NRPLUS MEMBER ARTICLE V enezuela’s last oil-drilling rig has shut down.
Venezuela still has plenty of oil — about one-fifth of the world’s known petroleum reserves are under the jackbooted feet of Hugo Chávez’s heirs. Nothing happened to the oil, and, in spite of the recent coronavirus-related turbulence in the energy business, nothing really happened to the oil market, either.
Politics happened, and destruction happened. Sometimes, those are synonyms.
What’s a barrel of oil worth? It depends. Economic values are relational. One telephone is worthless — if there were only one telephone in the world, it would be a scarce item, indeed, but not a valuable one, since there would be no one to call. The thing has value because of what you can do with it, and that depends on additional factors.
Oil is a little bit like that. It is not actually very valuable on its own, because you can’t really do much of anything with it. But oil in the context of a rich capital ecosystem — refineries, pipelines, supertankers , etc. — is very valuable stuff.
Venezuelans have the oil, but they don’t have the needful productive capital, so they don’t have gasoline for their cars or propane for their kitchens. Venezuelans do not have cooking fuel, but, then, they also do not have food to cook: Food moves around on trucks, and no gasoline or diesel means no food deliveries. Tractors and irrigation systems need petroleum, too — try running a farm without diesel and propane. The United States does not feed its 330 million people (and much of the rest of the world) by plowing with donkeys.
Without sufficient usable oil, Venezuelans lack necessities. They also do without the income that they would have had from selling oil to energy-hungry people around the world.
A few stragglers are still producing oil from existing wells. As the Wall Street Journal reports, the world’s most oil-rich country is set to produce about as much oil this year as Wyoming. No slight to Wyoming, but that is not a very impressive output.
What happened in Venezuela is a less bloodless version of what Senator Elizabeth Warren and her colleagues propose to do in the United States. The Chávez’s regime decided to “put people over profits,” as our Democratic friends like to say. Senator Warren proposes to put large companies under the control of the federal government by requiring them to secure federal permission to operate and by giving the government the power to dictate to corporations the compositions of their boards and to micromanage decisions from compensation to investment. You have heard the phrase, “act like you own the place.” Senator Warren does not propose that the state should own the means of production, as in the classical Marxist-Leninist model, only that it should act like it owns the means of production.
They tried something like that in Venezuela, too. The Chávez government nullified existing energy contracts, violated property rights, and required oil companies to reorganize their projects under the auspices — and control — of the Venezuelan state, in the form of PdVSA, the national oil company. The oil companies for the most part responded with some variation on a seven-letter phrase that begins with an F and ends with a U. They pulled out, Venezuela’s oil production tanked, and the rest of the world . . . more than made up for that lost Venezuelan output, thanks in part to technological advances pioneered in the United States — most prominent among them the “fracking” that Democrats propose to prohibit. It is worth remembering how many Democrats celebrated Hugo Chávez as a model of “people over profits” leadership.
Prosperity is fragile. Venezuela was not a paradise before Chávez, but it had some reasonably functional institutions. Its energy industry was one of them. That has been destroyed. This is not a case of having to break some eggs to make an omelet. (George Orwell: “Where’s the omelet?”) This is socialism in action, the real socialism that we are always hearing has never been tried but has somehow still managed to kill millions of people around the world over the course of a century or so.
What happens at the large scale happens at the small scale, too: Nobody is in a hurry to invest in Venezuela’s energy industry, in spite of the country’s rich reserves — in spite of the fact that there are potentially trillions of dollars to be made in the long run. Nobody is in a hurry to invest in Kenosha, Wis., which had some functioning institutions, including a great many businesses that have been burned down and looted. They are not going to just bounce back.
Tesla is building a new factory outside Austin, a project that will involve more than $1 billion in investment and that will employ more than 5,000 people. Do you imagine that Kenosha is very high on the list for future Tesla investments? Do you think there might be 5,000 people around Kenosha who would like those jobs, contractors and service-providers who would like a piece of that $1 billion-plus investment? There are, certainly. But no sensible person or institution is going to invest very much in Kenosha for a long time. This will be history repeating itself: The American cities that suffered the worst rioting in the 1960s suffered serious economic decline relative to the cities that did not endure similar violence.
For years, demagogues of Senator Warren’s stripe insisted that corporations were failing to make good on an unpaid debt to the American worker, and that they should be coerced by the state into offering up certain political deliverables in payment of that debt. That was a big part of the postwar economic conversation, until a great many of the corporations showed that they could get on just fine without the American worker. When that happened, the Warrens changed their tune, demanding that the corporations come back and exploit the American worker again, as decency and patriotism demand. The unpaid debt to the exploited worker became the unpaid debt to the state — it became “You didn’t build that!” and all that nonsense.
Now, it finally is starting to sink in to our national mind that Joe Plutocrat not only can get along just fine without the American worker, but he can also keep his yacht stocked with champagne with little or no dependence upon the American consumer. There are lots of people in the world who want to make things and buy things. Capital will go where it is treated well, and the future will go where it is welcome. And history is not an arrow pointing unalterably in the direction of progress and prosperity. If you think being a rich country protects you from that reality, remember that, when Senator Warren was born, Venezuela was the fourth-wealthiest country on Earth.
A few years of left-wing radicalism had its people eating zoo animals.
The shocking thing is: Venezuela is still a wildly rich country. Even at today’s low oil prices, its proven reserves notionally would be worth nearly $15 trillion at market prices, or a little more than a half-million dollars for every man, woman, and child in the country. But that wealth is probably just going to sit there, maybe for decades, while the people are stunted and starving. In fact, that wealth won’t be wealthy at all. It will just be oil in the ground, like gold in the mine.
Politicians such as Elizabeth Warren and Hugo Chávez believe that they can reshape the world by simply barking orders at people and institutions. But politics isn’t magic, and reality is not optional. Bark all you like, but reality will bark back — and bite.