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Oil Policies and Budgets in Venezuela, 1938-1968

Published online by Cambridge University Press:  24 October 2022

Enrique A. Baloyra
Enrique A. Baloyra*
Affiliation:
University of North Carolina, Chapel Hill
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Some historians and political scientists have probably passed each other on their way to incorporate the paraphernalia of their respective disciplines. The historians are showing greater interest in theoretical questions and a growing methodological sophistication. The political scientists have begun to test their models against well-known events which have been previously researched by the historians. Obviously, this trend is no harbinger of disciplinary convergence although it underlines the similarity of interests between quantitatively oriented historians and developmentally oriented political scientists.

Type
Topical Review
Information
Latin American Research Review , Volume 9 , Issue 2 , 1974 , pp. 28 - 72
Copyright
Copyright © 1974 by the University of Texas Press

Footnotes

∗

I am deeply grateful to Juan del Aguila for his assistance and collaboration in all areas of this study. I would also like to thank Carlos Suárez and Daniel Levy who, at different stages of the project, helped me gather the data. For their helpful criticisms of a previous version of the manuscript I would like to thank Ken Coleman, Steven Sinding, Franklin Tugwell, Guillermo O'Donnell, and Margaret Hayes. None of these persons, of course, shares my responsibility for the deficiencies and weaknesses that remain in the argument.

References

Notes

1. See Gabriel Almond, et al., (eds.), Crisis, Choice and Change (Boston: Little, Brown and Co., 1973).

2. James W. Wilkie, The Mexican Revolution: Federal Expenditure and Social Change in Mexico since 1910, paperback, rev. ed. (Berkeley and Los Angeles: University of California, 1970).

3. Thomas E. Skidmore and Peter H. Smith, “Notes on Quantitative History: Federal Expenditure and Social Change in Mexico Since 1910,” Latin American Research Review, 5:1: 71-85 (Spring, 1970).

4. Ibid.

5. Wilkie, op cit., 17.

6. Policy analysts recognize this, and the number of scholars who find themselves having to say something about budgeting indicates how widespread this recognition is. A few examples: John C. Donovan, The Policy Makers (New York: Pegasus, 1970); Louis Fisher, President and Congress, Power and Policy (New York: The Free Press, 1972), and Thomas Dye, Understanding Public Policy (Englewood Cliffs, N.J.: Prentice-Hall Inc., 1973).

7. Notably Aaron Wildavsky, The Politics of the Budgetary Process (Boston: Little, Brown and Co., 1964) and Ira Sharkansky, The Politics of Taxing and Spending (Indianapolis and New York: Bobbs-Merrill Co. Inc., 1969).

8. Although I would not suggest this as their only emphasis, Charles Schulze and his colleagues have chosen the title Setting National Priorities for their critical annual evaluation of the U.S. budget as proposed by the Administration (Washington, D.C.: The Brookings Institution, 1971-1973).

9. Dye, op cit., Ch. 2.

10. See Robert A. Dahl, Polyarchy, Participation and Oppposition (New Haven: Yale University Press, 1971).

11. Juan J. Linz, Notes Towards a Typology of Authoritarian Regimes, 20-21 (unpublished, delivered at annual meeting of the American Political Science Association) (Washington, D.C., 1972).

12. For an example concerning policy-making criteria in the Soviet Union see Robert Abrams, “The Lieberman Reforms.” In: James B. Christoph and Bernard E. Brown (eds.), Cases in Comparative Politics, 2nd ed. (Boston: Little, Brown and Co., 1969).

13. Andrew S. McFarland, Power and Leadership in Pluralist Systems, 16 (Stanford, Calif.: Stanford University Press, 1969).

14. Ibid., Ch. 1.

15. Joel J. Schwartz and William R. Keech, “Group Influence and the Policy Process in the Soviet Union,” American Political Science Review, 62:3 (September 1968).

16. Ongoing efforts that, as of the time of this writing, have not yet been published and I am aware of include Barry Ames and Edward Goff, “A Longitudinal Approach to Latin American Public Expenditures;” Kenneth M. Coleman and John Wanat, “Models of Political Influence on Federal Budgetary Allocations to Mexican States;” and Margaret Daly Hayes, “Ecological Constraints and Policy Outputs in Brazil: An Examination of Federal Spending Patterns” (all unpublished, delivered at the annual meeting of the American Political Science Association) (New Orleans, 1973). Also worth mentioning are two interesting manuscripts, Steve Sinking's “The Impact of Political Participation on Public Expenditures: The Case of Chile;” and John J. Bailey's “Public Expenditures in Colombia: Disjointed Incrementalism in a Dependent Polity.” With the exception of Bailey's work—and my own—the direction of the budgetary research of these authors is toward the explanation of budgetary performance in terms of economic linkages and political system performance. Their main technique has been correlation analysis and I would characterize their explanatory efforts as predominantly successful.

17. Charles Anderson, Politics and Economic Change in Latin America (Princeton, N.J.: D. Van Nostrand Co., 1967), especially Ch. 3.

18. Philippe C. Schmitter, Interest Conflict and Political Change in Brazil (Stanford, Calif.: Stanford University Press, 1971).

19. Eldon Kenworthy, “Coalitions in the Political Development of Latin America,” In: Sven Groennings, et al., (eds.), The Study of Coalition Behavior (New York: Holt, Rinehart and Winston, 1970).

20. I am referring to Markos Mamalakis, “The Theory of Sectoral Clashes,” Latin American Research Review, 4:3 (Fall, 1969), and his further elaboration in “The Theory of Sectoral Clashes and Coalitions Revisited,” Latin American Research Review, 6:3 (Fall, 1971).

21. Political Leadership in the Cuban Republic, 1944-1938 (unpublished Ph.D. dissertation, University of Florida, 1971).

22. Ibid., Chs. 9-11.

23. Ibid., Ch. 5.

24. Wilkie, op. cit., Ch. 4.

25. Baloyra, op. cit., 100-112.

26. Frederic L. Pryor, Public Expenditures in Communist and Capitalist Nations, 285 (Nobleton, Ontario: Irwin-Dorsey Ltd., 1968).

27. Charles Anderson, The Political Economy of Modern Spain, 182 (Madison, Wisc.: The University of Wisconsin Press, 1970).

28. Skidmore and Smith reject the concept that actual economic policy-making reflects ideology and, consequently, they question most of Wilkie's interpretation; op. cit., 76. This, I believe is largely incorrect because Wilkie was standing on fairly solid ground concerning the policy priorities of the Cárdenas regime which reflected the ideological inclinations of Cárdenas' group. Of all Mexican regimes examined by Wilkie, Cárdenas' was both the more ideological and the one that more effectively exerted its priorities through budgets. This case saves the plausibility of Wilke's original approach but it hardly justifies its general applicability.

29. Op.cit.

30. Ibid, 18.

31. come to this conclusion folowing Domingo A Rangel, Los andinos en el poder (Mérida, Venezuela: Talleres Gráficos Universitarios, 1966); Rafael Gallegos Ortiz, La historia política de Venezuela (Caracas: Imprenta Universitaria, 1960) and Juan Bautista Fuenmayor, 1928-1948, veinte años de política (Caracas: n.p., 1968) among others. Contrary evidence and arguments are available from the military presidents themselves. See Eleazar López Contreras, Gobierno y administración, 1936-1941 (Caracas: Editorial Arte, 1966) and El triunfo de la verdad (México, D.F.: Genio Latino, 1949). Medina's defense of his oil policies may be found in his (posthumously published) Cuatro años de democracia 77-87 (Caracas: Pensamiento Vivo, 1963).

32. Again from Linz, op.cit., 7-8, and the evidence and arguments provided by Robert J. Alexander, The Venezuelan Democratic Revolution (New Brunswick: Rutgers University Press, 1964); David Eugene Blank, Politics in Venezuela (Boston: Little, Brown and Co., 1973); Edwin Lieuwen, Venezuela (Oxford University Press, 1961); John D. Martz, Acción Democrática (Princeton, N.J., Princeton University Press, 1966); David J. Myers, Democratic Campaigning in Venezuela (Caracas: Fundación La Salle, 1973), and Juan Carlos Rey, “El sistema de partidos venezolanos,” Politeia 1:1 (1972). Forceful counter-arguments challenging the validity of these views are available in Frank Bonilla, El fracaso de las élites (Caracas: CENDES, 1972); Domingo A. Rangel, Los mercaderes del voto (Valencia, Venezuela: Ediplan, C.A., 1973); and José A. Silva Michelena, Crisis de la democracia (Caracas: CENDES, 1970).

33. The procedural distinction between polyarchies and other types of regimes has been emphasized by Dahl, notably in his Preface to Democratic Theory (Chicago: University of Chicago Press, 1956), and in his Polyarchy.

34. This is the basic empirical distinction that I found between the power structures of the Auténtico and Batista regimes. A formal model of these structures appears in Baloyra, op.cit., 287-302 and, more recently, in Enrique A. Baloyra, “Comparing Political Regimes,” International Interactions 1:1 (1973).

35. Linz, op.cit., n. 12.

36. By political regime I mean “a set of political interactions between political leaders and political elites, and between them and lower participants.” In the light of this definition, it is clear that no two regimes are alike.

37. The López Contreras regime was the more traditional of the three with Medina's being the most progressive and the only one which engaged in limited mass mobilization. By any available standard, the Pérez Jiménez regime was the most repressive of the three.

38. An alternative would be to conduct a month-by-month analysis of expenditures with an eye on the more relevant economic indicators. This procedure would increase the number of degrees of freedom but it would not increase the reliability of the test statistics because of the tentative nature of the monthly figures advertised by budgetary agencies. On the other hand, this alternative lacks a theoretically-valid justification, and it would make the accounting and disbursement practices of the budgetary agency the most important sources of variation. For reasons of space I will only utilize the comparison-by-type approach. Comparisons by regime will be the subject of a forthcoming report.

39. Enrique A. Baloyra, “Budget Analysis: Methods and Issues with Application to Venezuela,” 4 (unpublished, delivered at the annual meeting of the American Political Science Association) (New Orleans, 1973).

40. Skidmore and Smith, op.cit., 73-75.

41. Op.cit., xxvi-xxvii.

42. Op.cit., 74-75.

43. For an excellent illustration of how this concern can be brought to bear on budgetary research see Hayes, op. cit., 3-4, 9-13.

44. Banco Central de Venezuela, La economía venezolana en los últimos trienta años, 18 (Caracas: Italgráfica, 1971).

45. Ibid.

46. On the question of Venezuelan economic dependence see Federico Brito Figueroa, Venezuela contemporánea: país colonial (Caracas: Teoría y Práctica, 1972); José Antonio Mayobre, Las inversiones extranjeras en Venezuela, (Caracas: Monte Avila, 1970); Do mingo F. Maza Zavala, Venezuela, una economía dependiente (Caracas: Universidad Central de Venezuela, 1964), and Domingo A. Rangel, Capital y desarrollo, 3 vols. (Caracas: Universidad Central de Venezuela, 1969-1971).

47. Excluding the voluminous work of Juan Pablo Pérez Alfonso, with which we will deal below, the more interesting economic essays include Tomás E. Carrillo Batalla, La evalu ación de la inversión del ingreso fiscal petrolero en Venezuela (Foro Petrolero 5, Caracas: Universidad Central de Venezuela, 1968); Héctor Malavé Mata, Petróleo y desarrollo económico de Venezuela (Caracas: Pensamiento Vivo, 1962); Pedro E. Mejía Alarcón, La industria del petróleo en Venezuela (Caracas: Universidad Central de Venezuela, 1972); Francisco Mieres, El petróleo y la problemática estructural venezolana (Carcas: Universidad Central de Venezuela, 1969); and Pedro Tinoco, Análisis de la política petrolera venezolana (Federación Venezolana de Cámaras y Asociaciones de Comercio y Producción, XXII Asamblea Anual, Valencia, 1966). With the exception of Tinoco's, all of the above essays conclude (1) that the share of the Venezuelan state in the profits of the industry is still too low, and (2) that the state should complete its takeover of the industry before the 1984 deadline on actual concessions expires.

48. These and all other macro-economic and fiscal data were deflated with the wholesale price index. Since 1938, the Dirección General de Estadística y Censos Nacionales has been computing this index which is based on 82 commodities and articles available in major Venezuelan markets. The Dirección considers this the more reliable index of inflation in Venezuela.

49. Anderson, Politics, 64-65.

50. This lower level of investment was very much a reflection of the oil companies' decision to reduce the levels of their net investment capitals in the country. The outcome—if not the intent—of his decision was to make it more difficult for the adecos to continue the trend of their oil policies. The 1964 devaluation of the bolívar and the 1966 accord on service contracts constitute reliable evidence that the adecos were hurt by the maneuver and that they had to adopt a more conciliatory stance towards the industry.

51. Well described by M.A. Adelman, The World Petroleum Market, 103-190 (Baltimore and London: The Johns Hopkins University Press, 1972). This is a well-written, technical treatment of the subject by a leading oil economist.

52. The political implications of this manipulation, as they affect the dependent producing countries, have been drawn by Harvey O'Connor, World Crisis in Oil, Ch. 1 (New York: Monthly Review Press, 1962).

53. The development costs of the industry in Venezuela are discussed and calculated by Adelman, op. cit., 58-61, and Appendix II.

54. See Abdulhady H. Taher, Income Determination in the International Petroleum Industry (London: Pergamon Press, 1966), for a discussion of the most critical areas of this question.

55. As an illustration of this I can offer the lack of reliable statistics concerning company incomes in Venezuela prior to 1947, the year in which they had to start to supply this information to the Venezuelan government.

56. The “netback” is simply “the price realized at a distant point of sale, less the transport cost, or less the sum of transport and refining cost, where the sale is of refined products.” Adelman, op. cit., n. 140. Companies try to maximize their netbacks and, as a result of this, netbacks have come to determine which supplier will sell to which market.

57. Posted prices are either (1) the maximum prices at which refiners—say in the U.S. Gulf Coast—will buy crude, and/or (2) the minimum prices at which suppliers of crude or derivatives will sell. Due to vertical integration of the major international oil companies—the famous “seven sisters”—and to the discount rates given to company affiliates, the “majors” could always manipulate posted prices in their favor, through artificially low posted prices for exports, in order to decrease income estimates and lower the tax claims of the host country, once that country's government has linked tax rates to posted prices and has a vested interest in maintaining high prices. See the lucid, non-technical discussion by J. E. Hartshorn, Politics and World Oil Economics, 133-140 (New York: Praeger, 1962).

58. Companies usually claim that this is why the question of “incentives” is so important in order to stimulate production. Former minister Pérez Alfonso believed that the companies would find a return of 15 per cent an acceptable minimum. This compares favorably with the next aggregate returns of the industry—as reported by the industry—in the United States. This rate had a 1925-1968 average of 10.1. See American Petroluem Institute, Petroleum Facts and Figures, 1971, 513 (Washington, D.C.: American Petroleum Institute, 1971).

59. Edwin Lieuwen, Petroleum in Venezuela, 80 (Berkeley and Los Angeles: University of California Press, 1954).

60. Ibid, 76-79. It should be mentioned that the law introduced two innovations; (1) the state was authorized to enter any phase of the oil business, and (2) the president was authorized to negotiate the formulae for the determination of the value of Venezuelan crude.

61. Aníbal Martínez, Chronology of Venezuelan Oil, 69 (London: George, Allen and Unwin, Ltd., 1969).

62. Ibid, 67.

63. Ibid, 68.

64. Lieuwen, op.cit., 82.

65. Mejía Alarcón, op.cit., 109.

66. Lieuwen, op.cit., 82.

67. Ibid, 80.

68. Gallegos Ortiz, op.cit., 202-203.

69. Martínez, op.cit., 77.

70. Ibid.

71. Mejía Alarcón, op.cit., 112-113 reprints the letter.

72. Rómulo Betancourt, Venezuela, política y petróleo, 152 (México: Fondo de Cultura Económica, 1956).

73. A leading authority on the subject estimates that, as of 1942, the companies were sitting on 7,062,139 hectares remaining from dictator Juan Vicente Gómez's concession. See Juan Pablo Pérez Alfonso, Petróleo y Dependencia, 11 (Caracas: Síntesis Dos Mil, 1971). Pérez Alfonso argues, with considerable evidence to support him, that the companies were making a token offer to release a considerable amount of the land they held—most of which was already useless to them—as an indication of good faith and the fact that they were willing to make “sacrifices” in order to reach a compromise.

74. Betancourt, op.cit., 154.

75. Betancourt talks about 6,561,769 hectares granted by Medina: op.cit., 179. Pérez Alfonso put the figure at 9,020,507; op.cit., 11. Finally, Gallegos Ortiz offers some data from which the figure of 7,336,000 may be derived; op. cit., 205.

76. Former development minister Néstor Luis Pérez pointed at the time that missing from the 1943 Law was not only the buoys and lights tax of the 1938 Law, but also three sections deleted from the 1938 draft which mysteriously disappeared while the bill was in transit between Congress and the Executive Mansion. These sections dealt with national participation in ownership, the creation of a Venezuelan refinery, and the companies' obligation to pay in gold when the state so desired. See Betancourt, op.cit., 161-62. See also Juan Pablo Pérez Alfonso, El pentágono petrolero (Caracas: Revista Política, 1967), 102-06.

77. For Medina's counter-arguments see Medina, op.cit., 77-78.

78. Op.cit., 235.

79. Ibid.

80. Ibid, 236.

81. Pérez Alfonso, El pentágono, op.cit., 105.

82. Betancourt, op.cit., 236-237.

83. Martínez, op.cit., 85.

84. Lieuwen, op.cit., 107.

85. On December 31, 1945, the regime decreed an extraordinary levy on company earnings which netted the government an additional Bs. 89 million (Martínez, op.cit., 84). The regime also amended the 1943 Income Tax Law by its Decree 212 which was approved by the 1947 Congress. This amendment made the income tax system somewhat less regressive by lowering the rate for wages and salaries, and increasing the tax rate on capital gains to 26 per cent for all corporate incomes above Bs. 28 million. On November 12, 1948, a new income tax law was passed. The 50-50 profit sharing system was formalized at that point. Article 31 of the Law strengthened this by creating an additional 50 per cent for extractive industries provided that their income, after ordinary taxes, exceeded government revenue. Martínez, op.cit., 91.

86. Martínez, op.cit., 93.

87. Walter Dupouy, Industria petrolera de Venezuela, IV, Algunos efectos económicos y sociales (Conferencia dictada ante la Facultad de Ciencias Económicas y Sociales de la Universidad Central de Venezuela, mimeo, Caracas, 1959).

88. Ibid, 4.

89. Betancourt, op.cit., 648.

90. As quoted by Betancourt, ibid, 685.

91. Ibid.

92. Martínez, op.cit., 118, 122.

93. Pérez Alfonso, Petróleo y dependencia, op.cit., 33-34.

94. Martínez, op.cit., 124-128.

95. Ibid, 128-132.

96. El desarrollo económico de Venezuela, 25-30 (Caracas: Imprenta Nacional de Venezuela, 1961).

97. Fred D. Levy Jr., Economic Planning in Venezuela, 10 (New York: Praeger, 1968).

98. Martínez, op.cit., 133-140.

99. For a review of industry arguments and lamentations about the effects of the Betancourt and Leoni policies, see the August 15 issues of World Oil, especially 1961: 109; 1965: 102-103; 1966: 108; 1967: 56; and 1968: 85-86. Compare the tone of these articles with the following ones relating to the oil policies of Pérez Jiménez: Robert E. Spann, “Boom in Venezuela,” 239-241 (July 1, 1951); the interview with Venezuelan ambassador Antonio Martin Araujo in September, 1951; “Venezuela Will Deal—But not at any Cost,” 308-310 (June, 1952); Jenkin Lloyd Jones, “I Saw American Enterprise and Oil Helping Build a Nation,” 242-246 (March, 1953); the interview with Venezuelan oil minister Edmundo Luongo Cabello, published in May 1954; then a blitz of pro-concession articles: August, 1954-1956; and Warner L. Baker, “Wise Use of Oil Income Gives Venezuela Bright Outlook,” 177-182 (July, 1957), all of which are also from World Oil.

100. Martínez, op.cit., 145.

101. It should be pointed out that, after all, the oil companies did not exactly go broke during the adeco regimes.

102. This was a concern frequently voiced by the State Department.

103. The companies got the best of everything. With high prices and the U.S. Treasurey accepting tax credits from overseas production taxes, with generous allowances for royalty payments that were “expensed” before the computation of taxable income, and with a newly-found common interest with the host governments—namely, high prices—the oil companies could not lose. The adecos could have raised the formula of the 50-50 even more without the companies losing any money on it. See the discussion in Hartshorn (op.cit., ch. 12) concerning the behavior of the industry with respect to taxes, which should be read in its entirety.

104. James W. Wilkie, “On Methodology and the Use of Historical Statistics,” Latin American Research Review, 5:1:87-91 (Spring, 1970).

105. In their 1971 study Schulze and his colleagues, Hamilton and Schick, broke down their overview of the administration's budget into the following categories: national defense, space, income maintenance, education-health-manpower, housing and community development, physical resources, interest, other net outlays, and sale of assets. See Setting … the 1971 Budget, op.cit., 12. Two years later, Schulze, Fried, Rivlin, and Teeters in their overview of budgetary priorities, utilized the following categories: defense-space-foreign affairs, older income maintenance programs, major Great Society programs, commerce-transportation-natural resources, President Nixon's new initiatives, net interest and other programs. (Setting … the 1973 Budget, op.cit. 11).

The World Bank report to the Venezuelan government utilized a lesser economic emphasis in its categories: political-administrative, economic and financial, socio-cultural, transfers to regional entities, public debt, and Catholic Church, op.cit., 599. A somewhat different classification was elaborated in the Cuban report: See, International Bank for Reconstruction and Development, Report on Cuba (Baltimore: The Johns Hopkins Press, 1951). Finally, I have done some flirting with these categories myself: regulative-productive, regulative-political, human resources, administrative, and debt service. See Baloyra, “Political Leadership,” op.cit., 98.

106. Pryor, op.cit., 69-70.

107. See Balance de la Hacienda Pública, 1969.

108. Informe económico, 1968: 168-174.

109. Officina Central de Coordinación y Planificación, Plan de la Nación, 1965-1968.

110. Ministerio de Hacienda, Memoria, 1968: v-150. Also Dirección General de Presupesto, Presupuesto por programas, 1968, 2 vols.

111. For a discussion of some of the more common interpretations, see Alan Peacock and Jack Weisman, The Growth of Public Expenditures in the United Kingdom (Princeton: Princeton University Press, 1961). War has been a traditional cause of the growth of public expenditures in the United States. See Fisher, op. cit., chapter 4.

112. Wilkie, The Mexican Revolution, 77-78.

113. See Tomás E. Carrillo Batalla, El proceso presupuestario venezolano (Caracas: Ediciones del Consejo Municipal del Distrito Federal, 1968). Also Jaime del Corral and Jaime Ferro, “La liquidación anual de los resultados de la ejecución presupuestoria en Venezuela,” Part I, Control fiscal, 5: 32 (Julio-diciembre, 1964), and Part II, Control fiscal, 6, 33 (Eneromarzo, 1965).

114. Levy, op. cit., 29

115. Ibid., 29-30.

116. Ibid., 33-46.

117. Control fiscal, 5:32:57 (Julio-diciembre, 1964).

118. Control fiscal, 6:33:62 (Enero-marzo, 1965).

119. These are some of the more frequent tactics utilized by the American executive. See Fisher, op.cit., 11-32.

120. Personal communication from a Latin American Research Review referee.