spurred rapid economic growth. While production increased steadily during the war, it has grown even more dramatically afterward. That growth has brought Angola an ostensible economic boom, with
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cumulative economic growth at 67.5% between 2003 and 2006 (20.6% in 2005, 18.6% in 2006). Most of this growth was due to oil production (Centro de Estudos e Investigação Científica, 2007: 18-19;
International Monetary Fund, 2006; Council on Foreign Relations, 2007).
Most of the population received no benefit from that wealth, however (Table 2). Though oil wealth drove per capita GDP up to usd2,335 (at purchasing power parity) in 2005, edging Angola into the ranks of middle income countries, income distribution is extremely skewed. The poverty rate is estimated at 68%. Angola also ranks among the lowest in the world on other social indicators: the
Human Development Index stood at .446 in 2005.
3
Its combined (primary, secondary, and tertiary) school enrollment ratio was 25.6% and life expectancy was 41.7 years (United Nations Development
Program. 2007: 232).
Table 2 about here
Because agriculture collapsed during the war (a collapse exacerbated by the privatization of land that had been nominally collectivized, with the effect of expropriating it from peasant farmers and redistributing it to members of the presidential clique), much of the population ate only because food aid was provided by international donors. The recovery of agriculture has been slow; in 2008, half the country's food supply was still imported (Central Intelligence Agency, 2008; Pacheco, 2004; Vidal,
2008: 217-21).
The national budget shows little effort to alleviate poverty or improve the standard of living of the population. Expenditures on education and health, as a proportion of GDP, actually fell from 2001 to 2005: education from 3.3% to 2.1%, health from 2.8% to 1.4% (Central Intelligence Agency, 2008;
Rocha, 2006: 55-57). A rough but serviceable measure of a country's effort to improve its population's well-being can be derived by comparing its GDP per capita to its human development index. A country whose HDI is significantly higher than would be predicted from its average income can be assumed to be devoting substantial efforts to improving the social level; conversely, an HDI significantly lower than its GDP per capita would predict suggests a weak government effort. Angola ranks 128th of 174 countries on GDP per capita, and 162d of 177 countries on HDI, so the social level of the population is much lower than its wealth should make possible. On two of the components of
HDI it is nearly the worst-off country in the world: its school enrollment ratio is 170th of 172, and its life expectancy is 174th of 177 (See Table 2).
Authoritarian governing practices established during the war have continued into the present.
The human rights record was rated as poor by most observers, including Human Rights Watch (2004) and the Department of State (2008), which reported unlawful killings by police, military, and private security forces; arbitrary arrest, detention, and torture in life-threatening prison conditions; lack of due process in an inefficient and overburdened judicial system; and forced evictions. In particular, corruption continued to be widespread and accountability was limited, although some steps had been taken to increase transparency. Parliamentary elections held in 2008 were an apparent step toward democracy: the MPLA won 82% in a vote that met with muted protests of unfairness by international observers. An election for president is scheduled for 2009. But human rights abuses have continued
3
The Human Development Index is a measure of the social well-being of the population, based on per capita income, literacy, school enrollment, and infant mortality. It is computed for all countries and published annually by the United Nations Development Program in its Human Development report
(2007). It ranges from zero to one.
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into the present, and one channel for holding the government to account disappeared when the government ordered the United Nations to close its Human Rights Office in Luanda in April, 2008
(Africa News, 2008). Angola demonstrates the close connection, noted by Amartya Sen (2000) among others, between observance of civil and political rights, on the one hand, and economic and social rights, on the other (cf. Human Rights Watch, 1992).
The country has been deemed one of the most corrupt in the world by a variety of sources. In its ranking of 163 countries in 2006 from the least to the most corrupt, Transparency International ranked Angola 142d, with a score of 2.2 on a ten-point scale (an improvement from rank 98 out of 102 with a score of 0.3 in 2002; Transparency International, n.d.). The Transparency International ratings have been criticized for being based on reputation, not hard data; but the evidence from closer studies suggests if anything an even worse record. Corruption has been documented by journalists (Africa
Confidential, 2008; Gumede, 2006; Shaxson, 2007) and academic researchers (Hodges, 2001 and
2004; Ferreira, 2005 and 2006; LeBillon, 2001; Munslow, 1999; Oliveira and Ali, 2006). It has been denounced by the IMF (2006), the Department of State, in its annual human rights reports (DOS 2008 and earlier years), and nongovernmental organizations--in the US, Human Rights Watch (2004); in the
UK, Catholic Relief Services (Gary and Karl, 2003), Global Witness (2001 and 2004), and Chatham
House (Vines et al., 2005).; in South Africa, the Institute for Democracy in South Africa (Alexander and Gilbert, 2005). The US's Council on Foreign Relations (2007), more measured in its pronouncement, nevertheless emphasizes the need for reform and points to ways that the government, given the will, could produce it.
The corruption is found in the looting of state revenues for the benefit of the ruling clique around the president. They deploy a spectacular array of mechanisms of corruption. Oil deals are shrouded in secrecy. The basic tool for private enrichment is the lack of transparency in reporting the size of the oil revenue. Though legally all of it is required to be deposited in the National Bank of
Angola, in fact much of it goes into the parallel budget, deposited in special accounts, often abroad, for the presidency and Sonangol, the national oil company. The mechanisms for this fraud include offshore money laundering, overinvoicing of procurement and sales, loans backed by future oil production (a deliberately deceptive method of borrowing), and overpriced military procurement (Global Witness,
2004: 40). Transnational oil companies operating in Angola are knowing, if not willing, accomplices who cooperate in these practices because the oil (in steadily increasing quantities) is too big a prize to resist.
Pressure from outside sources for transparency in the payment of oil revenue led to some investigations which have revealed exactly how the transfer of wealth is corrupted. Under pressure from the IMF, the government agreed to contract the accounting firm KPMG to perform a diagnostic in
2000. Even though the government had contracted the study, it failed to provide all the data the firm requested. A heavily edited version of the Oil Diagnostic, as it came to be known, was published, but even with deletions, the report revealed serious discrepancies in revenues. Most of the discrepancies the diagnostic found were not on the part of multinational oil companies but of Sonangol.
The IMF began to investigate more closely in 2001 in what are known within the fund as
Article IV consultations, annual reviews of the financial status of debtor countries. These studies have been summarized in reports by the NGOs Human Rights Watch (New York) and Global Witness
(London). Angola refused to allow the 2001 and 2002 Article IV reports to be published; the 2003 report was published, and Global Witness obtained the first two reports. Human Rights Watch and
Global Witness researchers detected a series of discrepancies in revenues and expenditures. Global
Witness concluded that "an average of US$1.7 billion has gone missing each year from 1997-2001
11

from the Angolan treasury" (2004: 41). Human Rights Watch, further, said that the Angolan government could not account for four billion dollars in expenditures between 1997 and 2002. The
2002 Article IV report also mentions unaccounted-for signature bonuses directly controlled by the
Presidency and Sonangol (Global Witness, 2004; Human Rights Watch, 2004). With respect to the underreporting of oil revenue, the Economist Intelligence Unit said that "Angola is clearly in a class of its own" (quoted by Gary and Karl, 2003: 33).
Global Witness detailed the scandal known in France as "Angolagate," an alleged conspiracy to rob the country of its oil money through overpriced sales of military equipment. Forty-two people, including former French officials (among them Jean-Christophe Mitterrand, the son of the former president) went on trial in October 2008 for accepting illegal payments for arms sales between 1993 and 2000 (Global Witness, 2001; Agence France Press, 2008).
Angola has frequently taken oil-backed loans from international banks, offering future production as collateral. The oil-backed loan is a complicated financial instrument whose purpose is to keep the information about the destination of oil revenues obscure.
4
The IMF offers better terms
(lower interest, longer duration) but the Angolan government prefers loans from private banks to avoid pressure for transparency (Global Witness, 2004: 51; Vines et al., 2005: 16-17).
The government has also directly threatened oil companies that have responded to pressures for disclosure. In February 2001, BP offered to release data on its payments to the government, but reneged when Sonangol threatened to terminate its contract for violation of contractually guaranteed confidentiality (Global Witness, 2004: 56).
Calls for transparency, accountability, and efficient management in the collection and expenditure of revenue are frequently heard from NGOs, but the case of Sonangol illustrates the difference between efficiency and probity. From its founding in 1976, Sonangol was kept independent and free of the race for spoils, the anti-corporate mentality, and the state-led economic management that the MPLA put into practice in the rest of the economy. Over time, it became a major international player with diversified holdings including air and maritime transport subsidiaries, telecommunication, insurance, marketing and trading subsidiaries in the US, the UK, Hong Kong, and Singapore; its socially beneficent activities include scholarships for children to study abroad and financing of two
Angolan football teams (Oliveira, 2007: 599-605).
Its revenues do not, however, contribute to development. Instead, as Ricardo Soares de
Oliveira shows, it accumulates riches at the service of the President and his clique. It has built up an effective network of international commercial collaborators, who comply with its irregular practices perhaps out of enthusiasm and perhaps to assure their access to the country's oil. "Oil ensures that whatever the domestic political conditions, there will be an interest by multiple external and internal actors in maintaining a notional central structure, and that enough resources will be available to prop up incumbents, guarantee their enrichment, and coerce or co-opt enemies" (Oliveira, 2007: 610). This paradoxical condition of effective management in the company, protected from the corruption which is otherwise general, leads Oliveira to characterize Angola as a "successful failed state" (2007: 617)--
4
The oil-backed loan and other Special-Purpose Vehicles (SPV) are "structures of Byzantine complexity that can be used to obscure assets or losses" (Global Vision, 2004: 51), similar to the innovative financial instruments created by the Enron Corporation to hide its labilities before its collapse in 2001.
12

successful at the purpose for which it is intended, enriching the elites, even as it fails to provide for the country as a whole. Sonangol calls into question the assumption that efficient management is sufficient to put oil revenues at the service of the public good.
There have been efforts at reform; but the Economist Intelligence Unit sees them as less "an effort to improve openness, although it has done so, and more an attempt by the presidency to make the system of political patronage (often described by outsiders as corruption) more acceptable and sophisticated rather than to abolish it" (quoted by Oliveira, 2007: 612-613).
China plays an increasing role. It has forged close diplomatic, financial, and commercial relations with Angola and has become the second largest importer of Angolan oil after the US. It has provided oil-backed loans for infrastructure projects and direct investment, especially in oil exploration and construction. It offers a welcome similarity of preference for opaqueness in financial transactions.
The nature of the Chinese regime and its propensity for secret dealings mean that it does not impose pressures for transparency and good governance as some western lending institutions do. This new relationship reinforces the machinery of corruption by its "non-interference" relationship with Angolan practices. Chinese loans come with better conditions, lower interest, and longer repayment time than those of other creditors, all of which have made it Angola's favorite lender (Campos and Vines, 2007;
Ferreira, 2008; Taylor, 2006).
China also provides foreign aid, which it channels directly through the office of the president.
Its aid distorts development as well, with a preference for expensive "white elephant" projects for construction of public works without regard for the country's ability to manage them successfully
(Gumede, 2006: 15; Taylor, 2006: 947-49).
While having officially abandoned socialism, the MPLA practices the same top-down model of development as before, emphasizing high technology, big projects, and international borrowing. The welfare of the population is not a serious consideration; indeed, in some cases (as in the recent evictions of shantytown dwellers in Luanda to clear room for expensive commercial and residential construction) it is an obstacle to be cleared out of the way (Vines et al., 2006: 6; Human Rights Watch,
2007).
Venezuela: Escaping the Resource Curse?
"Very little happens in Venezuela that does not have to do, directly or indirectly, with oil," according to the scholars Luis E. Lander and Margarita López Maya (2002). The oil history of
Venezuela is very different from that of Angola, going back to the beginning of the last century. It is also a much more developed country. But as Karl shows, oil has had similar effects on countries with very different prior developmental trajectories (1997: 32), so I believe I am justified in comparing these two. The western hemisphere's largest oil reserves have been as fateful for Venezuela as have Angola's for its own history.
The case of Venezuela is crucial to the study of the resource curse, for two reasons: first, if my argument is correct that Venezuela under Hugo Chávez has partially escaped the resource curse, it has been not in spite of its oil riches, but precisely because of them. Oil has been central to the fortunes of the Chávez regime. Second, as I have mentioned, Venezuela (before 1999) occupies a central place in the most widely read discussion of the resource curse, Karl's The Paradox of Plenty (1997). Venezuela under Chávez is an exception in two senses: to the general rule of the resource curse in poor oilproducing countries, and to its own history. I will examine what it is that has allowed Venezuela to
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escape the typical pattern.
If the oil story in Angola is one of failure to serve public purposes, the story in Venezuela is in some ways the opposite. During the boom years of the 1970s, oil was the essential underpinning of a social democratic project, with generous welfare provisions and great developmental ambitions. After the bust, though PDVSA remained nationalized, it operated much as a private transnational oil company, pursuing capitalist efficiency and insulating itself from political demands. Though it eschewed the overtly corrupt practices which have characterized Angola, the result was similar to that in Angola in one sense: oil revenues financed investment for the growth of the company, largely by acquiring foreign assets. They did not contribute to the needs of the population, and living standards deteriorated. One alleged effect of the resource curse is corruption and lack of transparency; another is an unresponsive government that disregards the needs of the population. In the former respect,
Venezuela after the bust escaped the resource curse; in the latter respect, it exemplified it.
Under President Hugo Chávez, Venezuela has taken a different path. The Venezuelan government is using its oil revenue to underpin his political project of "twenty-first century socialism"--economic development under the aegis of an interventionist state, economic redistribution and political incorporation for the poor masses of the population, and Third World solidarity in defiance of the United States. It promoted the revival of production quotas for OPEC countries to raise prices and revenues (aided, to be sure, by the huge increase in worldwide demand) and dedicated a substantial share of those revenues to social programs in education, health, and subsidized consumption. It has asserted national control over its petroleum resources, challenging transnational oil companies. Both in its relation to international actors and in its use of oil revenues for domestic programs, it has made oil a political weapon. The example of Venezuela demonstrates that the resource curse is not inevitable but is the consequence of deliberate policy choices, and can be exorcised by a government that applies the necessary political will.
Initially dominated by transnational oil companies, the Venezuelan oil industry began to shake off that domination with a 1943 hydrocarbons law raising taxes and giving the government greater control. Since the 1960s, Venezuela has worked to manipulate the international oil market in its favor.
It was a major initiator of OPEC in 1960.
At the time of the first oil price shock, oil had given Venezuela grandiose ambitions. When
Carlos Andrés Pérez became president in 1974, he announced that he would use the new revenues to fund ambitious projects to create la Gran Venezuela . Planning to "sow the oil" and reap a diversified, sustainable economy, Pérez created a welfare state with medical and social security programs and massive industrialization projects involving vast investments many of which failed to come to fruition.
In Karl's account, Venezuela now experienced the resource curse at its worst. At the same time, these ambitions exemplified what Fernando Coronil has called the "magical state" with prospects based on oil's "power to awaken fantasies" (1997: 2).
While the dream held, Pérez nationalized all oil holdings in 1976. Foreign owners were compensated and each of the thirty-two nationalized companies was maintained as a separate entity within the structure of the new company, Petróleos de Venezuela SA (PDVSA). The second oil price shock in 1979 led to even more extreme excess under Pérez's successor Luís Herrera Campíns. With the oil bust, Venezuela borrowed heavily from international banks to maintain government programs.
Through boom and bust, however, the government did not plan seriously for the future or build state structures adequate to manage the windfall (Ellner, 2008: 51-88; Hellinger, 2006-2007; Karl, 1997: 78-
184; Wilpert, 2007: 87-92).
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Crisis came in 1989. Pérez was reelected president in 1988 on a populist platform. But immediately after he took office in 1989, when the IMF demanded repayment of the foreign debt, he announced a package of austerity measures. Rioting broke out across the country, especially in Caracas
(the caracazo
) where the brutal response left hundreds dead. Pérez was forced out of office in a corruption scandal in 1993, leaving his successors saddled with the collapse.
The 1980s and 1990s also saw what Bernard Mommer (who is now deputy oil minister) characterized as two parallel but opposite conspiracies. The first was in the military. Young officers led by Hugo Chávez, disgusted at the corrupt government, founded the Bolivarian Revolutionary Army
(EBR-200, later renamed Bolivarian Revolutionary Movement) on the two hundredth anniversary of the birth of Simón Bolívar. Two coups were attempted in 1992, the first led by Chávez. Both coups failed, and Chávez was jailed for two years, but he began to attract the popular acclaim that was to bring him into the presidency seven years later.
The second conspiracy was among PDVSA executives. The 1976 nationalization had maintained the structure, and much of the personnel, of the private oil companies. The managers had an essentially capitalist vision for the company. Their goal was to restore sound management and transform the company into a multinational corporation which would maximize profits by operating as a private firm independent of the national executive. They undercut OPEC by pumping as much oil as possible even when the price was low and OPEC was calling for restrictions. They "internationalized" the company by investing abroad in refineries and distribution facilities (including the US gasoline company Citgo, wholly owned by PDVSA), won court decisions that allowed foreign investment to reenter the Venezuelan oil industry under very favorable concessionary terms, and used international transfer pricing and other financial mechanisms to avoid Venezuelan taxes and sequester profits outside of the country and the Venezuelan treasury (Lander, 2001; Mommer, 2003).
This transformation of PDVSA, known as the apertura , or opening to foreign investment, is seen differently by different observers. For Karl, it represented reform in response to a crisis, a solution to the resource curse. For Hellinger, Mommer, and Wilpert, it represented the sacrifice of national sovereignty and the general good of the population to the interest of international capital, a perpetuation of the resource curse in a different form.
Since 1999, and especially since 2004, Venezuela's oil policy has been the opposite: redirection of PDVSA to serve public purposes and allocation of the revenues to meet the needs of the population.
This turnabout is inseparable from two events. The first is Chávez's nationalist revolution. His political support comes from the poor masses of the population, especially in Caracas, and he is meeting their needs and insisting on the independence of Venezuela from domination by the hemispheric superpower. Second, the Bolivarian revolution began just when oil prices started soaring.
Chávez was elected president in 1998, anticipating a wave of progressive presidents in Latin
America in the new century (Hammond, 2008). Immediately on taking office in 1999, he called a referendum to convoke a constituent assembly. The referendum passed on April 25, 1999, with 92% support; in the election of the assembly, on July 25, Chávez's supporters won 125 of 131 seats; and the constitution written by the assembly was approved in a popular referendum on December 15 by 72%.
The constitution rings with revolutionary pronouncements promisimg a reorientation of the Venezuelan state to allow for direct participation and to meet the economic and social needs of the people (Wilpert,
2007: 21, 29-44).
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When Chávez was elected, the price of oil had hit a low point, eight dollars, following the 1997 worldwide slump. He apparently had no clear plans for PDVSA, although the new constitution guaranteed that the state would remain the sole owner of the company (though existing production agreements with foreign companies were untouched). In OPEC, on the other hand, Chávez saw an opportunity: if member countries could once again unite and agree to limit production, they could raise the price of oil, which would restore Venezuela's oil revenues. Through diplomatic efforts, personally and by his oil minister Alí Rodríguez (who later became secretary general of OPEC), he persuaded
OPEC members in 2000 to reduce production to levels that would keep the price of oil within a band of
$22-28. He called a meeting of OPEC heads of state (only the second in the organization's history) in
Caracas the same year (Lander, 2001: 28-30; Wilpert, 2007: 97).
At home Chávez's intentions became clearer in November, 2001, when he issued 49 decreelaws, including one mandating agrarian reform, another demarcating fishing waters, forcing large fleets to the high seas and reserving coastal waters for small artisanal fishers, and a hydrocarbons law which nearly doubled the royalties paid to the treasury by PDVSA or foreign companies (Wilpert, 2007: 95).
The constitution and the decree-laws, and, even more, the loss of influence by the traditional elite, led the opposition to start organizing. In an atmosphere of increasing tension, a military coup ousted Chávez on April 11, 2002; however, Chávez retained the loyalty of key sectors of the armed forces, and the population of the poor barrios of Caracas came out massively in his support, assuring his reinstatement two days later. The coup attempt found strong support in PDVSA.
The firm became the flash point of opposition in December when it moved against Chávez by shutting down for two months. The shutdown crippled production: during the strike, production fell from over 3 million bpd to a low of 25,000; the strike cost over 7 billion dollars (Lander, 2005: 12).
By mid-2004, however, production had returned almost to pre-strike levels, according to company sources. Others disputed the claim but agreed that the company had made a surprising recovery
(Forero, 2004). In August, the next major assault of the opposition came: a petition drive had succeeded in convoking a recall referendum, but Chávez won handily with 59% of the vote.
In response to these assaults by the opposition, Chávez radicalized the revolution, in economic policy generally, oil policy in particular, and social welfare policy. He moved to extend control over
PDVSA. Approximately eighteen thousand employees (about half the company's workforce) who had walked out were fired. In 2005, joint ventures were imposed on foreign companies to replace the existing operating agreements, with Venezuela taking majority control and changing the taxation rules to raise revenue and make evasion more difficult. In 2007 the remaining production sites under private control were nationalized, affecting production of heavy crude in the Orinoco oil belt (a move accepted by all the foreign companies except ConocoPhillips and Exxon Mobil).
The significance of government control over the nation's oil is far greater than the economic value of the revenue. Because primary commodity dependence has long been a mechanism of imperialist domination, challenges to foreign companies and to privatizing domestic interests are an assertion of national sovereignty and a victory over imperialism. Chávez harnesses oil production to his foreign policy: Venezuela has proposed a pipeline to Argentina and signed three major multilateral agreements with the Southern Cone Common Market (Mercosur), the Caribbean, and the Andean region offering oil at discounted rates to promote Latin American integration and counter US influence in the region. Reliance on and reinforcement of OPEC asserts the power of resource producers over against the wealthier consumer nations. Subsidies for heating oil for poor communities in the US form part of the rhetorical barrage against the imperialist enemy (Ellner, 2008: 118-20; Liebowitz, 2005;
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Reuters, 2008; Weisbrot and Sandoval, 2008: 22; Wilpert 2007: 25, 96-99).
The domestic counterpart of antiimperialism is the empowerment of the poor and working class, and the elevation of their symbolic and material status. The government has created social projects, known as misiones , to provide health care, education, job training, housing and urban infrastructure in the massive shantytowns, agrarian reform, and nutrition through the provision of subsidized food. Social services are provided in a form that calls for mobilization by the recipient population. The missions are organized locally, involving local participants in the execution (if not necessarily in the planning and initiation) of the projects. Typically, a committee of residents is recruited to organize the activities of the mission in each neighborhood.
Misión Robinson I
was a nationwide campaign in which volunteers taught illiterate
Venezuelans to read and write. It claimed to have taught almost 1.5 million people to read in one year
(2004-2005). On its first anniversary, Chávez claimed that illiteracy in the country had been eradicated
(UNESCO, 2005; Wilpert, 2007: 124).
Misión Ribas , the followup to Misión Robinson, provides high school equivalency classes at night.
Misión Barrio Adentro
is the primary medical care practice in which Cuban doctors and other medical personnel--over 23,000 in 2006--staff primary care clinics in the barrios. Chávez keeps very close touch on the missions, exercising personal direction over them and over the organization of his supporters.
The significance of these missions is greater than the provision of services; greater, even, than the opportunity for poor people to organize and participate in running their communities. In today's
Venezuela the poor are accorded a status and recognition that reverses the inferiority to which they had been relegated throughout the country's history. As Coronil (2008a: 3) puts it, "now it is impossible to participate in politics in Venezuela without recognizing the centrality of common people." They have responded with massive support for the government, manifested in militant defense of the revolution against the 2002 coup and in a series of victories in elections to office and in referenda from Chávez's first election to 2009.
The prospects for Chávez's revolution will depend on the future course of the price of oil and on the government's success in avoiding the resource curse. Given the heavy dependence of the
Venezuelan economy on oil, the resource curse theory would predict that the current prosperity is all too vulnerable to the price decline. Many analysts today have suggested that Venezuela is headed for another bust. As already mentioned, all assessments of the Venezuelan economy appear to be highly ideological. Those who sympathize with the Chávez government are eager to credit it with a viable strategy for sustainable economic growth while its opponents wish to prove corruption, mismanagement, and a coming economic collapse (see, for example, the debate between Rosenberg,
2007, and "Oil Wars," 2007, about the management of PDVSA, that between Rodriguez, 2008, and
Weisbrot, 2008, about poverty reduction, and the collection of views of supporters and critics of
Chávez's oil policy in Coronil, 2008b). I will evaluate the occurrence of the resource curse in
Venezuela on the basis of four criteria: corruption, social spending, sustainable economic growth, and the response to the current price collapse. I will argue that, while the outlook is mixed, there are signs that Venezuela's development strategy shows signs of having defeated the resource curse.
Corruption . Political favoritism in hiring and kickbacks in purchasing are widely rumored.
Venezuela ranked 138 on the 2005 Transparency International Index, just above Angola (Transparency
International, n.d.). Corruption is intrinsically hard to verify. It has been widely reported in academic and journalistic sources as well as in everyday conversation among Venezuelans, although in his first campaign for president, Chávez promised a vigorous attack on corruption. Complaints are even
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common among Chávez supporters, especially in the grassroots organizations. But some academic accounts mention corruption only in passing, as if taking it for granted, without specific allegations
(Corrales, 205: 107; Ellner, 2008: 184; McCoy, 2005: 120; Ortiz, 2004: 87-90).
The most detailed accusations are leveled by Gustavo Coronel of the conservative Cato Institute in Washington. Coronel, while claiming that corruption under Chávez has reached record levels, uses a broad definition of corruption that mixes allegations of financial irregularity with admittedly political criteria. He seems to view anything that expands the power of government as necessarily corrupt. His examples of corruption range from political control of the oil company and subsidies to oil purchasers abroad such as Cuba and poor communities in the United States to inadequate garbage collection. It is only by that broad definition that he can claim that "the eight-year period of Chávez's government has been hypercorrupt, surpassing all preceding governments in both incidence and intensity of corruption"
(Coronel, 2006:8).
Gregory Wilpert, an acknowledged sympathizer of the Chávez regime, recognizes the prevalence of corruption (while also pointing out that it is longstanding, an extension of the clientelism that has been an integral part of Venezuela's political and economic history; Wilpert, 2007: 212-15).
But its magnitude in Venezuela does not appear to be comparable to that of Angola or other oilproducing countries on the Gulf of Guinea. It appears that national control of oil production in
Venezuela precludes corruption in the assignment of contracts to international oil companies that elsewhere rise to the billions of dollars.
Social spending.
Part of the resource curse argument is that governments of poor oilproducing countries are unresponsive to the needs of their populations because the rulers live off the rents generated by high oil revenues, so they are more concerned with their constituency in the international oil business. This is clearly not a characteristic of the current Venezuelan government.
Social spending has increased massively under Chávez, especially in the areas of health, education, and food subsidies. Government social spending increased from 8.2% of GDP in 1998 to 13.6% in 2006; on a per capita basis, social spending increased by 170% between 1998 and 2006. These figures do not include social spending by PDVSA, which itself amounted to 7.3% of GDP in 2006. Counting
PDVSA's share, total social spending was 20.9% of GDP in 2006. In the aggregate, real social spending per capita had increased by at least 314% over 1998 (Weisbrot and Sandoval, 2008: 10-12).
In practice, all the "missions" are funded by oil revenue. In some cases the relation is direct.
Venezuela pays for the Cuban medical personnel of Misión Barrio Adentro by selling oil to Cuba at discounted prices. Misión Ribas is run directly by PDVSA and the electric company CADAFE; its headquarters are located in PDVSA's offices (Collier, 2006; Gobierno Bolivariano de Venezuela, 2006;
Gobierno en línea, n.d.; Wilpert, 2007).
These social programs have improved the living standards of the population (Table 2). GDP per capita stood at usd6,632 in 2005 and the Human Development Index was .792. Life expectancy was 73.2 years and the school enrolment ratio was 75.5%. If we make the same comparison of HDI and GDP per capita as for Angola, we find that while the country's GDP ranks 88th of 174 countries, its HDI ranks at 74th of 177 countries. In life expectancy it ranked 61st of 177 countries and in school enrollment, 76th of 172 countries (UNDP, 2007: 230). That the social welfare measures are better than would be predicted from GDP (just the reverse of Angola) suggests the effectiveness of government social welfare programs.
The poverty rate declined from a peak of 55.1% in 2003 to 26% at the end of 2008; the 2003
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peak was due to the decline in the economy because of the PDVSA strike, but the 2007 figure also represents a decline from 43.9% in 1998 before Chávez took office. Unemployment tracked the poverty rate, falling from 19.2% in the first half of 2003 (and 15.3% in the first half of 1999) to 7.8% in 2008 (Weisbrot and Sandoval, 2008: 10-12; Weisbrot et al., 2009: 9, 15).
Social programs are costly, and Venezuela's depend heavily on oil revenue. I will address the effect of the 2008 price collapse below.
Investment and economic growth.
The greatest claimed burden of the resource curse is that dependence on oil, however profitable, does not guarantee economic growth. In Venezuela, however, quantitative economic growth in the present century has been spectacular. Turmoil in response to the
PDVSA shutdown meant major disruptions in 2002 and the first quarter of 2003. During those two years GDP fell. Recovery began in the second quarter of 2003 and has continued at least to the end of
2007. The country attained double-digit GDP growth levels in 2004, 2005, and 2006 (Weisbrot and
Sandoval, 2008: 9).
The picture is mixed with regard to investment and diversification--"sowing the oil" to create an economy less dependent on oil. Some critics have argued that Chávez's nationalization of oil extraction and some non-oil industrial firms has scared away foreign investment (Romero, 2008). But investment has nevertheless been strong, both in the public and private sectors. Gross fixed capital formation, which stagnated during the first years of the Chávez administration and then collapsed during the PDVSA strike, has come back strong, exceeding the levels of before the strike by a wide margin: its real growth was 49.7% year-over-year in 2004, 38.4% in 2005, and 26.6% in 2006. For the first three quarters of 2007, it was up 24.6% year-over-year. Oil Minister Rafael Ramírez said in
January, 2008, that PDVSA invested $5.8 billion in 2006 and $10 billion in 2007, and would invest
$15.6 billion in 2008, which would increase oil production to 5.8 million bpd (Alvarez, 2007; PDVSA,
2008; Weisbrot and Sandoval, 2008: 21).
To diversify the economy, the government is investing in small producer cooperatives. It is clear, however, that the economy remains concentrated in the oil sector, and outside of that sector, growth in manufacturing has not been as strong as growth in finance and other services (Weisbrot and
Sandoval, 2008: 8; Wilpert, 2007: 76-81).
Inflation posed a threat to economic growth in 2007 and the first half of 2008 due to the worldwide surge in food and energy prices, but then abated with the worldwide decline in demand.
The Chávez government has successfully pursued a policy of keeping public debt, especially foreign debt, low (it has in fact been reduced) and maintaining a balance of payments surplus which should help to contain inflation (Weisbrot and Sandoval, 2008: 15-16; Weisbrot et al., 2009: 19-20).
After the price collapse . If Venezuela did not succumb to the resource curse during the oil boom, its response to the loss of oil revenue since the sudden, steep price collapse that began in July,
2008 is an important further test. As of this writing (May, 2009), it is too soon to be certain, but there are signs that Venezuela has some resources that will enable it to weather the storm better than might be expected.
Venezuela has attempted to protect itself against the price decline by conservative budgeting and promoting output controls in OPEC (Mouawad, 2008). What appeared to be a conservative accounting measure estimated oil revenues at $60 a barrel for 2009, but in 2008 the price fell to half that level. Finance Minister Alí Rodríguez (the former OPEC head), presenting the 2009 budget to the
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National Assembly, anticipated curtailment in financing for the missions--though he did not say by how much (Morgan, 2009).
If evaluations of the present status of Venezuela's oil industry are politically contested, projections of its future are even more so. Some economists predict a complete economic collapse.
Others have argued that the greatest economic danger Venezuela faces is inflation, and that it should adjust to the decline in oil revenues by adopting a conservative fiscal policy. But according to Mark
Weisbrot and Rebecca Ray (2008), the key issue is the current account balance. Inflation, in their view, is less of a danger to continued economic growth than is the prospect of having to cut imports.
The current account balance has been strongly positive for several years, allowing the country to accumulate a dollar reserve that provided a cushion to protect the economy at least to the end of 2008.
Weisbrot and Ray argued (in November, 2008) that if oil remained at $50/barrel, the accounts balance would remain positive. It is too soon to tell whether the recent recovery will be sustained and prevent a deficit in 2009. But assuming recovery from recession at the global level, the price of oil will remain higher than at the end of 2008. In the meantime, Venezuela's ample cash reserves--$40 billion in the
Central Bank, $37 billion in other accounts, amounting to 23% of GDP--provide an enormous cushion against a trade deficit.
Conclusion
Why has Venezuela avoided the resource curse (at least partly and for a time), while Angola has not? Can Venezuela's success offer guidance for other countries facing the threat?
Because the resource curse is a complex phenomenon, it is helpful to begin by stating exactly what are the problems associated with it that any remedy is meant to solve.
5
The three main issues that proponents of the resource curse theory point to are corruption in the use of revenues, economic mismanagement, and neglect of the living standards of the population.
Most of the remedies proposed for the resource curse address the issue of corruption. They concentrate on "good government" measures to assure transparency and accountability to avoid corruption or political interference. Often recommendations express an optimism about the prospects of reform that is belied by the conditions they are addressing: for example, hopeful observers claimed that the end of the war in Angola offered an "unprecedented opportunity" (the phrase is used by
Hodges, 2004, and Human Rights Watch, 2004: 3) to institute transparent and accountable use of oil revenues.
Some who call for reform and an end to corruption see a solution in civil society. If its organizations were strengthened, they could compel rulers to comply with their demand for honesty in government. Many of the most vigorous advocates of this solution come from NGOs and regard their own organizations as exemplars of civil society. Some offer more detailed proposals in the same vein:
5
An important reason why some countries--the United States and Canada, for example--have avoided the resource curse is that they were not poor when they began developing their mineral resources and those resources never had the predominant weight in their national product that oil has today in the countries which have been victims of the curse. I leave these considerations out of the present discussion, however, because they are not subject to manipulation by government policy. (In any case, in the US an oil economy had locally corrupting effects in such states as Louisiana, Texas, and, perhaps, Alaska; Goldberg et al., 2008).
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they call for countervailing political and social pressures, for building the political capacity of groups that do not share the interests of corrupt governments and international oil companies, for instituting a merit-based civil service, for taxation not based on oil, and for democratic institutions to rein in the alliance between multinational oil companies and political leaders (Alexander, 2008: 23-24; Gary and
Karl, 2003; Karl, 1999: 45-47).
A demand that the corrupt put an end to their corruption has an air of unreality, since it asks them to surrender their power and privilege. All these proposals emphasize that any reform will require a change in political will, but none explains where the new political will might come from. If oil oligarchies and transnational corporations are profiting from the present arrangement and any change can only harm their interests, they have the power to prevent it. The prospects for the emergence of alternative centers of power to compel good behavior are limited, moreover, since those who appropriate the oil wealth can buy off potential opponents (Hodges, 2008: 198).
Oliveira and Ali (2006) place their confidence in the transnational oil corporations' embrace of corporate social responsibility. Others who have less confidence in the good faith of corporations nevertheless also see them as the appropriate pressure point. A coalition of NGOs proposed the
"Publish What You Pay" initiative in 2002, a plan to require oil companies to disclose the royalties they pay to producer countries; In 2003, Tony Blair offered an alternative, the Extractive Industries
Transparency Initiative, calling for such disclosures; it asked producer countries to comply voluntarily, but once the country had signed on, disclosure would be compulsory for companies. This distinction led to some rivalry between the sponsors of the two initiatives, but with little effect since the "Publish
What You Pay" initiative had no means of enforcement. And (as mentioned earlier) when BP offered to disclose its payments to Angola, Sonangol forced it to back down (Alexander and Gilbert, 2008: 72;
Dias, 2007: 35-36; Shaxson, 2007: 217-18)
Those who focus on the inefficiency associated with the resource curse propose technical solutions to stave off its economic effects. For example, they argue that to protect an economy from inflation and the Dutch disease, revenues should be sterilized by being held outside the country in a sovereign wealth fund (Humphreys and Sandbu, 2007: 194-233; Karl, 1997: 66; Karl, 1999: 44). Two
IMF economists suggest bypassing the state, distributing oil revenues directly to the population, then taxing them back (Sala-i-Martin and Subramanian, 2003). But Michael L. Ross (2007: 243-44) points out that any distribution scheme would be plagued by the same problems of lack of transparency and administrative capacity that characterize the oil states now.
Some would pursue efficiency by isolating oil revenues from political control. This was the method adopted by officials of PDVSA during the period of apertura--revenues were reinvested, often outside of the country, so that they could not be spent for political purposes. That is no guarantee against corruption, however, as the case of Sonangol shows. It reaps money through corrupt oil-related transactions and invests it around the world, functioning somewhat like a sovereign wealth fund
(Africa Confidential, 2008: 10-11). Keeping money outside the country is hardly a guarantee of transparency.
Even if it were, it raises the question: in whose benefit is the resource curse being exorcised?
Achieving sound management and economic efficiency will not necessarily redound to the benefit of the entire population. Reform advocates from the NGO world generally call on governments to account for their revenues honestly so that the money will be applied to improving the welfare of their populations. But they appear to assume that better social policies will automatically follow from transparency and honest government. That is not necessarily the case.
21

Others who call for transparency and efficiency are fundamentally concerned about profit maximization without regard for the uses to which the profits are put. If oil is the patrimony of a nation and all its citizens are entitled to share in its rewards, however, oil wealth rightfully belongs to them. If profit maximization is the goal, those who appropriate the profits violate their rights whether appropriation proceeds by legal or illegal means.
Economists who privilege efficiency have learned too well the lesson of Adam Smith, cited earlier, that rent-seeking creates a bias toward unproductive activities. This unproductive bias must be guarded against; it is nevertheless not a necessary consequence of rent-seeking. If rent-seeking means using monopoly power to get the highest price for natural resources, it is no different from the capitalist pursuit of gain in general. Readers of this article who drive low fuel-efficiency vehicles in the United
States and remember gasoline at five dollars a gallon may find this hard to accept, but the producer who forces the price of oil up is engaging in rational behavior. Successful rent-seeking will produce income for the benefit of some people on the side of the producer. The question is for whom.
The goals of efficiency and public benefit can conflict with each other unless the first is put explicitly in the service of the second. My argument is that Venezuela has done so, and overcome this more fundamental aspect of the resource curse.
How then do we explain Venezuela's success in addressing the resource curse and using its oil to fund the welfare of the whole population, in contrast to so many oil-producing countries with outcomes similar to Angola's (even if Angola is an extreme case)?
Some claim that the changes brought about by the Bolivarian revolution are purely personalistic, due to the ambitions, ideology, and ego of President Chávez. But his program of twentyfirst century socialism goes well beyond personal self-aggrandizement. Venezuela is addressing the resource curse with a fundamental social revolution and has decided to operate according to principles of international third-world solidarity and maximizing the benefits of the oil revenue to the population as a whole. This offers the best opportunity to make oil work as a blessing rather than a curse.
When PDVSA adopted "sound" management practices in the 1980s and 1990s and curbed the excesses of spending that some scholars identify with the resource curse, it made the oil company an independent entity that operated without regard for national goals. This policy brought efficient capitalist management, but it deliberately excluded applying oil revenues to the development of the country. With Chávez's election the orientation changed: PDVSA was newly subject to political direction--contrary to good business practices, according to some, but operating in the international environment to maximize returns and domestically to harness oil revenues in the service of investment in human and physical capital and general welfare.
Venezuela has not only found a cure for the disease. It has also found a cure for the cure.
22

Table 1
Oil Industry, Angola and Venezuela
Angola Venezuela
% of GDP
% of exports rank
GNP/capita
Rank
45
90
% of government revenue 90
Production, 2007
(million bpd)
Sources: Oliveira and Ali, 2006: 4; Energy Information
Administration, 2007, 2008b: 148.
Table 2
Social indicators, 2005
Angola Venezuela
Adult literacy
Rank
67.4%
109 of 139
93.0%
42 of 139
Life expectancy 41.7 years
174 of 177
Human Development
Index
Rank
1.7
.446
162 of 177 usd 2,335
128 of 174
33
75
50
2.4
73.2 years
61 of 177
.792
74 of 177 usd 6,632
88 of 174
Source: United Nations Development Program, 2007: 230, 232.
23

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