Utopia is a beautiful place, where harmony prevails and socio-economic injustices are no more. But trying to implement it can be a precarious experiment more likely to end in disillusionment than paradise. The people of Venezuela are about to find out which one it’s going to be for them, as President Hugo Chávez proceeds with the implementation of his controversial land reform.
As the New York Times describes it, the reform consists of “building utopian farming villages for squatters, lavishing money on new cooperatives and sending army commando units to supervise seized estates,” also known as “paving stones on the road to socialism.”
Let us briefly examine the rationale and assumptions behind these policies.
The cause
Prior to the current land reform, which started in 2002, about 5% of Venezuela’s population owned 80% of the land. The official goal of the land seizures and redistribution is to better utilize the idle land and decrease Venezuela’s dependence on food imports by empowering poor farmers.
The assumption here is that the low output of the agricultural sector comes from inefficient land use perpetuated by large land holdings. But to anyone who’s seen the most basic statistics on the state of Venezuelan economy, this diagnosis of the problem doesn’t quite add up. It is true that Venezuela imports most of its food and, according to the United Nations uses less than 30% of its arable land to its full potential. But here is the prime culprit: oil. Oil revenues bring roughly 90% of export earnings, more than 50% of the federal budget revenues, and around 30% of GDP. This preeminent dependence on oil exports damages not just Venezuela farming sector but the rest of the economy, since with high oil prices currency appreciation makes it cheaper to import food than to produce it domestically – a classic case of Dutch disease.
The solution
The Wall Street Journal reports that since coming to power, the Chávez government has handed over 8.8 million acres (some 4.5 million of which were “recovered” from private owners) for use by the poor. This top-down land redistribution culminates in creation of farming “communal towns,” where workers are to labor together in peace and harmony for the greater common good. Sounds great, right? Sounds noble even, considering that Venezuela’s jarring imbalances in land ownership structure are entrenched in historical injustices inflicted upon the country’s Mestizo and black population. But wait – haven’t we heard it before? Lenin, Mao, Castro, or more recently Mugabe… Are there any reasons to believe that the Venezuelan land grabs are going to be more successful than theirs in lifting farmers out of poverty? Unfortunately, it’s rather hard to be optimistic.
Let’s listen to what the new laws are actually saying: they allow landless farmers and former squatters to use the land, but not effectively own it. The land stays in the government’s hands. Result? The empowering benefits of private ownership that include the ability to use one’s land not just as a mode of subsistence but capital that can be borrowed against and productively invested are not there. Peruvian economist Hernando de Soto addresses that topic in detail and through his work around the world has shown a viable alternative to bring economically disenfranchised people into the formal sector. His methods involve exploring the existing extralegal property networks and incorporating them peacefully into new laws and institutions built upon the social consensus. For instance, such a program to bring the poor majority in Peru from the shadow economy resulted in 6.3 million Peruvians below the poverty line now legally owning their land and increasing their income by $3.2 billion.
There is another problem: since Venezuela’s population is in predominantly urban (over 85%), many people who join the co-ops don’t know the first thing about farming. It turns out, however, that many of them know how to take advantage of the readily available government loans for the co-op members. As WSJ reports, some city residents hire watchmen to idly sit in for them on the land, while they are waiting for the cash. In another example of how easily corruptible the new system is, some businessmen from Guárico state gave local prostitutes a few hundred dollars for the use of their names to form ghost co-ops and then receive loans of up to $100,000.
The outcome
So what can be said for the results of the reform so far? Well, the most immediate effect has been opposite to the intended one. The production of beef, sugar and other foods dropped sharply as the new farmers frequently destroy existing crops to lessen the former owners’ stake in putting up a fight. Also, the chaos in the countryside, accompanied by price controls on many food items and high inflation induced by the influx of oil rents leads to panic buying that further compounds the shortages. Venezuela’s central bank stopped publishing agricultural statistics in 2005, but a private farm association called Fedeagro estimates that food production declined by 8% last year compared to the year before.
The NYT quotes Lisbeth Colmenares, a 22-year old resident of Fundo Bella Vista, one of the newly-established communal farming towns. She says, “We’ll never let what we have now be taken from us.” Quite ironically, implicit in that message is yearning for true and full ownership, for secure property rights, and yes, for the rule of law. Otherwise, how can she feel confident that the current policies will not be repeated in the future, but this timeexpropriating her in the name of the revolution? After all, any revolution needs a constant flame to perpetuate itself. How else can the ruling revolutionary elite justify that the utopian life has not quite followed as promised?
Here is the catch: the weakness of virtually every revolution is a tremendous gap it creates between expectations and outcomes, between theory and practice. That is not necessarily due to the malfeasance of the revolutionary leaders, who in fact for the most part may enjoy the benefit of the doubt as to the veracity of their intentions. But even the best intentions do not automatically equal good results. The most moving speeches calling for equality, justice, and prosperity for all will do no good if the underpinnings of the policies that follow are economically unsound, because they ignore the incentive structure and institutional set up of the new reality they strive to create.
Published Date: May 29, 2007