CEPR Paper Responds to Foreign Affairs on Venezuela

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March 21, 2008

CEPR Paper Responds to Foreign Affairs on Venezuela 

For Immediate Release: March 21, 2008
Contact: Dan Beeton, 202-293-5380 x104

Washington, D.C. - - A new paper from the Center for Economic and Policy Research responds to a recent article by Francisco Rodriguez in the March/April 2008 issue of Foreign Affairs that argued that Venezuela's poor have not benefited from the government of President Hugo Chávez.

In the five years since the Venezuelan government has gotten control over its national oil company, the economy (real GDP) has grown more than 87 percent, poverty has been cut in half, and unemployment by more than half," said Mark Weisbrot, CEPR Co-Director and author of the paper, "An Empty Research Agenda: The Creation of Myths About Contemporary Venezuela."

"Real social spending per person has increased by more than 300 percent, and the government has expanded access to health care, subsidized food, and education. Under these conditions, it would indeed be remarkable if the living standards of the poor had not improved substantially," he added.

The paper looks at various claims in the Foreign Affairs article by Francisco Rodriguez:
  • Rodriguez claims that inequality, as measured by the Gini coefficient has worsened during the Chavez years.
This is wrong. The only consistent measure of the Gini coefficient (see Table 1) shows a substantial decline from 48.7 in 1998, or alternatively from 48.1 in 2003, to 42 in 2007.  For a rough idea of the size of this reduction in inequality, compare this to a similar movement in the other direction: from 1980-2005, the Gini coefficient for the United States went from 40.3 to 46.9, a period in which there was an enormous (upward) redistribution of income.
  • Rodriguez claims that Venezuela's poverty reduction during the current economic expansion - it has been cut by half, from 55.1 percent (2003) of households to 27.5 percent (first half of 2007) - compares unfavorably with other countries.
His argument is that other countries have reduced poverty by "around two percentage points" for every percentage point increase in per capita GDP. However, this is clearly wrong. If it were true, Venezuela would have to have eliminated poverty completely - 100 percent poverty reduction - to meet Rodriguez's description of "many other countries."
  • Rodriguez: "Remarkably, given Chávez's rhetoric and reputation, official figures show no significant change in the priority given to social spending during his administration."
In fact, real (inflation-adjusted) social spending per capita in Venezuela increased by 314 percent from 1998-2006.
  • Rodriguez states that Venezuela's import growth "is now threatening to erase the nation's current account surplus."
But in fact the current account surplus is still very large, at more than 8 percent of GDP. (For comparison, imagine the U.S. with an annual current account surplus of more than $1.1 trillion instead of its present deficit of $739 billion.)
  • Rodriguez: "In a battery of statistical tests, we found little evidence that the [government's national literacy] program had had any statistically distinguishable effect on Venezuelan illiteracy."
These statistical results were not robust and appeared to be based on an artifact of the specifications used. Much more importantly, the household survey data on which they were based was not designed to measure literacy, and could easily fail to pick up significant improvements in literacy among large sectors of the population.
  • Rodriguez also selects certain statistics on low birth weight babies, homes with dirt floors, and running water in an attempt to argue that the living standards of the poor have deteriorated during Venezuela's extraordinarily rapid expansion.
On closer examination, these selected statistics run counter to other trends and do not indicate a deterioration of the living standards of the poor, who by most measures have experienced large gains.

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The Center for Economic and Policy Research is an independent, nonpartisan think tank that was established to promote democratic debate on the most important economic and social issues that affect people's lives. CEPR's Advisory Board of Economists includes Nobel Laureate economists Robert Solow and Joseph Stiglitz; Richard Freeman, Professor of Economics at Harvard University; and Eileen Appelbaum, Professor and Director of the Center for Women and Work at Rutgers University. CEPR does not receive any funding from corporations, unions, or foreign governments.