Privatizing PDVSA isn’t the Right Solution for Venezuela…Yet
When Hugo Chávez took power in Venezuela, he enacted a series of policies that would work in the short term but would eventually ruin the country’s economy. Plunging into despair, Nicolás Maduro has sought to privatize PDVSA, the state-owned oil company which is in financial shambles despite having a monopoly over the world’s largest oil reserves. But the move will resolve nothing, rather than help Maduro and his cronies remain in power any longer.
To provide some context: Privatizations have long acted as a successful method for increasing revenue, limiting government interference in the economy, and increasing competition—when enacted correctly. It has happened a lot.
An example of this is Chile. After the country privatized many state-owned companies—and even handed the ones that had been nationalized under the Allende regime back to their original owners—the country underwent what many have described as an economic miracle when compared to the rest of Latin America. It is worth noting that when the country undertook these measures, Chile at least had an amicable environment towards private enterprise and the economic conditions to go through with said ideas. Venezuela, on the other hand, is ranked 143 on the list of countries for doing business. No transparent investor would consider Venezuela a sound investment under the Maduro regime.
It’s true that some empirical data proves that private ownership over oil production leads to more efficiency, such as a study by Abdullah Al-Obaidan and Gerald Scully, who found that state-owned oil companies are only around 61-65% as efficient as those that are privately owned. Others, such as Nadejda Victor, found that privately-owned petrol companies are over 30 percent better than those which are state-owned, and a study conducted by Christian Wolf and Michael Pollit from the University of Cambridge found that “privatization of NOCs is indeed associated with higher firm profitability, (commercial) efficiency, capital investment, output, and dividend payments, as well as with lower financial leverage and employment.” They also found that NOCs, on average, increase their return on sales by 3.6%, within seven years of the privatization process.
Yet an eventual privatization of PDVSA isn’t the solution it’s been set out to be. Belén Villalonga, a professor of Management and Organizations at NYU explains the superiority of private ownership over public is necessary for a successful privatization process but not sufficient on its own. Many other variables should be taken into consideration. For one, Maduro’s regime doesn’t emit the type of confidence toward investors that other governments would. The fact that Maduro most likely knows this is proof of the fact that he seeks to enact a system akin to crony capitalism. Selling to his friends, and rigging the economy to their favor is, therefore, his only viable option.
As Stephen King from Monash University explains, privatizing state-owned monopolies simply passes the monopoly towards private hands, resulting in consumers paying the price. Given that private businesses focus on profit maximization, they would most likely take advantage of their monopoly over an industry to raise powers through draconian pricing methods. It doesn’t make sense, when speaking of the overall benefits of society, to privatize a state-owned business, without opening up the industry to competition between private enterprise.
Crony capitalism is, in a way, another form of government controlling the lives of people, just like it would under socialism’s thumb. Perhaps those governing Venezuela don’t subscribe to a particular ideology personally but understand that having ruined people’s lives and subsequently making them dependent on the government was an effective way of enacting their despotism. Socialism’s failure in Venezuela is more evident now than ever, which is why Maduro has rushed an illusion of a transition from the failed economic system, yet fundamentally changed nothing. The only difference is that the government is giving more power to the dictator’s friends.