Crisis States Research Center

Title : The Political Economy of Economic Liberalisation in Venezuela

Working Paper No : 46 (series 1)

Author(s) : Jonathan Di John

Date : June 2004

Abstract : This article examines the political impact of economic liberalisation programmes in Venezuela from 1989 to 1998. Venezuela, a long-standing democracy, has experienced a virtual political implosion. The rapid downward spiral has seen an increasing crisis in governability that has been manifested by the collapse of the two main political parties, an increase in political polarization, more frequent coup attempts, alarming increases in voter absenteeism, the growing use of corruption scandals as instruments of political competition, the increasing frequency of mass and often violent street demonstrations, dramatic increases in crime, growing labour unrest including a two-month national workers strike, and the return of radical populist rhetoric and policy accompanied by a more authoritarian presidentialism that has been absent in Venezuela since the late 1940s. Accompanying the increase in ungovernability has been a severe economic crisis. In the period 1988-2002, per capita income declines have been consistently among the worst in Latin America and percentage increases in income inequality, poverty and informal employment have been among the highest on the continent. Regulatory deficiencies were also at the heart of one of Latin America’s worst banking collapses in the 1990s.

In this paper it is suggested that economic liberalisation and political decentralisation has not strengthened the state as the capability approach predicted. The idea that weak states will govern the economy better by intervening less – the so-called capability approach – has not been borne out by the trajectory of the Venezuelan economy. What is missing in the capability approach is an analysis of how capacity is constructed and, in particular, the role that political strategies of conflict resolution and competition play in constructing legitimate alternatives to failed state-led development projects. The ‘good governance paradigm’ promoted within the international development community downplays the task of reconstructing and/or building political organisations. This is because of the influence of the rent-seeking and corruption literature in informing policy on state capacity building and the negative view of politics that flows from that analysis. As a result, the governance agenda neglects the necessary role that political strategies play in state capacity building. This paper demonstrates how political analysis allows us to develop a more adequate account of the risks that reforms generate and to discuss the political sustainability of reforms.